The past several years have brought greater volatility in financial, commercial, and labor markets, driving an increasing number of experienced HR professionals, who have been impacted by reductions in force, reorganizations, or management team changes, to shift gears and enter the consulting industry. At the same time, others have found that taking on “side gigs” is a viable and profitable way to generate extra income in inflationary times and expand their skills in ways they cannot do in their current roles. As the industry continues to expand (with an estimated 9.4% annual growth rate), opportunities for professionals to offer HR consulting services are increasing as well.

Another related and significant fact is the preponderance of small- to medium-sized businesses (SMBs), estimated by the U.S. Chamber of Commerce to account for over 95% of all U.S. companies. By their scale and design, these companies have smaller HR teams that often lack the depth and breadth of expertise needed to support their organizations. As a result, outside expertise is often needed to perform tasks and development efforts that require time, budget, and resources that make less sense as year-round investments. External HR consulting services exist to fill those very needs.

Understanding the HR consulting services industry

HR consulting services firms and professionals provide specialized advisory and development support to companies of all sizes, across industries and geographies. They focus on improving and optimizing the performance, productivity, development, and deployment of company workforces in alignment with business priorities and objectives. With annual U.S. revenues exceeding $30 billion (and global estimates of $100-200 billion USD), demand remains strong, likely driven by the need to respond effectively to fierce labor market competition, rapid technological advances, and shifts in generational workforce expectations (and skill sets).

In the U.S. market, there are an estimated 6,700-8,000 HR consulting services companies, dominated by firms such as Deloitte Consulting, Mercer, Aon, EY, KPMG, PwC, Willis Towers Watson, and McKinsey. While those firms support the world’s largest employers (the top four reportedly hold a 33% market share), there are thousands of boutique, niche, and local HR consulting firms delivering high-quality support to organizations ranging from F500 divisions to small businesses. 

In the current environment, industry research lists technology adoption, digital transformation, and strategy consulting as the most in-demand consulting fields, although talent management projects account for 26% of all HR consulting services engagements, followed by HR Analytics at 12%. Leading boutique consulting firms, often focused on specific industries or HR functions/capabilities, have been targeting AI applications and adoption, corporate restructuring, and data analytics in support of market forces that prioritize innovation and efficiency. Major drivers of those projects include the industry anxieties surrounding and pressures to adopt AI-powered platforms to boost workforce management and productivity, as well as a continued cross-industry focus on employee engagement, experience, and retention. 

At the same time, large companies (which account for 62% of consulting dollars spent) are reported to be increasingly interested in outsourcing core HR functions such as payroll, benefits administration, compliance management, and HR shared services to achieve more efficient, lower-cost administration. The primary endgame or outcome of such outsourcing is the liberation of HR resources and capacity to focus on strategically critical initiatives and activities that are more closely aligned with, and impact business, financial, and operational success.

However, while SMBs only represent 38% of the total spend, that is distributed across an estimated 4-5 million companies needing support, and more commonly seek out HR consulting services related to: 

• Strategy (HR, talent management, digital adoption, workforce planning)
• Talent acquisition, performance management, learning, and development
• HR policies
• Legal and regulatory compliance
• Analytics and reporting
  
  

HR consulting services value proposition

There are a number of motivators for seeking outside HR consulting services support, which tend to fall into two categories: 1) engaging expert resources to fill knowledge and know-how gaps, and 2) adding resources to handle activity spikes. In both cases, it has been decided that a one-time project expense is preferable to the ongoing costs of continuously employing individual(s) with the right level of knowledge and expertise. The value that external HR consultants bring includes:

Access to specialized expertise

Every leader of a business function has to make prioritized decisions during budget planning sessions about the human capabilities and expertise needed to deliver relative to their objectives. That means that initiative and staffing trade-offs are made about which skills to employ and develop, leaving some capabilities under- or unstaffed. Where the skill set is needed but considered unaffordable or less necessary for ongoing operational requirements, outsourcing of HR consulting services is most sensible. The kinds of knowledge and expertise required will vary by topic, but most often are characterized by gaining access to one or more of the following:

