Internal Consulting

Over the past few decades, governments, corporates and organisations have been ramping up their use of external consultants, lifting the size of the global consulting market (advisory & implementation) to around $250 billion. The rise of external consulting has, at the same time, sparked a countermovement: the internal advisor.

Wise advice is golden. Seeking wise council has been common practice as far back as antiquity. As stated in the bible, the Wisdom of Salomon, ‘Plans fail for lack of counsel, but with many advisers they succeed.’ Early on in the existence of humanity, the role of wise advisors is clearly chronicled and, till this day, the need for wisdom remains. To support all kinds of business-related decisions, executives and managers often turn to consultants – independent, external advisors, typically specialised in solving business issues by providing strategic advice.

Following spectacular growth within the consulting industry in the 80s and 90s – when the industry took off for the first time – it has come to be recognised today as one of the largest and most developed areas within the professional services industry.

Yet, what holds true of almost any market – that growth lures competition – also applies to the external consulting industry and, parallel to its rise, the industry has seen a movement towards internal consulting. Traditionally, there have always been professionals who held an internal advisory role within organisations. However, the first large wave of internal advisors made its debut in the 80s in sync with the wave of efficiency and production optimisation work. Similar to that of external advisory firms, the operating area of internal organisational advisory departments gradually expanded into other functional areas of organisations (i.e. policy development, sales, research and development), and also broadened the field of the disciplines involved: from engineers to economists to behavioural scientists.

Over the years the popularity of internal consultants has, like with the fluctuations in the economy and the consulting market, known its ups and downs. After the huge wave of new internal advisors in the 80s, the 90s saw many internal advisory departments within firms scale down – in line with the prevailing ‘back to the source’ opinions of that era. The 2000s saw a trend toward internal consulting departments again, resulting in a golden age within the internal consulting industry. In the years following the 2008 financial crisis, organisational austerity, particularly on external consultants, drove growth within internal departments.

Concrete data on the market for internal consulting is scarce across the global market. One of the latest studies in the field, conducted among about 50 organisations with an internal consulting department by an academic institution, suggests that the trend of internal consulting has slowed to a plateau following the crisis years. In addition, the study shows that holding sufficient capacity, disposing of adequate knowledge and skills, and other internal characteristics play the most important role for setting up an internal consultancy club.

The better value between the internal vs the external consultant is hotly debated. The most debated point against external consultants is the high cost for hire – an internal consulting team reduces the dependency on expensive, external advisors, enabling organisations to reduce their overall spending on managing their project portfolio. Other arguments typically cited in favour of internal advisors is that, due to their deeper knowledge of the organisation, they are better able to anchor processes and standards, and can better secure continuity in the long term.

The more sceptical opponents of consulting – those who strongly prefer the use of internal resources as opposed to external experts – question the very value added by external consulting. They point at the structurally poor track record of projects and change management, or at the dubious way consultants recycle and monetise value. After working with one client and learning their internal functioning, consultants can charge another client for the lessons in best practice*. Some even go so far as to state that organisations, irrespective of the dilemma they face, may find themselves addicted, and dependent, on “independent” external consulting firms; who are then amidst a powerful decision-making lobby – potentially with a conflict of interest – in the top ranks of governments and companies (for instance through their thought leadership and alumni network).

Besides the growth of internal consultancy in terms of volume, the field is also undergoing a professionalisation process – the same academic study reveals. More than half of the interviewed managers acknowledge that efforts are being made to boost the quality of internal consultancy teams, with investments in education, tools and skills being the main focus areas. Additionally, more long-term initiatives, such as the formation of project management pools and/or alternative ways of organising internal advisory skills, are on the agenda of organisations. Another area gaining more attention is the opening up of opportunities to take on internal consulting roles on a more flexible basis, for instance, during certain phases of a career, which allows organisations to add consulting work to their talent management mix, and gives employees the possibility of expanding their capabilities and thereby strengthen their regular position.

Looking ahead, market analysts forecast that the share of internal consulting, particularly across developed consulting markets, is likely to begin to rise again, in parallel with other substitutes to traditional consulting models, such as online marketplaces and digitised forms for matching clients with consultants. Internal consulting teams will, however, face a natural barrier at some point in time within industries and organisations. This is due to the fact that the need for external consultancy will always exist on the back of several unique characteristics of external consulting such as independent and/or specialist advice.

* Studies on the value of consulting show mixed feedback. A joint study by the World Bank and Stanford University, for example, showed that the application of consulting and best practice management improves operational performance by a margin, while another study by the MCA (the UK Management Consultancies Association) highlighted that, across the board, consultants provide their clients with a more than proportional long term return on their spending. The exact return on investment is up for debate, but advocates stress that the fact that so many smart companies continue to engage consultants suggests that they do add value – settling the discussion on the idea that the free market has spoken. Negative research focuses more on well-known examples of companies that faced mismanagement despite consulting advice, or, on examples of failed implementation programmes.