Internal versus External Consulting – Advantages and Disadvantages

Internal versus external consulting: is there a significant difference between the two?

Business leaders in the position of building a team of internal consultants or hiring external consultants (and acting as a client) should evaluate the advantages and disadvantages—whether deserved or not—when deciding between the two models of consulting. Additionally, those interested in pursuing a consulting career should also understand the nuances.

Many top organizations create internal consulting groups in order to foster innovation and drive internal alignment. Leading companies such as American Express, Dell, and Wyeth have all developed teams of internal consultants to rapidly launch new initiatives and stay ahead of their competition. Many smaller firms forgo internal consulting teams simply due to perceived lack of need or budget constraints – internal consultants are often far less expensive than external consultants.

On the other hand, the top consulting firms have gained notoriety for a reason: they often drive significant positive value for their clients (though at a cost). Many firms have ridden these successes to subsequently expand their reach abroad to every continent (well, minus Antarctica!). For example, Deloitte currently boasts over 700 offices in over 150 countries, while Accenture has 200 offices in 120+ countries.

To better understand the differences, it’s useful to consider the advantages and disadvantages of both internal and external consulting below.

Click to jump to a section: Internal consultants | Internal innovation | External consultants | External innovation | Parting thoughts

Did you know that 9lenses supports better consulting experiences? See how and be sure to request a demo for more information and a walkthrough – including use cases for multiple leading consultancies!

Internal Consultants

There’s three primary pros and cons to think about:

Advantage #1: Integrated Understanding

The main advantage most industry leaders cite when advocating for an internal consultant is that the internal consultant has an integrated understanding of the company, its policies, politics, and culture. While external consultants come in with limited insight into corporate culture, an internal consultant can navigate swiftly across an organization. In other words, internal advice comes from a background of seeing problems occur within the company on a regular basis.

Advantage #2: Follow-Through / Implementation

Internal consultants also have the opportunity to work from recommendation through the implementation of their projects. External consultants usually stay on a project until they present their conclusions. However, internal consultants can observe and support the implementation of their suggestions, help navigate the change, and make tweaks along the way. This allows for more possibilities of long-term success within the organization.

Advantage #3: Proactive Planning

A great testimony to a well-run internal consulting team occurred when Delta and Northwest Airlines merged in 2008. American Express already had a co-brand relationship with the Delta when the announcement was made. Instead of floundering, American Express’s VP of the Delta co-brand—and former internal consultant—David Rabkin already had a game-plan formulated on how to approach the change. No, he didn’t have any contacts who had hinted about the merger. Two years before the merger, Rabkin and the internal consulting team had simply constructed a blueprint in the event that Delta merged with another airline. In other words, a successful internal consulting team was able to proactively create a plan before the problem occurred, instead of scrambling after the problem happened.

Disadvantage #1: Ambiguity

Obviously, internal consulting has its grab bag of disadvantages as well. Most internal consultants find one of their biggest dilemmas in the lack of a defined role. Whether due to lack of specification in the contract or in the job description, a nebulous understanding of the role can cause a lot of frustration for any internal consultant. Hand in hand with this dilemma is an unclear perspective of the “client.” In other words, many internal clients don’t know to whom to report their findings and to make their suggestions. Some simply just cite “the organization” as their client, instead of naming any individual or company segment.

Disadvantage #2: Rocking the Boat

Lastly, the double-edged sword of understanding company culture comes into play. While internal consultants boast the ability to navigate the waters of company politics, they are more likely than external consultants to be caught in the middle of a storm. Consultants whether internal or external have to be sure they are making their decisions as objectively as possible. However, objectivity can come at the cost of political strife within the workplace, which internal consultants have to navigate.

In many instances, internal consultants choose the “next best” solution due to intimidation of office politics and emotional ties.

Internal Innovation Consulting

Ultimately, internal consultants provide value to their parent organizations through a unique insider-outsider relationship with the rest of the organization. Although they are employees of the organization rather than external contractors, internal consultants are still empowered to step back from the organization’s internal operations. Thus they are able to provide both an outside perspective and insider influence to the organization.

An important advantage internal innovation consulting holds over external innovation consulting is the ability to more easily help an organization to gain an organically innovative environment. Although internal consulting units often operate on a project-by-project basis, they are still an integrated part of the organization, so they have the capability to continue to influence an organization to innovate after an initial project is complete. External consultants are more likely to be treated as a one-and-done relationship unless they make a concerted effort to remain involved, helping the organization to track progress and building a strong relationship with the client company.

Another advantage internal consultants hold is a better understanding of the organization and industry. Because internal consulting units are embedded in their parent organizations as a permanent fixture, they have first-hand knowledge both around how the organization functions and about the industry itself. While external consultants can gain similar knowledge, it requires far more effort.

One of the greatest disadvantages that internal innovation consultants face is the lack of outside expertise. Frequently, the primary problem that organizations struggling in regard to innovation face is their lack of fresh perspective. Internal consultants may find it challenging to look beyond the organization’s current operations to find this perspective.

Additionally, internal consultants have historically faced difficulty with sustainability. Because it is so specialized, maintaining an internal consulting unit can be costly. Because they are not essential to the organization’s regular operations, internal consultants are often seen as dispensable when cost cutting occurs, and they must continually justify their existence to upper management. Ambiguity around the ongoing value of internal consulting units and uncertainty around the role they play in the organization’s operations mean that internal consultants often lack the authority that external consultants enjoy. While difficulty with sustainability is a challenge that internal consultants face across the board, the challenge is further aggravated by innovation consulting, since innovation is likewise often viewed as non-essential to the organization’s normal operations.