• Depth and/or breadth of topical expertise 
• Commercial, financial, and labor market status, trends, and analyses 
• Emerging and leading practices, processes, and approaches 
• Latest research, insights, benchmarks, and industry data
• Technologies, vendors, and related applications (e.g., strengths and weaknesses)
• Needed resources (talent pools, candidates, proprietary studies, and reports) 

This access brings more than just added expertise and insights – it also brings a certain level of “gravitas” and credibility, as a credentialed expert who is perceived as primarily motivated to deliver the most impactful solution set to the company’s leaders. As such, company leaders look for objective, unbiased root cause assessments and associated solutions from individuals who are not saddled with internal, culturally driven prejudices or predispositions towards “what works” or “will sell here”.

Furthermore, external providers often have experience with multiple companies inside and outside the industry, so they tend to have seen a lot of circumstances and “what works” or does not in differing circumstances, cultures, and work environments. 

Access to added resources

For activities and efforts that require an extra “pair(s) of hands” for execution rather than strategy and design, smaller or less-resourced organizations engage HR consulting teams for support. The activities can be event-based or outsourced on an ongoing basis, and they are given responsibility for conducting work that an HR team cannot get to but considers essential to meeting the company’s statutory, administrative, or operational requirements. Examples include managing legal compliance and reporting processes and outputs; administering an annual benefits reenrollment process; and staffing and managing a large-scale training and change management process related to a merger, acquisition, technology implementation, or other significant organizational transformation.

While this type of engagement may be a hybrid (specialized expertise X added resources), the use of external HR consulting services offers flexibility for the HR team as they address existing staffing and expertise gaps that are not needed on an ongoing basis, and enables faster planning and a shorter ramp-up time to solution implementation.

Shortcomings inherent in providing or using external consultants

The value-add that HR consulting service providers bring is often substantial: external review by subject-matter experts of issues, strategies, programs, and practices, offering a reality check on the current state, providing a broader context for change, and tailoring leading practices to the organization's unique needs. However, hiring a qualified, credible outside expert does not guarantee success, as many experienced professionals will attest. Common failings or limitations include:

A. Lack of deep understanding

HR consulting services providers are often hired with the expectation of a rapid start and quick turnaround, as organizational performance issues demand a solution that delivers results faster than if conducted internally. As a result, the consultant or consulting team needs to acclimate quickly to the company culture, operating model, the biases and preferences that top leaders embrace, the skill levels and capabilities of managers and employees, and the details of workflows and processes. Together, these reveal elements of the company's values, beliefs, and objectives that may not be obvious until late in the engagement. Some missteps in solution design, development, and outcome plans may result in limited impact for the solution.

B. Tendency to look for quick fixes

Consultants prepare proposals that define the process, resources, and pricing they believe will lead to the successful resolution of the company’s pain points and yield a profit for their efforts. Price negotiations can decrease or eliminate profit margins, creating pressure to deliver less or faster. Similarly, negotiations for shorter timeframes can create similar pressures, as can clients' pre-existing insistence on the nature of the problem and their preferred solution. The reality is that projects under those circumstances can be a rush to judgment about the root (or true) cause(s) of the issue, the most logical solution set, and the fastest path to implementation.

C. Pre-existing notions of best practice

A related issue is the notion of “best practices”, which are often the processes or actions that influential academics research and promote, and/or leading companies leverage and espouse as differentiators for their superior performance. HR consulting services providers (and their clients) need to check themselves when they encounter a solution set they view as brilliant or game-changing. The risk is falling into a “one size fits all” bias, which, while it may prompt clients to seek services, may not meet their needs as advertised. A disciplined process is what is called for, not a specific solution, and even the most effective practices may work in one company culture but not in another, lacking the unique cultural “magic” that makes them so effective there.

