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© Copyright 2000 Rogers Media. The following article first appeared in the August 2000 edition of
BENEFITS CANADA magazine.
Beyond pensions and benefits
The 24th Annual Benefits Consultants Report looks at how the industry is evolving to meet plan
sponsors' needs.
BY KATHRYN DORRELL
Marilyn Reddick has a tall order when it comes to what she looks for in a consultant. The director of human
resources at Sunnybrook & Women's College Health Sciences Centre in Toronto rhymes off a list of
attributes that include "timely, efficient responses" and "absolute expertise." Then she pauses before
emphasizing her biggest need. "I want it to be a partnership. I need [the firm] to really work hard for me
as if they worked in this HR department, almost as an employee."
Reddick has guided Sunnybrook & Women's--one of the largest and most diverse healthcare institutions in
Canada--through a merger of three facilities and dealt with a slew of consulting firms in the process of
realigning various benefits and pension packages into one program for the existing 6,000 employees.
The breadth of change sweeping organizations such as Sunnybrook & Women's and their evolving needs are
redefining the consulting industry today. "One of the key drivers in our business is the changing nature of
organizations in Canada," says Bill Morneau, president of Toronto-based Morneau Sobeco, pointing to the
significant number of mergers and acquisitions and changes in organizational structure with the emergence
of e-business and companies going global.
"There's been a furious pace of change," adds Dean Connor, principal at William M. Mercer Limited in
Toronto--the no. 1 firm in BENEFITS CANADA's 24th Annual Benefits Consultants Report, which ranks the top
10 consultancies in terms of gross revenues for benefits, pensions and administration work. "For clients,
that means they have to restructure and merge pension and benefits programs," explains Connor.
"They have been saving up changes, thinking 'the next time we open up our compensation or retirement plan,
that's something to have a look at.' So [in the case of mergers], it's not just a question of bringing two
companies together, they've got to haul all these issues they've been saving up out of the closet. They've
got to clean-up house."
Teri Brown, national director of growth and development at Toronto-based Watson Wyatt Canada adds that
organizations are still dealing with the effects of downsizing. The combination of fewer in-house resources
and greater challenges, along with the overall trend of focusing on core competencies, has led more plan
sponsors to outsource their pension and benefits activities to the experts. "With the rate of change and
information that is coming in, they [organizations] just can't handle it on their own," says Brown.
PROBLEM SOLVERS
Evolving organizations are increasingly relying on consultants to be their big picture problem solvers, and
this is causing the industry to undergo a sea change of its own. "The biggest gradual change I'm seeing is
that our clients are looking to us for business acumen--the judgment that we can bring to solving their
business issues," says Bruce Near, managing director for the Canadian operations of Towers Perrin in
Toronto. "Our clients are coming to us and saying 'here's our problem, I need you to figure it out.' They
are looking for our expertise in helping them make the right decisions given what they want to do with
their business. I think that's a change."
More and more clients like Sunnybrook & Women's want consulting firms to operate as extensions of their
human resources (HR) department, and be as dedicated to their needs as an inside senior manager. "We are
making more of a commitment to more general HR issues than strictly the narrow definition of benefits and
pensions," says Dan McCaw, chairman and chief executive officer of William M. Mercer Limited. "[Questions
such as] 'how do I create a new culture, what should my workforce look like?' are typical of the dilemmas
that plan sponsors bring to the table."
The trends of outsourcing and greater demand for HR services are evident in the revenue and growth figures
posted by the 173 consultant firms that participated in this year's report. Overall, total gross revenues
have increased solidly by more than $110 million to $895.8 million from $785.3 million last year--or by
14%, the same percentage increase as in the previous year. The strongest performers this year are Hewitt
Associates LLC, ranked no. 6 this year, with a 32% increase in gross revenues and Mercer with a 24% jump,
followed by Morneau Sobeco (no. 4) with 19% growth.
In last year's report, Towers Perrin did not provide a break down of its revenue in four categories:
pension, benefits, HR and other. Similarily, Morneau Sobeco did not provide individual figures for pensions
or benefits this year, and while it lists $30,562.6 as its HR and other revenue total for the year ending
Dec. 31, 1999, the firm did not state individual figures for these categories.
