Many companies have internal consulting groups. But how to know how and when to include them in a competition for a consulting project? To help you decide whether it is better to use your Internal or External resources, always focus on the benefits and the specifics of the particular project.
On this week’s Smart consulting Sourcing podcast, Consulting Sourcing Expert Hélène Laffitte gives you a few pointers to solve your make or buy dilemma .
Key Takeaway: Make or buy is not new. Most companies and their procurement function work to optimize their external spend and their pool of suppliers to better support the overall strategy.
And it applies also to the consulting category. But there is a prequisite: you need to centralize the Category to some extent.It’s critical to be able to monitor your budget, and centralizing the Category will provide that capability.
Some companies have responded to what is mostly a ‘Make-or-buy’ dilemma by centralizing Consulting procurement.
Hello, and welcome to episode 41 of our podcast, Smart Consulting Sourcing THE podcast about consulting procurement. My name is Hélène and I will be your host today. Each week, I’ll give you the keys to better use, manage and source consulting services.
This week, I’ll give you a few pointers to solve your make or buy dilemma. Last week, I discussed how people shaped the consulting market and your perspective. We saw that there are many ways to look at the market. We can look at capabilities and industry experience, strategic versus operational positioning, hard and soft aspects… But ultimately, consulting is about people that drive the culture and the skill set of a consulting firm. Understanding what a consulting firm is about and what value it brings will allow you to source the best consulting firm for your project and maximize the chances of success.
But today I wanted to chat about make or buy. So many of you have internal consulting groups, whether they call it like that or not. But how and when do you decide to include them in a competition?
So to help you decide whether it is better to use your internal or your external resources, remember to focus always on the benefits and the specifics of this particular project. When you are constrained by a limited operations budget, you must carefully prioritize and efficiently organize your projects, which may include external consulting services. But let’s go back to the very start. Shall we?
What are the different options for your project? So launching a project with internal resources is obviously top of mind for any executive because it means keeping the cost at a minimum and optimizing the use of your internal skills and resources. But this option can very quickly reach its limits if the project team is not given the appropriate time and responsibilities to lead the project efficiently. Besides, because the leaders of internal projects are often high-potentials on the leadership fast track, they might find it challenging to push boundaries. And confront the more established leaders and influencers who hold the key to their careers. And what is interesting is that when you assign an independent task force that can bring focus, speed, pressure to the table, which is sometimes enough for the success of the project.
So we saw the benefits of working with potentially an external team or an independent team, but how do we solve that make or buy dilemma? Make or buy is not new, right? Most companies and the procurement function work to optimize their internal spend and their pool of suppliers to better support the overall strategy. And they have already put in place some make or buy strategy.
And it means that they have solved some tough questions, such as what are the key activities that can be outsourced? What the pool of potential suppliers look like? How mature is the market for suppliers?, What providers are appropriate for us?and is it worth it to outsource a particular activity for the long term? So the same questions apply when you’re sourcing consulting services. Unfortunately, most companies have neither the experience nor the methods to answer 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 company. So what can we do to have executives make faster and smarter decisions when buying consulting services? So when it comes to making those decisions about consultants, executives often fall back on word of mouth, perceptions of the reputations on various providers, all of the fancy claims the consultants are doing, and it’s true that they take the line of least resistance and simply hire the consultant they have used in the past, regardless of whether those consultants are the more appropriate for a particular project or for furthering the broader strategy of the company.
So why do they do that? Right? It’s because they have no reliable way to determine whether a particular consultant meets their company’s needs or to evaluate the likely level of performance of a consultant. And they have no benchmark against which compare providers. And until they find a way, an independent, credible way to assess providers and match them to the company’s needs, they are likely to lag the competitors who have.
What are the advantages of using external consultants? So, you know, consultants are usually familiar with the problem because they worked on many projects with many companies in many industries, therefore they can really solve that problem more efficiently and at less cost than internal resources. They can also make up for lack of internal resources and flexibility that prevents internal personnel from being diverted from their regular jobs.
So how can your company use the expertise of consultants? So, sometimes, you know, clients use consultants for broader purposes than the project itself, and that could include training of executives on new skills, introducing external change agents, learning best practices in the industry or capability. It can be exposing the organization to a fresh perspective or relying on the stamp of a recognized consulting brand to reassure board members and 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.
But on the other hand, leading an internal project can be tricky. The internal team may not be aware of the latest trends in the industry or the capability. They may waste time reinventing already well-established improvement methodologies resulting in longer projects and higher overall costs. And again, the fact that the team members are part of the company can make it difficult to disrupt the established order.
But is it really only internal or external? Actually, there’s a middle path that can you bring you the best of both worlds. And this is a hybrid execution. So let’s imagine a project. And in that project you have parts that can be isolated in standalone work streams where confidentiality and service availability will not be a challenge. If you have a highly experienced project leader, you outsource parts of your project and keep the rest in house.
There is a prerequisite: you need to centralize the category to some extent. It’s critical to be able to monitor your budget and centralizing the category will provide that capability. And actually some companies have responded to what is mostly a make or buy dilemma by centralizing consulting procurement. The goal is to have a more global vision of consulting efforts, a better understanding of the costs and more powerful levers to negotiate volume discounts and create synergies across functions and business units. When you recognize that consulting is an accelerator for change, you usually make consulting management the responsibility of the head of strategy and or a transformation leader. But more generally putting the accountability of the consulting budget and therefore the monitoring of the consulting expenses close to the group in charge of the strategy seems to be the right move. And that team will need to define what are the rules when procuring consulting services.
They should work on demand management, make or buy strategy and consulting spent analysis to make sure that the overall strategy is aligned with the spend and consistent across the board.
That’s it for today. Next time I’ll explain what are the main features of the European consulting market and why that diversity is a strength. In the meantime, if you have any questions or want to learn more about what we do at Consulting Quest, just send me an email at helene.laffitte @ consultingquest.com. You can also have a look at our website, smartconsultingsourcing.com to know more about our book and download free templates and guides to improve your consulting sourcing.
Bye and see you next week. Au revoir.