Innovation Consulting – Internal vs. External Consultants

In order to be truly innovative, an organization not only needs employees who are natural innovators, but also needs to build an environment that is conducive to innovation. All too often, however, organizations stifle this environment in one of two ways. Larger organizations that started out as major innovators find themselves settling into their everyday operations, leaving little time for innovation. Smaller organizations that focus on remaining lean pour effort into trimming down operations and eliminating waste. Employees thus devote themselves to those tasks that are absolutely necessary to keep the organization operating, rather than spending time and energy innovating. While leaders in these types of organizations may push for innovation, they frequently have a difficult time actually empowering middle managers and employees to be innovative. The innovation consulting industry arose to aid businesses in both acquiring the talent and creating the right environment for innovation.

As alternatives to traditional management consulting have begun to emerge, the question of whether internal or external consulting is superior has become increasingly significant in the business world. Because innovation is such an organic part of an organization, this question is especially pertinent when it comes to innovation consulting. In this article, we will look at examples of both internal and external innovation consulting, examining the pros and cons for each. Because innovation poses unique challenges to the consulting world, the most successful innovation consultants, both internal and external, may need to think outside the box with regard to how they operate.

In a previous post, we outlined the general pros and cons of internal versus external consulting, so rather than reiterating those, we will focus on the strengths and weaknesses of internal and external consulting particularly with regard to innovation consulting.

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.

External Innovation Consulting

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 one Leap, a UK-based innovation consulting firm, takes. Rather than using only existing internal expertise, One Leap 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.