CM: Given the time that has passed since Mercer Delta was first established, what can you tell us about how the vision behind the merger has or has not been realized?
Nadler: We're coming up on almost four years now, and I'd say that in every dimension, the benefits of this have far exceeded our expectations. … We're probably going to be two and a half times the revenue size we were when we joined Mercer. We've gone from being a company that had two offices in the U.S. to a company that's in four, maybe five countries shortly, with about nine or more offices.
CM: How has being part of Mercer helped you grow?
Nadler: There's a true collaboration environment here. A lot
of our business development is through company relationships that they have.
CM: Where does that begin?
Nadler: Well, there are four Mercer companies. But there are about six brands.
And in 2000, when we first came in, Peter Coster, who runs all of Mercer Inc., put together a group he called the "linkage committee." It was me (from Mercer Delta), someone from Mercer HR, someone from Mercer Management Consulting, and NERA (National Economic Research Associates) was involved. I was chairman of this committee.
Our job was to figure out how to create value across boundaries, and we did a lot of communication. Basically, we did things in which we got to know each other. We educated each other about the different firms and the other firms' offerings. I did that for the first year and a half, and then, with another acquisition, I passed that off to someone else. Today, we have joint account planning teams, we've done workshops, and we've done a lot of things bilaterally in which the companies get to know each other. I think there's just a large sense of partnership in the place. Meanwhile, this is also a public company. We all have Marsh & McLennan stock. There isn't a Mercer Delta stock, so I want to see my colleagues do well, too.
CM: How far do you go? How far do you want to collaborate or integrate these firms?
Nadler: Obviously, our efforts to collaborate are driven by the clients' situation, and you don't want to be perceived as just sort of indiscriminately cross-selling or pushing. You're an adviser, and when there are opportunities where we can introduce the other firms in a way that the clients find helpful, while keeping the clear identity of the individual firms, we will — because our broad strategy at Mercer is that of a set of specialist firms with deep specializations that can add value by collaboration. We don't think we can win by sort of trying to be "the integrating firm," because we're not. The fact is, each firm is organized differently and has different economic models, as they should, for different businesses.
CM: Due to the slowdown, Mercer, like many firms, needed to pursue some cost-cutting and job cuts …
Nadler: Last year, because the U.S. market changed dramatically, we did an adjustment, and we took out people, but we also hired people at the same time. … My own view is that consulting expenditures basically track capital investment. And when the capital investment drops, consulting also drops. And when it comes back, as at the end of the fourth quarter, then consulting comes back.
But there have been big changes in technology spending. The strategy business has probably suffered from the lack of a new Big Idea, and as you have more and more MBAs in companies, and some who have worked for consulting firms, the question becomes, What are you selling that I can't get inside my own company?
CM: Consultants tell us that the competitive threat posed by consulting units within corporations tends to be exaggerated, given that these units come and go.
Nadler: Yes. We've seen that cycle about four or five times in our area.
CM: But is Big Business this time around embracing certain kinds of internal consulting as more lasting parts of their organizations?
Nadler: I think it varies. But there are all kinds. There may be groups that do re-engineering, and obviously it may be based in IT or it may be based in the CFO's organization. There are other groups that do some of the kind of work we do that might be in the HR organization doing organizational effectiveness. I think they vary — they're usually specialized by function, discipline.
And at times, these groups can be very effective, and in fact there's one client where we're essentially training their people with our toolset.
But typically, the CEO is not going to turn to someone inside these units to help the company think about its board, its succession, or its senior team.
CM: We can assume that internal consultants will always have the disadvantage of never being able to truly position themselves as independent?
Nadler: Well, that's true, and no matter how good they may be, there is an awkwardness. In other words, if I'm inside one of these consulting groups, how do I go about talking to my boss's boss's boss?
CM: Mercer Delta continues to do acquisitions, but these are often small consulting outfits and have involved sole proprietorships …
Nadler: A lot of sole proprietors. We're looking for acquisitions in all of our markets. We did an acquisition in France. We did an acquisition in Canada.
CM: Mercer has been rather effective in holding on to talent — the senior-most people involved in these deals. How do you do it?
Nadler: Well, we do it a couple of ways. One, we structure deals with financial incentives and earn-outs, and in fact, these days in the consulting business you have to do that because of accounting requirements in the U.S. and Canada.
So when you're going to acquire a consulting firm, you have to build in an earn-out. And here it takes four years. And then, as part of that, the sense that if the senior people leave, they're going to damage the capability to make the earn-out, and that creates some social pressure from their peers not to go, and also economic pressure.
You then have to make it worthwhile for them economically when they're here. But ultimately, it's the basics. And if you want to make it attractive by the end of that, you have to say it's the nature of the work. It's the kinds of things they can do, it's the nature of the colleagues, it's the social environment, and you want to create a sense of that.
CM: Having mentioned the four years, should we expect to see Dave Nadler here two years from now?
Nadler: Yes. Nadler's four years are up about the end of May. I have no plans to be anyplace else but here.
And this really comes back to the driving reason for forming Mercer Delta. We did some work in 1998 about what was going to be our future, and we decided that what it would take to get to the next level would require more resources than we had or could generate, and this has to do particularly with the global part.
We were all U.S., and I think that in 2003, 47% of our revenue came from outside the U.S. And it's all profitable. And so — we could never have done that ourselves.
When we opened in San Francisco in 1995, it took us about three years to break even, and a lot of our cash. Here at Mercer we brought up our Paris office in a couple of months because we knew that Mercer had the infrastructure, the real estate, the lawyers, and some people we could move over, and within its first full year of operations, it was profitable. We could never have done that ourselves, either.
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