Multi-Country, Single Provider RPO Contracts Gaining Traction

Recruitment Process Outsourcing (RPO), just like all other HRO process areas, has been impacted by the recession and lower hiring volumes. And revenue recovery and growth will be further impacted by the lagging nature of hiring after a recession. However, those RPO providers with multi-country capabilities are better positioned to tap into today’s limited opportunities, and will have the opportunity to fare better than their single-country counterparts when hiring volumes return.

NelsonHall’s 2007 and 2009 RPO Market Analysis studies found that multi-national buyer organizations are increasingly seeking single-provider RPO solutions for reasons including: 1) Standardized technology and consistent processes, which results in increased efficiencies and reduced cost; 2) Consolidated reporting from one system, which results in better data quality; and 3) Reduced provider management efforts.

While RPO providers can gain global delivery capabilities via partnerships, as discussed in my July 22 blog, we are also seeing individual providers win multi-national RPO deals. Their ability to win these contracts are due to a number of factors including increased local presence and knowledge of where and how to attract local talent, technology to support multi-country recruiting efforts and ability to provide onsite support.

Examples of recent multi-country RPO deals include:

•  Kenexa on October 26 announced it was awarded an RPO contract by LSG Sky Chefs, a corporation with 30,000 employees in 49 countries. Using a hybrid model of onsite and service center delivery, Kenexa will provide LSG with global recruitment services which are expected to reduced costs due to centralized recruiting and deliver a better candidate hiring process.

•  PeopleScout on November 2 announced it won a multi-million RPO contract with Covance, a global drug development company with 9,600 employees in 20 countries. PeopleScout will perform hiring services for professional and hourly positions for Covance in North America, South America, Australia and Asia.

•  Pinstripe on August 18 was awarded an RPO contract by Agilent Technologies for the provision of complete end-to-end RPO services from job requisition through on-boarding for exempt and non-exempt employees in the U.S., Canada, Mexico and Brazil.

To underscore providers’ acknowledgement of the importance of single provider multi-country and global RPO capabilities, Manpower on October 30 announced a realignment which combines its HRO and RPO groups into a dedicated business unit, Manpower Business Solutions (MBS), to strengthen its outsourcing service offerings. RPO services are delivered in 20 countries today. As part of the combined group, MBS can further leverage Manpower’s reach, in 80 countries today, to increase its RPO delivery footprint.

I believe this is the tip of the iceberg in that we will see more global RPO contracts being awarded over the next several years. Providers with the capability to support multi-country RPO will see increased opportunities to win new business and expand existing domestic-only hiring contracts for multi-national and global clients.

Gary Bragar, Lead HRO Analyst, NelsonHall

The Jigsaw Puzzle of Absence Management

Absence may make the heart grow fonder, but it causes employers angina. Companies are, of course, used to dealing with a certain amount of absence, both planned and unplanned…it is part of the cost of doing business. But the triple whammy of current economic pressures, leaner than ever staffs and unplanned absences, combined with planned absences, can cause a disproportionate impact on the total cost of labor.

In the just released 2009 Cybershift Trendline Survey of 1,200 American Payroll Association members, 76 percent of respondents estimated that up to 10 percent of their organizations’ absences were unauthorized. Add in the planned absences for vacations, the medical cost of absences and leaves due to illness and the cost of covering for those absences, e.g., overtime or use of temporary workers, and it adds up to real money. And we have not even estimated the impact on productivity or customer satisfaction.

Managing absence is a complex topic with many facets, some of which change depending on the characteristics of the industry and workforce, like one of those jigsaw puzzles with no clear, sharp edges. To isolate the puzzle patterns, the first step is to know the actual impact as soon as possible so issues can be addressed. The second is to apply absence and leave policies in a fair and consistent manner to balance employee care, regulatory compliance and the impact on productivity and cost. The third step is to proactively work to lower the total cost of absence.