D. The company lives with the results

One critical reality for consultants (and their clients) is that they were hired to address an issue or develop and install a capability, and then leave. Too often, the customer fails to execute the recommendations or strategies, declares the effort a success without follow-up, or makes unsuccessful attempts to find a champion and owner willing to implement and adopt the change. The deliverable of an HR consulting services firm’s efforts is considered successful when the company uses the firm's services. The reasons for non-use or failure to implement are many, and include:

• The design did not fit the company’s mission, workflows, or culture
• The solution was ineffective and did not address the root causes for which it was designed
• Change management efforts were not embedded or included at all
• Leadership did not agree to, or buy into, the business case and value proposition
• The solution lacked a credible and influential champion
• The change was not accepted or adopted by managers and employees 

Change is hard, and all phases of planning, design, and implementation need to take that into account.

The range of HR consulting services expertise

HR consultants and firms do best to position themselves as experts in various ways, depending on their strengths, reputations, and staff capabilities. The categories are not mutually exclusive— most successful providers have expertise across multiple areas, especially the largest ones, which can position themselves as one-stop shops. That said, there are a number of ways that HR consulting services providers identify their niche(s) and market their capabilities.

Strategy vs. Implementation

This separates consulting activities that inform the client what they should do from those designed to help operationalize and execute those. The difference tends to fall between access to specialized expertise and access to additional resources as motivations for hiring HR consulting service providers. Strategy consulting typically includes market research, identification of best practices, unique concepts and options, cost-benefit analyses, and recommended action plans. Implementation engagements primarily involve performing the work required to configure and install a new HR system, implement change management activities, develop learning content, and adapt and deliver leadership development programs.

Functional specialties

Many HR consulting service providers focus on delivering deep expertise and access to resources related to one or more core HR capabilities. Prominent examples include recruiting, learning and development, leadership assessment and development, compensation, health/welfare and/or retirement benefits, employee or union relations, or performance management. These services often include access to industry or proprietary research, data, and benchmarks related to the area(s) of specialization. HR technology is an especially in-demand capability that many HR teams lack the necessary expertise to assess, identify/compare suitable partners, select, configure, integrate, and implement. The growing interest in AI applications is driving demand for these services exponentially.

Industry expertise

Executives and companies may look for and prefer to work with firms that have deep, specialized insights into different industries. This is one way some small- to medium-sized HR consulting service providers differentiate themselves, and it is a common segmentation method larger firms use to manage, develop, and distribute their staff within professional or functional groups. Industry segmentation is useful because those teams can bring knowledge of competitors, relevant laws and regulations, unique practices, common standards, employee skill requirements and responsibilities, and the nuances of operating in those environments.

Geography

As with industry sectors, expertise across local, regional, national, and multinational locations can differentiate firms. This is especially important when providing HR consulting services that involve or are impacted by labor laws and regulations, business cultures and customs, and labor force insights. Smaller client companies often prefer the local touch and market knowledge that consultants specializing in their region bring.

Outsourced services

There is a significant segment of HR consulting service providers that offer either continuous or on-demand services to help clients free their teams from administrative and less-strategic tasks. Services (and technology platforms) related to payroll or benefits administration, recruiting, learning and development content, and compliance management are among those most commonly outsourced. An increasing number of mid- to large-sized organizations are outsourcing employee relations support (e.g., Tier 1 and 2), employee/manager inquiries, and HRIS administration. Other services involve policy writing, analytics, and reporting. Fractional leadership is increasingly popular among companies that need ongoing but less frequent expert support.