This reporting significantly impacts BENEFITS CANADA's ability to provide analysis of year-over-year
changes. It's important to keep this in mind while reviewing the The Top 10 Consultants chart, which shows
industry-wide increases over last year's report for pension (9%) and administration (22%) and decreases in
all other categories: other (1.8%), HR (3.2%) and benefits (2.8%). On the benefits front, this area of the
business is growing rapidly for Mercer, according to Connor, who adds that his firm is increasing its
revenue in the category as a result of demutualization.
HUMAN CAPITAL FIRMS
Speaking of the new emphasis on HR that is transforming the industry, Connor says: "There is going to be a
race to become fully integrated human capital [firms] and some will make it and others won't."
This year's top 10 are already lining up at the winner's podium. When it comes to HR consulting, this
year's report shows that the group controls 74% of the business. This is particularly strong considering
that percentage does not incorporate any revenue figures for the second and fourth largest firms, Towers
Perrin and Morneau Sobeco.
While the industry's evolution is ripe with growth opportunities, change is challenging for any sector, and
consultancies are no exception. "For many years, compensation and benefits firms have traditionally
operated in a fairly narrow [fashion], organized by consulting disciplines," says McCaw.
"What we need to do--and to do more quickly--is address the fact the client doesn't see [their problem] as
a benefits, pension or compensation problem, but as a merger, an attrition or new business direction
problem," he adds. "It's up to the [consultants] to figure out which pieces of the disciplines are
necessary to solve the issue."
As stated previously, several consulting firms did not provide a breakdown of their revenues this year.
They say that they are addressing big picture issues as opposed to specific problems and no longer keep
track of their business in traditional silos. As a result, for the first time since the inception of the
report, BENEFITS CANADA is not providing a breakdown of the top five firms by discipline.
Marilynne Madigan, senior vice-president of Aon Consulting Inc. in Toronto, concurs with the need for the
industry to rethink how it envisions and tackles clients' problems. "We have to work really hard and in
partnership with the [whole] industry, with insurance companies and plan sponsors to really start thinking
not just outside of the box, but way, way over the edge--beyond traditional pensions and benefits and at
the concept of creating a flexible work environment from its most macro level. Then [we need to look at]
how we deliver services and HR programs to employees. It's a really new phenomenon."
Gretchen Van Riesen, director, pension and benefits policy, Canadian Imperial Bank of Commerce in Toronto,
thinks that this approach of rallying the industry troops and providing innovative solutions is long
overdue in the area of drug plan management.
"I'm not just talking about the old 'let's figure out how to cap and manage cost,' but about a really
innovative design that helps plan sponsors address the issue that we are not in the business of drugs,"
says Van Riesen. "I have not seen any creative type of design brought to the sponsor community to help us
out [on this front].
"Consultants should act as advocates of change when they see a gap in the marketplace and I don't see them
doing this," she adds. "[They] should be leading us [on this issue] rather than waiting to be pushed by
their clients. That's how they get credibility among plan sponsors--shepherding things and changing the way
we think."
ATTRACTION AND RETENTION
The other area of notable concern for many plan sponsors is employee attraction and retention. In fact,
Reddick of Sunnybrook & Women's College says it's the most important issue on her desk at the moment.
"Organizations are really realizing the value of human capital," observes Brian Kennedy, managing director
of Watson Wyatt Canada in Toronto. Connor adds that HR issues such as attraction and retention are now one
of the top two or three items on the average CEO's plate. "[They're asking] 'how do we make sure we get the
right people?' and 'how do we make sure we keep the right people?' That comes back to us in terms of
creating a pretty huge demand for our services."
For her part, Madigan stresses that the industry must look at the big picture--"total rewards and
compensation in everything that we are doing and everything that we are delivering."
