Having emerged in the 1930s and grown rapidly since the 1960s, strategy consulting has progressively shifted its focus from defining strategy to executing it. As a result, strategy consulting has become increasingly specialized at the crossroads of function and industry. Companies, constrained by limited operations budgets (where consulting expenses are allocated), must carefully prioritize and efficiently organize their projects, which may include external consulting services. As they do so, successful companies apply a sound financial management principle: hiring external consultants has to bring more value than leading the project internally.
Considerations when hiring consultants:
- Assigning an independent external task force can bring focus, speed, and pressure to the table, which is sometimes enough for the success of a project. Moreover, because the leaders of internal projects are often high-potentials on the leadership fast track they often find it difficult to push boundaries and confront the more established leaders and influencers who hold the key to their careers.
- External consultants also offer other advantages. Because they are familiar with the problem they can often solve it more efficiently and at less cost than internal resources. They can also make up for a lack of internal resources and for a lack of flexibility that prevents internal personnel from being diverted from their regular jobs.
- Companies may also want to use consultants for larger purposes than the project itself. These could include training of executives on new skills, introducing external change agents, learning best practices in the industry or in a capability, exposing the organization to a fresh perspective, or relying on the stamp of a recognized consulting brand to reassure board members or investors.
But even under those conditions, hiring external consultants is not always the best solution. For example, consulting services that meet your needs may not be available in your industry or your country. Confidentiality can also act as a restraint on looking for external help who may ask for sensitive operating or other data for purposes of benchmarking your company’s performance
On the other hand, leading an internal project can be tricky. The internal team may be unaware of the latest trends in the industry or capability. They may waste time reinventing already well established improvement methodologies, resulting in longer projects and greater overall costs. Again, the fact that the team members are part of the company can make it difficult to disrupt the established order.
How to crack the make or buy dilemma?
Most companies and their procurement function work to optimize their external spend and their pool of suppliers in order to better support the overall strategy. They have developed methods for answering a variety of difficult questions: What are the key activities that can be outsourced? What does the pool of potential suppliers look like? How mature is the market for suppliers? What providers are appropriate for us? Is it worth it to outsource a particular activity for the long term?
The same questions apply to consulting procurement. Unfortunately, most companies have neither the experience nor the methods for answering them. Yet, today, all leaders throughout an organization, from the head of procurement to senior executives responsible for signing off on major consulting projects, are expected to align their activities with the overall strategy of the enterprise. But when it comes to making decisions about consultants, they fall back on word of mouth, on perceptions of the reputations of various providers, and on the sometimes outsized claims of the consultants themselves. Or they take the line of least resistance and simply hire the consultants they have used in the past, regardless of whether those consultants are the most appropriate for a particular project or for furthering the larger strategy of the company. These leaders have no reliable way to determine whether a particular consultant precisely meets the company’s needs, no way to gauge a consultant’s likely level of performance, and no benchmarks against which to compare providers. And until they avail themselves of an independent, credible means of assessing providers and matching them to their company’s needs, they are likely to lag their competitors who have.
Some companies have responded to what is essentially a ‘make-or-buy’ dilemma by centralizing consulting procurement. The aim is to have a more global vision of consulting efforts, better understanding of the costs, and more powerful levers for negotiating volume discounts and creating synergies across functions and business units. Recognizing that consulting is an accelerator of change, these companies make consulting management the responsibility of the head of strategy or a transformation leader. But they still struggle with a stubborn fact. The increasing need for highly specialized consulting makes it far more difficult for buyers to have experienced the volume of consulting projects that would enable them to develop portfolios of reliable and high-performing consulting providers. By working with companies specialized in this field, those companies will be able to analyze their consulting spend, refresh their make or buy strategy, identify robust suppliers and areas where new blood is needed. In a way they will be able to develop a consulting strategy for their strategy consulting.