New business models: Part 2

Internal consultants have a chequered history: one minute they are on the up, eager recipients of corporate largesse; the next they are on the down, seen as a luxury the organisation can no longer afford. Lacking the brand and independence of external resources, they have widely been seen as the “poor manager’s consultant”, the people you use only when you don’t have the money for the real thing.

That attitude may need to change. As we would expect in any recession, organisations have been using internal resources where they can, so the overall level of internal consulting has risen. Moreover, because they are keen to find new sources of revenue, an increasing number of organisations have been exploring whether these cost centres can be converted in profitable business units, offering services to other organisations on a commercial basis.

But the real advantages of internal consultancies are not short-term. Because the original of any internal consultancy is to support a specific organisation, such units tend to be highly specialised. Indeed, where their “host” organisation is first to market in, say, applying a new approach to improving efficiency, the internal consultancy will have experience of the practical application of that approach before most mainstream firms.

Conventional consulting firms have to choose between specialisation and brand. In order to grow, a firm has to diversify, so, although it becomes bigger and better known, it also becomes less specialised. But internal consultancies do not face that dilemma: they are specialised because they reflect the focus of the organisation they work for, but they have the brand of their parent behind them.

The final advantage an internal consultancy enjoys is money. For traditional firms, diversification requires investment. The pyramid structure that underpins most firms is finely tuned and, as the firm starts to move into new markets, its utilisation levels and profits can fall quickly. Most firms solve this problem by selling out, finding a comparatively safe haven as part of a much larger organisation. Internal consultancies do not need to do this: they already have an internal market which provides valuable “annuity” income which bolsters their revenues as they start to expand. Scale is not a problem, because they have a huge number of fellow employees to draw on if required.

And if we want any proof on the advantages of an internal consultancy, we need look no further than IBM. Back in the mid-1990s when the company had posted one of the largest losses in corporate history, its internal consultants made a name for themselves turning their own company around. The credibility created the foundation for the multibillion dollar consulting business it boasts today.