Hewitt into AON: a sad, bad day for HR Outsourcing?

AON - clearly recognizes a good invesment...

Waking up this morning to hear the news of Hewitt’s acquisition by AON signalled a sad, bad day for HR Outsourcing.

The HRO industry is now consolidating faster than any of us imagined… forget ADP/Workscape, this is BIG – and leaves the global HRO market with three major global HRO enterprise-level providers – IBM, NGA and Xerox (ACS).  While there were some positive synergies with NGA / Convergys to create a global provider, Xerox / ACS was an odd match of two very different cultures and providers, and AON/Hewitt isn’t far off in terms of a weird fit.

I am concerned with the impact on Hewitt’s culture and brand, which is steeped in HR consulting culture over four decades.  While, on paper, we can see some minor synergies, in terms of scale, geographic presence and financial offerings, you have to question two very different cultures and the potential impact on Hewitt’s consulting and managed services offerings, once the AON corporate machine gets its claws in. 

Hewitt needed to be acquired by a true enterprise global provider with real HR heritage, and global HR offerings (especially pan-Europe).  Moreover, a provider with deep technology integration expertise would have been hugely beneficial.  AON will not provide that, unless it hasn’t finished its shopping excursion.  Let’s hope AON’s leadership has learned from it’s earlier foray into multi-process HRO, which netted the firm a solitary client (AT&T) and an IT-integration partnership with CSC that achieved little, before beating a hasty retreat. 

This time, AON needs to figure out its HR technology services strategy – there are several willing partipants out there, with real HRIT acumen (for example Deloitte may be looking at new HRO partners since Convergys’ HRO business was acquired), and there are several Indian providers with deepening HRIT capabilities (Infosys, TCS and Wipro all have developing practices).

Maybe this will provide the impetus for Accenture to make a renewed push into the market, with so much open space being created?  It’s deep HR transformation experience, HRIT and HRO client engagement experience, put it in a strong position to up the ante – and we’ve see it winning some deals of late.  Let’s hope so – the industry needs to be competitive and we are quickly reaching a situation where clients have limited choice.

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26 Comments

  1. James Wheeler
    Posted July 12, 2010 at 9:59 am | Permalink

    Phil

    Thanks for cutting through the corporate claptrap. Hewitt’s a great HR organization with real pedigree, as you mention. If AON can preserve that and prevent its key delivery and consulting staff from walking out, it should be OK. However, you can be sure Mercer, IBM et al will be circling like vultures to pick up the scraps as this deal goes through.

    My question is really – like you pointed out – what AON brings to the table beyond a lot of money, as it’s previous attempts in the space were not impressive,

    James

  2. Eric
    Posted July 12, 2010 at 12:02 pm | Permalink

    Thanks for saying what everyone else is thinking!

    For true global HR delivery, this is a disappinting fit. AON isn’t the global technology and services organization Hewitt needed. Will be fascinating to watch whether the new AON-Hewitt organization can keep their keep personnel and culture intact.

    Eric.

  3. Stephen Cohen
    Posted July 12, 2010 at 6:04 pm | Permalink

    Phil – great remarks on this.

    You have to be worried where this HRO industry is now headed with such a shrinking pool of global providers. We don’t want to end up with an “ADP” situtaion where there is very little choice left for the enterprise customer for managed HR services,

    SC

  4. Brian
    Posted July 13, 2010 at 8:09 am | Permalink

    A sad day indeed! Shows corporate America is consolidating to the point of limited choice and differentiation for the customer. Having firms like AON (no disrespect to them) in this space doesn’t add a whole lot of value, more of a marketization of the options for clients.

  5. MV
    Posted July 13, 2010 at 8:28 am | Permalink

    I think many are missing something obvious here: Human Capital.

    Aon Consulting is one of the world’s foremost Employee Benefits Consulting firms. And Hewitt is the leading HR Outsourcing and Compensation firm. Both these companies needed the services of the other to become complete. Now they can emphatically claim to offer the best human capital consulting – end to end – in the market. They know compesation, they know outsourcing technology, they know HR, they know employee benefits. They wouldn’t be lying. This is a terrific move contrary to popular belief.

