Tom Entwistle, of the local and regional government research unit at Cardiff University, said 'hollowed out' councils run the risk of being unable to respond to changing circumstances.
The nine-month study includes a survey of over 80 direct services organisations, as well as six detailed case studies.
The study was commissioned by the
A major finding was that in-house services were performing well under the competitive regime introduced by CCT.
In-house services enjoyed a number of advantages, such as flexibility and an ability to work well with other contractors.
Dr Entwistle said councils needed to build on the competitiveness and autonomy which had come out of CCT.
But he warned: 'New models of management which don't allow service managers to contribute to the authority's strategic focus may pose a threat to internal services. This work suggests all councils need to maintain some internal provision.'
Professor Steve Martin, director of the unit which is carrying out a five-year evaluation of best value for the DTLR, said it hoped to extend the study further.
-- The report, to be published in two weeks, is available from email@example.com.