Should you rely on internal or external strategy experts? Part 2: The pros and cons of external strategy consultants

Pros and cons of external strategy consultants

Strategic planning and the related tasks can be challenging activities for any organization – small or large. Some are large enough to have a team of internal strategy experts. Others rely on external consultants. This part of my article series discusses the advantages and downsides of external strategy consultants.

In this article series, I discuss the overall question whether to rely on internal or external strategy experts. I will list the pros and cons of both. In addition, I will give some advice on how to manage the undeniable downsides of both options. I will finish the article with some guidance on how to combine the benefits of both – internal and external specialists for strategic planning.

Part 1: The important Role of in-house strategy experts

Part 2: The pros and cons of external strategy consultants

Part 3: How to make the best choice between internal and external strategy experts.

Not every business can and intends to rely on internal strategists in every situation. External consultants are indispensable players in corporate strategy processes. The global market for strategy consulting is estimated to be about 32.5 bn USD in 2014.

Without any doubt, strategy consultants have advantages compared to internal strategists.

External specialists have specific advantages

There are situations when it is more beneficial to hire outside expertise to solve a strategic challenge. These may consist of specific one-time strategic questions, a particular project or the strategy process in itself.

External strategy consultants can bring in important advantages – many of them corresponding with the perceived weaknesses of internal strategists.

  • They bring in up-to-date specialist knowledge. Thus, they can fill in exactly those gaps the business has internally. This knowledge comprises strategic thinking, process tools and support as well as specialist knowledge about an industry or a business function.
  • They are objective. They don’t have to make allowances for internal relationships, taboos, personal preferences and other sensitive issues. Thus, it is easier for them to bring up unpopular truths.
  • They are better trained to take on the helicopter perspective, thus delivering additional insights.
  • They often have lots of expertise in diagnosis processes. Thus, they are able to reveal the real causes of problems or other organizations weaknesses.
  • They are in a better position to identify and describe the real problem, since they are unbiased and unprejudiced.
  • They can transfer insights and practices from other successful projects. Thus they can avoid some of the problems the business would otherwise face due to inexperience.
  • They come with a reputation bonus. This often gives the particular project more credibility and support.
  • Their reputation and expert status give them a clear role they can fulfill. They have to re-negotiate and discuss their role and task much less often than internal specialists.

This set of features enables external consultants to perform specific roles that are often difficult to assume for internal strategists. They are objective, have process experience and are not tied to internal networks and relationships. This makes them the ideal choice to push forward difficult or unpopular projects that will major change. The externals with their emotional distance can play the “bad guy”, initiating and announcing painful decisions.

Another straightforward advantage of external support is that helps out when there are not sufficient internal resources. Smaller businesses may not be able to afford a person or team responsible for corporate strategy. In larger organizations, the strategy team may come to its capacity limits too.

Perceived and real problems with external strategy consultants

By their nature, external consultants have limited information about organization (especially limited access to tacit knowledge). Hence, they face a much higher risk of missing the point. Their recommendations may simply not fit the organizational culture, styles, processes and systems.

This is a well-known fact. The other fact is that consultants will leave once their task is finished. This combination can be toxic for the further implementation phase. It is a common strategy to “sit out” unpopular projects.

Example:

I was once part of the internal strategy team of an organization that had to undergo massive strategic change. External consultants were hired by the shareholders to develop a new business model.

One day, I discussed the feasibility of their suggestions with some internal executives. I raised my concerns for some particular points regarding cost savings. To my surprise, one of the executives answered:

“Don’t worry. The consultants have to come up with a plan for a specific cost level. They will soon be gone. Then we can do as we think is best.”

Another problem with consultants is the concern that they might just be interested in selling their products. Many employees fear that the consultants won’t come up with the ideal solution, tailored to the individual businesses situation. There are too many stories around about consultants who have talked their clients into a general solution, only slightly adapted to their needs.

This is related to the problem of best practices – still a popular approach among consultants. Michael W. McLaughlin has highlighted this problem in detail in his article The worst thing about best practices. He states

“It’s no wonder most banks, supermarkets, airlines, retailers, and consulting firms look astonishingly similar—they’ve been busy copying each other’s best practices for decades.”

“It’s a follower’s strategy. In an era of demands for innovative products and services, why give your clients recycled answers?”

This is another consequence from the fact that consultants leave once the project is over. Naturally, they are less committed to the long-term results of their work. There is a moral hazard which makes it attractive to go for a simple solution.

Recommendations to manage the downsides of external strategy consultants

External consultants can deliver excellent results that really make an impact on the business. If they fail to do so, it’s not necessarily only their fault. In many cases, the business is to blame too.

The biggest problems are unclear project definitions and tasks. They leave room for interpretation and misunderstandings – intended or unintended. If the consultant is not given clear instructions, he will try to deliver a solution that is effective and efficient. There is always a balance between effective for the client and efficient for the consultant.

Businesses should have a very clear idea what they expect from their external strategy consultants:

  • What are the short-term and long-term results
  • What do we really need – a discussion / decision support / process support / a blueprint with which we can go on / an implemented solution
  • Are there any side conditions
  • What is not acceptable

These expectations need to be discussed in every detail – with the consultants and internally. The consultants need to have a very clear understanding about what they are supposed to deliver. At the same time, internal stakeholders of the project have to have the same understanding.

Thus,

  • Both sides can work together smoothly
  • Unwanted drifts in the project scope are easier to identify and to discuss
  • Internal concerns about consultants who just “want to sell their product” are addressed

Needless to say, the executive team should act as a strong sponsor and supporter of the project. To a degree, they should get involved personally. to make sure everything works out as intended.


Our book recommendatins for working with external consultants

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