Things to think about for 2013: (3) HR consulting firms

This is the third in our series of blogs looking at the prospects for different segments within the consulting industry.

One of the striking things about HR consulting firms from a client’s point of view is that there aren’t many of them.  With the services of the big firms increasingly seen to be commoditised and the genuine specialists hard to find, this €1.1 billion segment of the consulting industry isn’t growing.

The market for traditional work around compensation and benefits, while unlikely to disappear, has been contracting.  But, at the same time, incumbent firms are facing competition on two main fronts: from the Big Four (particularly where finance is involved, in de-risking pension schemes, for example –a market that is also attracting investment consultants and even banks) and from technology firms (which see opportunities to outsource benefits administration).  The result is chronic over-capacity.

That leaves us with the overwhelming sense that this is a make or break moment for the HR consulting industry. Clients didn’t start turning their backs on the incumbents because they weren’t interested in managing people any more, but because they’d stopped hearing anything new.  Innovation will therefore be critical – a point not lost on HR firms themselves.  But that’s not the only challenge this segment faces.  For bigger HR firms the focus will be on diversification, particularly into areas around risk, the health and productivity of the workforce and international human capital management, and on working on large-scale projects.  Clients, despite showing a strong preference for specialist skills, often remain keen to buy multiple services from one firm; they’re also looking for a combination of advice and implementation support, and help in applying new technology (such as enterprise social media).  Specialist HR consultancies, meanwhile, have a once-in-a-generation opportunity to establish their credentials and ability to work across borders in clients’ eyes.  And for both groups, business models will need to change, with more work being done in low-cost, usually offshore locations and a subtle shift towards using freelance experts in some specialist fields.

In this – I think now quite accepted – context, the one thing that will matter in 2013 is speed.  Having been standing on the edge of change for so long, the HR consulting industry is rapidly reaching the point of no return: change or die.

If you missed our recent webinar on HR consulting firms, you can get a recording of it and the slides by emailing Alice Noyelle.