In-house consultancy teams challenge industry business models

When German utility Eon decided a year ago to split itself into two independent companies — one focusing on renewables, the other on fossil fuel and nuclear generation — it turned to its 80-strong team of in-house consultants to implement the move.

More than 20 members of Eon Inhouse Consulting were assigned to the project, analysing the activities of each Eon unit and then drawing up an organisational structure.

“We co-operate very closely with the client,” says a team member. “They know that we will stand behind our solutions in the long term as we are all still going to be working for the group when our proposals are finally implemented.”

Over the past 20 years, the growth of internal consulting has been one of the most notable features of the fast-changing management consulting scene.

The extent of internal consulting is hard to gauge, in part because some units go under different names, but companies including American Express, Cisco, IBM, Google, Samsung, Airbus, Prudential, Dell, Wyeth and Citibank have used in-house groups. About two-thirds of companies on Germany’s Dax 30 index have them, including BASF, Deutsche Bank and Siemens.

Internal consulting groups vary from ad hoc teams to fully-fledged organisations of 100 consultants or more. Many have to compete for projects with external consultants even in their own company, while others also seek business on the open market. Deutsche Post’s in-house consulting arm, for example, sells its logistics and supply chain expertise to clients in sectors such as fashion, consumer electronics and ecommerce.

“I think it’s still growing,” says Lawrence Hrebiniak, emeritus professor of management at the University of Pennsylvania’s Wharton School. “Internal consultants have a more in-depth knowledge of the company, they help to keep sensitive issues in-house and they can facilitate the implementation or execution of a strategy.”

Companies often use them because they are cheaper than hiring strategy consultancies such as McKinsey, Bain or Boston Consulting Group.

The downsides, Prof Hrebiniak says, include a tendency for internal teams to encounter more resistance than external ones and be seen as less independent. “People may say: ‘You are squealing on us, you are acting as informers.’ They are also sometimes accused of telling the boss what he wants to hear.”

Prof Hrebiniak says in-house consulting is useful for internal problems of co-ordination or distrust, for example. External consultants are likely to continue to be used for strategic issues such as mergers, changes of product focus and entering foreign markets.

People may say: ‘You are squealing on us, you are acting as informers.’

Large companies are also awash with executives who are ex-management consultants and may feel they have the resources to handle some consultancy-type exercises themselves. There are 30,000 alumni from McKinsey alone, including about 450 running billion-dollar-plus organisations.

Corporate managers generally are seen as “more flexible, more project-orientated, less hierarchical, more results driven” than they were 20 years ago — “qualities that consultants in the past were able to bring to an organisation”, says Alan Leaman, chief executive of the UK’s Management Consultancies Association.

Having ex-consultants as clients can be a benefit to the consulting industry, he argues. “You have got someone on the client side who has a really good line of sight about what they will need, what their own strengths and weaknesses are, and probably fewer of the traditional hang-ups about needing help and being big enough to go and ask for it.”

However, David Heron, managing partner of Wilton & Bain Management Solutions, sees “growing pressure on organisations to seek alternatives to using the normal big firms, driven by cost and value”.

He runs a network of 500 interim managers, most of them ex-management consultants. Sometimes a client will hire two or three of these to work alongside an in-house team. “There is a growing need for organisations to have an internal transformation and change capability. Part of the role of the independents that we put into organisations is to upskill the permanent workforce,” Mr Heron says.

Prof Hrebiniak argues that the growth of internal consulting “has to pose some threat to the traditional consultancies, particularly if people continue to see them as expensive”.

The big firms, though, seem relaxed about this type of competition. “It’s fine because those are the problems we shouldn’t be solving, almost by definition,” says Harry Gaskell, EY’s advisory managing partner in the UK. “We need to be helping companies with problems they can’t solve for themselves.”