As the Cybershift survey indicates, while many organizations are now using commercial time and attendance applications, others are still using older methods, including manual spreadsheets. Modern time and attendance systems are used to ensure correct and timely payroll. When a time reporting system is consistently used and time is properly coded, you also have a cornerstone piece of the absence management puzzle in place. 

The second piece is leave administration. There are an increasing number of tools and services available in this newly hot area, but many are limited to automating the process and processing the transactions. Important support to be sure, as this is a compliance area that can lead to grievances, lawsuits, audit problems and fines. And with regulations changing and varying from state to state and country to country, strong tools and HRO provider expertise will help organizations meet compliance requirements.

As noted above, the third major piece of the puzzle is proactively managing the total cost of absence. That role today largely falls to the company’s own managers and HR team. I think there is an opportunity here that lends itself to the world of multi-process HRO. The right set of integrated services, analytics capabilities and subject matter expertise to manage the total cost of absence could represent a new service offering that directly impacts the bottom line – a new piece of the absence management puzzle well worth figuring out.

Linda Merritt, Research Director, HRO, NelsonHall

HRO Can Help Companies Play the Employment Spread and Avoid its Pitfalls

The Consumer Confidence Index, earnings reports, unemployment rates, housing starts, inventory levels, non-farm productivity rates – we are all scanning leading and lagging surveys, reports and indexes for signs of where recovery will first start to occur and where the recession’s impact will linger longest.

To shed a little light on the outsourcing terrain, our September 2009 BPO buyer survey and 3Q09 HRO Confidence Index both indicate increased contract activity in 2010. All the providers we’ve been speaking with are excited about pipelines that are filling up with potential deals at every stage, from lookie-loo’s to those nearly ready to sign on the dotted line.

As reported this week by USA Today, more companies plan to hire rather than cut workers in the next six months. Most report no change (57 percent). Still, 24 percent said they planned to grow their workforce, up from 18 percent in July. Only 20 percent plan to trim further, down from 28 percent in July.

When hiring activity does increase, the service industries like retail, professional services and healthcare will lead with 31 percent expecting to add jobs in the next six months and only 3 percent cutting staff. Manufacturing will likely lag, with only 12 percent expecting to hire and 31 percent still anticipating further reductions, according to the National Association for Business Economics.

In our above-mentioned survey of 480 BPO buyers, the highest ranking current business metric was customer retention, followed by cutting costs and increasing revenue. Staff retention came in only 5^th out of 6 in business metric importance. The gap in importance could be because employers are still playing the productivity spread. Productivity has been rising as companies have been able to produce what they need with fewer workers. According to the Labor Department, non-farm productivity rose 6.4 percent in the second quarter, even as unit labor costs fell by 5.8 percent.

And while we need not yet prepare for a grand hiring extravaganza as employers are likely to milk the productivity spread as long as they can to put off hiring, organizations must start playing their cards right in terms of staff retention and hiring plans, or they will be one-upped by their competitors.

As my colleague Gary pointed out in his recent blog on staff retention, ignoring rising indicators of employee discontent could leave employers not only adding hires to meet increased demand, but facing a more disruptive rise in turnover in high performers and hard to replace positions.

HR’s HRO partners must be forward thinking. For sales in the pipeline, HRO providers need to show how their services will help prospects prepare for and manage workforce changes. And for current clients, providers must be proactive and help them prepare for recovery by holding early discussions on using their available centralized data and analytics to anticipate needs – needs they can then gear up to help their clients meet.

Linda Merritt, Research Director, HRO, NelsonHall

HRO Provider Acquisitions Heating Up

If you thought that pure-play HRO provider acquisitions were out of vogue – as compared to the recent flurry of M&A activity among broad-based BPO providers and technology-oriented companies, ala HP/EDS, Xerox/ACS – think again, per two significant acquisitions announced this week.