High-demand HR consulting services target areas

A review of marketplace demand points to organizational and talent challenges arising from the highly volatile business conditions facing companies of all sizes, scopes, industries, and geographic footprints. Financial and stock market pressures, rapid and radical technological adoption, major labor force shortages, changing generational workforce expectations and preferences, and changes in worker skill requirements and obsolescence. As a result, demand for HR consulting services is driven by a need for significant gains in capability across adaptation, agility, and efficiency. Those include:

• Organization transformation. Organization design and restructuring, staff rightsizing, job design, cultural and digital transformation, and strategic change management.
• Employee experience (EX). Redesign of operational and administrative workflows, leadership and management development, policies and practices, and employee wellbeing. 
• Workforce assessments and plans. Identifying skills (presence, proficiency, and gaps), demographics, engagement, management capabilities, workforce planning, and talent strategy.
• Compensation and classification. Updating job requirements, redesigning roles and pay levels to meet updated organizational structures, assessing shifting market values, and equity analyses. 
• Technological transformation. Supporting HR process automations and systems selections, leveraging AI and bots, developing effective and decision-supporting analytics and reporting, and driving cultural and management aspects of broader digital transformations. 
• Compliance. Supporting the continuing assessment, reporting, and regulatory interfaces. Conduct audits, design and deliver training, update and develop policies, and develop data collection vehicles.
  
  

Delivering impactful and successful HR consulting services

Whether the HR consultant is operating as an individual provider, a member of a small or boutique outfit, or as a consultant or leader in a large multinational firm, there are certain actions and behaviors that separate good consultants from great, the modestly successful from the high flyers. Those flow from “one big truth” and three key steps for developing oneself and one's business.

The biggest differentiator is the ability to build trust and confidence with potential and active clients. Establishing rapport with any leader is an essential first step, and building on that (see “Useful skills” below) leverages many of the same skills and processes that make highly effective and trusted HR leaders. Those involve demonstrating competence, consistency, integrity, and compassion.

Three critical steps to consulting success include:

1. Position your capabilities and target market

• Choose a niche (industry, geography, primary solution offerings)
• Build a reputation (publish, present, network, and offer unique and valuable insights)
• Articulate a compelling case for expertise (industry experience, leading employers and clients, best practice implementations, high impact results) 
• Get certifications (HR, processes, methodologies)
• Network, network, and network
  
  

2. Build and grow capabilities

• Continuous learning and upskilling
• Subscribe to academic journals, industry trends, and podcasts
• Partner or subscribe to an HR knowledge warehouse to fill capability and expertise gaps
  
  

3. Create and follow a process

• Practice formal, structured client intake and contracting 
• Offer solid, research and evidence-based HR assessments
• Use a repeatable and reliable consulting process (OD, Lean, performance consulting)
• Focus on improving outcomes, not just a process, practice, or program
• Embed change management consistently

Great consulting actively engages the client in discovery, design, development, implementation planning, and execution to maintain their alignment and support every step. The goal is to produce an operable outcome to avoid “they built it, we shelved it” syndrome.

The most useful skills and methods to develop

When considering the individual skills and/or organizational capabilities to develop when building or upgrading the ability to deliver HR consulting services, those most relevant to establishing lasting consulting relationships and designing/delivering the highest-quality initiatives should stem from the targeted specialty(ies) and niche(ies).

Coaching skills are essential for networking, establishing rapport, building relationships, and creating client trust and confidence. 

Evidence-based HR (EBHR) is an approach that relies upon data, analysis, and research to ensure that the real (root) cause of a problem is accurately identified, and a solid, proven solution is delivered. 

Organization Development (OD) is a scientific, humanistic, and proven approach to establishing trusted client relationships, objectively assessing situations, and engaging clients in solutions that last. 

Networking methods that build new business opportunities and establish continuing relationships.

Process improvement uses approaches to identify inefficiencies, pinpoint areas of ineffectiveness, and develop solutions that improve work, administrative, and HR processes and outcomes. 

Data literacy and digital and technological fluency involve an understanding of HR systems, capabilities, workflow integration, KPIs, and analytics, as well as AI and machine learning capabilities and applications.

Relevant Practices & Tools

Core HR Strategy Practices to Define a Foundational Direction for the HR Function. >

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The Recruitment Forecast Tool: Capture and Obtain Approval of Hiring Plans for Functions, Business Units, or the Full Organization. >

The template allows the quantification of required hires for a specific deployment year to respond to strategies, staffing needs, turnover, and other factors... more »