  6. Edward Valenzuela
    Posted July 13, 2010 at 9:21 am | Permalink

    Are you forgetting Accenture?

  7. Posted July 13, 2010 at 9:24 am | Permalink

    definitely not, Edward. Read the last paragraph of the piece: this may create an opening for Accenture to make a renewed push into the multi-process HRO market…

    PF

  8. JM
    Posted July 13, 2010 at 9:29 am | Permalink

    What’s wrong with consolidation?

  9. Posted July 13, 2010 at 9:31 am | Permalink

    MV – you sounds like a loyal employee, and thanks for the positive comments. Clearly the merged firm has some strengths in benefits, comp and consulting (provided you can retain and develop the talent and culture). However, the global capability and the lack of real IT muscle is a concern…

    PF

  10. Jim
    Posted July 13, 2010 at 9:33 am | Permalink

    Thanks for saying what most of us are thinking, Phil. When I heard this news I (like most us us) was left scratching my head trying to figure out how this deal makes sense. The cultures of the two companies are vastly different, which makes one wonder how much of the talent will walk out the door as this merger takes place. Also, their press release talks about ‘synergies’ of the combined company but all I see are reducing middle management & cutting typical merger costs.
    Your analysis is spot on – this opens up the door for some other players to join the party? How about some smaller players stepping up to the plate?

  11. Posted July 13, 2010 at 9:47 am | Permalink

    @Jim – thanks for the comments. Yes, I do believe this opens up the door for other players, but more for the larger-scale services firms which have the global managed services and IT-enablement acument to dliver global HR. I also believe the leading HR consulting firms can step into the void to help global transformation of HR processes and talent strategy, as Hewitt won’t be as perceived as independent as it was pre-merger. And where there is mass movement, there is always opportunity for smaller providers to get more plugged it – clients who don’t like dealing with the massive corporates may be encouraged to seek out more best-of-breed providers. And, of course, the likes of Towers-Watson, Mercer, Fidelity and co will be lapping this up for disaffected Hewitt clients…

  12. Stephen DiMeglio
    Posted July 13, 2010 at 10:09 am | Permalink

    Great perspective as always, Phil. Funny how quick everyone is to discount ADP as the top tier provider. It’s a classic case of know your market and profitability model. While other providers have continued to fail, are gobbled up through consolidation, try to trim unprofitable contracts, and digest poor client experiences etc…. ADP did pioneer the one to many model while everyone else was attacking “lift and shift” unprofitable. ADP remains invested in their growth, profitability, understanding the market, increasing the economies of scale and service experience for clients. So, if that is the situation that Mr. Cohen refers to, it seems to be a rather enviable position. Is AON seeking to add clients overall and top line revenue via acquisitions that can “fill the gaps” for multi-process outsourcing and new global geographies, or is the goal to buy new, innovative technology? Regardless, it would appear that they are accomplishing neither with this but rather simply become bigger and with possible a more recognizable brand.

  13. Posted July 13, 2010 at 11:11 am | Permalink

    @Stephen – good comments. Am not discounting ADP at all here – we are focusing on Hewitt’s core markets of benadmin/consulting/multi-process HRO and HRTech. ADP is a true monster in the mid and upper-mid market for its services, but – to its credit – never got into the high-end HR transformational ben-admin-centric multi-process deals. Now if YOU had acquired Hewitt, that would be been some story :)

  14. Edward
    Posted July 13, 2010 at 11:29 am | Permalink

    Phil, great input and couldn’t agree more. Particularly regarding cultural alignment across the board with these acquisitions.

  15. Alex
    Posted July 13, 2010 at 11:48 am | Permalink

    Phil – great thoughts, and you sum up the state of the industry well. AON will milk Hewitt’s benefits business and likely disregard growth opportunities, such as talent management and HR technology strategy. Let’s hope AON learned from its previous mistakes!

