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Internal versus External Consulting – Advantages and Disadvantages

Internal versus external consulting:is there a significant difference between the two? Business leaders who are 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 between internal and external consultants.

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 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 (at a cost). As mentioned in a past post, , many firms have rode these successes to subsequently expand their reach abroad to every continent (minus Antarctica!). For example, McKinsey & Company currently boasts over 100 offices in over 60 countries, while, Bain & Company has 50 offices in 32 counties.

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

Internal Consultants

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 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.

External Consultants

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. While knowledge from other consultants can often be helpful, it does not necessarily apply in all similar situations.

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 consultants don’t tend to stay aboard after proposing their various strategies, and most clients don’t want to pay them afterward either. Unfortunately, this leaves clients spending far too much money for too little change.

Parting Thoughts

A Hybrid Approach

The decision doesn’t necessarily have to be an “either/or” decision. Many large organizations with sufficient resources are successful at purusing 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.

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