First, Adecco, headquartered in Switzerland, is acquiring U.S.-based MPS Group to strengthen its professional staffing services capabilities and expand its delivery footprint, especially in the U.K., Canada and the U.S. Under the terms of the agreement, Adecco will acquire MPS Group for €782m or $13.80 per share in a cash transaction, a 24 percent premium over the October 19, 2009 closing stock price. The acquisition is to be completed Q1 2010. MPS Group will bring to Adecco professional staffing services to businesses with functional focuses in IT, F&A, law, engineering, marketing and healthcare. This is all good for Adecco, its existing clients and potential buyers. It’s also good for employees of both companies as they will benefit from increased career opportunities.

This acquisition could also be a big boost for Adecco’s RPO business and its clients, as MPS Group has its own integrated talent management platform which includes recruitment, learning and performance management systems, as well as compensation management and succession planning. Our research demonstrates clients have shown increased demand for leveraging talent management platforms, both with RPO and other single line HRO services such as payroll.

This transaction makes good sense as it eliminates the two providers from fighting for the same customers, and $50 million of synergy savings gained by combining the companies is no small potatoes.

Second, NorthgateArinso has acquired Randstad HR’s payroll outsourcing division, CIAN, to strengthen its Dutch payroll outsourcing business. CIAN reported 12 million euro in revenue in the past year. Though small in comparison to Adecco’s purchase, this acquisition is still significant in strengthening NorthgateArinso’s position in the Netherlands. With Randstad deciding to exit the payroll business in the Netherlands, CIAN’s five large and 32 mid-sized clients will gain business continuity benefits by moving to a provider that remains committed to payroll outsourcing. CIAN employees will also benefit, as they will be working for a global provider of HR and payroll services, likely resulting in increased career opportunities within and outside of the Netherlands. This acquisition also makes sense as it strengthens NorthgateArinso’s employee base, enabling it to better service its clients, and adds additional clients to its portfolio.

In my analysis, these acquisitions signal two important HRO industry trends:

•  Acquisitions will continue to support geographic expansion and service delivery capabilities

•  Partnerships between HRO providers – which far outpaced acquisitions this year – will continue for the same reasons as acquisitions, such as access to better technology. But the partnerships will be more focused on areas in which the providers are not directly competing for the same customers, e.g., to service existing multi-country clients that have employees in a country they do not currently service when building that capability organically may not make sense if there is not enough scale of clients and employees to service

What do you think will happen in the HRO acquisitions and partnerships arena?

Gary Bragar, Lead HRO Analyst, NelsonHall

Knowing the HR Dance and your HRO Dance Partner

As an analyst, as I conduct my market analysis of multi-process HRO – which will be completed in November – one of the questions I am asking service providers is how buyer expectations are changing.

And we should all be asking how HR as a profession is changing.

HR is under pressure on every front. It is struggling with reassessment and repositioning of its role within the corporation. It is scrambling to address rapidly changing business needs in an increasingly global environment amid shifting corporate structures and a heightened surround of regulatory complexity. At the same time, it has had to reduce its own operating costs and impact overall spend and business results.

How do you meet the needs of an organization driven to address short-term issues while it faces dramatic transformation challenges that do and will impact the future of the enterprise’s capability to compete? How does HR perceive its own issues, and how does that align with realistic expectations for outsourcing?

Check out Hewitt’s Managing HR on a Global Scale. This 2009 HR survey of 85 global organizations highlights several key challenges facing HR which also impact outsourcing opportunities.  

For example, as an advisor or provider I would want to note how HR is sorting itself out to be more global. HR is organizationally balancing when to be local (by country), regional and global. Per the Hewitt survey:

•  30 percent described their HR model as global with CoEs and HR operation groups that address policies, designs and delivery on a global level

•  43 percent indicated they are two-tier, with some accountabilities at corporate and others at the divisional or regional level

•  27 percent were still in some other form, including in traditional functional models with duplication by division or region

Getting buy-in from the key decision makers inside and outside of HR has always been key. It is also important to understand the organization’s capability to manage its portion of the transition.

Think about what services are being considered and where are they managed today. If this is going to be an organization’s first major effort to move key HR services from local control and many legacy systems/vendors to a global control and an outsourced platform in a company that is still largely managed by division and region, service providers and advisors alike know what they are getting themselves into! But the potential client may not be as aware of the level of change management for which it will be responsible. If an advisor is involved in the deal, it can be very helpful in educating new buyers on realistic expectations for outsourcing and in building an understanding of their role in success. No advisor? Be ready to lead some basic HRO dancing lessons.

Know the HR profession, its issues and pressures – know the dance. Know the specific client and their issues and pressures – know the dancer. Assessment of potential client readiness is of increasing importance in determining which HR prospects to pursue; it is also key to structuring deals that deliver and meet the goals of both parties.

Linda Merritt, Research Director, HRO, NelsonHall

The Staff Retention Ship is in Danger of Sinking – Can HRO be its Life Raft?

Last week I wrote that there is cause for optimism in the BPO space as, per interviews we conducted in September with 480 BPO buyers in North America, Europe and Asia-Pacific, RFP and BPO contract activity is expected to significantly increase in 2010. And that’s obviously good news for providers and buyers alike…increased revenue for providers, and the benefits of BPO for buyers.

But I found one key data point which emerged from those interviews particularly troubling. The buyers rank-ordered the importance of business metrics for 2010, and customer retention and cost reduction took the top two spots, 4.5 and 4.3, respectively, on a 1 – 5 scale. However, staff retention only ranked 3 on the same 1 – 5 scale.

There are so many things wrong with staff retention being viewed as only mid-scale important. First, it signals that little investment will be made in training, development and other staff retention methods. Given the points we made in our September 3 blog – e.g., “A recent study concluded that 54 percent of employed Americans plan to look for new opportunities once the economy begins to turn around”, and “More than eight in 10 employers feel that their workers are just happy to have a job, but just 53 percent of employees feel this way” – businesses which don’t invest in their staff will be on a slippery slope, especially since it will be the top quartile employees who first move to different jobs.

Second, a recent study by Australia-based RPO provider Hudson found that over half of managers admit they lack the skills to properly manage employees during the downturn, and a whopping 60 percent of employers said they have no strategy in place to recruit leaders with the competencies required to lead though adverse and challenging economic times.

Third, businesses can’t meet their number two business objective of cost reduction if they need to spend already scarce dollars on hiring new staff to replace those lost.

Fourth, if employees don’t feel their employers care enough to invest in retaining them, will they continue to be motivated, committed and enthusiastic, or will their morale and productivity wane?

Finally, how can businesses achieve their top business imperative of customer retention when their employee base becomes stripped to the bone with low quartile staff?

Can HRO be a life raft to save the sinking staff retention ship? In a word, no. But a couple of HRO components can help.

Talent management software and services can help monitor and manage workforce issues, e.g., where is performance dipping, is compensation aligned with performance, is top talent being retained, is training under-utilized in critical areas?

Further, I’m seeing an increase in outsourced learning services in which training is being conducted on how to measure the impact and benefit of training and development. I believe the results will demonstrate to businesses their direct importance to retaining staff.

On the flip side, if businesses don’t step up to the plate and make investments in staff retention, RPO providers can source the best talent to replace their client’s lost staff. However, hiring new staff – whether through in-house recruiters or RPO firms – costs significantly more than retaining existing staff.

The bottom line is that to achieve their top-ranked 2010 business objectives, organizations must strategically invest in methods by which to retain at least their top quartile staff. An investment now will help them retain customers and reduce costs. Talk about mapping actions to business objectives!

Gary Bragar, Lead HRO Analyst, NelsonHall

Getting HRO Deals Done Today – Start Yesterday

This week ACS announced a five year deal with Ford Motor Company to provide Total Benefits Outsourcing (TBO). While financial details were not released, it is a major contract that will provide all three benefits administration services – defined benefit, defined contribution and health and welfare – to more than 400,000 U.S. Ford employees and retirees.

