Third Sector Digital Transformation: The Third Sector Can’t Afford the Big Four…

Management consulting firms are in businesses to make a profit. For firms to provide digital capacity-building services to the Third Sector, it must be commercially viable which currently it is not. Third Sector organizations (with few exceptions) cannot raise investment capital or generate profit-margins from developing economies-of-scale in market-competitive product offerings; and unlike the government, they cannot levy taxes on the population to be invested in the growth of the organization. In short, Third Sector organizations do not have the available working-capital to match the price-points of Big Four service offerings (which here, have been analyzed from available consulting services contracts of The Big Four) (presented later in detail) (Supply Chain Ontario, 2019).

Context Behind the Hypothesis: Government Spending (A Market Analysis)

There are several, interdependent, markets which required definition, in order to properly test the hypothesis: the market for social services in Ontario; the market for consulting services to government; the market for consulting services to the Third-Sector.

Government Spending on Transfer Payments: The Market for Social Services

Ernst & Young’s 2018 report Managing Transformation A Modernization Action Plan for Ontario, classifies the non-profit sector into sub-sectors – the grouping representing the Third Sector being labelled the “Community and Social Services Sector” (Ernst &Young, 2019). Analysis of transfer payments received by this sub-sector, serves to illustrative the size in monetary terms and the nature of the transactions which define the market for social services.

The Ontario Government provides “transfer payments to recipients external to government to fund activities that benefit the public and are designed to achieve public policy objectives” (Government of Ontario, Open Government, 2019). Currently transfer payments from the provincial government to Third Sector organizations, make-up approximately 73% of the sector’s revenue (Imagine Canada, 2006).

Total government expenditure for a fifteen year period has grown from $95B to $144B in real terms; transfer payments grew by $46.3B (CAGR of 3.4%), interest on debt grew by $2.4B (CAGR of 1.4%), and direct OPS expenditures grew by $0.1B (CAGR of 0.0%) (Ernst & Young, 2018).

Government spends a very significant amount on transfer payments but nearly all of this funding is allocated toward “core” operations with little to no room for strategic investment in innovation and efficiency i.e. digital transformation. Ontario faces a series of deficits which have occurred grown in correlation to the growth of the Third-Sector. Both Ernst & Young, the Auditor General, C.D. Howe Institute, The Mowat Centre, and more, agree that sustainable government spending lies in reform of “the delivery of public services that not only contribute to deficit elimination, but are also desirable in their own right.” (Commission on the Reform of Ontario’s Public services, 2012).

In the next post, we will provide a view of the major sectors and breakdown of each sector spent directly by the OPS and through transfer payments.