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Issue May 25, 2009 |
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Struggling with lean budgets, many employers are delaying consulting projects unless legally required work can't be performed in-house or potential short-term savings outweigh the costs, benefit managers and consultants say.
Employers also are seeking price breaks from their consultants, consultants benefit managers say.
Black & Decker Corp. has made "significant reductions, nearing elimination" of use of consultants, said Raymond Brusca, vp of benefits in Towson, Md. "We're not alone."
The company has eliminated funding this year "for anything that isn't mandatory or legally required," Mr. Brusca said.
"We're still using consultants, but we're trying to be as creative as possible...to see how much work we can do internally and using their services wisely, making sure our time with them is focused. We've sharpened our pencils," said Viola Lucero, senior vp and director of human resources at United Commercial Bank in San Francisco.
"We were already working toward scaling back consulting budgets last year" when aluminum prices fell in advance of the greater market decline, said Erich Squire, senior corporate compensation and benefits specialist at Monterey, Calif.-based Century Aluminum Co. The company has "drastically accelerated" the timeline to bring some projects in-house, he said.
"We've been aggressive and where there is not an immediate cash impact, we have sought to delay or insource" benefit design projects that have a two- to three-year return on investment, said Mr. Squire, who is based in Hawesville, Ky.
"There are a lot of long-term projects we like to do, like developing long-term health and productivity improvement strategies" using Black & Decker's data warehouse, Mr. Brusca said. "Ordinarily, we would do two or three analyses a year. We have really eliminated those across the board. That was the biggest chunk of change. We're going to sit pat with our benefit designs," he said.
Mr. Brusca said he foresees no change in that spending pattern until 2011.
"Employers are more afraid to committing to a longer-term investment. They are reluctant to commit either through hiring employees or through a longer-term contract with us. They're definitely afraid of 12-month projects," said Jack Abraham, a principal in the Chicago office of Pricewaterhouse-Coopers L.L.P.
"It is down to the bottom line," said Carl Mowery, managing director, compensation and benefits, at SMART Business Advisory and Consulting L.L.C. in Chicago. "Companies are determining whether the consultant can help them save money both in the short term and the long term and, most important, they are looking for short-term savings."
"We try to find the best solution for the employer" and, although it is rare, SMART has even suggested hiring an employee for a long-term project "to supplant what we do," Mr. Mowery said.
Employers also are taking longer to commit to consulting work.
"The buying decision for them is slowing down as they are seeing budget constraints," said Chris Michalak, executive vp-business development and growth at Aon Consulting in Chicago. "My sense is that clients are being very careful with their spend."
"The process (that) organizations have to go through to ask for money to hire a consultant is taking longer," said Rick Beal, managing consultant for Northern California at Watson Wyatt Worldwide's San Francisco office.
Companies also are pushing for better pricing from their consultants, "very similar to what is happening in the auto industry," where automakers are putting price pressure on their suppliers, Mr. Abraham said.
"We're being as aggressive as possible in working with our consultants to come up with a pricing strategy" for work that can't be done in-house, Mr. Squire said. "There's a feeling that we're all in this together and they understand that we have to tighten our belts."
"We've tried to negotiate better pricing with consultants, and they've been very good in terms of working with us. It's a good partnership," Ms. Lucero said.
"We see pricing pressure in places. I wouldn't say it's a widespread phenomenon," Mr. Michalak said. But in cases where a struggling client is approaching bankruptcy, "we're trying to be proactive in how we structure our fees, being sensitive as an adviser and partner," he said.
Even pharmaceutical and medical device maker Abbott Laboratories, which is "in a strong position" despite the down economy, is "asking vendors and consultants to provide added value" for their fees, said Thy Nguyen, director of health and welfare for the Abbott Park, Ill.-based company. For example, he said, he is asking consultants to provide better data on insurer performance.
But unlike other companies, Abbott Laboratories' "management is taking a longer-term view and not discontinuing any consulting programs," he said.
For reprints of this story, please contact Lauren Melesio at 212-210-0707 or email lmelesio@crain.com
