Using in-house consultants helps retain all the intellectual capital a project generates. But beware: Many of these efforts fail.
To hear Maddog, an old college buddy tell it, a weekend of canoeing on Maine's Moosehead Lake sounds seductively simple: paddle a little, drink a beer, get a tan. But what appears to be easy can turn out to be complex and even dangerous.
It's not until you find yourself trudging a mile with a canoe on your head through 12 inches of snake-infested mud and a cloud of black flies that the truth emerges.
Establishing an internal consulting group is much like the Maddog experience - an enticing but potentially perilous trek. The lure of building an internal consultancy to support the needs of a large corporation are many. But before you pick up your paddle, be forewarned that it's an effort fraught with risk: About half of all internal consulting groups don't succeed.
Internal Consulting's Promise - and Perils If our friend Maddog were trying to talk you into launching an internal consulting group, he'd have plenty of convincing arguments on his side. Who wouldn't want a permanent cadre of bright and skilled staff available to focus their brainpower on the business's most pressing problems? And how many CFOs would object to slashing the budget for external consultants, given that maintaining internal talent usually costs far less? Internal consultants would not only know the business better but possess greater loyalty to and understanding of the company's culture, systems, processes, structure, products and customers. They'd have an established network of relationships and know how to get things done quickly. And at the end of their assignment the intellectual capital accumulated from the project wouldn't walk away with the hired guns - nor would corporate secrets and proprietary knowledge wind up in the hands of competitors who later hire the same consultants. With some training and on-the-job experience, internal consultants could broaden their skills and contribute to many departments. Once they establish a track record, they may even be able to lead the company through many of the vital changes it needs to make in order to grow and compete.
One of the chief inspirations for establishing an internal consulting group is the calibre of companies that have standing internal consulting groups, among them AT&T Corp., Carrier Corp., Dow Corning Corp., Fidelity Investments, General Electric Co., The Gillette Co., Johnson & Johnson, Sun Life Assurance Co. of Canada and Xerox Corp. The groups range in size from 1 or 2 people to a staff of more than 100. Several companies have multiple internal groups. Groups may focus on a narrow range of skills, such as information systems development or manufacturing, or contain generalists able to jump in wherever they're needed - or a mix of both. The range of assignments is usually broad and may include formulating the most sensitive of strategies, supporting deal making, focusing on information systems or contributing to business process reengineering and change initiatives.
Many of these in-house consulting groups have achieved results that brand-name consultants would be proud to claim. In its first year of operation, for example, a group of consultants at a well-known manufacturing company amassed a remarkable record: It reduced inventories by $ US 1.25 million, improved one department's productivity by 60 per cent, reduced cycle times in one operation by 50 per cent, paved the way for extensive overhaul of the company's core information systems and improved service to the company's distributors and retail customers through faster response to problems.
So why do internal consulting groups fail? One reason is that the managers who launch an internal group underestimate the challenges of consulting (see "Danger Zone," below). Merely changing a group's name and declaring a new mission does not produce a capable and functioning consulting group. In order to thrive, a group must zero in on what prospective customers want from consultants, develop professional competencies to meet those needs and market its capabilities to internal business clients.
Focus on Customers
Understanding why customers buy consulting services may help you clarify which services your group could successfully provide. Often, clients can't find the resources within their own department to accomplish a critical project within a time frame - and hire consultants to do the job quickly and cost-effectively.
Others want people with talent for creative analysis who can offer a second opinion on a business situation or bring a fresh perspective to solve a problem. Some are after skilled workers to provide professional support systems integration, project management or auditing. Still others hire consultants as change agents, individuals who can act as unbiased change managers.
Find out what services your prospective customers really want and need. Might they go to an outside firm for that? Why? Could you offer a better alternative? Interviews with key prospects and customer focus groups will help determine the demand for your group's services. If your customers want canoeists to paddle across a placid lake, and you are grooming them to handle Class 4 rapids, then you need to realign your objectives with business requirements.
Knowing what your clients want, however, won't guarantee smooth paddling for your internal consulting practice if you don't staff it with the right people.
In fact, many consulting groups fail because they appoint staff from business functional groups assuming they will be good consultants. Good functional skills do not guarantee good consulting skills. Effective consultants require functional skills and softer skills not usually nurtured in functional staff.
These include facilitation, client and expectation management, conflict resolution, creativity, leadership, change management and exceptional communication skills.
Consulting organisations that are successful at building and maintaining professional competencies supplement their formal training programs with three skill development approaches: mentoring, continuous learning and assignment rotation.
Developing new consultants quickly requires active leadership and coaching by veterans. On-the-job coaching usually beats formal education. Some companies may assign a mix of internal and external consultants to the same project, capitalising on the expertise of outside consultants by having them serve as mentors.
Good consultants never quit learning. In fact, the best consultants treat consulting as a learning process. The kind of people you want to staff your internal consultancy won't follow methodologies that require mindless and rote execution for long; they'll leave or, if allowed, change the approach. Ask potential internal consulting hires what they read and how often. Look for people who enjoy diverse topics and have an innate curiosity.