    Alex

  16. Posted July 13, 2010 at 12:23 pm | Permalink

    I agree – I was also going to write about how Hewitt seems to have gotten the short end. I would have kept the Hewitt branding completely and dumped AON. Then I thought about Towers Perrin and the old Tillinghast deal. Tillinghast was in the reinsurance business similar to the HEW/AON deal, and they had to keep the Tillinghast brand. For those of us on the advisory/consulting side, we undoubtedly see the HEW brand as much stronger, and may not see the value that is being added here.

    Personally, it is a sad day for HEW and HRO, and I don’t really know if AON can manage a consulting business in HEW’s league, so I’ll hope they hang on to the HEW management team and let them continue with it. As for HRO, you are right that it would have been nice to see a merger or acquisition coming from another player in the market, or someone who needed them more – like an IBM of sorts. More synergies to be found with a fellow outsourcing and consulting business.

    Going back to the Towers/Tillinghast deal, I don’t know that there were any synergies in that one other than perhaps shared office space. AON and HEW seem the same to me. Just does not seem to make sense.

  17. Posted July 13, 2010 at 12:31 pm | Permalink

    Ned! People always discount the cultural element. I remember when ACS bought Mellon and made sure Buck Consultants got the respectful treatment they deserved after their painful Mellon take-over. They saved and preserved a great consulting brand, which still works well for them today. In this business, it’s all about the talent – you can crush it overnight if you’re not careful…

  18. Leo Fernandez
    Posted July 13, 2010 at 1:48 pm | Permalink

    What does everybody think the fit would have been had Accenture acquired Hewitt ? Ed ?

  19. Posted July 13, 2010 at 2:05 pm | Permalink

    @Leo: Global IT implementation skills across all major HR applications, HR consulting/transformation skills, deep HR footprints across major US enterprises (but would need further forays into Europe). Scaleable benadmin platform. One can only dream :)

    You have to wonder why IBM or Accenture didn’t have a good look this time?

    PF

  20. Posted July 13, 2010 at 5:13 pm | Permalink

    The HR outsourcing market has not gone the way everyone expected. The volume of big HRO deals just never materialized; this left a huge oversupply of capacity that had to consolidate at some stage. Interestingly, it is the components of HR e.g. Payroll, Recruiting, Learning that have became the real outsourcing growth areas.

    Watch this space – there will be more mergers or disposals…when was the last time that you heard about IBM or Accenture signing a large HRO deal?

  21. Posted July 13, 2010 at 7:10 pm | Permalink

    I agree with you here. However, as more of the single components mature and become operational in an outsourced model, we’ll start to see multi-process re-emerge where the client needs genuine integration and transformation of global HR processes. Currently, we have three pivot processes which are emerging, which have related / ancillary services sometimes included – payroll, ben admin and RPO. We’re also beginning to see some signs of multi-process HRO coming back – largely with organizations which have had experience of operating an outsourced environment and need transformation (and they wanted a more competent provider). There have been a few deals already signed this year…

    PF

  22. Posted July 14, 2010 at 2:31 am | Permalink

    i think HRO market is moving into a new stage where consolidation is becoming a key differentiator in bagging bigger deals…i think the scope of the HRO work to be outsourced is potentially high and many enterprises are nervous to take big leap in doing so…last time when i heard of a big deal is the one which Northgate won with AZ…it’s time to wait and watch this most happening space..

  23. Posted July 14, 2010 at 5:54 am | Permalink

    I can see the distant hills of the bastides through the French doors (what else) and across the terrace of La Metairie, a hotel I would recommend very highly. Guests are gathering for cocktails while I’m hard at work. I’ve haven’t had time to do a post on this acquisition, but I have been tweeting. Here are some early thoughts:

    Although the stated purpose of this deal is about consulting, the integration team gives equal weight to benefits outsourcing. Aon/Hewitt, ACS/ExcellerateHRO (really Towers Perrin benefits admin), ADP/Workscape raise important Q’s for customers:

    1) In a business where scale and automating everything that moves with great tech are critical to long-term viability, who now has best benefits administration platform among the major contenders? Can any of them provide the technology that’s really needed without major investments?

