Internal vs External Consultants: Advantages and Disadvantages

Like it or not, consultants are a key part of the business world. Indeed, many business people now face a knock on the door, not only from external consultants. The rise of the internal consultant means that colleagues from the IT and HR departments may also suddenly announce themselves as business partners and talk about “contracts” and “service-level agreements”.

In this article, we look at the roles of external and internal consultants and the skills required to fulfil these roles successfully. Before you read on, think about the following questions and then compare your answers with the comment in the article:

• Why do we need consultants?
• What are the advantages of external and internal consultants?
• What are the steps of a typical consulting process and the specific objectives involved?

1. Why do we need consultants?

Professional consulting covers a wide range of business areas, including strategic management, marketing and advertising, financial modelling, and organizational and personal development. Consultants provide specialist knowledge and expertise that can help their clients to deal with business problems. Their aim is to provide analytical rigour and creative insights, in order to deliver solutions that will improve bottom-line results.

2. Internal or external?

When deciding whether to use internal or external consultants, it is necessary to look at the advantages of the two groups. Senior managers, particularly, seem to prefer the external option. Paying a lot of money for something suggests that it is of higher value, particularly when a consultant has status and credibility from work with other, high-profile organizations. When a consultant comes from an outside company, this also suggests a degree of objectivity and the ability to ask tough questions that can cut through existing reputations and political relationships.

On the other hand, internal consultancy can offer a more in-depth knowledge of the specific business, its organization and its management personalities. This can be very valuable when the consulting takes place during a time of organizational restructuring. But the experience and expertise of internal consultants may be more restricted than that of their external counterparts.

Internal consultants may also be less easily accepted if they are seen as being non-neutral and as the pawns of certain stakeholders within the company. They will have to convince management that they really will be able to deliver customized solutions in their new role as business partner. And they may have to work without any real influence in situations where senior managers have the authority to work around their function.

3. The steps of consulting

Consultancy, whether internal or external, is a complex process. But it can be broken down into a number of steps, each with specific objectives and necessary communication skills.

Step 1: Meeting the client.

External consultants working for well-known firms can leverage the credibility of their corporate brand when meeting clients. This acts as a platform for building a new business relationship. The internal consultant may have a slightly different focus. Much more time may have to be spent on brand building by defining the role and benefits – in other words, the “business case”.

From the business side, it is important not to be blinded by reputation or “marketing speak” of either internal or external consultants. It is essential to ask questions to discover the competence of the specific consultant, their approach to problems and openness to learning about your own specific organizational and business needs.

Both internal and external consultants should show a good understanding of their client’s needs early in the relationship. This covers areas such as the client’s products or services, the client company’s customers, and the support it needs to realize its short-, medium- and long-term objectives. Consultants need to make their clients feel understood.

Step 2: Defining the contract.

Objectives can be met only if they are clearly defined at the beginning of the process. However, to define the “deliverables” of a consulting contract, it is essential to spend a lot of time clarifying expectations and specifying exactly what support will be provided, at what cost, by when and through which reporting processes.

It is also important to define explicitly the exact nature of the consultant’s role. Different expectations can quickly lead to a breakdown in the consultant-client relationship. Some of the possible roles are:

a) The consultant as a diagnostic expert. In this case, the consultant is responsible for identifying the root causes of a problem and going below the surface to explore systemic problems in the organization. Consultants performing this role need to be sensitive communicators, as they may have to bring back to their clients unpalatable messages about inefficiency.

b) The consultant as a problem solver. If the client feels that he understands the problem but needs expertise to solve it, the consultant acts as a problem solver. Negotiation skills will be important in this role: at some point, it is likely that the consultant will want to broaden his scope of action and participate in discussions of the underlying issues.

c) The consultant as a partner. Many clients may want to see their relationship with consultant as a “meeting of peers”, a collaborative situation in which each party contributes ideas to a joint problem-solving process. Consultants in this role may need to handle matters where clients try to shift blame to the consultant if progress is slower than expected.

Step 3: Gathering information.

To provide good solutions, consultants need to collect high-quality data from within the client’s organization. But information seldom flows easily in large companies, particularly when the company is going through a process of change that may uncover inefficiency or poor compliance procedures.

Both internal and external consultants need to communicate clearly their commitment to support their clients to avoid the consulting activity being seen as a threat. For external consultants, the main challenge is to build trust that confidentiality will be respected. However, it will also be necessary for consultants to be open about what can not be kept confidential for legal compliance reasons. Internal consultants face even greater problems during the data-collection phase, as it may be harder to convince people, including former colleagues, to open up to an insider.

Step 4: Analysing, suggesting and implementing solutions.

Both internal and external consultants will need to use a range of analytical tools to diagnose both the obvious and the less obvious problems. Creativity and sensitivity will be the key skills needed to generate solutions that make sense to the client and deliver long-term benefits for the organization.

Step 5: Ending the contract.

When the expert withdraws, it is likely that the client will feel vulnerable, and so consultants need to support the client as much as possible, but, at the same time, exit quickly to move to their next contract. Coaching skills are likely to be useful at this stage, supporting clients so that they can take responsibility for implementing the new solution alone. Alternatively, renegotiation of the original scope of the contract may provide an extended period of support, assuming the necessary budget is available.

For internal consultants, separation may prove more problematic, as the client may feel able to demand ongoing, “free” support, particularly if backed by a senior manager. The internal-consulting team may then come under severe pressure, for continued participation in extended contracts limits their ability to fulfil new ones. A key communication skill is the ability to say no and to convince business clients that they have the competence to manage implementation alone.

4. A future of consulting

Working with external consultants and working as an internal consultant are the key aspects of modern working life. So, we all need to understand and develop consulting skills, in order to improve our own practice as consultants and to manage the impact that consultants may have on us and our organizations.