Reddick says it's in areas such as attraction and retention that she looks to her consultants at Buffett
Taylor in Whitby, Ont. to pull out all the stops and suggest solutions that are "outside the box." Indeed,
Reddick says she selected the medium-sized operation as Sunnybrook & Women's new consulting firm after
the merger because she thought it had a more innovative approach than larger firms vying for the contract.
In other areas, Morneau and Near say plan sponsors' interest in flex benefits remains strong. But they are
observing a move away from pure defined contribution (DC) pension plans to a hybrid approach that combines
elements of both DC and defined benefit plans.
As always, cost containment is a concern. But there is also a new attitude emerging in this area. "I don't
think anybody expects that they can realistically cut their benefits costs by 20% immediately," says Near.
"But they are sure looking at how to keep it growing at single-digit numbers as opposed to double-digit."
Technology is yet another factor that is transforming how both plan sponsors and consultants do business.
Madigan says there is a significant interest among organizations in online solutions. Both Morneau and
Madigan agree that employees are creating this demand.
"New business will be driven by technology and online services. Our traditional practices will fall in
under that," says Madigan. Connor adds that Mercer is transforming its outsourcing business into an
e-business, which will allow employees and plan sponsors to access pension and benefits information through
the Web.
The expense of online, real-time systems is an issue, however. "Everyone realizes it's the better way to go
but it costs money," says Morneau. In addition, it remains to be seen who, in the long run, will pick up
the tab--plan sponsors, employees, in terms of fees for online services, or consultants.
"For a firm like ours to be leading edge in technology is incredibly expensive," adds Near. "The trade-off
though is that as expensive as technology is, people are probably more expensive so what we are deriving
from the investment in technology is a lesser reliance on people."
Pointing to the enormous expense of investing in online systems and the need for high-tech staff to support
them, the large players say technology is one reason why they're consuming more marketshare.
This year, the top 10 moved up another notch--1% over last year--to control 91% of the industry in terms of
gross revenues, up from 73% in 1991. In terms of pension, benefits and administration, the top 10 control
94% of the business.
"That may be true nationally, but not at the local level. Regionally I think the shift is [different],"
declares Kevin McFadden, benefits consultant with Sigurdson, McFadden & Associates, a Winnipeg-based
firm with about 150 clients. "Here, there are about four or five good consulting firms that are growing
their marketshare at the expense of the large consulting firms."
David Krieger, president of Krieger and Associates in Toronto, another small firm, concurs with McFadden.
"Globally, the business is dominated by large, powerful corporations, but I think there's a thriving
community of small Canadian bright lights. We differentiate ourselves by being independent, original and
passionate about our work."
Although the report shows that large firms clearly monopolize the business in terms of gross revenues,
BENEFITS CANADA's latest E-poll indicates that small firms are still popular. Indeed, 44% of respondents
prefer small consulting firms, while 34% say they would select a medium-sized operation. Only 22% of
respondents indicate that they prefer large firms (see "What size consulting firm are you most comfortable
with?" page 13).
Contrary to what the big guys say, McFadden maintains that technology has helped his firm grow in Winnipeg,
giving it access to more resources, notably health databases and prescription drug card reports. "It's
information that we wouldn't have had access to before unless we had really deep pockets or a back shop
that local consultants wouldn't have."
Back in the big city, Watson Wyatt Canada's recent acquisition of the Toronto-based pension and benefits
business of KPMG at the end of June demonstrates that at least some players in the top 10 are still looking
to expand. "We wanted a stronger Toronto operation and to improve our marketshare and this is an excellent
way of doing it," says Wyatt's Kennedy.
Watson Wyatt is the only firm in the top 10 to report lower gross revenues this year, with a decrease of 5%
over last year. But Kennedy says when the firm's year-end revenue figures as of June 30, 2000 incorporate
its newly acquired KPMG assets, they stand at $75 million. That figure is certain to shake up the top 10
ranking in next year's report and put Wright Mogg and Associates Ltd. (which reported benefits, pension and
administration revenues of $6.9 million) back on the list. It will also help to ensure this group of
emerging human capital firms continues to consume an even greater portion of plan sponsors' business.
Kathryn Dorrell is associate editor at BENEFITS CANADA.
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