Cover story: internal vs external - Packing a punch

Internal consultants are the lesser known variety of the consulting tribe. Hidden behind corporate doors their internal influence may be significant, but their public profiles shadowy compared to those in external consulting firms. What do they do for their organisations and can they compete with their practice-based cousins?

Some internal consulting teams have deep, long-established roots reaching back into corporate history. The business consultancy services group at Royal Bank of Scotland has grown up over the last 30 years and expanded from its core roots as an operations and methodology department. “Its purpose was primarily to work on process design, measurement and improvement, but gradually it has broadened,” says Graham Kennedy, a principal consultant.

For example, the team now covers areas such as IT and change management.

The staff of 70 is largely based in Edinburgh, although 10-15 of them work in London.

NatWest is another financial organisation with a long history of internal consultancy. Although NatWest Consultancy was established in its current form four years ago through the merger of three existing consultancy units, the oldest of these had been in operation for over 30 years. The long-standing tradition of internal consultancy within the banking group is reflected in the size of the consulting team, which now has around 100 chargeable and 20 support staff. It offers a broad range of consultancy skills, in effect almost everything apart from IT consulting which is handled by separate internal IT specialists. NatWest Consultancy’s remit is purely internal, with senior managers and executives across the group as clients who pay a fee calculated to cover the costs of the internal consulting team. A key aim of the consulting team, apart from offering consultancy, is to bring on high fliers within the bank. Staff development is seen as a vital part of their role.

By comparison the consulting team within Abbey National Financial Services (ANFIS) is a young group, set up in 1995 following Abbey National’s purchase of Scottish Mutual and the launch of the resulting combined financial services retail arm. The internal consulting team was formed to restructure the newly combined business in order to improve efficiency. “At the time the business re-engineering started we were facilitated by KPMG,” says Peter Joyce, one of the ANFIS corporate consulting service team. “Having worked with them for six months, our BPR team then went off by itself.”

A similar skills transfer process has been taking place at J Sainsbury, which set up a process consultancy team within its information systems division (ISD) in May 1998, the aim being to improve management practices in the division. The team is small, with two permanent staff, but its success is reflected by the fact that four new recruits are being sought in order to meet the demand for their services. “Our clients are senior managers in ISD,” says Tracy Tomlin, a member of the process consultancy team. “We use a framework called ‘systematic management’ and we take the managers through a programme of work.” It covers areas such as business planning, how to achieve plans and strategies, and performance measurement.

Tomlin and her colleague work alongside an external consultant who devised the systematic management framework. He still works with Sainsbury’s management team, while the internal process consultants then cascade the approach down through the senior managers.

Back at ANFIS, the consulting team has matured from its BPR roots. “Certain parts of the business are constantly evolving as products are designed for the marketplace,” says Joyce. As these new products are launched, small management teams are formed to process the new business generated and they may come to the consultants for help mapping the processes involved.

“We facilitate a meeting that documents the stages in the business process,” says Joyce. The team helps management consider the impact of possible outcomes, drawing on its experience in other divisions of ANFIS. “We endeavour to identify the common activities and spread best practice,” Joyce says.

Internal consultants, perhaps because of their accessibility, can have huge workloads. “We almost always have more work than we can resource,” says NatWest’s Jeffrey. “So each piece of work will be qualified.” This involves checking whether the work is in line with group strategic priorities and whether it is likely to deliver the real benefits. “We do have to go back to clients and tell them we can’t do particular pieces of work,” Jeffrey says. “However, we can then see if we can help in other ways.” This assessment role is related to the cultural values and ethics that come with the role of the internal consultant. “Our goals are aligned with the client in that they are to do the best for NatWest,” says Jeffrey.

If managing workloads is one challenge for internal consultants, another is to make sure they have the authority they need to gain the attention and respect of other departments. “For all our projects we bring in a director (from the relevant divisions) as sponsor,” says Joyce at ANFIS.

