Manager's Guide to Hiring Outside Consulting Firms

Introduction

Hiring a consultant is often a costly endeavor for a firm. However, there are times when an outside consultant is necessary. When a job entails skills that fall outside the core competencies of the firm, it is sometimes necessary to engage the services of an outside consultant. There are many questions involved in this decision that must be carefully considered. For instance, should one hire a consultant on a permanent basis as an inside consultant, or hire an outside consultant each time a need arises? This paper explores the pros and cons of the working managerial relationship with outside consultants.

Opinions differ as to the advantages and disadvantages of hiring an outside consultant, as opposed to taking on another staff member. Consultants are supposed to represent the best and brightest in their given field. However, for every positive experience, one can find a negative one. Ultimately, blame usually falls on the consultant when things do not work out as planned. Yet more often, failed consulting relationships result from miscommunication and a mismatch in goals. The most important aspect of the relationship between executive leadership and the consultant is the ability to communicate goals clearly. If executive management and the consultant are not aligned on common goals and objectives, it is next to impossible to develop a positive working relationship.

When to Hire a Consultant

The primary question management must decide is when to hire an outside consultant and when to rely on internal talent. A related question is when to hire a consultant versus when to bring on a new employee. There are positive and negative aspects to each of these options. As other business sectors struggle under high energy prices and credit crises, the management consulting industry continues to grow. One of the key reasons for this growth is that as times get tough, businesses want to ensure they are operating as efficiently as possible (Daks, 2008). This is a primary reason why many businesses hire outside consultants.

However, the question remains: why not simply use internal talent? The answer is that an outside consultant brings a different perspective and can see things that someone inside the firm may not. There may also be political factors within the company that would prevent an insider from offering an entirely honest opinion. For instance, internal staff may be reluctant to criticize management's position on certain topics. Criticisms are more likely to be received objectively when they come from a paid consultant, as they are less likely to be taken personally from an outsider.

In a study by Koh, Ang, and Straub (2004), meeting supplier obligations was identified as the single most important factor in building excellent customer relations for IT outsourcing agents. In meeting these obligations, a consultant brings a variety of experiences that go beyond those of someone who has worked at the same company for many years. Consultants have encountered many different situations and therefore hold a broader perspective than an inside employee. They have seen what works and what does not (Paris, 2006). Consultants can focus on the specific problem at hand, rather than managing it alongside the many other normal activities of the workday.

Some managers question the real value attached to a consultant's performance. Consultants are expensive, and managers often wonder whether they received a good return on their investment. In a study involving practicing school psychologists acting as consultants, the presence of these professionals was found to significantly improve student outcomes (Winn, Skinner, Allin, et al., 2004). While individual circumstances and outcomes vary, this example suggests that in at least some cases, a consultant is worth the fee.

Executive and Consultant Relationships

One of the most important dynamics in the consulting experience is the relationship between executive management and the consultant. These relationships have the potential to be volatile, particularly when the consultant appears to be challenging management's established plans. Information technology is a field that tends to hire a high number of outside consultants, usually on a project-by-project basis. Lee, Miranda, and Kim (2004) identified three dimensions of IT outsourcing: the degree of integration, the allocation of control, and the performance period. They also characterized consultants as either independent or embedded.

Many times the sole selection criterion for a consultant is price. However, the ability to add value to the firm should be the primary concern (Lee, Miranda, & Kim, 2004). The objective of the firm is typically to maximize profits, but this cannot be achieved without minimizing costs. Managerial focus tends to gravitate toward maximizing revenue, while the consultant typically focuses on minimizing costs. Both functions are symbiotic, yet management often perceives the consultant as focusing in the wrong area (Lee, Miranda, & Kim, 2004). The resulting friction is simply a product of differing viewpoints and perspectives.

Another key factor in building a positive relationship is ensuring that the consultant chosen is matched to the goals and overall management style of the organization (Panepento, 2007). The selected consultant should be able to communicate effectively with management and share a similar vision of the desired outcomes. Personality conflicts between the consultant and upper management can be devastating to a project (Panepento, 2007). It is therefore important to select a consultant whose working style aligns with that of executive leadership.

Managerial opinions of what consultants are worth are decidedly mixed (Cocheo, 2005). The bottom line is that not all consultants are the same. The quality of the managerial relationship with the consultant plays a major role in how the consultant's services are perceived once the invoice arrives. A manager is more likely to view those services positively if the consultant was able to establish a good working relationship (Cocheo, 2005). Management must also be clear about what the consultant will and will not do during the engagement.

Managers often resort to hiring an outside consultant when they are in trouble. They frequently hold high aspirations and view the consultant as a kind of savior who will come in and solve all their problems. Often, the consultant tells them things they already know (Cocheo, 2005). In this scenario, the manager may feel they have not received their money's worth. However, this perception often stems from unrealistic expectations. The consultant's role is to advise — management and staff must take the actions necessary to improve the situation.

The most important factor in establishing a productive, long-term relationship is ensuring that managerial goals and expectations are communicated clearly from the outset. Communication is the cornerstone of a fruitful consulting engagement. Unless goals and expectations are established upfront, the consulting relationship is likely to fail.

Conclusion

The case for hiring an external consultant is compelling in terms of access to capabilities that do not exist internally. However, one must research references carefully to avoid engaging unscrupulous individuals. Executive management can foster a productive relationship with both internal and external consultants. The key to doing so is the ability to communicate common goals and objectives clearly. With proper attention to communication, the right consultant will add far more value to the company than their fees suggest. They bring a wealth of experience and an alternative outlook — the very ingredients that drive innovation in problem solving — making the external consultant worth every penny when chosen wisely.

Management must also be clear about why they believe they need a consultant. The external consultant will be focused on short-term goals, whereas the internal consultant is better positioned to develop plans that align with the company's long-term strategic objectives (Nevo, Wade, & Cook, 2007). The decision to hire either type of consultant ultimately depends on the goals and objectives of the company. Management must understand what a consultant can and cannot do, and must set realistic expectations — otherwise they will set themselves up for disappointment.

A productive relationship grounded in realistic goals and open communication can be exactly the boost a company needs. Consultants add value to the organizations that hire them by bringing innovation and a fresh perspective on the way the company conducts its business. They are an excellent asset, but management must be willing to invest the time in research and selection to find the right person for the job. Whether to hire an internal or external consultant depends on whether the company requires someone for the long term or for a specific, short-duration engagement. There is no universally correct answer — just as there is no perfect consultant suited to every company. Good communication and thorough due diligence remain the keys to a successful relationship and a positive experience.