As more and more organizations have discovered the potential positive impact of coaching in a wider variety of professional roles, the challenges and cost involved in expanding the number of coaching engagements with external coaches has led to the rise of internal coaching as a sometimes more cost-effective and scalable alternative. Internal coaches provide the same potential benefits, and depending upon the skills and training of the coaches involved, may be equal or even superior to external coaches in certain circumstances.  The nature of the coaching engagement, however, is directly impacted by the position of the coach as either an external consultant or internal employee.  Both can be successful, but organizations that choose to build coaching programs around internal coaches need to be aware of the potential pitfalls and challenges involved when the boundaries between coach and coachee are not as clearly defined as in an external consultant relationship. In particular, issues of confidentiality, sensitive feedback and/or team boundaries must be addressed when internal coaching is used.  When it is important for the coach to have a particular expertise or background (e.g. executive-level management skills), an external coach may be more advisable, whereas when knowledge of the history or organizational context/culture is important, an internal coach may be more effective. 

The following article from the Society of Industrial-Organizational Psychology outlines the key distinctions and issues to be addressed in determining the best route, whether external or internal: