Traditionally in Germany, in-house consulting has been quite prevalent, with the top German companies having an established internal consulting unit providing diverse functional as well as industry-specific expertise. However, in the last decade, many large organizations have set up or are in the process of setting up in-house consulting departments. There will always be a need for unbiased third-party expertise on topics, and hence many companies are choosing to build this consulting expertise internally.
For organizations, the decision to hire an external or internal consultancy for a project is based on several factors – budget, expertise, resources needed, relationship with consultancies and trust to name a few. Both in-house and external consultants work to evaluate problems and recommend solutions, but there are several differences and similarities in how they operate, the kind of projects they undertake and their value proposition.
Projects
Both external and in-house consultancies can work in all kind of projects – strategy planning, performance improvement, mergers and acquisitions, project management office, finance, HR, IT, etc. typically for a particular business unit. The focus area depends on the business model and value proposition of the consultancy itself. However, on a high level, the consulting methodologies and frameworks used, the day-to-day mode of working, project management, and client relationship management are structured quite similarly.
Industry focus
While functional topics could vary a lot, the industry focus for customer-facing projects for internal consultancies is usually limited to the industry the parent company operates in. To an extent, in-house consultancies also work via a hybrid approach providing external consulting services to customers of the Group from various industries. Once they develop industry or function expertise, inhouse consultancies expand their product and services beyond internal practices to external clients.This depends on the individual operating model of the consultancy. External consultancies however usually cater to a wide range of industries, and draw from a broader perspective dealing with several clients from different industries.
Client relationship
In my opinion, this is the key difference between inhouse and external consultancies. Inhouse consultants are a part of the client organization. Since, the clients are also their colleagues, there is a higher degree of inherent trust in the working relationship. They are part of the same corporate culture, and speak the same language. In-house consultants also develop stronger networks, and develop core expertise through past projects. Hence, they develop a better understanding of the organization, which might not always be the case for an external consultancy. External consultancies on the other hand benefit from better bench-marking capabilities bringing knowledge to the client organization from other companies and industries.
Impact
Both in-house and external consultants are not obliged to follow-through their recommendations. However, in-house consultants are usually part of the implementation of the project. Even after a project ends, they are still around and approachable when needed. They are accountable for the impact of the project, and their recommendations are more binding. External consultants leave after a project ends. In the past decade, the business model around implementation support has also been evolving. External consultancies have recently started setting up additional units for implementation support, or undertake implementation projects as well solely focused on helping the client implement solutions.
Cost
There are different cost models followed by in-house consulting units, but usually, they compete with external consulting companies to win projects from the parent company or a BU of the parent company. While the total cost of hiring a consulting team (in-house or external) is virtually lower than setting up a new internal team to solve a problem/issue, in-house consulting services cost less to organizations. External consultancies benefit from an established reputation and an international talent pool to staff consultants, and hence typically charge more.
Career progression and future opportunities
Depending on the size of the consultancy, the organizational structure varies. Most consultancies follow a pyramid structure, with executives/partners at the top, followed by middle management and associates/analysts. Consultants develop skills in structured thinking and analytical problem solving, to business development and stakeholder management as they progress up the pyramid. Career paths and opportunities vary a lot. While some in-house consultants prefer to grow within the consultancy to a management or executive position, others choose to exit into the Group into a strategy role, operations position, or any other line function depending on the company. Similarly, external consultants also find exit opportunities to work for the client, or move into industry in a line function, start their own business or for that matter, any other job that they see fit. The career paths undertaken can be very diverse for both types of consultancies.
To know more about my current job as an in-house consultant, check out this post I wrote a while back for the Inhouse Consulting Network.