If you're a CEO or in leadership, you're often going to be faced with the question of what to do when your company’s data needs outstrip what your IT department, analysts, or engineers can currently handle.
The answer might seem obvious: hire consultants. But consultants are like ordering takeout—relying on them too much can be unhealthy for your business.
In this article, I'll help you sort out when it makes sense to bring in consultants versus either adding more staff or developing your staff's skills.
Why hire consultants
There are several circumstances where it makes a lot of sense to use consultants.
Quickly ramping up and down
One of the biggest advantages of using consultants is the most straightforward: you can bring consultants on board quickly when you've got more projects than your current staff can handle.
For example, if you need to build out a new Node.js web app and your Node.js developers are booked up for the next couple of months, it's much faster to use consultants. By the time you'd gotten permission to hire someone, possibly spent time writing up a job description and figuring out salary, started looking for candidates, interviewed candidates, found the developers that fit the bill, and got them on board, the window for producing the app may have passed. And that's assuming that you can quickly get the go-ahead to hire more people.
Also, if you either don't think you're likely to need more developers after the web app is finished or you simply don't know, do you really want to go through all the administrative and emotional work of quickly hiring people only to lay them off?
Keeping FT headcount low
Even if in the abstract it would make sense to add on more staff, many companies rely on consultants because the company's budgeting rules strongly favor keeping headcount low and/or taking a long time to increase headcount.
Mind you, relying on consultants instead of increasing headcount can end up wasting a lot of money. It's not uncommon for CEOs to feel good about not having increased headcount while spending far more money on consultants over several years than they would have if they had just hired more staff. But if that's how your budget rules work, consultants often make more sense.
Quickly tapping into expertise you don't have on staff
Another common reason why businesses hire consultants is that consultants can be a fast way to bring in expertise you don't have in-house.
In part that's because there are consultants who specialize in particular systems or industries. Got a tricky Salesforce implementation to tackle? There are lots of consultants with a ton of experience.
An added bonus of consultants is that they often bring a valuable perspective because of the nature of their work. Because consultants work with many clients, they quickly gain experience in a lot of contexts. As a result, they are more likely to have hands-on expertise in a variety of best practices...and cautionary tales.
Speaking (a little more) truth to power
The last reason to hire a consultant is that they don't have to worry as much about internal politics. They can afford to speak up about politically sensitive issues—and they can afford to engage these issues more directly.
Obviously, there are limits to this if the consultant hopes to maintain a long-term relationship with the client. Even so, they've often got more room to maneuver than folks who are in-house—especially if they are trying to position themselves as experts, where not toeing the party line can be useful in the long run.
Finally—and sadly—it's often easier for Higher Ups to hear bad news from people outside the organization. More than once I've seen a manager bring in an outside consulting firm to repeat the same points that staff have repeatedly made to folks further up the food chain. And while it can be quite aggravating to see a senior staff person say, "that's a really good idea!" to an argument they’d already dismissed from an internal employee, sometimes that's the price of convincing folks to change their mind.
The value of in-house analysts
While there are certainly many advantages to using consultants, there are just as many advantages to doing data and analytics work in-house. Here are some of the most important ones.
Knowing your data
Your analysts already know a fair amount about your business and your data—and all of their quirks. If you are mostly working with, say, Hubspot or Shopify data, consultants can be quite effective. But if you have a lot of custom data models, and if they are complex, a consultant could end up spending a lot of time before they understand the ins and outs of your data.
Also, if you bring in consultants and they learn a bunch about your business's data that you didn't already know, that knowledge goes with them when their contract ends. In contrast, any knowledge that in-house analysts produce about your organization's data stays with your business. And since having a deep understanding of the data is critical for beating the competition, do you really want to pay good money only to have that knowledge walk out the door?
This one’s controversial, but in my experience, companies often rely heavily on consultants because they underestimate how much ongoing work they need. It's easy to think that all you need to do is to fill the gap for an unexpected project and then demand will go back to normal. And then you end up doing it again 3 to 6 months later. And again. And again.
The hitch is that you may be charged for all of that work at a significantly higher hourly rate than it would cost you to fill a full-time position (including benefits). Remember, consultants bake healthcare costs into their contracts too, plus have to charge you enough so that they can cover the costs of acquiring new clients, writing contracts, and the cost of periods when they don't have enough work coming in. For a short-term contract, the trade-off can be worth it. But if you are constantly using consultants, those additional costs are going to add up.
Moreover, in-house analysts can be "on-call" in a way that consultants just can't; they have to juggle the needs of all of their clients.
Finally, in-house analysts can be a much more cost-effective way of exploring new tech. For example, if you're interested in checking out what pandas could do for you, it might be worthwhile hiring an expert in pandas to build a proof of concept. But if you're really not sure it's going to pay off, it might make more sense to ask your in-house analysts to play with it whenever they have room in their schedule. That way it doesn't cost you any additional money—and it gives your staff a chance to do something fun and develop their skills.
Developing your staff's expertise is a good retention strategy
Speaking of developing staff's skills, bringing work in-house can also be a great strategy for retaining staff. As your needs get more sophisticated, if you train up internal people they’re more likely to stay.
Or to put it another way: if you send most of your cool, cutting edge projects off to consultants, why should staff do more than punch a clock? For that matter, why should they stick around? You may save money in the short term using consultants on projects that use new tech, but it could cost you a lot more in the long run if it hurts morale and increases turnover.
How to decide when to bring in a consultant
Here's how to weigh the pros and cons of hiring consultants versus investing more in your staff:
- Budget/business model. If adding to headcount is a real hassle, or if you've got budgetary constraints or board requirements that force your hand, there’s no sense worrying about any other pros/cons. Plus, it gives you something to complain about over drinks.
- Type of project. If the project is fairly bounded and doesn't require too many months, a consultant could be a good choice. But if it's fairly amorphous, you could find yourself still forking out a lot of money every month 4, 5, or even 6 quarters down the line.
- Demand variability. If the demand for labor is likely to be relatively consistent, do the work in-house if you can. If it’s likely to fluctuate dramatically, hiring a temporary consultant may make more sense. In fact, sometimes consultants are a good fit for “seasonal labor” for specific business uses, such as getting data together for fundraising or big audits.
- Velocity. If you need to quickly ramp with a very complex technology that your staff doesn’t know, bring in a consultant. Buuuuut, you’re more assured of full time staff being able to crank out long hours for a project than a consultant who has to keep multiple clients happy.
You might also want to consider merging the two approaches. You can bring in a consultant to quickly build the foundations of a new product and then handoff the rest of development to your in-house staff. Similarly, if the main issue is a lack of expertise, bringing in a consultant to train and mentor your in-house staff can give you the best of both worlds.
What it comes to consultants versus staff, there is no simple answer; it all depends on your business' particular circumstances. But now that you have a better analytical framework for understanding the strengths and weaknesses of both, you should be in a better position to make a choice that will help your business thrive.