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Human Resources Consultants Face Change Challenge
25-Feb-05 [ by Larry Chao ] 7904 Read and 156 Comment

Arthur Andersen's demise illustrates the "change challenge" auditors face in exploiting new sources of growth. Other professional services businesses like human resources consultants should take heed‚ writes Larry Chao

Many professional services businesses are at crossroads today. Making money is tough‚ especially when highly paid partners are running into the profit margin buzz saw. Take auditing for example: Auditing fees are eroding while salaries steadily increase year-after-year. One solution‚ until the Arthur Andersen-Enron escapade‚ was to diversify into more lucrative businesses‚ such as consulting. Now‚ however‚ with the likelihood of that option diminishing‚ partners must devise a way of re-inventing themselves or face the prospect of consolidation. Partners are realizing that achieving organization change is tougher when key stakeholders need to drastically change their own skills and way they work.

Human resources consulting is another example of professional services under profit margin attack. These firms‚ such as Hay Management‚ Hewitt and Watson Wyatt have prided themselves on traditional human resources consulting‚ most notably compensation practices. Armed with tools such as job analysis‚ job evaluation and formulas for calculating the value of jobs‚ they made their money advising clients on how to pay employees. As information technology and corporate headhunters made this information more readily available‚ however‚ fees for such work plunged.

Now human resources consultants face with the same predicament as their auditing brethren. They must define a more economically viable business model to survive. Partners in these firms‚ who have been well paid for giving advice on compensation‚ must either broaden their client base with existing thin margin services‚ or create new service offerings with richer margins. With restructuring creating opportunities for organization change services since the financial crisis 1997‚ many human resources consultants chose the latter option.

Today‚ human resources consultants are struggling to transform themselves into organization change consultants. As part of their service package‚ they evaluate the impact new strategies and restructuring have on organizations and employees. It seems‚ at least from a marketing perspective‚ that human resources consultants should have the edge when it comes to defining how people need to improve performance and grapple with change. But the transition from compensation consulting to higher value-added organization change consulting has not been easy.

Flashy marketing for these services has preceded a real track record for success. For example‚ promises of step-changes in business performance and breakthroughs in leadership skill development from fancy sounding gimmicks such as "emotional intelligence" give hope that an elixir has been concocted to change the way people behave.

In reality‚ the consulting approaches that support this kind of business are too academic and lack practical application. And at premium prices‚ these services better start delivering value quickly; otherwise human resources consultants risk disenfranchising their clients.

Human resources consultants face a monumental challenge to deliver on promises they have already made. The biggest hurdle is overcoming the mismatch between traditional HR and organization change consulting approaches. On one hand‚ good compensation consulting involves documenting‚ analyzing and comparing data‚ such as job descriptions and salaries. It is easy to leverage inexperienced consultants to conduct these rote tasks. On the other hand‚ organization change consulting involves solving much more complex issues that require strategic thinking and creative problem solving. Effective organization change consultants know how to design solutions that affect the way people carry out work and perform. There is less room for leveraging inexperienced consultants.

Lack of appropriate skills and poor direction have produced unhappy clients. Commented one human resources client in the banking sector: "When they (HR consultants) were telling us about their services‚ they promised many different products and benefits. But after six months of expensive work‚ they have come up with either obvious solutions that we already knew‚ or answers that were too academic to implement. We feel ripped off."

Redefining their business begins when human resources consultants take a hard look in the mirror. They must honestly assess their capabilities and need for change. The reflection may not be one that they want to see‚ but until they confront reality‚ their prospects for successful change remain uncertain.

Larry Chao is managing director of Chao Group Limited‚ a strategic change consultancy and training boutique

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