Internal vs. External Consultants: Which One to Choose for Your Business?

The decision to hire full-time internal consultants or work with external consulting firms on a project basis is based on several factors, including the cost, expertise required, availability of resources, urgency, and the credibility of external vs. internal management consultants. The goal of both internal consulting and external consulting firms is to evaluate problems and recommend feasible solutions, but there are several variations in how each of these groups function, the kind of projects they thrive in, and their overall value-addition to the business.

What is Consulting & Why Do I Need Consultants for My Business?

Consulting can seem like a vague and misunderstood term. People often find themselves asking what it is that consultants actually do! Well, consultants do many things, but mainly, consultants help you build strategies to optimize your business practices, seize new opportunities, cut costs, and embark on digital transformations. Consultants often have years of experience and expert knowledge in advising businesses and act as advisors for your business.

Internal Consultants

In-house consultants are employees within a business who work on the projects that they are assigned to internally. Internal consultants are usually hired when there is a constant need for third-party advisory, and hiring an external firm to fill the organizational needs would not be feasible. Essentially, internal consultants are employees who specialize in finding solutions for organizational problems. Internal consultants function as part of a consulting unit with each member dedicated to working on different projects in different organizational units. For example, an internal consultant can work with IT, HR, finance, marketing, or any other business unit.

Advantages of In-house Consultants

• More Involvement & Interest in the Business: In-house consultants have a vested interest in the success of the whole company, and not just the project they are working on, therefore giving them an integrated understanding and a more holistic awareness of any given situation.
• Improved Communication & Collaboration: As internal employees, consultants will spend all of their time working with the internal team, giving them a better opportunity for effective communication and collaboration. Simply put, you’ll have more access to the consultant when they are part of the internal team.
• Knowledge Transfer & Team Building: Not only are internal consultants responsible for maintaining long-term client relationships as they are full-time members of their employing organizations, but they will also have a chance to openly transfer their expert knowledge to team members of the projects they work on.
• Time Effectiveness: Internal consultants have the advantage of already being familiar with the internal processes of the company. They would also be able to access more internal information, possibly even faster, as they would not be restricted by the confidentiality policies that would apply to external consultants. Both these “shortcuts” help to save time when implementing new projects and ideas.

Disadvantages of In-house Consulting

• Costly: While an external consultant will stop billing you when the project is completed, this is not the case with an internal consultant. Even when the company no longer requires the expertise of in-house consultants until the next engagement, they still have to absorb the fixed costs of these employees.​ This could mean a lot of downtime for internal consultants and a lot of capital wasted.
• Lack of Specialization: In-house consultants may not have the required knowledge in certain domains but will still be required to work on a project due to internal resource utilization obligations.​ For example, a financial consultant may be forced to work with HR, IT, or other business units to fill the spot and “utilize” them as a resource. This is not ideal as the whole point of a consultant is their expert knowledge in specific areas of the business.
• Interpersonal Engagements: Making objective decisions can be harder for internal consultants due to intimidation of office politics and emotional bias.​ This could perhaps lead to the misallocation of resources and ultimately bad decision-making.

External Consultants

External consulting firms are normally third-party companies that are hired to work on specific problems or functions within an organization. External consultants who possess the desired knowledge, experience, and skills can build a solid foundation to sustain the objectives of their clients and see their projects through to fruitful completion.

Advantages of External Consulting Firms

• Experts Knowledge: External consulting firms can cater to a wide range of businesses because they usually employ specialists in a relatively broader range of subjects. This also means that the consultants you will work with will have specialized knowledge in the subject matter they are advising on, ultimately giving you better advice for your business.
• Cost Effective: Although external consulting firms may charge higher rates for their expertise, they could be the more cost-effective option in the bigger picture as they can be hired only when required, rather than having to pay full-time salaries. Think about this from a “lifetime cost” perspective rather than an initial cost perspective. While the initial cost is high, the lifetime cost is lower.
• Reputation Boost: Working with a consulting firm as an organization is rather prestigious, as odd as that may sound. If you choose to work with a reputed external consulting firm, this will be a huge factor in increasing the credibility of your company, in turn.
• Unbiased Decision Making: External consulting firms have the advantage of viewing situations from an “outsider’s perspective”, which could be the fresh input that your company requires at a given point. Their lack of enmeshment with the internal team will also allow them to make unbiased recommendations, which is ultimately more beneficial to your company.
• Insider Secrets: External consultants usually have a broader and more esteemed network because they rub shoulders with the best minds in the industry as a part of their core jobs. Simply speaking, they may know things others do not, and they can use this knowledge to help you with your business decisions.

Disadvantages of External Consulting Firms

• Lack of Exclusivity: External consultants may not always be present onsite physically since they could potentially be working with multiple clients at a time.
• Contracts & Agreements: You have to be cautious of the contractual obligations made with external consulting firms, specifically bearing in mind the clauses for handling change requests and deviations in the scope of work.
• Continuity Issues: It could be hard to assign accountability to external consultants after the project lifecycle has ended unless you choose to work with a consulting firm that provides post-completion support and involvement to see the project through to the fruitful achievement of its set objectives.

The Power of Combined Forces

Needless to say, working with subject matter experts does not have to be done in individual silos, nor do they have to be mutually exclusive. Even if you already have an in-house consulting team, you can still work with external consulting firms when the need arises. The decision should be taken after careful evaluation of the nature of the requirement along with wider economic factors.

If you are contemplating working with a well-reputed external consulting firm, feel free to reach out to us to learn more about how we can help your organization with our expertise in IT, risk, and management consulting.