“Sponsorship at director level enables us to walk from one room to another and have the authority we need.” This issue of authority may be an area where external consultants have an advantage over internal teams. They may be perceived as more obviously having management’s backing. Their fees can also generate respect. Tomlin notes this as a key difference between external and internal consultants. At Sainsbury the process consultancy team charges nothing for their work and Tomlin thinks this may initially have influenced how managers perceived the process consultancy team.

“They have to pay for external consultants, but if we are free, they can use us for trouble shooting or as dogsbodies,” says Tomlin. “However, it may have been like that in the beginning, but I don’t think it is now.” Such is the demand for the consultants that senior managers are now limited to two days of their time a month, a factor which encourages them to make the best use of their skills. Both RBS and NatWest charge an internal fee for their services, but the lack of need for profit margin means they generally prove cheaper than external consultants.

Price aside, how do managers decide whether to use their internal teams or whether to call on outside consulting help? “There is little difference in the end results between internal and external consultants,” says Michael Wright, chairman of the Institute of Management Consultancy’s internal consultants’ Special Interest Group. However, external consultants may be used where there is a perception of a lack in internal expertise.

“They may also be used when you need a result that is demonstrably independent from the organisation. There is a perceived bias if someone from the organisation does the work. Another minor factor may be to do with preserving the security of an idea – that you feel safer with external people, where you don’t want the risk of something being leaked internally.” However, there are also benefits associated with using internal teams. “They have more knowledge of the organisation and its peculiarities,” says Wright.

“They are familiar with the politics and it takes less time to bring them up to speed.”

Sometimes the benefits of both types of consultant can be combined on a project. “We don’t always have the knowledge a department needs so it may use external consultants,” says Kennedy at RBS. “But we often work with them to assist with the implementation because we know the bank better than they do. And we can learn from them so that we can then spread that knowledge across the bank at a cost-effective rate.”

Finally, if internal consultants can learn from external ones, they can also challenge them in their own marketplace. Some internal consultants, such as those at RBS, are crossing the line into external consultants’ territory. “For the past three years we have been developing the external side of the business quite aggressively,” says Kennedy. The consultants generated turnover of nearly £500,000 last year. The aim is to build it up further to contribute a quarter of the consulting team’s business.

Typical clients are European banks facing deregulation who want to learn from the experience of RBS, as well as UK public and private sector organisations, though not UK banking rivals.

The fact that the consultants don’t come from a traditional consultancy can be attractive to clients. “RBS is a good quality brand in the UK and people feel they can trust us,” says Kennedy. “They also like the fact that they are talking to people who actually part of an operating organisation (as opposed to a pure consultancy firm).” External consultants – you have been warned.

John Emberton, a consulting director at Sema Group, sees two discrete categories of circumstance under which internal and external consultants would be working together. The first occurs where the internal team lacks some necessary skill for a project. The second being a more arbitrary decision by management. “It can happen that the internal consultants then look at the external consultants and wonder why they are doing the work,” says Emberton. “A bit of animosity can creep in. I’ve been on both sides, so I understand how it feels.” That can cause problems for the external consultants, however. “If the two teams don’t gel, if the internal consultants believe they could be doing the work themselves, it’s not unknown for the latter to lead the external consultants into the lion’s den,” he says. “They can lead them into making fools of themselves.”

To minimise such a risk the external consultants need to put effort into encouraging a positive outlook among the internal team. “It’s crucial that external consultants treat internal consultants as key stakeholders in the project,” says Emberton. “They could perhaps offer skills transfer, or try to show they bring something additional to the party. It’s a question of making sure the internal consultants can see a win-win result from the relationship.”

John Reeve, a partner in Deloitte Consulting, says the working relationship between internal and external consultants isn’t always an easy one. “It depends a lot on what the internal consultancy was set up for,” he says.

