All change in HR consulting

HR consulting has been the chief casualty of the recession within the consulting industry, falling by as much as one-fifth in 2009, according to research by Sourceforconsulting. com. All expenditure on consultants is under pressure, but why has HR consulting fared so badly?

The first reason has to do with the position of the HR function. Although the technical capabilities of HR managers have grown rapidly in recent years, there has not been a commensurate shift in their influence within most organisations. In some, the HR function continues to be seen as peripheral to the core business. This means that HR projects tend to be looked on with greater scepticism than, say, IT projects. HR managers often lack the power base their peers have.

The second reason relates to the nature of HR consulting itself. IT projects and cost-cutting initiatives usually have hard benefits, making it easy to put together a business case and measure return on investment. The impact of HR consulting projects is typically less direct and the benefits are certainly less easy to quantify. Moreover, activities such as change management or internal communications are not generally seen by those outside HR to need specialist skills, so bringing in external consultants is hard to justify.

All this has had an impact on the type of consulting services HR managers have been buying in the past year. Most are only prepared to spend money on consultants who offer tangible savings. So the use of consultants to help with outsourcing, executive pay and performance management has also grown. Demand for change management, organisational design and capability assessment has fallen sharply.

The central role HR departments have played in helping organisations downsize has not meant that they themselves are immune from budget cuts. As a result, there has been a growth in consulting projects that either increase the efficiency and effectiveness of the HR function or outsource it.

If you’re a consultant, the critical question is whether these trends will continue or whether there will be a return to more traditional HR consulting services. My hunch is that these changes are here to stay. Overall expenditure looks as though it will remain at current levels for at least the next year, with growth in performance management and further falls in organisational design and job evaluation.

Not everything will remain the same: in contrast to the depths of the recession, HR managers are now saying that they will spend more in the area of personal productivity – training, leadership and coaching – but even this has a hard, measurable feel to it.

The recession also led to a re-evaluation of leadership. Many organisations initially congratulated themselves on the strength of their top managers, only to find they struggled to cope with the new environment. Recovery will therefore see an upturn in demand for leadership-related consulting services alongside a continuing interest in executive pay, as organisations ask themselves how best to motivate the types of leaders they will need in the future.

The role and efficiency of the HR function will remain under intense scrutiny. Applying techniques such as Lean and Six Sigma to this part of an organisation is still comparatively unusual but is likely to become more common as people debate what an appropriate HR structure is.

The shift to performance-related HR consulting poses two distinct questions for the consulting industry. First, can HR consulting firms innovate on a shoestring? HR consulting firms are likely to find themselves caught between a rock and a hard place. With most firms cutting their fees to win work, margins are unlikely to improve, at a time when clients are looking for new ideas and services.

Second, will HR consulting continue to be a discrete service? Clients want the comfort of a brand and a tried-and-tested methodology that only the bigger firms can provide, but also the expertise, innovation and prices of smaller, more specialist firms. Clearly, this means that neither type of firm is likely to fit the bill. Each has a part of the solution, but neither has it in its entirety.

The future of HR consulting will undoubtedly lie in the big firms working with smaller ones. PricewaterhouseCooper’s acquisition of performance specialists Paragon Consulting, announced late last year, may be the first of many such deals, as the HR sector grapples with the new challenges of a post-recessionary world. Ironically, it’s now HR consulting that has to change.

By Fiona Czerniawska, joint managing director, Sourceforconsulting.com

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