At ALM Intelligence, we are always fine-tuning our research agenda based on the shifting trends that impact consulting demand and the market forecasts generated by our proprietary market data model. When a recent outlook showed an uptick in client spending on risk management consulting, I wondered if any of that was driven by the buying center I study, which is the human resource (HR) function and c-suite stakeholders who influence corporate spending on HR consulting. After all, I reasoned to myself, HR has made great strides in recent years helping organizations get the most out of their people by collaborating with their counterparts in finance, operations, and IT. Why not collaborate with the risk function? The convergence of talent management and risk management seems a natural response to the meltdown in business ethics exposed by the 2008 financial crisis and innumerable events since, where the human element has proved a crucial variable in the risk equation. I set out to explore this hypothesis in my current research and what I learned was both validating and surprising.
Growth Validated Demand for human capital risk management consulting is indeed on the upswing. ALM Intelligence’s forecasting model shows a pattern of growth extending through 2018 that I expect to continue into the next decade based on conversations with consultants and a review of the business literature around risk management. For starters, human capital risk management is on the cusp of becoming an advanced management science, thanks to increasing standardization in the face of complexity, stronger links to organization theory, and innovations in data analytics. Providers now have a toolkit and common language for helping clients articulate their human capital risk concerns and understand how they relate to a much broader range of risk factors. They are also bringing an evidence-based value proposition to the business case for spending on consulting interventions, one that kick-starts the discovery phase by showing the material impact of human capital risk on business performance in real and modeled scenarios. With these capabilities, providers are shifting fundamental mindsets from reactive to proactive modes for dealing with human capital risk across three broad categories of demand.
Increased complexity of core HR risks. The core of human capital risk has always been compliance with labor law and regulations related to employee benefits, compensation, workplace safety, and workforce management, e.g., time and attendance. These HR services have become more complex due to globalization, worker mobility, and the impact of volatile markets on benefits provision. Consulting providers are developing sophisticated digital solutions and analytic tools that not only work alongside clients’ administrative systems, but also use predictive analytics to detect and report sources and patterns of risk.
Board oversight of intangible human capital risk. Corporate boards are taking a more active role overseeing intangible human capital risks, such as organizational culture and personal accountability. In the UK, for example, regulators are rolling out new rules in 2017 that hold senior management in the financial services sector personally accountable for business decisions that could result in severe consequences or loss to the institution. This has been generating tremendous demand for independent consulting reviews and assessments of board governance practices in advance of the roll-out. Globally, boards have intensified their focus on cyber security, and consultants are helping to expand their perspective beyond the technology challenge to understand how culture and conduct contribute to cyber risk.
Adoption of enterprise risk management. Human capital risk management is a building block of enterprise risk management (ERM), the process increasingly embraced by risk managers across sectors for its holistic approach to managing all aspects of business risk. The de facto standard for ERM process design, developed by The Committee of Sponsoring Organizations of the Treadway Commission (COSO), is being updated to emphasize the relationship between organizational culture and strategy execution in managing enterprise risk. COSO is seeking public comment on the draft proposals through September 30th and when the final framework is introduced, ERM adoption is expected to grow, which will have a corresponding impact on business leaders’ understanding of how people can both drive and mitigate enterprise risk.
The Surprise What I found surprising is how the consulting market is responding to a critical client issue that is gaining momentum in today’s complex operating environment. While I had not expected an oversaturated marketplace with undifferentiated service offerings, I also did not expect to see the tepid, outdated responses characteristic of so many providers. I sensed something unusual early in the research process, when I reached out to nearly 40 firms to inquire about their human capital risk management consulting capabilities. The majority that responded said “we don’t do that” or “we don’t go to market with a dedicated service offering”. I found random white papers and a framework or two from these firms, but no evidence that they had applied a risk paradigm to their HR and talent management capabilities which, for some, are pretty well advanced.
The consulting responses mentioned in the discussion above can be attributed to a handful of firms that have been ringing the ‘human capital risk’ bell for over a decade. These include the multidisciplinary consulting practices of Aon, Deloitte, EY, KPMG, and PwC, and a few small to mid-sized providers focused on specific consulting verticals, for example, CCA and HR Logistics. These providers also remain committed to the competency and are investing to grow their capabilities. Anecdotally, they report fast growing revenues and almost daily calls from anxious clients seeking help not only with identifying and mitigating human capital risk, but in developing an organizational capability as part of an overall defense system.
Liz DeVito is the Lead for HR Consulting research at ALM Intelligence. To learn more about her latest research title, Human Capital Risk Management Consulting, please click here.