What allows a major deal to get done in this still tough economic environment, especially in the automotive sector? If a deal can get done there, a deal can get done anywhere.

Ford is the only U.S.-based auto company that has not sought special government financial assistance. Alan Mulally, Ford’s CEO since the fall of 2006, has driven a focus on Ford’s cars and trucks. Bill Ford Jr., Chairman and family representative, selected the industry outsider from Boeing because he saw the need for the same type of business and cultural turn-around Mulally led at Boeing. Under Mulally, Ford has sold off non-core brands like Land Rover and Jaguar, and invested in not just needed model refreshes to core brands like Ford and Lincoln, but in new technologies and means of manufacturing to lower the cost of production and support faster responses to changes in the global marketplace.

Continuing focus on the core and cost pressures has brought new, open-minded thinking to what can be outsourced, breaking the mental barriers on what must be internally managed. That opened the door for Ford to outsource TBO for the first time.  Throughout the competitive vendor selection process, Ford had several clear objectives including a partner with a record of quality and progressive thought-driven innovation and investment, and one who would offer an “evergreening” of technology. Of course cost was also an issue, and Ford considered both long-term cost avoidance – what it would need to invest to continue to offer current state services in-house – and short-term cost savings – reductions in current spend.

TBO was already a big part of ACS’ Human Capital Management (HCM) Solutions services’ revenues. It is also a major growth focus under Rohail Khan, ACS’ Executive Managing Director Total Benefits Outsourcing. ACS has committed to investing $50 million through 2011 in upgrades to and expansions of its HCM offerings, technology and global customer service center network. According to Rohail, more than $20 million has already been invested in technology and capabilities that strengthen TBO. He considers the underlying technology design, which enables faster and lower cost changes and enhancements, as a key to strategic advantage and a means to protect profitability.

Having already made investments, enhancements and upgrades, ACS was test drive ready. Ford kicked the tires and selected ACS as the competitor who best demonstrated a match for its objectives.

However, to leverage its fast start off the line, ACS will need to address concerns about the Xerox acquisition. When the HCM unit becomes part of “ACS, a Xerox Company,” will it be considered a non-core unit like Jaguar at Ford, or will it be a strategic business line that is invested in and vitalized?

NelsonHall’s October BPO Index continues to show that buyers have revised strategies and budgets, as have providers. The Index further indicates buyers are on the path to getting deals done in 2010; they are identifying BPO opportunities (25 percent), expect to issue RFPs (48 percent) and make awards (37 percent). 

Competing for major deals starts way before the RFP arrives. Which services will be offered within a bundle and will be strong enough to stand alone against best-of-breed providers, and what investments will add both to competitive advantage and sustainable internal margins? Those best positioned to take advantage of the economic recovery and new growth opportunities will have already vetted strategic plans, made the investments, and now have shiny new cost competitive and compelling services offerings ready to roll off the lot.

The question is not just what you are doing today, but what did you do yesterday?

Linda Merritt, Research Director, HRO, NelsonHall

BPO Activity to Increase in 4Q09 and Beyond: Will HRO Follow Suit?

NelsonHall’s 3Q09 BPO Index call, held on October 7, revealed that global BPO contract value was down 46 percent year over year. By region, the U.S. fell 42 percent, Europe declined 31 percent, and Asia-Pacific declined 88 percent (but it’s important to keep in mind that Asia-Pacific has a much smaller base, so even a small decline in contract value would be significant percentage-wise). A pretty dark picture for providers in terms of reduced new revenue streams, and for buyers in terms of missed opportunities to increase service delivery capabilities and improve the total cost of ownership.

The recession’s impact will continue to linger for some time, and not all areas of the global economy will recover at the same rate. For example, as generally predicted, the U.S. unemployment rate is still rising and credit is still tight. On the bright side, as the recession begins to ease, there is cause for optimism as BPO activity has been sequentially rising each quarter to date in 2009, indicating we have passed the bottoming of the recession’s impact on BPO.

