External Consulting vs. In-house Consulting: What is better?

Have you ever heard of external consulting and in-house consulting?

Do you know the differences between these two kinds of consulting? And which is better for you?

In this article, we will provide some insights into external and in-house consulting, comparing these two types of consulting in terms of their characteristics and career opportunities.

The reasons for companies using them are also stated.

What are external and in-house consulting?

External consulting

External consulting means a company hires outside consultants to provide advice and solutions for specific issues. These consultants often work for consulting firms or as independent professionals, not as company employees.

One of the advantages of hiring external consultants is that they can offer a fresh perspective and bring specialized knowledge that a company might not have in-house.

In-house consulting

In-house consulting refers to a company that has its own team of consultants who work full-time within the organization. These consultants are company employees and are always available to help different parts of the business.

These consultants are deeply familiar with its operations, culture, and goals. This allows them to provide tailored advice and solutions that align closely with the company’s long-term strategy. 

What is external and in-house consulting?

Characteristics of external and in-house consulting

External consulting

Short-term hiring

External consultants are usually hired for a short period, focusing on specific projects with clear goals and deadlines. Once the project is completed, their job is done.

They provide short-term help, and don’t contribute to long-term development within the organization.

Broad background

External consultants often have experience working across many different industries and sectors. This broad background allows them to bring fresh ideas and innovative approaches that might be new to the company they are helping.

Outside perspective

Because external consultants are not part of the company, they can offer unbiased and free advice from any internal politics or cultural influences. This outside perspective can be crucial for making objective decisions, especially situations when internal opinions might be divided.

Expensive but worth investing

Hiring external consultants can be expensive, but they often bring valuable insights and solutions that might not be available within the company. The investment can be worth it.

Characteristics of external consulting

In-house consulting

Permanent employees

In-house consultants are permanent employees of the company. They work continuously on various projects within the organization, providing support and advice whenever needed.

They develop a deep understanding of the company's culture, processes, and long-term goals. This helps them create solutions that are perfectly aligned with what the company needs.

Cost-effective

Maintaining an in-house consulting team can be more cost-effective in the long run compared to frequently hiring external consultants. 

Relationships and connections

In-house consultants also have established relationships with other employees and departments within the company. These connections make it easier to collaborate and implement solutions smoothly, and are often more efficient than bringing in someone from the outside who needs time to understand how the company works.

Continuous improvements

In-house consultants are involved in the company’s operations on an ongoing basis. They not only help create solutions but also stay engaged in the implementation and refinement of their recommendations. Their continued involvement ensures that the solutions they propose are effectively carried out and adjusted as needed over time, contributing to the company’s long-term success.

Characteristics of in-house consulting

Companies using external consultants or in-house consultants

Companies use external consultants

External consultants are favored by companies operating in fast-changing industries, or facing complex challenges that require external input. These companies need a team that can provide intensive information, statistics, and reports on the industry or give their outsider’s perspectives.

External consultants are especially useful when companies require skills or knowledge that aren’t available internally. For example, if a company is about to undertake a high-impact project, such as entering a new market or undergoing a merger or an objective, an outside viewpoint can be vital. 

When internal resources are stretched thin, and the company needs extra help quickly, external consultants can fill the gap effectively.

There are some types of companies that often use this kind of consulting.

• Multinational corporations

They are corporations in industries like technology, finance, and consumer goods. They often hire external consultants for strategic projects such as market entry, mergers and acquisitions, or global expansion efforts. 

These companies hire external consultants to receive specialized expertise, objectivity, and the ability to quickly scale resources across different regions. 

• Startups and high-growth companies

These companies in technology, biotechnology, and fintech frequently use external consultants. These businesses often need the experience and skills that consultants provide but don’t want the overhead of hiring full-time employees.

External consultants offer the flexibility to bring in the right expertise without long-term commitments.

• Government and public sector organizations

Some names are national and municipal governments or public health agencies. They rely on external consultants for projects like policy development, infrastructure planning, and public service improvements. 

• Healthcare and pharmaceuticals sector

Hospitals, pharmaceutical companies, and medical device manufacturers hire external consultants for tasks like regulatory compliance, research and development, and digital transformation in patient care. 

• Companies in the energy and utilities sector

These companies work in oil and gas, renewable energy, and electric utilities. They use external consultants for project management, environmental impact assessments, and strategic planning. 

Because of the highly regulated and capital-intensive nature of this industry, external consultants play a key role in helping companies navigate challenges and achieve their goals.

Companies use external consultants

Companies use in-house consultants

Some companies prefer to use only in-house consultants because their operations are complex and require a deep understanding of internal processes. These organizations know that outsiders may struggle to understand the company’s inside aspects, making it hard for them to provide effective solutions.

By relying on in-house consultants, these companies ensure that their strategies and improvements are closely aligned with their long-term goals and specific industry needs.

Companies that use in-house consultants often prioritize continuous improvement, operational efficiency, and strategic alignment. They value having a team that understands their culture, processes, and goal deeply, which allows for more effective and tailored solutions.

In-house consulting is also a cost-effective choice for these companies. By maintaining a dedicated team of consultants within the company, they avoid the high fees associated with external consultants. 

There are some types of companies that often use in-house consulting.

• Multinational corporations

The corporations in automotive, manufacturing, and consumer goods industries often use in-house consultants to address ongoing operational challenges, optimize processes, and execute internal strategies.

• Financial institutions

Banks or insurance companies rely on in-house consultants to improve internal processes, manage risks, and enhance customer service. 