    2) Given SO many platforms, how soon and to which platform will each acquirer move customers for each market? Who will pay for the cost of such moves? And how will customers tolerate the disruption, let alone the cost?

    3) For those providers with scale galore but without great platforms, how do they compete when those providers with better software and, if handled well, better margins, create real pricing pressure? And what happens to those customers running on less profitable platforms?

    4) How well are each of these firms going to reconcile totally different cultures, HRM practices, let alone technology? Some of the major mergers in our industry appear to be going well, but that’s until you see which, if any, of the brain trust has stayed after their various agreements run out.

    Benefits administration is one of those very difficult to do well processes, especially when the benefits plan designers don’t consider the implementation aspects of their designs. By combining the plan designers with the outsourcing providers, you would expect this problem to be solved — and customers should demand it. Wonder if any of these folks other than ADP and Ceridian will be figuring out how to derive float revenue from their benefits administration businesses? When interest rates rise, and they will, float is found money.

    Broad HRM BPO clients of Hewitt’s should be worried about Aon’s willingness to spend big on their technology platform. With heavy tech spending needed on all benefits admin platforms because of regulatory activism, will Aon also be able/willing to spend on their HRO business? Aon tried and failed miserably at both large market and middle market HRO, and I’m thinking that they may decide to unload Hewitt’s HRO business when the real costs of being successful in that business — which include getting to multi-tenancy across all platform components — are better understood? Who would/could buy it? And what does this mean for large organizations wanting to do core HRM BPO? Who really can do it all with payroll and benefits for a large/global organization? IBM deals only make sense when they’re hugely transformational because IBM’s HRM delivery system is NOT low cost. Accenture hasn’t been very visible in that market, and they too have not achieved a lowered cost of service delivery. It would be interesting to see one of the Indian firms with strong BPO capabiilties who have wanted in on HRO pick up this business from Aon/Hewitt

    And did everyone miss the resignation of Paychex’ CEO “to pursue other interests” and Golisano’s stepping into the breach while they recruit? Who might Golisano/Paychex consider? I’ve got a few good ideas for their exec search firm. Is it the same firm not finding a new Ceridian CEO?

    So big changes in all HRO markets, from lowest end to mega-deal providers. And more to come!

    Naomi.

  24. Jim Scully
    Posted July 14, 2010 at 2:20 pm | Permalink

    Let’s take it up another 50 thousand feet. Welcome to the official era of big box consulting. One by one, the shops along main street are closing. Back in the late ’80s and early ’90s, Hewitt was one of those shops. Despite the obvious economic realities, I cannot help feeling a little sad.

    Oh well. Anyway, here’s my question for the thread: Will Big Box HRO/Consulting finally lead to mega-scale PEO deals? Might consolidation finally pave the way for co-employment in the large employer space? Does the new Aon Hewitt have the resources to play in that arena?

  25. Lisa Rowan
    Posted July 14, 2010 at 4:41 pm | Permalink

    Good thoughts. I wrote a similar scratch-my-head piece for IDC subscribers. One thing I’d like to note. Aon has seen an influx of some good HR talent in the last 18 months — this is not the case at HEW. So I wouldn’t count out Aon’s acumen yet. I’m less concerned about the flight of HEW employees as I think this has been ongoing for awhile – just read a few disgruntled employee posts on sites like Glassdoor.

  26. Jay
    Posted July 15, 2010 at 8:23 pm | Permalink

    Does culture have anything to do with morale of either the staff or the clients? The cost cutting Aon Consulting has taken over the past few years including outsourcing, centralization, reduction in forces, reductions in pay and benefits. This does nothing to improve morale and only adds to the fear held at all levels by the few quality staff who remain at what will happen to their jobs. This fear has so permeated the culture that people are afraid to express their true feelings. To initiate a merger only adds impetus to those who are positioning themselves to move their clients elsewhere. Furthermore the mass sentiment of being put on the back burner that is now felt by so many of the clients over the past couple years has not strengthened their loyalty to the Aon brand.

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