In the meantime, there are elements of H&W that we can explore now. Carol Harnett, HR Executive Online, has written several columns recently on H&W with the linking theme of flexibility and lifestyle. Her first article asks, “Should we give employees what they want?” In that piece, Harnett says that many employees are interested in a wider range of lifestyle benefits. Pet insurance, child care or elderly care subsidies, commuter benefits, and even onsite massages have value to one or another employee group. Access to products and services with special discounted pricing is valuable, if relevant and better than what is commonly available. There is even a new company, BetterWorks, which will help you find what they call “hyper-local” discounts for your employees.

From the employer perspective, consider the nature of the business as relevance will vary with the characteristics of the work and workforce. Occupational health and safety is a big H&W issue for manufacturing. Employees with long tenures will have a wider range of stage of life needs compared to a retail workforce that is largely young, part time with high turnover.

Many H&W programs can meet the needs of both parties, if packaged, serviced, and communicated well. I see a new level of packaging benefit programs together in the area of EAP and wellness, which together will help employees and employers manage productivity and healthcare costs. Ceridian recently launched its redesigned LifeWorks.com portal that combines EAP, work-life, and wellness.

HRO H&W service providers can be advisors to clients reassessing and revamping H&W offerings. In addition to strategic consulting services, vendors can also offer practical operational advice. Buyers, ask your providers what they see new and different. Ask what else they offer and if they have experience with new point solution vendors, or have preferred suppliers that may be helpful in your decisions making. Run new options by them to evaluate operational costs and issues and assess total cost. For example, consider when to provide payroll deduction services or stored value cards to access benefits compared to letting employees pay directly from both a tactical and operational cost perspective.

Every so often we need to reassess the point and purpose of employer benefits. Beyond any regulatory mandated benefits, organizations need to find a dynamic balance between what employees and their families want and what employers need to support retention, productivity, and manageable cost. In H&W, one size may not fit all, and yesterday’s programs may not meet today’s needs.

Linda Merritt, Research Analyst, HRO, NelsonHall

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In listening to the President’s remarks and reading the insourcing and investment fact sheet issued by the White House, it is clear that manufacturing jobs are the primary target.

The U.S. lost millions of manufacturing jobs and in some cases almost entire industries, as companies pursued ways to remain competitive with lower-priced global competitors. Lower wages and benefits were a key part of the equation, but there were other factors including regulations, taxation policies, and the low cost of transportation in what was still a bountiful world of low-cost oil.

Offshoring dynamics are changing, especially for manufacturing. The time delay inherent in moving products around the world now creates challenges in meeting the rapidly changing market preferences and shortened product lifecycles of a connected world. With increased competition for limited energy supplies from the emerging economies, the cost of transportation has become a significant factor. Add in moderately decreasing wage gaps and we can see why companies will be able to insource some jobs. Others will be able to create more jobs in the U.S., much like Honda, Toyota, and Mercedes Benz have been doing for years.

HRO as an industry is already a blend of onshore, nearshore, and offshore technologies and workforces. A mix of right-shoring talent and technology helps vendors meet client needs for cost, service, and value. With time and transportation being minor factors in HRO or other BPO, talent remains a primary driver.

Access to pools of affordable skilled talent is an increasingly important element in the growth of all businesses, whether small or large, local or multinational. Who has access to comprehensive data on workforces around the world including costs, turnover, and availability? Who can see trends emerging on skilled labor capabilities and capacity shortages? Who has direct experience in building and maintaining global workforces both for clients and for themselves? HRO service providers!

Think about it, in our HRO community are the likes of Accenture and IBM, growing globalists like ADP and NorthgateArinso, modern tech heavyweights like Infosys and TCS, global research and analysis specialists like Aon Hewitt and Mercer, and RPO leaders such as Alexander Mann, Hays, and Manpower, we even have learning leaders that can handle rocket science like Raytheon RPS.

We need to have a large enough vision for what we can become as an HRO community. There is so much already that we can leverage. Be confident in our value and let our light shine bright!

Linda Merritt, Research Analyst, HRO, NelsonHall

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The President said the economy has changed, and the transformation has been painful for many American workers who used to work in factories where they thought they would retire from, but those factories relocated overseas where the cost of labor has been cheaper. The President recognized that we live in a global economy and other countries want to develop their companies internationally and will therefore want to employ workers all over the world.  But right now, the U.S. is in a unique moment in time where it has the opportunity to bring jobs back as the U.S. has people available and ready to work now. The President wants companies to invest in America, and he is set to introduce a tax proposal that would reward companies who bring jobs back to America and eliminate tax breaks for companies that are moving jobs overseas. The President has set a goal of doubling the export of goods and services by 2014.

So the big question is, will this scheme work and what does it mean to offshoring HRO? As one data point, let’s look at the percentage of HRO contract value by location according to NelsonHall’s latest quarterly HRO Confidence Index released in December 2011:

• 72% Onshore
• 16% Nearshore
• 12% Offshore (the 12% is consistent with April 2010 when tracking of this data point began).