“Sometimes they are highly specialised and have very few staff. They are easy to work with because they don’t see you as taking their work away. But in some larger organisations they can see you as overpaid versions of themselves, coming in and complicating some problem they feel they could handle themselves.” But Reeve is not totally convinced by the need for organisations to have their own internal consulting teams. “I sometimes wonder what the motive is for a business to set up an internal consultancy,” he says. “It must be money, because it’s a cheaper option.”

Nevertheless, Reeve believes that working with internal consultants can be productive, and sometimes the firm will bid alongside an internal team for a piece of work. “In one case we knew the internal consultants pretty well and thought we could come up with a stronger bid together.” However, before starting a project, responsibilities must be clearly specified; if they are not, managing an internal-external team can be “a complete bloody nightmare”, Reeve says. “You need all the diplomacy and man management skills you have got.”

Jonathan Charley, a partner in financial services at Ernst & Young, believes that it can sometimes working with external consultancies can be a little frustrating for internal consultants. “They may be offering the same solutions, but the external consultants tend to get the ear of the client,” he says. “And advice that is explicitly paid for is more highly valued than advice which is implicitly paid for. That can be frustrating too.” However, Charley believes external consultants do bring value through having a broad view gained from working with a range of other organisations.

They may also have more freedom to speak their minds. “One advantage of using external consultants is that the organisation’s hierarchy doesn’t get in the way,” he says. “It’s not a career-limiting move to tell senior managers that their view is not necessarily correct.”

Once external consultants are involved in a joint project, Charley believes the key to success is to ensure that skills transfer takes place, with measures put in place to see how well that happens. For example, one measure could be the speed with which internal consultants can replace external ones, faster being better.

Sarah Perrin is a freelance journalist

WHAT THE INTERNAL CONSULTANTS THINK

Peter Joyce, Abbey National Financial Services, on the internal consultant’s role:

“It’s the brainstorming, the blue skying, the mapping of practices and then handing it back to the businesses to implement. There are processes that enable the business to function. Any task within a process can in itself be a hiccup. If it’s the alligator biting your arse that’s bothering you, you forget that you’re supposed to be clearing the swamp. People who are fed up with the alligators come to us. We step back and take a look. We put the problem in the context of a process, establishing a trigger and an output. When we put the complete process back to our customer, they are somewhat enlightened.”

Catherine Jeffrey, NatWest Consultancy, on working with external consultants:

“If there is a piece of work that needs to be done, in some cases we will be bidding against external consultants. Sometimes managers come straight to us. Quite often we are in the middle ground where we will put together the best team involving external consultants. Everyone tends to benefit. The combined team can be stronger than either of the separate parts. We can also benefit because we can capture some skills from them and then keep them in the group. As you move to implementation that can be very powerful.”

Graham Kennedy, Royal Bank of Scotland, on the benefits of selling internal consultants’ skills externally:

“We have built up the external side very quickly. As well as bringing external revenue into the group it’s a very good training and proving ground for our consultants. We pick up skills and practices that the bank wouldn’t get hold of so readily otherwise. We feel it is sensible for the bank to be able to use the skills it has built up over the years and generate revenue streams from them. It’s exploiting the knowledge we have. It’s knowledge management in a wider sense.”

Tracy Tomlin, J Sainsbury, on earning respect within the organisation:

“One problem for internal consultants is that management will always listen to someone who comes from outside. They think they must be good simply because they come from outside. But we are winning respect within the organisation and the proof is that we are getting more resources.” The influence of the process consultancy team is also boosted by the sponsorship of the information systems division’s departmental director. “He is the one who wants to take the management team through this (improvement process). We are trying to change the senior management team, so we need his backing or we will fail.”

Michael Wright, chairman of the IMC’s internal consultants’ special interest group, considering a PhD thesis on internal consulting:

“The thesis was that internal units have a lifecycle. They are formed for a specific need. They are good at what they do and then they expand and increase their skills and become more high profile within the organisation. And then they get cut. Then they are re-invented again. That does ring true. It may be that people think the units grow too big. The more high profile you become, the more enemies you make in high places. And these sorts of units are almost seen as overheads.”