Consulting staff should have an opportunity to work in different business areas, different consulting practice areas and with different thought leaders to round out their experience. A planned rotation program will keep your organisation fresh and groom staff members for high-impact assignments throughout the company.
To many aspiring internal consulting organisations, marketing is a dirty word.
That belief often leads to their failure. Your customers' perception of your organisation - and your credibility - will be influenced by how well you market your organisation.
For most internal consulting organisations, awareness building is the first step. The act of interviewing potential customers as you develop your services not only helps you understand their needs, but it also puts your group on their radar screen. Other marketing vehicles include research reports on key problems facing company managers, newsletters with stories and testimonials to publicise the group's work, sponsorship of lectures by top academics and industry gurus, and multiclient programs that bring together company staff addressing similar problems. Personal relationships and contacts, of course, help a great deal in the marketing effort.
Managing clients' expectations is a key component of any long-term marketing strategy. It may be tempting to slide into a project without clearly defining the project's objectives and scope or their involvement and role. Consulting groups should document these topics in writing in an official engagement letter to the client. This management of client expectations will help prevent sticker shock or dissatisfaction about the date a key milestone is reached.
As part of managing expectations, internal consultants need to be clear about what roles they will play in engagements. They may be coaches, advisers, mentors, experts, team members, participants, problem solvers or researchers.
They may provide the methodology the team uses or help develop the approach as the group works. They may also act as cheerleaders and role models to others in the company. Clarifying the internal consultant's role and contribution for the client is also critical if expectations are to be well managed.
Finally, no marketing plan is complete without a well-considered pricing strategy. Recalling the old adage that free advice is worth what you pay for it, many internal consulting groups charge for their services to increase their perceived value and recover operating costs. Some cost-recovery schemes can get pretty complex, but group managers that charge usually aim to break even at the end of the year. One insurance company takes each consultant's salary, marks it up 50 per cent to cover other company expenses and assumes that the person will bill 1,000 hours during the year. Thus a consultant who is paid $ US 100,000 will have $ US 50,000 assumed in expenses for a total to recover of $ US 150,000. Dividing by the 1,000 hours, this person will charge $ US 150 per hour for his or her work.
Some internal consulting groups charge nothing or deeply discount their rates to stimulate use of the group, particularly for areas of a corporation that are cash poor. Other groups work on fixed price, cost plus time and materials and value prices. (For the value prices model, consulting charges are based upon a portion of revenue generated, costs reduced or some other value metric associated with the results of the consulting work.) Some organisations vary the pricing method from job to job. Ultimately, the price of your talent contributes in some way to the perceived value of your services.
Launching and sustaining an effective and valued internal management group isn't easy. But by assessing your customers' needs, developing the competencies required to meet them and creating a sound marketing plan, you have a chance to paddle down a scenic river and even enjoy the trip.
The lack of a clear strategy for a new consulting group will frustrate your staff and confuse your customers. Be sure you've analysed and answered questions such as, What do your customers want? How should you bill? Will you accept long-term projects? Will you compete against external consulting enterprises? Will you conduct research? 2.Absence of Senior Management Support Without senior management backing, internal groups struggle for recognition, work and projects that match their capabilities. This frustration can lead to talent erosion as skilled staff leave the group for other company jobs.
3.Neglecting the Marketing Effort
Many look upon internal marketing as an unnecessary expense, but it is critical for establishing your presence and selling your organisation. External consulting groups spend 25 per cent to 50 per cent of total revenue on marketing and sales.
Do you have the right people for the job? Most good consultants are extremely sociable, can exert influence even without authority and are comfortable with change. Not everyone in your organisation will possess these traits - nor will they all want to be consultants.
The entrepreneurial, problem-focused, high-achieving people attracted to consulting are often driven by financial incentives. In exchange for high salaries, most are willing to put up with endless travel, long hours and tough client situations. However, matching these rewards and demands in an internal consultancy can conflict with human resource policies. With partner salaries in external consultancies above $ US 300,000 and annual salary increases for top performers of 25 per cent or more, the cost of retaining talented people internally may be prohibitive.
Companies with internal consultants must invest in those assets to enable them to add value. A major manufacturer expects its internal consultants to spend about 15 per cent of their time on enrichment learning activities. This ensures that intellectual capital is fresh and relevant. If internal consulting groups don't invest in this ongoing development, they can't compete with outside consultants and won't add the kind of value their company needs.
7.Bias Favouring Outsiders
There's a common saying that a consultant's value exponentially increases with the distance between the home office and the client location. The reverse can hold true for internal consultants: If they're so talented, the logic goes, why aren't they working for a top consulting firm? Changing this perception is very difficult.
8.Lack of Control
The ability to walk away from work helps focus experiences and build credibility. If you can't price your group's services based on demand or reject inappropriate work (for example, the CEO asking IS consultants to fix a PC), then your group's reputation and morale will plummet.
Retired canoeist Rick Swanborg is president and founder of ICEX and can be reached at firstname.lastname@example.org. Bob Reck still canoes and is president and founder of Kendall Consulting Group and professor at Babson College. He can be reached at email@example.com.
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