Each issue, Kennedy Consulting Research &
Advisory (KCRA) offers a take on the current
state of the consulting profession
Liz DeVito is Associate
Director, Lead for HR
Consulting Research for
KCRA where her focus is
human resources (HR)
consulting, covering the
human capital management
and HR transformation
Why HR Consultancies Should Care About The Big 4
During the recent round of earnings
calls for Human Resources consulting
firms, it became increasingly clear
that these providers’ growth strategies are shifting the dynamics of the
HR consulting landscape, creating
greater space for competition from
the fast-growing HR advisory businesses of the Big Four.
The tension reflects challenges providers
are facing around designing a business
model that is client-focused and growth-oriented in the context of core consulting
competencies, but also competitive in
the open market. It was essentially a
good quarter for Aon Hewitt, Mercer
and Towers Watson, with organic growth
ranging between 3 percent and 7 percent.
However, much of that growth is coming
from non-consulting businesses, such as
private health exchanges and delegated
investment outsourcing with their pricing
models based on commissions and assets
Don’t get me wrong. These services
have substantial consulting components
during the assessment, design and
execution phases. And once they go live,
they become a source of recurring revenue,
as well as a very sticky relationship that can
generate further consulting opportunities.
The problem is that it reinforces the
market perception of HR firms as primarily
benefits consulting providers.
Nowhere is this dynamic more clearly
reflected than in Towers Watson and
Willis Group’s merger announcement. The
strategic rationale for the deal emphasizes
the synergies and growth opportunities to
be derived from insurance-based services,
such as private health exchanges and global
health benefits broking.
While the deal will put the firm on a
more equal footing with Aon Hewitt and
Mercer, it does little to shore up its hard-earned and well-deserved reputation as an
innovative human capital consultancy.
Furthermore, Tower Watson’s sale of its
HR Service Delivery practice to KPMG
removes the firm from the lucrative HR
transformation consulting market at a
time when organizations of all sizes are
reinvesting in the HR function.
Meanwhile, the Big Four HR advisory
businesses continue to grow. According to
Kennedy estimates, these firms exhibited
HR consulting revenue growth between
5 percent and 10 percent in calendar year
2014 over 2013.
Some of this growth, of course, can
be attributed to inorganic strategies,
however, the Big 4 have come a long way
towards improving service delivery by
integrating HR offerings from adjacent
business lines, including strategy, tax
and transactions consulting.
But what I find most intriguing is the
level of innovation coming from The Big
Four. They are leading in the design of
new HR operating models, the practical
application of data analytics across all
manner of HR engagements, and more.
Most importantly, clients are responding
with greater demand for integrated services
to upscale HR operations.
The shifting dynamics of the HR
consulting landscape were neatly
summed up in a recent conversation I had
with an HR executive at a Fortune 500
company who is currently working with
a Big Four firm on a global project.
This HR executive said, “If I had
known when I was in my prior position
about the Big Four’s capabilities, I would
have been very nervous.”
BY LIZ DEVITO