Korn Ferry and Hay Group: The HR consulting market turns a corner

By Fiona Czerniawska

It’s just the latest deal in a wave of consolidation that’s been washing over HR consulting for a decade or more – but it’s one that could signal a shift in the market.

The $7.5bn HR consulting market has been growing more slowly than average in recent years. Even last year, when demand finally started to pick up, it grew by just 6% globally, compared to 9% for consulting overall. Downbeat performance was due partly to clients: in the aftermath of the financial crisis, HR issues were trumped first by cost-cutting, and more recently by the growth agenda and digital transformation. But the supply side played a role, too: “The big HR firms haven’t been saying anything new,” one CHRO told us. “There hasn’t been enough innovation.” Some consulting firms benefited from the situation: strategy firms and the Big Four have all expanded their HR-related consulting practices, moving into the vacuum left by HR specialists.

Industry consolidation has therefore been the order of the day: Towers Perrin and Watson Wyatt became Towers Watson; Towers Watson is becoming Towers Willis. Aon and Hewitt Associates became Aon Hewitt. Most previous deals have been driven by the need for cost-efficiency. But the deal between Korn Ferry and Hay Group, announced last week, suggest a change. In acquiring the Hay Group, Korn Ferry is getting one of the very few remaining mid-sized specialists in this space. Hay Group’s expertise, combined with Korn Ferry’s broader global network, will make the combined firm well-positioned to give the more generalist firms a run for their money. It’s also a decisive move by an executive recruitment firm to go beyond their typical toe-hold in the management consulting market.

But perhaps the deal’s greatest significance is for the firms that didn’t buy Hay Group. The major strategy and Big Four firms were able to grow their HR practices at above-market-rates because they were exploiting an inherent weakness in the incumbent players (lack of innovation and investment). They also had scale and global coverage in their favour, both of which have proved crucial in a world where more consulting spend than ever is being tied up in large-scale, ‘transformation’ programmes. But most didn’t have the depth of experience, intellectual property, and longitudinal data that Hay Group can boast. A specialist that can also offer scale could prove to be a formidable competitor (in theory, there will inevitably be serious integration hurdles to overcome).

If the Big Four aren’t kicking themselves about missing this opportunity, then they should be.