In September, NelsonHall completed interviews with 480 BPO buyers in North America, Europe and Asia-Pacific. Only 15 percent were engaged in preparation of new RFPs during the past 12 months, but 48 percent plan to do so in 4Q09 and into 2010. Likewise, during the past 12 months only eight percent awarded new BPO contracts, while 37 percent plan to do so in the fourth quarter of 2009 and in 2010.

So do we have reason for the same type of optimism in the HRO space?

Yes, HRO activity was down year over year at essentially the same rate as BPO, 45 percent. North America was especially impacted with HRO total contract value down by 58 percent, as the hard hit of the recession caused a drastic reduction in major multi-process deals, and there were fewer new contract awards overall.

But when you are looking for a light at the end of a long tunnel, any glimmer is welcomed. European HRO contract value increased 33 percent. While this is on a much smaller starting base than North America, it is good news for the industry. It’s also consistent with our analysis of a rising number of European-based HRO contracts, and with interviews I’ve conducted in Europe thus far for NelsonHall’s Payroll Outsourcing Market analysis. All the providers I’ve spoken with are stating their revenue continues to grow, and that the state of the economy is actually helping to increase demand for payroll outsourcing.

Further, the most recent NelsonHall HRO Confidence Index, published in July, took a real upturn in market activity. For example, on a scale of one to five, expected revenue growth in payroll outsourcing came in at 4.5, benefits administration received a 4.3 rating, RPO a 3.3 rating, and learning services a 3.0 rating.

That confidence is matched by NelsonHall’s current conversations with many HRO providers who are reporting strong pipelines, and that activity is getting much more real deal focused. One provider said it had more RFPs in various stage of response than it has had in six years. Another said buyers are “past the kick the tires” stages and more are in the final stages of getting deals signed.

While the evidence is yet to be seen, I do believe the indicators are there, and when we do the same quarterly analysis and year-on-year comparisons in 2010, we will see HRO activity increase in the U.S. and Asia-Pacific, and continue to increase in Europe.

Gary Bragar, Lead HRO Analyst, NelsonHall

Don’t Ask, Don’t Tell – And Don’t Be a HRO “Bubble” Buyer

Don’t ask for HRO to be done your way.

Using your existing technology, processes, people and vendors – called “lift and shift” – was common in the early years of multi-process HRO. It did lift. It did shift. And it did trap many a buyer and provider.

Providers could not leverage investments across clients when each buyer had its own customizations, sets of licenses, technology cocktails and networks of pre-existing vendors. They also couldn’t protect their own margins and profitability.

Bubble buyers found there was little on-going innovation and improvement other than what they could directly fund. Lift and shift limited overall total cost of ownership management. Whatever initial savings obtained were in many cases eaten away by change orders needed to continually address changes in the customized services platform.

Large enterprise customers do have legitimately complex needs, which may make them think they need significant customization. But even at this level, providers are offering viable ERP wrap-around technology, multi-tenant support services, tools, accelerators and partner vendors that will add value and lower costs for both parties.

Don’t tell providers how to meet your needs by limiting and pre-defining the solutions.

Avoid requesting costly customization that is ultimately unnecessary. For example, large multi-national companies thought they needed one instance of global payroll. It can be done, with enough capital. But even if you can afford it, is that the best use of your limited investment dollars? 

Today, multi-national payroll accuracy, compliance and business intelligence can be delivered through business process outsourcing (BPO) that supplies the required coverage, quality and reporting at less initial cost and with a more flexible total cost of ownership compared to a custom solution built for one.

There is increased buyer acceptance of true multi-tenancy, intelligent shoring, and common provider tools, services and partners. SaaS, SOA and provider proprietary investments in technology, workflow management and service center optimization can provide an integrated front-end with the quality, speed, cost points and analytics needed to satisfy a wide variety of needs. There will be room for unique needs. Vendors that offer standard solutions are set-up to offer 10-20 percent in planned customization.

