We’ve seen consolidation across a range of service providers in recent years, including insurers and custodians. Now it’s the consultants’ turn. Towers Perrin and Watson Wyatt joined forces to form Towers Watson (14,000 employees globally), completing the transaction in January 2010. And in October 2010, Aon Corporation completed its acquisition of Hewitt Associates to create Aon Hewitt (29,000 employees globally).

Leaving fewer players in the pension and benefits marketplace, this consolidation has also given rise to the “super consultant”: moving innovative thinking forward faster, more powerful at the global level, with robust resources and research. But just how super is this super consultant? And how are smaller players reacting?

Living large
While a merger typically has a financial benefit for the newly created firm and its shareholders, merging is not simply about the bottom line. There are also competitive advantages relating to scale, expertise and resources.

“Both Aon and Hewitt were global, but now we’re in an even stronger position to support our global clients,” says Brendan George, region director, Western Canada, with Aon Hewitt. The legacy firms were doing great work independently, adds Sarah Beech, region director, Central Canada, with Aon Hewitt, but their combined strength has enabled them to bring broader expertise to various areas. She points to changing drug legislation as an example. “We have teams [working] together; we have analytics working together. We’ve already brought the strategies and solutions to market across the country in the form of breakfast seminars and meetings with our clients.”

Joseph Ricciuti, managing director for Canada with Buck Consultants, says another advantage is the ability to tap into more resources to conduct research. “When you’re small, it’s difficult to allocate time and resources to do meaningful research. The recent mergers, including Buck–Xerox, afford the bigger organizations the ability to continuously innovate and differentiate their products and services.”

All of this can bring a competitive edge to the larger merged firms, but where does that leave the smaller players? Todd McLean, a principal with Eckler Ltd. (with a staff of 250), doesn’t think the consolidation will have a significant impact on the mid-size, boutique and regional firms. “Industry mergers to date have been largely between firms that are quite sizable and global to begin with, so I’m not entirely certain what new advantages such mergers will bring to clients,” he says. “The big firms are getting bigger, but our clients still prefer the highly personalized touch they experience when dealing with a smaller, boutique type of firm.”

Michael Worb, president and CEO of Pal Benefits Inc. (20 employees) adds that the recent consolidation has created opportunities for boutiques and regionals. “Because the consolidated firms have gotten so large, it’s very difficult for them to get into the mid-size market—where the regional players flourish—and to get into it profitably.”

Consolidation challenges
Of course, any merger comes with its own internal issues, including technology. Kevin Aselstine, managing director for Canada with Towers Watson, admits that tech issues don’t enable employees to work as efficiently as they would like. George adds, “There are challenges when operating under two systems. The key is to try to reduce or eliminate the impact it has on your day-to-day working life while you’re waiting for an integrated system.” But Aon Hewitt is making good progress, he says, as its separate financial systems have now moved to a single system.

Another challenge is consolidating locations. Towers Watson combined its Vancouver offices back in October 2010, 10 months after the merger. “It wasn’t really until October that we started gelling as a team—when people really started working together,” says Laura Samaroo, managing consultant in Towers Watson’s Vancouver office.

Working together in a merged firm also means adapting to a new workplace culture and changing the mindset of employees. “How do you work with people you were competing so heavily with historically?” asks George. But he adds that this has proven relatively easy in the Aon Hewitt experience.

From Towers Watson’s perspective, Samaroo adds that to effectively manage internal changes, communication is critical. “You just cannot communicate enough, especially on the personal, local and face-to-face levels.”

Small-time opportunities
Most consultants think further consolidation among the larger consulting houses is unlikely, but that does not stop the acquisition of smaller players. Eckler, for example, has been a potential acquisition target, but to date it has declined any offers, preferring instead to remain an independent consultancy. Worb has also seen some of Pal’s peer companies in the U.S. consolidate (in January, for instance, Mercer acquired investment consulting firm Hammond Associates)—a trend likely prompted by the challenges that come with being small (e.g., less access to comprehensive data to help clients make decisions). “If you read the financial statements of any of the public companies, their margins are very thin, and they need to get bigger in order to survive.” Mid-size and smaller consultants have to work harder to provide the extra touches (e.g., great customer service, strong relationships) that get—and keep—clients, Worb adds.

When you’re small, it’s difficult to allocate time and resources for research

But being small has its advantages. Worb says Pal, as a privately held and much smaller organization, can manage costs a little more effectively, since it doesn’t have the overheads of some of the larger players. There’s also the nimbleness factor. “We can listen and respond to our clients a lot quicker,” he says. For example, a friend of Worb’s working at one of the major firms says a request for proposal (RFP) may go through three or four channels and two or three different reviews. “When we do an RFP, it must also be reviewed by a number of people, but decisions are made fairly quickly,” Worb adds.

A people business
When a firm goes through a major merger, it must not lose sight of the clients it serves or it could risk losing business, says Ricciuti. “It’s a slippery slope because the natural tendency is to focus inward on operational efficiencies and cultural harmony. The result can often produce disruptions in client-facing relationships that impact work quality and service delivery.”

Consulting is a people business, and Worb adds that talent lost to mergers can be discouraging to clients. “It’s leaving some customers wondering how they will be served. Will it be by a junior consultant?” Both Pal Benefits and Eckler have gained some new business. “It’s usually [plan sponsors] that are expressing some frustration in being either pulled back to an organization they don’t want to deal with or just the distraction of the merger,” says McLean.

For Aon Hewitt’s part, while there have been layoffs at the corporate level, Beech says the talent loss on the front-line consulting staff has been nominal. “We really have had a complementary business as opposed to an overlapping business.” George adds that Aon Hewitt is in a “growth mode,” hiring in all of its practices. “We’ve added a significant number of people since the beginning of the year and probably [will add] about 5% of our workforce in the coming year.” Aon Hewitt has also been successful in winning new business since the merger, Beech says. “There are examples I’ve worked on where we are much better positioned with a breadth of experience to serve new clients, as well as existing ones.”

Plan sponsor’s perspective
What does all of this mean for consultants’ clients? Consolidation should not affect plan sponsors at the sponsor level or at the member level, says Sandy Warmington, benefits and HR administration manager with Ricoh Canada Inc. The challenges that come with any merger should not be “visible” to the plan sponsor, she adds, and “there should be no change in the level of service or quality of service that the plan members (employees) are receiving.”

Plan sponsors build relationships with their consultants over time, Warmington explains—relationships built on trust and synergy. In a merger situation, she says the only reason a plan sponsor may remain with its consulting firm is the quality of the individual consultant or team. If the consultant is not the right fit—or is not able to provide that level of service—the plan sponsor may very well send out an RFP. “That’s how important the role of the consultant is.”

George says Aon Hewitt’s clients have been positive on the merger for the most part, but he does so with a qualification: “As long as we don’t change their teams or the people they deal with or reduce the service level.”

Big or small, maintaining close relationships with their clients is paramount for consultants. And the merger experience may have given the super consultants some insights into what their clients are facing. Consolidation has been an interesting experience to go through from the “other side of the fence,” Aselstine remarks. “I have had a number of clients very keenly interested in how our merger activities were going. Many, tongue in cheek, have said, ‘We’re watching you.’”

Brooke Smith is managing editor of Benefits Canada. brooke.smith@rci.rogers.com

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Copyright © 2019 Transcontinental Media G.P. This article first appeared in Benefits Canada.

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Neil Craig:

Good luck to them. My guess is you will have fewer consultants at those firms as a result of the consolidation and ultimately less service for the clients.

Friday, August 19 at 5:51 am | Reply

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