Despite the economy, the firm just had its best year in a decade. Now, leaders are looking to hot-button HR issues—retirement, benefits and leadership development—as key drivers of future growth.
By Jess Scheer
With the Watson Wyatt and Towers Perrin mega merger now closed—and the new Towers Watson up and running—one might think the HR consulting landscape will need some time to settle. Not so fast, say the leaders of Aon Consulting. They've recently completed a five-year reorganization plan and are ready to reinvest in the firm's future.
Despite all of the profitability pressures facing HR firms, Aon Consulting is on pace to come out of 2009 with its best margins of the decade. Through the first three quarters of 2009, the firm's consulting margins are at 15.7 percent, tying its high water mark set last year.
The firm's profitability improvements are the result of a multi-year plan. The firm's restructuring began in 2005, with, among other steps, the elimination of 3,600 employees. As that three-year plan began to wrap up, Aon announced plans in 2007 to eliminate another round of 1,600 positions and move offshore or outsource an additional 1,100 jobs.
Specifically within Aon Consulting, the task was to create a global firm out of the more than 30 separate acquisitions of country-specific consulting businesses, explains Andrew Appel, chairman of Aon Consulting. "What we inherited was a wonderful portfolio of businesses in 80 countries, but no one had really looked at it in terms of building a single world-class organization with top quartile margins."
The insurance and HR giant has now emerged from this period much stronger for it. Compared to Aon's peers, "our margins were at the bottom of the group, now we're at the top," says Baljit "Bal" Dail, CEO of Aon Consulting.
What's all the more impressive about the improved margins is that they come at a challenging time for the HR consulting space. "Clients are entrenched. There is no discretionary spend and overall spend is down," Dail says. "This is a global recession. And is the deepest in recent memory." "This is a really difficult time to be a consultant," Dail says. "Clients are becoming increasingly more sophisticated. Many are former consultants."
Aon's leaders used the downturn to "refocus on each of our services to figure out how we add value. It takes a massive amount of work to do that well. But I think the outcome will hold us in good stead when the economy improves," he says.
Part of the process also involved choosing what Aon will focus on. The U.S. alone used to have more than 10 different practices. "We had way too many," Dail says. "Many were sub-scale and not making any money." The firm got out of some areas and folded other businesses into remaining practices.
This renewed focus is more important now than ever. With the combination of Watson Wyatt and Towers Perrin culminating earlier this month, Aon's leaders know they are significantly outsized by their competitors. But they are OK with their market positioning.
"Apple Computers only has a 4 percent market share, but folks at Apple aren't for one minute saying 'woe is me.' They are saying, 'how can we innovate?' Apple totally changed the music industry by building iTunes and allowing consumers to buy a single song and not an entire album," Dail says. "In consulting, you want to be where the hot issues are. And three of the top seven issues in the world are in areas we work in: retirement, health/benefits and talent/leadership. Sure, bigger competitors exist, but no one has this totally figured this out. We want to be the Apple of this industry. The first firm that figures out how to really deal with retirement globally will have a printing press."
Solving the world's retirement issues are only one potential goldmine for the firm. Clients have a number of areas where they will need help, says Kathryn Hayley, CEO of Aon Consulting. "Regardless of how the healthcare debate turns out in Congress, there will be more focus on wellness. Our clients are trying to figure out how they should best manage the overall wellness of their workforce.
"Clients are also saying, 'I'm going to have to consider shutting down my defined benefits plan and may have to move it into a 401(k)-type plan. How much should I match? How do I motivate employees so they contribute, too? How do I help them manage those investments?'" An improvement in the economy will likely also create a new wave of talent management projects. "Those [companies] that had major layoffs will have to hire again. They'll need help to figure out how to identify talent," she says.
Once the initial hiring occurs, she's expecting a new wave of work to help retain those employees. "There will be more issues around keeping employees engaged in the coming years." She adds that Aon has also "built up a world-class corporate transactions group that is focused on restructuring and managing cost savings around human capital issues. There will be a lot of activity there."
While Hayley says she expects the market to recover gradually, she remains "pretty optimistic about our prospects." [CMSARTICLELIST:body|({indexcode} LIKE '%CMAG.A.150%')|1]
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