For an example of successful internal innovation, we turn to the Brazilian branch of EDP, a major gas and electric company that created an “innovation mentors” program that trains and spreads an internal network of innovators across the organization as ambassadors. The program served to flatten the organization and create an environment where employees are encouraged and incentivized to be innovative in addition to their everyday tasks. Rather than mandating innovation from the top of the organization, the aim of the program was to foster innovation from the bottom up. The program essentially created an internal innovation consulting unit that was not its own department, but that was spread across every department and level of the organization as an informal network that would then become an organic part of the organization.

Related: Understanding asset-based consulting

External Consultants

Just like internal counterparts, we’d argue there are pros and cons here, too.

Advantage #1: Established Reputation

For decades, large consulting firms such as McKinsey, Bain, and Boston Consulting Group have maintained their reputation for having the best strategy consulting practices. However, along with the expertise comes a hefty price tag that many client companies are not so willing to cough up. Yet their reputation precedes them for good reason, after working with multiple large, influential corporations. Despite the cost, external consultants have advantages which internal consultants can’t necessarily replicate due to their long-term reputation for good work and for hiring the best MBA graduates from the best schools.

Advantage #2: External Objectivity

Coming from an outside perspective allows consultants to have a more objective, bird’s eye view of the company and the industry as a whole. Instead of becoming too engrossed within a specific company, external consultants should be on top of the industry as a whole. Not only do they have a broad perspective, but an experienced consultant will have had multiple experiences working with other companies in the same industry and that faced similar challenges. Therefore, they can apply experience from the past into their current projects and engagements.

Advantage #3: Expert Status

Another advantage of not being as integrated into the work project environment is the ability to be regarded as an expert and not a peer. Due to the lack of concrete understanding of the role, internal consultants can be viewed just another pair of hands to make changes within the organization. Instead, external consultants are hired for the sole purpose of their expertise and ability to create change for a specific business problem. This brings more clarity and focus to the role, and helps concentrate efforts on the project at hand, and often, helps ensure client buy-in.

Disadvantage #1: Missing the Point

While internal consultants battle company politics from inside the company, employees often regard external consultants with suspicion. This reputation, unfortunately, is often deserved. Many consultants come into an organization without an understanding of the company or a willingness to hear opinions. Instead, they often try to implement one-size-fits-all strategies either taught to them by their consulting firms or from past consulting experiences.

Disadvantage #2: Passing the Buck / Implementation Risk

External consultants also face the bad rap of coming in, presenting solutions, and leaving. This conduct leaves many firms without a solid game plan, and causes them to flounder in the implementation process.

External Innovation Consulting

Source: Unsplash

External innovation consulting occurs in multiple forms. Smaller boutique consulting firms may only offer innovation consulting services, sometimes focusing on a particular industry, while larger firms offer innovation consulting as one of many services.

One of the primary advantages that external consultants hold over internal consultants is their access to the C-level of the organization. While internal consultants may have difficulty obtaining buy-in for their projects, external innovation consultants are contracted specifically to aid an organization in becoming more innovative, so they are able to break down bureaucratic barriers far more easily.

External consultants also bring expertise to the table that internal consultants may not possess. Because consultant firms, especially the larger ones, focus so heavily on staying ahead of the curve in terms of thought leadership, they likely have a fresh perspective on the industry that the organization lacks. Moreover, they possess have more in-depth knowledge around competitors and industry performance, providing organizations valuable benchmarking information.

The primary limitations of external innovation consulting lie where internal consulting has strengths. First, because they are contracted on a project-by-project basis, it is more challenging for external consultants to create an organic environment of innovative thinking. At the end of the day, the problem that many organizations face is finding the time for employees to be innovative. While external consultants can help recruit talent, identify opportunities for innovation, and help organizations reorganize to create a more innovative environment, it is far more of a challenge for them to help organizations sustain that environment long-term.

Additionally, external consultants, especially those in larger firms, may not have sufficient knowledge of the industry and the organization’s capabilities to identify key opportunities for the organization to innovate. Because external consultants are not embedded in any particular industry, unless they are niche firms that focus on a particular industry, they likely have been away from the specifics and day-to-day activities of an industry too long to thoroughly understand it. Thus they may not be in the position to push the industry boundaries. Most external consultants do not contract industry experts, but simply use their existing staff, limiting their industry perspective.

For a successful example of external innovation consulting, we turn to an article by the Harvard Business Review that describes the approach to external innovation consulting that OneLeap, a UK-based innovation consulting firm, takes. Rather than using only existing internal expertise, OneLeap functions as a platform for entrepreneurs and large businesses to connect. It employs a network of entrepreneurs from diverse backgrounds, hand-picking each team from across thousands of entrepreneurs to help each organization identify where it can grow.

Because of the unique challenges inherent to innovation, both internal and external consultancies face challenges when it comes to innovation consulting. As the above examples demonstrate, however, both internal and external consultants can work past their difficulties to help organizations create a sustainable innovative environment.

Parting Thoughts

Why Not Try A Hybrid Approach?

The decision doesn’t necessarily have to be an “either/or” decision. Many large organizations with sufficient resources are successful at pursuing both an internal and external consulting approach. Organizations that are the most successful at pursuing a hybrid approach have a strong understanding of where their core competencies lie and where their capabilities have limitations.

If you’re deciding between forming a team of internal consultants versus hiring external consultants (or a hybrid approach) to solve your complex business issues, be sure to carefully weigh the advantages and disadvantages with each model and the associated implications for your business.

The bottom line is that your company should be aligned with the consulting model you pursue and as with any “make vs. buy” decision, economic considerations should heavily weighted.