Internal consulting

Inside job: Consultants don't need to be outsiders

January 11, 2012: 10:22 AM ET

Many companies turn to consultants for guidance, but several big firms have created in-house teams to keep big decisions close to the vest, among other reasons.

By Ethan Rouen, contributor

Ken Chenault

American Express CEO Ken Chenault got his start at the company in its internal consulting department.

FORTUNE -- When Delta and Northwest Airlines announced that they would merge in 2008, David Rabkin, the vice-president of the Delta co-brand at American Express, already had a plan for how his company should react.

He did not have any deep sources within Delta (DAL) tipping him off about the deal. Instead, he had just moved from American Express's (AXP) internal management consulting group, the Strategic Planning Group (SPG), where, two years earlier, he and his team developed a case about what would happen if Delta, the company's largest co-brand partner, merged with another airline.

"We were prepared for this," says Rabkin, who spent two years in SPG at American Express before moving to its Delta co-brand division.

Mention the idea of bringing in outside consultants, and it will inevitably lead to grumbling from someone in management. While top consulting firms bring a fresh perspective mixed with years of industry experience, hiring them can raise concerns that it could open the door to leaks to competitors, threaten a company's culture, or lead to nothing once the consultants have made their recommendations and packed up their PowerPoint presentations.

And then there's the price. "If you have to ask how much it costs, you shouldn't hire McKinsey," says Lawrence Hrebiniak, a professor of management at the Wharton School of the University of Pennsylvania.

Most large organizations rely on outside consultants to advise them on new initiatives, but many big companies, from Dell (DELL) to Wyeth, have developed internal consulting groups that offer flexibility to launch new initiatives and stay ahead of the competition, Hrebiniak says.

While concrete numbers are difficult to come by, in part because different companies call their internal consulting groups by different names, Hrebiniak believes the number of businesses relying on insiders is increasing as companies look to supplement or even replace outside consultants.

To be sure, there are inevitable risks to relying on inside talent, Hrebiniak says. Insiders may lack the industry knowledge and experience of a seasoned consultant who has worked on dozens of similar projects. And being told what to do by fellow employees can breed resentment and a feeling among managers that "the internal group is checking up on us," Hrebiniak says.

"They become the cops on the cops," he says. "No one likes internal affairs."

But a well-designed and well-executed internal consulting group can be a powerful weapon for a company that is looking to grow and develop talent internally. Hrebiniak points to Johnson & Johnson (JNJ), IBM (IBM), and Motorola (MMI) as businesses that use internal consultants successfully. More

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