Consulting Magazine - April 2020

Ialmost deleted the newsfeed in my email a few weeks back about Aon Corporation and Willis Towers Wat- son’s plan to merge in an all-stock deal. This was lastyear’s news, wasn’t it? Or was it a couple of weeks ago?And didn’t that deal fall through? I scratched my head. Itseemed like another instance of gaslight-by-technology,like when Alexa blurts out “Sorry, I don’t know that”when you never asked a question. The first thing I had todo was to confirm this news was current and real. It was.

Now I’m intrigued. I’ve followed both companies formany years, first as an industry insider and later as partof my research covering the HR consulting market forALM. At one time, their component businesses—HewittAssociates, Towers Perrin, and Watson Wyatt, along withMercer—formed the Big Four of the HR consulting world.They dominated the space for decades when it was drivenby employee benefits consulting, a mix of actuarial, brokerage, advisory and administrative services. This business, inturn, was dominated by defined benefit (DB) pensions consulting, a highly lucrative and dependable revenue streamuntil the 2000s, when employers started closing their DBplans to manage liabilities and reduce administrative costs.

The decline in DB consulting triggered market consolidation amongst the Big Four, beginning with TowersPerrin and Watson Wyatt’s merger forming Towers Watson in 2009. In 2010, Aon acquired Hewitt Associates,merging it with its own HR business, Aon Consulting.The largest deal occurred in 2015, when Willis Groupacquired Towers Watson to form Willis Towers Watson.

The strategic rationale behind these deals revolved largely around cross-selling commercial insurance products toan expanded base of large corporate and middle market clients. Consulting was rarely, if ever mentioned, despite thefact that Aon Hewitt and Towers Watson had been cultivating capabilities in strategic human capital consulting sincethe late 1990s. Both were known to be highly innovative,however, consulting revenues did not grow fast enough tooffset losses from the shrinking DB market.

I watched as Aon Hewitt and Towers Watson were
integrated more deeply into their parent companies’ in-
surance businesses. They lost their consulting brands, as
well as a lot of senior consulting talent to competitors.
They divested entire practices that did not align with reg-
ulatory-driven corporate strategies.

Towers Watson, for example, sold its Human Resources Service Delivery practice to KPMG in 2017. In2019, Aon sold a collection of human capital consultingpractices to executive search firm Spencer Stuart, retaining only those that supported Aon Corporation’s pivot toa solutions business, that is, the data-driven competen-cies of talent assessment, workforce deployment, andmarket pricing for compensation management.

Aon’s and Willis Towers Watson’s management presentation to the investor community makes no mentionof consulting synergies. This is not to say that eitherfirm does not value their consulting heritage or retainedcapabilities. The ability to provide strategic advice is acritical differentiator for insurance companies strivingto be perceived as C-suite partners rather than brokerspeddling insurance products. Even Mercer has been investing in its consulting value proposition by collaborat-ing more frequently with sister company Oliver Wymanand strengthening global capabilities in HR operationsand organization strategy consulting.

Consulting expertise is also essential to innovation.Who knows more than consultants do about the businesscontext for designing integrated solutions that help clients connect with their customers and suppliers? Digital business models, agile operations, technology-basedprocess transformation, predictive analytics. These arethe purview of management consultants, today’s sherpaguides through the fourth industrial revolution.

I think Aon and Willis Towers Watson are bothaware they need a consulting bona fides to succeed as arisk solutions business. They may not state this explicitly, but when you step back for a moment, you can seethat this deal is a significant marker in HR consulting’sevolution from employee benefits service provider tohelping clients understand, measure, and mitigate strategic business and people risks.