How companies can build in-house consulting teams?

Management consultants support clients to take decisions and drive actions under uncertainty. Given the accelerated proliferation of uncertainty generating events over the last decade such as recessions and covid, consulting firms have had the best decade ever. This trend is expected to continue; existing clients will require more consulting services and new clients will enter the market.

Management consulting is expensive. The median billing range for India-bred consulting firms and the Big Four is 0.7-1 million per consultant-month. For international firms like Accenture, this range can be 1.5-2 million. For MBB (McKinsey, BCG, Bain,) the range is 2.5 million plus, and can cross 5 million per consultant-month (Indian arms of MNCs often pay global rates.) This translates to gross margins of more than 50%.

Given this increasing need for consulting services and the high costs, many companies attempt to build consulting teams in-house. At its core, management consulting requires three things: One, top talent. Two, access to information sources such as research reports and expert networks (e.g., GLG—Gerson Lehrman Group.) Three, institutional knowledge on domains and problem-solving methods.

Clients can access top talent either from consulting firms or from the same business schools that management consulting firms target. It is common for consultants to shift to their clients after a time. Clients can afford to pay top salaries as they save on the margins. This addresses the first point around top talent and the third point as such consultants bring in the required methodologies. Domain knowledge is not a challenge as clients tend to have experts in most areas in their businesses. On the second point, clients can contract directly with research firms and expert networks.

So, theoretically, any client that requires a meaningful volume of consulting services should be able to save significantly by building consulting teams in-house. Yet, in our experience, this often fails. At best, a small team is built which ends up managing the external consultants, yielding no meaningful savings.

Why does this happen? Our analysis indicates four main reasons:

The first reason is core versus periphery. In consulting firms, strategy is the core service and consultants are the key revenue earners. In contrast, in-house consulting teams are perceived as non-core support services and often treated as cost centres. This loss of primacy leads to frustration for in-house teams.

The second reason is identity. Being an employee of a top consulting firm ascribes a certain superior identity. In contrast, being a part of an in-house consulting team, even for a global brand, offers an identity that is relatively diluted. I have met strategy heads of MNCs who continue to draw their identities from their previous consulting employers instead of their current companies.

The third reason is the lack of internal competition. Top management consulting firms recruit insecure overachievers from some of the most competitive schools on earth and extend a similar environment at work. The brutal consulting pyramid, that enforces “up or out,” acts as a motivator that drives continued excellence. The relatively laid-back culture of internal consulting teams impacts this desire to excel. Ironically, this also impacts consultants who move to a corporate role for better work-life balance. The addictive adrenaline rush of consulting is hard to give up.

The fourth reason is lack of accelerated growth opportunities. In management consulting, it is common for top performers to become partners within ten years. In contrast, as internal consulting teams are perceived as support services, they offer lesser growth opportunities. Ex-consultants observe their colleagues from revenue-generating line functions overtake them and get disillusioned.

So, is there a way to make internal consulting teams work? We have noted only one approach that consistently works: Structure the internal consulting team to attract a pool of potential CXO talent. Make it clear that the internal consulting role is temporary to enable the transition from a consulting to a CXO career. This creates flux but addresses all the four challenges: It promises an accelerated path to a core CXO role, builds an identity as a high-potential leader and fosters internal competition.

Increasing uncertainties and growing consulting costs will force clients to consider in-house options. Structuring these as pools of potential CXO talent offer the best chance of success.

Abhisek Mukherjee , co-founder and director, Auctus Advisors.

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