When a company leader determines the company needs a third party to analyze its operations or advise it around strategy, that leader frequently seeks out consultants to help. Whereas previously the go-to was an external consultant, recent trends have shown an uptick in internal consulting. We’ve discussed the advantages and disadvantages of internal vs. external consulting before, and we’ve determined that both can be advantageous to organizations, depending upon the circumstances. Why then the upward trend for internal consulting? We did some digging and were able to identify three primary causes for the rise of internal consulting, all of which are related to cost saving.
Lower Overhead Costs
The first reason is perhaps the most obvious. Internal consulting is growing in popularity because it allows organizations to save money and better control their overhead costs. In today’s unsure business economy, many organizations are exercising more caution with their budgets than they did previously. By using internal consultants, organizations can save money in a number of ways. Instead of having to deal with the steep billing rates of external consultant firms, companies that build their own internal consulting units have their consultants on the same payroll as everyone else. Nor does an internal consulting team require the onboarding that external consulting teams do, meaning the time and material costs of internal consultants are far lower.
The Commoditization Spiral
The rise of internal consulting is due to a sort of downward spiral towards commoditization, or the point at which an organization does something organically. Commoditization is a dilemma that many professional services are facing today. Source for Consulting identified three stages of commoditization in consulting. The first stage occurs when companies cease to see differentiation among the various consultancies, making them exchangeable for each other. While companies still recognize the value of external consulting, they fail to see the innovation and specialization that each firm brings. The second stage is the formation of internal consultant teams, and it occurs when the organization determines that it can accomplish internally what the external firms can. Source for Consulting posits that the industry is currently hovering around the second stage; it has yet to progress to stage three, the point at which consulting becomes something that an organization does organically.
Another cause for the rise of internal consulting is that procurement services at large enterprises are becoming more data-driven. With the help of spend-analysis tools, procurement organizations are able to obtain highly detailed information around cost savings. As a result, large organizations are slower to adopt new tools or services if procurement finds more cost-effective ways to achieve the same end.
Although businesses today are focused on cost saving, the rise of internal consulting is by no means an unstoppable force, working steadily to eliminate external consulting. As long as external consultants can maintain strong differentiation, both from each other and from internal consulting units, the numbers of internal and external consultants will likely remain balanced.