Managing Internal Consulting Organizations: A New Paradigm
Johri, H. P., Cooper, J. Chris, Prokopenko, J., SAM Advanced Management Journal
Internal management consultants are regarded as change agents and, like their external counterparts, are expected to influence and advise people, and persuade and help them to do things differently. Internal consulting is a refinement in the evolution of the staff concept in management, a concept that emphasizes making available to the manager a specialized resource within the organization to assist in identifying and studying problems and opportunities, preparing recommendations and assisting in their implementation. Internal consulting was, therefore, an organization's solution for dealing with some types of problems without permanently overstaffing each line unit or purchasing the service outside. It has proved to be a particularly apt solution when special skills are needed only periodically, or when problems cut across internal divisional boundaries.
Internal consulting functions started in different U.S. companies in different ways in the early 1950s. In some cases, the driver was decentralization and the specialization of company operations into profit centers, requiring more integration of the groups within the company. In other companies, internal consulting began as a systems and procedure function, like management information systems, management sciences, and industrial engineering. The main purpose of an internal consulting group (ICG) was to enhance the productivity of functional or product divisions through the provision of common services. Following these early beginnings, major forces propelled the growth of internal consulting during the 1960s. These included the need to allocate scarce professional competence, varied experience, full-time devotion to consulting, professional independence, and action orientation. Use of internal consultants grew in the 1970s, attributable to the fast-paced environmental and technology changes of that decade, and the need for growth, the absorption of new technologies, and more flexible organizational design. According to one estimate, 500 to 600 companies had internal consulting groups, and there were 7,300 internal management consultants about 12% of the total number of external and internal professional management consultants. In the beginning of the '80s, internal consulting was the fastest growing segment of the consulting business.
In contrast, there was an unprecedented and precipitous decline of internal consulting groups in the mid-1980s. According to Dekon (1987), "Economic strictures induced by the oil crisis, inflation, Japanese and other competition, the effects of the 1959 Tax Act, and a host of other factors, including merger mania, all conspired to decimate internal consulting." While it is true that the economic environment of the 1980s did play a significant role in this decline, there is evidence that many internal consulting groups had been poorly conceived and managed (Baranto, 1990). There is reason to believe that poor management of the ICGs might have contributed to their decline.
It is our purpose in this paper to discuss the management of an ICG and to suggest a framework for professional ICG management. In the next section we briefly discuss the changing internal and external environment of host organizations, and in section III we discuss emerging trend of outsourcing. In section IV, we discuss management practices that could be beneficially used by ICGs in this new organizational world. We introduce the concept of internal markets in section V, and in section VI develop some general principles for ICG management. Our conclusions are discussed in the last section.
Changing Organizational Environment
In North America and Europe, the growing concern of business enterprises is to remain competitive in the face of accelerated globalization. As a result, using information technology as an enabler, these organizations are restructuring their old-style command-and-control organizations and replacing them with information-based organization structures. …