Customers don’t know what their needs are and consultants are having a hard time figuring out what their offerings are
Like so many of the customers they serve, HR consulting firms have felt the uncomfortable squeeze of competitive pressure in recent years.
For the most part, they say things are good. But it is clear they’ve been taking a hard look at what they’ve been doing, how they’ve been doing it and what they need to change to continue to thrive.
New models, methods and technologies and a changing cast of consulting characters combine with evolving client demands — which are in turn a product of larger business trends — to keep the industry in flux. The challenge for the consulting companies is to ensure services change accordingly.
“I think the business question for most of the firms in this market is, ‘What are my new sources of revenue?’” said Bruce Near, managing director of Towers Perrin Canada, in Toronto.
In terms of traditional business lines such as compensation and benefits consulting, there is a fair amount of stability in the industry, said Daphne Woolf, an independant consultant and industry observer who left one of the big firms a little over a year ago.
However, the large HR firms are also starting to feel pressure from new players. Big insurance providers are picking up some of the pension and benefits administration business, for example. In response, some of the consulting houses are developing more strategic HR and human capital management consulting, she said.
The problem is that the human capital market is still evolving, she said. There is a lot of uncertainty about what human capital consultants can and are expected to deliver. “Customers don’t know what their needs are and consultants are having a hard time figuring out what their offerings are.”
The reasons HR departments use consultants are the same as they’ve always been, said Near. People are looking for technical expertise in a specific area, objective knowledge and advice, familiarity with trends and best practices, and lastly, they sometimes just need extra people.
However, there are other, new forces at play, he said. Outsourcing has become a popular topic in many organizations and services related to outsourcing represent the fastest growing segment of Towers’ business.
But there has also been a shift in the consulting demands of customers, he said. “As the HR departments themselves reorganize and look to be more strategic and effective, they are focusing on more strategic issues,” he said.
“Not only are clients looking for ideas, they are looking for practical ideas,” he said. They want more than just theories. They want solutions they can implement. But that takes time and, in an industry based on billable hours, customers may be skeptical.
Customer organizations will always be suspicious about consultants trying to increase their hours, admits Near. But to solve client problems, consultants have to develop a thorough understanding of needs and underlying causes.
“To do that we are having to spend more time understanding the business, otherwise we are just bringing them theory. That takes time but it produces a better result,” he said.
Like Near, Michel Guay, the newly installed head of Watson Wyatt Canada, has seen a change in customer needs.
“The buying pattern of our clients has changed. They demand much more than they used to,” he said. “Our challenge as consultants is to find new ways of adding value.”
To do that, Watson Wyatt wants its human capital consultants to be much more attuned to the business needs than they have been in the past. The problem will be finding the consultants to meet that need. “The market for good consultant is really, really tight,” he said.
And while Watson Wyatt is competing with other large firms to attract the best consulting talent, it also has felt the pressure to attract consulting business from an unlikely source.
In the human capital consulting space, small companies and independents represent a significant factor, he said. The large firms have sophisticated services backed up by expensive technology and extensive benchmarking tools. But their services are sometimes too expensive for many Canadian businesses.
In fact, independents are having such an impact, Watson Wyatt decided to close down its Ottawa office. “There were a lot of government employees retiring early or being downsized who were setting up shop in the basement.” They can’t rival Watson Wyatt in range of services, “but when you look at the cost comparison they are much cheaper.”
The HR consulting landscape in Canada has changed considerably in the past few years, said Ron Lloyd, president of Hewitt Canada. After a number of buyouts and takeovers, there are fewer mid-size firms in the market. But that doesn’t necessarily mean less competition, since competition is emerging from new sources.
“At the end of the day, everybody is looking at what piece of the pie they can take,” he said. Firms like Fidelity, which are well established in the defined contribution market, are looking to pick up some of the defined benefit business. Such threats force Hewitt to reconsider what it must offer its clients. One response has been an aggressive move into the outsourcing market.
Lloyd insists, however, that Hewitt consultants aren’t overly promoting outsourcing. A lot of business comes from client referrals, and if they feel they are being over-sold on outsourcing, it would hurt Hewitt’s business down the road, he said.
Another response from Hewitt was to invest heavily in technology to improve service levels, he said. Technology has become an important part of every consulting firm, but Hewitt’s investments in technology will help separate it from competitors, he added.
New technology not only allows Hewitt to better manage administration work, it helps consultants deliver better solutions custom-designed to meet client needs.
