Elon Musk Spells Trouble Consulting Cartel

Why the U.S. Government Could Turn Against Consultants

At first glance, the current climate should be a golden opportunity for management consultants. The U.S. federal government is vast, its inefficiencies are well-documented, and the new leadership is eager to make drastic changes. President Donald Trump, alongside his appointed disrupter-in-chief, Elon Musk, has already begun dismantling bureaucratic excess. Musk’s newly established Department of Government Efficiency (DOGE) aims to slash government spending by a staggering $2 trillion.

For firms that specialize in restructuring organizations, this may seem like a moment of unparalleled opportunity. However, the consulting industry, which has grown increasingly reliant on federal contracts, is instead approaching the situation with trepidation. None of the major firms appear to have a direct line to Musk’s administration, and rather than benefiting from this shift, they may find themselves targeted for elimination.

The Lucrative History of Government Consulting

Consulting firms have long found a lucrative client in the U.S. government. McKinsey, widely regarded as the world’s most prestigious strategy consultancy, played a key role in structuring the White House chief of staff position in 1952 and designing NASA’s organizational framework in 1958. By 1977, President Jimmy Carter was already lamenting the government’s excessive reliance on consultants, citing contracts that seemed frivolous—such as the Department of Agriculture paying Booz Allen Hamilton $320,000 (equivalent to $1.7 million today) to determine the optimal number of chickens an inspector should examine per minute.

Today, such contracts seem minor in comparison. Booz Allen Hamilton alone secured $9 billion from federal contracts in the last fiscal year. When combined with Accenture, BCG, Deloitte, EY, Guidehouse (formerly part of PwC), KPMG, and McKinsey, the total exceeds $18 billion—more than triple the $5 billion these firms earned a decade ago.

Varying Reliance on Federal Contracts

Dependence on federal contracts varies across consulting firms. Booz Allen Hamilton, which spun off its private-sector consulting division in 2008, is almost entirely reliant on government contracts. Meanwhile, McKinsey, whose federal work slowed due to its tarnished reputation from associations with opioid manufacturers, generates less than 1% of its global revenue from government projects. Still, across the industry, the federal government accounted for approximately 8% of total revenue last year—making it the largest single client for many firms.

Some contracts are exceptionally large. Since 2020, EY has earned nearly $70 million from a reform project at the Department of Housing and Urban Development. BCG has been awarded $380 million since 2022 by the Defense Health Agency for its “Workforce 3.0” initiative. Accenture has secured $700 million since 2019 to develop and manage a website, mobile app, and virtual assistant for student aid at the Department of Education.

Will Digitization Efforts Shield Consultants?

Much of this spending stems from the government’s need for modernization. The U.S. government processes approximately 140 billion forms annually, many of which remain paper-based. Federal agencies struggle to attract top tech talent, making them reliant on consultants for digital transformation. Fiona Czerniawska of Source Global Research notes that this push for digitization has been a primary driver of consulting growth over the past decade.

This raises the question: Could Musk’s aggressive cost-cutting measures spare consultants involved in modernization? DOGE’s mandate includes overhauling government technology, and some, like Ron Ash, who leads Accenture’s federal business, believe that agencies will be pressured to automate faster—offering new opportunities for consulting firms.

Musk’s Disruptive Approach

The challenge, however, is that Musk’s style contrasts sharply with that of traditional consulting firms. Known for his ruthlessness and abrupt decision-making, Musk has shown little regard for conventional bureaucratic processes. Consulting firms have spent years distancing themselves from such an aggressive approach, according to Tom Rodenhauser of Kennedy Intelligence. Musk’s actions have already sparked public protests outside Tesla showrooms, and consultants are unlikely to want to attract similar backlash.

Furthermore, Musk may see consultants as part of the inefficiency problem rather than the solution. Many consultants express frustration at their inability to drive meaningful change in government due to bureaucratic inertia and political interference, says Max Stier, head of the Partnership for Public Service. Musk may decide that traditional consultants are not equipped to deliver the radical transformation he envisions.

A Shift Toward Tech Firms?

Instead of relying on conventional consultants, Musk may turn to firms from his own industry. One potential beneficiary is Palantir, the analytics firm chaired by Peter Thiel, Musk’s former PayPal colleague. Palantir has already secured a foothold in the Department of Defense and is rapidly expanding across federal agencies, offering AI-driven data solutions. In Q4 2024, its revenue from government contracts grew by 45% year-over-year, and its stock has surged since Trump’s election in November. Meanwhile, Booz Allen Hamilton’s stock has plummeted by a third.

Unlike traditional software providers, Palantir integrates teams of engineers directly into client operations to maximize technology adoption. While it currently partners with firms like Accenture and Deloitte on many projects, some view it as a direct competitor—particularly in the AI space. Thiel himself has dismissed conventional consulting as a “total racket.”

The Political Risk of DEI Policies

Beyond cost-cutting, the Trump administration poses another challenge for consulting firms: its stance on diversity, equity, and inclusion (DEI). A recent executive order bans federal contractors from running DEI programs that violate federal anti-discrimination laws. This creates a dilemma for large consultancies, which have publicly championed DEI efforts.

Firms have responded in different ways. McKinsey has remained firm, continuing to promote what it calls a “diverse meritocracy,” though its federal exposure is relatively low. Others have taken a more cautious approach. Accenture recently informed employees that it will be phasing out its diversity goals, while Deloitte’s U.S. branch has instructed federal-facing employees to remove pronouns from their email signatures. These shifts have frustrated employees and may alienate private-sector clients who have been urged to adopt DEI principles.

A High-Stakes Dilemma for Consultants

Consulting leaders now face tough decisions. They must determine how far they are willing to go to appease their most lucrative client, even if it means reversing long-standing corporate values. At the same time, they risk being displaced by tech-driven disruptors like Palantir, which promise greater efficiency through AI-powered solutions.

Elon Musk’s vision for a leaner, more technology-driven government represents a serious threat to the traditional consulting industry. Whether firms like Accenture, McKinsey, and Deloitte can adapt—or whether they will be rendered obsolete—remains to be seen.