Does this sound like an unnecessary warning? “We are beyond this”, you say? Take a look at the results of a LinkedIn poll by Vivek Khanna who asked; as head of HR, would you prefer a packaged offering or a customized solution from your service providers?

• 68 percent: “customized to my needs”
• 25 percent: “pre-packaged”
•   8 percent: “I don’t care, I need it cheaper”

While the number of poll respondents was small (25), the pattern of results is interesting. Who wouldn’t prefer customized, all things being equal? But all things are not equal. Customization sounds wonderful, but it is costly on Day One and every day thereafter when you pay the price to maintain, update and upgrade.

There always exceptions and niche players leveraging labor arbitrage, so you can still get it your way, if you really want it. But fewer major providers will take HRO bubble business, and if they do they now know to pass the full costs on to you. So, be careful what you ask for – you just might get it!

As provider capability and configurability is rapidly improving, my advice is to push the envelope internally and with vendors to limit customization to what is absolutely required and worth the price. Do not be a bubble buyer using customization to gain short-term comfort at the cost of long-term value.

Linda Merritt, Research Director, HRO, NelsonHall

Payroll Outsourcing – Overtaking Benefits Administration as Top Outsourced HR Process

Although our May 13 blog stated that benefits administration outsourcing had taken the top spot on the HRO food chain in terms of projected annual growth rate through 2013 – this per our Targeting Benefits Administration research report published early this year – it appears the tides are changing and payroll outsourcing is taking the lead.

Preliminary findings from a Global Payroll Market Analysis I’ve just begun working on, primarily in the European market thus far, seem to indicate payroll outsourcing will see double digit growth in the next 12 months. Further, looking at HRO contracts signed in 3Q09, the pace of payroll continues to pick up speed as 50 percent of them contain payroll. These contracts are a mix of standalone payroll outsourcing services engagements – some including Software as a Service (SaaS) HR services such as talent management – payroll combined with other multi-process HRO services and SaaS-only deals.

Some of the Q3-signed payroll contracts include:

•  Aditro and Elisa for HR and payroll outsourcing

•  MidlandHR and Ofgem for payroll outsourcing and hosted HRIS

•  NorthgateArinso and Cobalt Ground Solutions for managed payroll and HR systems

•  NorthateArinso and Invensys for HR, payroll outsourcing and SaaS (this one is very large scale; services are being delivered to 21,000 Invensys employees in 50 countries)

I believe the above indicates an optimistic picture for the payroll outsourcing sector. Why? Obviously the downturn in the economy has driven a need for cost reduction among HRO buyers and providers alike. In the payroll outsourcing space, providers have added new services which have prompted existing client movement from SaaS-only and partial payroll HRO – in which the client may perform some of the activities such as data entry and Tier 1 and 2 helpdesk and the provider delivers the balance of services – to full payroll HRO services delivered by the provider. As existing clients are seeing the value of services delivered from their providers thus far, they are increasingly leveraging a fuller breadth of their providers’ capabilities, both in existing and new payroll service offerings.

Further, previously on-the-fence payroll outsourcing prospects are acknowledging the results their peer companies have achieved, and appear to be jumping on the payroll outsourcing bandwagon, whether via SaaS-only, partial payroll HRO or full payroll HRO. Finally, although the trend has shifted from multi-process outsourcing (MPHRO) to single process outsourcing, MPHRO providers that offer payroll as a standalone service point of entry appear to be contributing to the payroll outsourcing uptick, and the increased the health of the HRO industry in general, per increased demand for their other HR services offerings.

It’s a little preliminary to truly gauge the growth forecasts for payroll outsourcing as my research is in the very early stages. But the full results of NelsonHall’s Global Payroll Market Analysis, to be published in December, will tell the full story. I personally think the optimism will continue. What do you think?

Gary Bragar, Lead HRO Analyst, NelsonHall