The human resources consulting industry was not founded so much as it has emerged as a distinct industry from management consulting and as an outgrowth from organizations' own human resource companies. In the past thirty years, the industry has grown rapidly for a few different reasons. Many within the industry are former practitioners who for one reason or another began to work independently. Some were laid off from jobs, and moved into consulting, while others simply sought the independence. The trend towards outsourcing created more opportunities for HR consultants as well, because companies were eliminating parts of their in-house HR teams and replacing them. This created a rapidly growing market for consulting services. The consultants themselves were able to sell their expertise to business, including smaller and medium sized business, as people able to bring different perspectives and solutions to the workplace. This created a market where perhaps one did not exist before.
The industry today is worth, by some estimates around $25 billion per year in the U.S. The growth rate, however, is tied closely to the state of the economy overall. The current estimated growth rate of the HR services industry is 0.3% per annum. The industry employs over 200,000 people in over 80,000 businesses, meaning that the average size of an HR consultancy is between 2-3 people (IBIS World, 2012). This implies that there are many consultancies consisting of sole proprietors, and that the industry is highly fragmented.
There are a couple of different target markets for the industry in general. These include large companies that are using an HR consulting firm to augment their existing HR capabilities. These companies often have a need for a company that can specialize in one particular area, giving that company comparative advantage in a particular field. That would create the economic logic for outsourcing certain aspects of the human resources function.
The other type of customer is a smaller business that is looking to outsource a wide range of HR services. These companies benefit from the arrangement because they are not large enough to warrant a full-scale human resources department. They are essentially using the arrangement to give their company the benefit of this arrangement but at a cost less than a full-time in-house HR department. Our team would not likely work full-time for such a client, but would work part-time for that client, in exchange for equivalent payment. A full-time equivalent for our team would work for multiple companies in order to derive full-time hours. Another target market is a variation on this, as a very small company that only needs a part-time HR person. Our company would essentially fill this role until the client is large enough to hire a full-time human resource generalist.
Thus, we have a choice of target markets, and that choice essentially boils down to whether we want to provide generalist services or if we want to be a specialized player. The latter is a more limited market, but with few competitors. The former has a larger target market, but with more competitors. Which one is better for the company is also to be determined by the skill set of the people hired to work at HR Pros. In our situation, a role as human resource generalists is more feasible. Specialist firms tend to be comprised of people who are seasoned veterans in the subject matter in which they specialize. For younger HR professionals, a generalist role better fits their qualifications and competitive position in the marketplace. A generalist firm has a target market of smaller companies that typically see HR outsourcing as a means of saving money, since they do not believe that they need a full-time HR department or professional of their own. This target market is quite large, and will be even larger should the Patient Protection and Affordable Care Act survive, as that piece of legislation is expected to create new work for HR consultants, especially those that have small business as their primary target market.
Competitive Analysis/Four Ps/Selling Strategy
As a new company, HR Pros has a lot to overcome in order to build the business. The product needs to be determined. Based on the target market analysis, and an understanding of the competencies of the primaries in the company, a generalist approach targeted at small business seems to be the service offering with the best growth potential. The service is going to focus on a total HR system that the company will offer. The company will develop a system for consulting, whereby client needs are evaluated based on this diagnostic model. From there, the service will be delivered professionally. It is the organization of this diagnostic and consulting process, along with the exception solutions delivered by our team, that provide the basis of our competitive advantage.
The price should be high, in order to connote the fact that this is a premium service. There is no value in selling ourselves short, and the customers should feel confident that they are getting the best service possible. With premium positioning, the company will gain the financial resources that will allow it to ensure the highest possible quality of service.
In a consulting business, place can be interpreted a few ways. The company is going to focus marketing efforts virtually, serving any company in the United States. Most of the work will be done virtually, although there might be some need for travel to meet clients face-to-face. Largely, however, the business will be conducted in cyberspace rather than at a physical location. Even the HR consultants can do some work remotely, with coordination online. That said, some marketing will be done personally. Clients need to have a high degree of confidence in the firm, so once the initial contacts have been made, there will need to be face-to-face interaction. Thus, it will often be the case that we will deal with local firms, as the local area is where our networking strategy will be most effective.
Lastly, the promotion and selling strategy is going to be a mix of online networking and promotion, networking in person and socially, and aggressive direct selling during the initial phase. The startup phase will hopefully be the only time that aggressive direct selling will be needed, but during the startup phase we will need a client base. These different components will help to increase the market reach of the company, something that is essential to building that initial client base. Once the client base has been established, ongoing business and word of mouth will become more important.
The most important thing to know about financial projections for a business that does not yet exist is that none of these figures are going to happen. The objective of this exercise is to gain an understanding of what the finances of businesses in this industry could look like, so that the people creating the plan and prospective financiers can have a better sense of at what point this business is going to be viable. The assumptions for this particular set of financial information are simple. The company is going to start with four professionals, a basic office, an overemphasis on marketing, and no customers. It will take at least one year to build a customer base large enough to be profitable. However, since the four people involved are all owners, they will not take salary beyond basic living expenses while they build the business. At the end of this exercise, the company will have an idea of how much capital it will need to see it through to the point where profitability occurs. Past the point where the business is profitable, the principals will strike a balance between drawing additional salary and plowing the money back into the…