I almost deleted the newsfeed in my email yesterday about Aon Corporation and Willis Towers Watson's plan to merge in an all-stock deal. This was last year's news, wasn't it? Or was it a couple of days ago? And didn't that deal fall through? I scratched my head. It seemed like another instance of gaslight-by-technology, like when Alexa blurts out "Sorry, I don't know that" when you never asked a question. The first thing I had to do was to confirm this news was current and real. It was.
Now I'm intrigued. I've followed both companies for many years, first as an industry insider and later as part of my research covering the HR consulting market for ALM. At one time, their component businesses – – Hewitt Associates, Towers Perrin, and Watson Wyatt, along with Mercer – formed the Big Four of the HR consulting world. They dominated the space for decades when it was driven by employee benefits consulting, a mix of actuarial, brokerage, advisory and administrative services. This business, in turn, was dominated by defined benefit (DB) pensions consulting, a highly lucrative and dependable revenue stream until the 2000s, when employers started closing their DB plans to manage liabilities and reduce administrative costs.
The decline in DB consulting triggered market consolidation amongst the Big Four, beginning with Towers Perrin and Watson Wyatt's merger forming Towers Watson in 2009. In 2010, Aon acquired Hewitt Associates, merging it with its own HR business, Aon Consulting. The largest deal occurred in 2015, when Willis Group acquired Towers Watson to form Willis Towers Watson.
The strategic rationale behind these deals revolved largely around cross-selling commercial insurance products to an expanded base of large corporate and middle market clients. Consulting was rarely, if ever mentioned, despite the fact that Aon Hewitt and Towers Watson had been cultivating capabilities in strategic human capital consulting since the late 1990s. Both were known to be highly innovative, however, consulting revenues did not grow fast enough to offset losses from the shrinking DB market.
I watched as Aon Hewitt and Towers Watson were integrated more deeply into their parent companies' insurance businesses. They lost their consulting brands, as well as a lot of senior consulting talent to competitors. They divested entire practices that did not align with regulatory-driven corporate strategies.
Towers Watson, for example, sold its Human Resources Service Delivery practice to KPMG in 2017. In 2019, Aon sold a collection of human capital consulting practices to executive search firm Spencer Stuart, retaining only those that supported Aon Corporation's pivot to a solutions business, that is, the data-driven competencies of talent assessment, workforce deployment, and market pricing for compensation management.
Aon's and Willis Towers Watson's management presentation to the investor community makes no mention of consulting synergies. This is not to say that either firm does not value their consulting heritage or retained capabilities. The ability to provide strategic advice is a critical differentiator for insurance companies striving to be perceived as C-suite partners rather than brokers peddling insurance products. Even Mercer has been investing in its consulting value proposition by collaborating more frequently with sister company Oliver Wyman and strengthening global capabilities in HR operations and organization strategy consulting.
Consulting expertise is also essential to innovation. Who knows more than consultants do about the business context for designing integrated solutions that help clients connect with their customers and suppliers? Digital business models, agile operations, technology-based process transformation, predictive analytics. These are the purview of management consultants, today's sherpa guides through the fourth industrial revolution.
I think Aon and Willis Towers Watson are both aware they need a consulting bona fides to succeed as a risk solutions business. They may not state this explicitly, but when you step back for a moment, you can see that this deal is a significant marker in HR consulting's evolution from employee benefits service provider to helping clients understand, measure, and mitigate strategic business and people risks.
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