Why do organisations hire consultants?
If you are a junior consultant, knowing why your work is valuable is likely to make your job more meaningful.
If you are a partner, knowing why your work is valuable is likely to help you sell consulting projects and make money for yourself and for the firm.
Below we outline five (5) reasons why organisations engage consulting firms.
1. Expert Knowledge
Consultants can provide management with the expertise needed to address specific business problems. For example, a company that needs to update its computer systems might seek advice from IT consultants.
The benefit of bringing in specialist consultants is that they are likely to have experience solving similar problems and an understanding of industry best practice. Large consulting firms can draw on a breadth of experience and offer clients a broad range of expertise applicable to a wide range of business problems.
Areas of expertise that a consulting firm might provide include:
- Industry specific knowledge;
- Supply chain optimization;
- Organisational change;
- Information technology;
- Tax structuring;
- Risk management;
- Human resources; and
Expertise can form a crucial part of a consulting firm’s value proposition and can be something worth fighting over.
An example from 2014 occurred when McKinsey poached two partners from AlixPartners, one of the world’s best-known restructuring firms.
Restructuring is a niche service which requires specialized knowledge and industry experience. In an apparent attempt to stop McKinsey poaching key talent, AlixPartners sued its former employees (Eric Thompson, managing director of AlixPartners’ Hong Kong office, and Ivo Naumann, head of its Shanghai branch) on claims that they misappropriated trade secrets before they left the firm’s Asian operations.
Expert knowledge can be very valuable to consulting firms and their clients.
2. Independent Advice
Consultants can assist management by providing independent advice.
Consultants can provide more objective recommendations compared with full-time staff since they do not have a vested interest in the outcome. For example, consultants would be able to recommend cost saving measures such as layoffs, restructuring, offshoring, and outsourcing. Consultants can also recommend growth strategies like market development or product development, which may be good for the organisation overall but not in the interests of a particular manager, division or department.
3. Catalyst for Change
Consultants can assist management by supporting organisational change.
There are four reasons why consultants may be well placed to do this:
- Impetus for action: Consultants can provide research to support a particular plan of action, which can provide the stamp of approval that management needs to legitimize its plan and overcome internal opposition. A consulting report can also provide an impetus for action by clarifying the reasons that a proposed course of action makes sense.
- Convenient scapegoats: Related to the first reason, consultants can provide political cover to help management pursue a potentially risky or unpopular course of action. If employees are unhappy with layoffs, management can blame the consulting report. If shareholders are unhappy with performance, management can blame the consulting report. “Nobody ever got fired for hiring McKinsey.”
- Open communication: Consultants can facilitate open communication within a firm and enable good ideas to reach management. Since consultants do not have a fixed position within the organisational structure it is likely to be easier for them to collect information from employees at all levels.
- Employee engagement: Consultants often engage with staff at all levels within an organisation and, as a result, employees may feel more involved in the change process making them less likely to resist proposed changes.
Consultants can assist management by implementing recommendations.
A firm may find this appealing because implementation may be a dedicated project unrelated to the firm’s ongoing operations.
Hiring outside consultants can help a firm overcome internal bureaucracy and inertia favouring the status quo. A firm may also lack the expertise or manpower needed to implement recommendations efficiently and effectively.
5. Cost Effective Solution
For some types of projects (e.g. software development) consultants may represent a cost-effective solution.
A firm may lack the competencies needed to complete the project in a timely or cost effective manner and it may not be feasible to hire and train full time staff.
Even if engaging outside consultants appears more expensive compared with employing full time staff, it may still make sense to hire outside consultants since (a) they can be dispensed with more easily after the project is complete, and (b) consultants may be able to complete the project more quickly, which could give the organisation a competitive advantage.
[For more information on the management consulting industry, please download our “Guide to Management Consulting“.]