• Tech companies

The companies which focus on innovation and process improvement, also benefit from in-house consultants who understand their IT infrastructure and industry trends.

• Retail and e-commerce companies

These companies use in-house consultants to manage supply chains, improve customer experiences, and analyze data.

• Manufacturing and industrial firms

The aerospace and heavy machinery firms use in-house consulting teams to enhance lean manufacturing, quality control, and operational efficiency.

Companies use in-house consultants

Companies use both external consultants and in-house consultants

While some corporations use either external consultants or in-house consulting teams, the others use both kinds of consulting because they have diverse needs requiring different types of expertise.

These organizations combine the strengths of both external and in-house consultants to achieve a balance between innovation and deep internal knowledge.

These companies hire external consultants for strategic initiatives such as market research, market entry, or mergers and acquisitions. These projects often require specialized knowledge or a fresh perspective that external consultants can provide.

On the other hand, the company relies on its in-house consultants for the continuous improvement of internal processes, supply chain optimization, and other operations. In-house consultants are best suited for these tasks because of their deep understanding of the company’s operations and culture.

These companies use both external and in-house consultants for several reasons:

• Gain strategic flexibility

External consultants are brought in for high-impact projects where specialized expertise is needed. Meanwhile, in-house teams focus on day-to-day operations, long-term projects, and continuous improvement. This approach allows the company to be agile and responsive to both internal and external challenges.

• Cost-effective

While external consultants can be expensive, using them selectively for specific projects helps control costs. Meanwhile, in-house consultants provide ongoing support without the need for the high fees associated with external consulting, making a cost-effective solution for the company’s long-term needs.

• Comprehensive coverage

External consultants bring innovative solutions and best practices from other industries, which can help the company stay competitive and adapt to new trends. The in-house teams ensure that these solutions are tailored to the company’s specific needs and are effectively implemented within the organization.

• Allocate resources efficiently

Assigning in-house consultants to long-term strategic initiatives and bringing external consultants for short term, high-priority projects. This makes the best use of its internal resources while also benefiting from external expertise when necessary.

Why do companies use both external and in-house consultants?

Career opportunities of external and in-house consulting

External consulting

External consulting is best suited for those who enjoy working in a fast-paced environment and want to gain experience across various industries. 

Their career path is well-defined, with significant opportunities for advancement and exit into senior industry roles. You can learn more about consultants’ career paths in consulting firms through this article.

Commonly, there are 4 levels of consultants in consulting firms

• Entry level

Entry-level roles focus on foundation tasks like data analysis, research, and supporting senior consultants on client projects. 

If you start in an entry-level position, you might be responsible for preparing reports, conducting market analysis, and helping develop recommendations that will be presented to clients.

• Mid level

At this level, you may be a consultant, senior consultant, engagement manager, or project manager. In these positions, you will take on more responsibility, like leading smaller projects or specific parts of larger engagements.

• Senior level

At this level, your positions might be principal, senior manager, associate partner, or director, and you will manage entire projects. You will play a crucial role in developing client strategies, overseeing complex analyses, and ensuring the quality of the work your team delivers.

• Leadership 

Leadership roles will be in charge of acquiring new clients, maintaining high-level relationships, and driving the firm’s growth. You will oversee multiple projects at once, mentor junior consultants, and contribute to the overall strategic direction of the consulting firm.

One of the key benefits of a career in external consulting is the exit opportunities. Because of the broad experience and strategic skills you develop, you will have strong options if you decide to leave consulting. 

Career opportunities in external consulting

In-house consulting

In-house consulting is ideal for those who enjoy working deeply with a single organization, focusing on long-term projects that contribute to the company’s success.

In-house consulting offers stability, a better work-life balance, and the opportunity to make a lasting impact on the organization you work for.

There are also 4 levels of in-house consultants

• Entry level

Their roles are business analysts, junior consultants, or strategy analysts. They are involved in supporting internal projects, helping senior team members with tasks like data collection, process mapping, and interacting with different departments.

• Mid level

At this level, your position may be a consultant, internal consultant, strategy consultant, or project manager. In these positions, you might lead teams focused on internal process improvements, strategic planning, or operational efficiency projects. 

• Senior level

At this level, you will manage larger and more complex projects, often collaborating with senior executives. You will oversee cross-functional teams and lead company-wide initiatives that shape the organization’s future. You will play a significant role in mentoring junior consultants and helping to develop the internal consulting function within the company.

• Leadership

Your positions may be like head of internal consulting, director of strategy, or vice president of business transformation. In these roles, you will align your team’s work with the company’s broader strategic objectives, report directly to senior executives or the C-suite, and influence high-level decision-making.

If external consulting has benefits in exit opportunities, in-house consulting has its advantages in long-term development within the company. Many professionals in these roles eventually transition into other leadership positions within the company, such as VP of Strategy, Chief Operating Officer (COO), or even Chief Executive Officer (CEO), depending on their expertise and career goals. 

Career opportunities in in-house consulting

Road to consulting with MConsultingPrep

Either external consulting or in-house consulting is the dream job of many people. That’s why it is really competitive to become a consultant.

To help you prepare well for your consulting application, we provide the course “Ultimate Management Consulting Program”. This course equips you with every essential skill for consulting recruitment success, including quantitative skills, business intuition, and presentation.

Another course is “Prospective Starter Pack - A-Z MBB Application”. This course provides fundamental knowledge to help you find out where to start in every MBB application step. It is especially a free course, so take time to learn it!