“The days of consulting by a pen and paper alone are gone. Our customers expect us to bring some rigour to the analysis and that analysis is often done by technology.”
For the most part, they say things are good. But it is clear they’ve been taking a hard look at what they’ve been doing, how they’ve been doing it and what they need to change to continue to thrive.
New models, methods and technologies and a changing cast of consulting characters combine with evolving client demands — which are in turn a product of larger business trends — to keep the industry in flux. The challenge for the consulting companies is to ensure services change accordingly.
“I think the business question for most of the firms in this market is, ‘What are my new sources of revenue?’” said Bruce Near, managing director of Towers Perrin Canada, in Toronto.
In terms of traditional business lines such as compensation and benefits consulting, there is a fair amount of stability in the industry, said Daphne Woolf, an independant consultant and industry observer who left one of the big firms a little over a year ago.
However, the large HR firms are also starting to feel pressure from new players. Big insurance providers are picking up some of the pension and benefits administration business, for example. In response, some of the consulting houses are developing more strategic HR and human capital management consulting, she said.
The problem is that the human capital market is still evolving, she said. There is a lot of uncertainty about what human capital consultants can and are expected to deliver. “Customers don’t know what their needs are and consultants are having a hard time figuring out what their offerings are.”
The reasons HR departments use consultants are the same as they’ve always been, said Near. People are looking for technical expertise in a specific area, objective knowledge and advice, familiarity with trends and best practices, and lastly, they sometimes just need extra people.
However, there are other, new forces at play, he said. Outsourcing has become a popular topic in many organizations and services related to outsourcing represent the fastest growing segment of Towers’ business.
But there has also been a shift in the consulting demands of customers, he said. “As the HR departments themselves reorganize and look to be more strategic and effective, they are focusing on more strategic issues,” he said.
“Not only are clients looking for ideas, they are looking for practical ideas,” he said. They want more than just theories. They want solutions they can implement. But that takes time and, in an industry based on billable hours, customers may be skeptical.
Customer organizations will always be suspicious about consultants trying to increase their hours, admits Near. But to solve client problems, consultants have to develop a thorough understanding of needs and underlying causes.
“To do that we are having to spend more time understanding the business, otherwise we are just bringing them theory. That takes time but it produces a better result,” he said.
Like Near, Michel Guay, the newly installed head of Watson Wyatt Canada, has seen a change in customer needs.
“The buying pattern of our clients has changed. They demand much more than they used to,” he said. “Our challenge as consultants is to find new ways of adding value.”
To do that, Watson Wyatt wants its human capital consultants to be much more attuned to the business needs than they have been in the past. The problem will be finding the consultants to meet that need. “The market for good consultant is really, really tight,” he said.
And while Watson Wyatt is competing with other large firms to attract the best consulting talent, it also has felt the pressure to attract consulting business from an unlikely source.
In the human capital consulting space, small companies and independents represent a significant factor, he said. The large firms have sophisticated services backed up by expensive technology and extensive benchmarking tools. But their services are sometimes too expensive for many Canadian businesses.
In fact, independents are having such an impact, Watson Wyatt decided to close down its Ottawa office. “There were a lot of government employees retiring early or being downsized who were setting up shop in the basement.” They can’t rival Watson Wyatt in range of services, “but when you look at the cost comparison they are much cheaper.”
The HR consulting landscape in Canada has changed considerably in the past few years, said Ron Lloyd, president of Hewitt Canada. After a number of buyouts and takeovers, there are fewer mid-size firms in the market. But that doesn’t necessarily mean less competition, since competition is emerging from new sources.
“At the end of the day, everybody is looking at what piece of the pie they can take,” he said. Firms like Fidelity, which are well established in the defined contribution market, are looking to pick up some of the defined benefit business. Such threats force Hewitt to reconsider what it must offer its clients. One response has been an aggressive move into the outsourcing market.
Lloyd insists, however, that Hewitt consultants aren’t overly promoting outsourcing. A lot of business comes from client referrals, and if they feel they are being over-sold on outsourcing, it would hurt Hewitt’s business down the road, he said.
Another response from Hewitt was to invest heavily in technology to improve service levels, he said. Technology has become an important part of every consulting firm, but Hewitt’s investments in technology will help separate it from competitors, he added.
New technology not only allows Hewitt to better manage administration work, it helps consultants deliver better solutions custom-designed to meet client needs.
“The days of consulting by a pen and paper alone are gone. Our customers expect us to bring some rigour to the analysis and that analysis is often done by technology.”