Although some American companies have brought back previously offshored jobs, I believe it will come down to a combination of cost and service. First, pending what the actual tax breaks are that the President will be able to provide, CFOs will evaluate the outsourcing cost savings vs. the tax benefits of bringing jobs back. If HRO service provider jobs are brought back, vendor clients are not going to want to pay more. If the tax breaks don’t cover the labor cost savings, will vendors be willing to eat the extra cost? I don’t think so. Much will also depend on the current level of client satisfaction with outsourced services.

Depending on job type, it is easier said than done. As an example, let’s take moving outsourced call center jobs back to the U.S. Part of the reason call centers are offshored are due to multi-lingual call center support, including for MNCs, that can be provided from HR service centers such as in Manila. Then there is offshoring of non-client facing jobs, often referred to as back-office administration. For example, sourcing of jobs can be done when U.S. offices are closed overnight and candidates can be delivered next morning.

In sum, once the specific tax breaks are known, CFOs will commence cost savings analysis, followed by vendor and client discussions on where and how to best provide HRO services.

Gary Bragar, HRO Research Director, NelsonHall

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For some time, I have called talent management a disputed ground and a potentially disruptive force that could shake up the HRO field. Why? This is because TM elements include so much of the human capital management value chain and cross over everything—from HR ERPs, software modules, HRO business process outsourcing, HR consulting and the roles of HR leaders, HR business partners, and internal shared service centers. TM includes performance management, succession and career planning, recruiting and staffing, compensation, and learning. I also include workforce planning and management under the TM umbrella.

In addition to the HR ERP vendors and the specialty TM software providers, there are HRO providers that are also building out their TM capability internally as well as through strategic partnerships and acquisitions.

• Kenexa acquired BHI (Batrus Hollweg) a TM company. Although Kenexa has developed TM expertise internally, the company has also been enhancing its efforts over the past few years through prior acquisitions that have included:
  • Salary.com to strengthen its compensation management capability
  • The Centre for High Performance Development to further strengthen its leadership development and management training offering
  • Gantz Wiley Research to increase its employee survey research capabilities.
• Mercer acquired Censeo Corporation to enhance its TM consulting capabilities and online platform of assessment services.
• Both Kenexa and NGA are partnering with SkillSoft for learning content.
• In July, Talent2 re-branded itself to simplify its talent management focus.
  • It also became a reseller of Cornerstone OnDemand, most widely used for its performance management, including succession planning and learning modules.
  • Talent2 also added advisory services as a service offering to help clients more effectively deploy the capabilities.

With recruiting as one of the core TM processes, RPO vendors are among the early leaders in developing internal as well as external TM service options. NorthgateArinso has been moving in this area as well, coming from the standpoint of bring it all together into one integrated system and services package. With the acquisition of The Right Thing, ADP signals both a stronger move into RPO and its interest in TM.

The HRO Today article also discusses whether HRO has reached the maturity stage of providing ‘true business value’. I believe that talent management evolving into a full-fledged HRO service with technology-enabled tools, data integration across the full suite of HR data, supported by analytics assistance and consulting is critical to HRO providing true business value results for clients and achieving its own full measure of success as an invaluable industry.

Linda Merritt, Research Analyst, HRO, NelsonHall

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You might be thinking that those individuals who have managed to maintain their jobs at this time would be grateful. But, the truth of the matter is that the glass is quite often viewed as half empty. There are many reasons why employees suffer from mental health issues. However, instead of just identifying the source of the problem, employers should focus on offering a solution that is known to improve mental health and therefore lead to increased productivity.

That solution is Employee Assistance Programs (EAPs). In 2011, Morneau Shepell conducted a study on EAPs that had two interesting findings for HRO buyers and suppliers:

• Decreased productivity and absence costs employers ~$20,000 per year per employee
• EAP intervention resulted in a 34% reduction in costs related to lost productivity.

With HR departments outsourcing processes such as payroll to focus on more strategic activities while obtaining best-in-class practices, EAPs as an activity has long been a prime candidate for outsourcing as well. After all, many EAP issues are sensitive in nature and employees may hesitate to seek help if there’s a chance that their confidentiality could be breached.

Two HRO providers that include an EAP offering are Ceridian and Morneau Shepell. While both companies conduct business in North America, Ceridian’s primary market is the U.S., while Morneau Shepell’s is Canada. These two providers are dominating their respective target markets due to a lack of competition from other HRO service providers, not to mention having extensive EAP offerings.

For example, Morneau Shepell already offers an EAP app and most recently launched online access for its EAP clients through its workhealthlife.com website, which allows clients to:

• Confidentially request help on issues including health, family, work, financial, relationship, and legal support
• Learn more about suggested EAP support services
• Select the service and how it will be delivered.

Ceridian, on the other hand, provides services beyond common EAP offerings including aging parent counseling.

Outside North America, U.K. providers have also recognized the importance of wellness programs: Capita with its occupational health services offering and Vebnet with its health and well-being programs.

As an alternative to launching a full EAP offering, some HRO providers have implemented services to address hot topics including saving for retirement. Examples include:

• Mercer’s self-service and decision support tools including its RetireTalk and Financial Engines Income+
• Aon Hewitt’s recently launched advisory service for its defined contribution clients.

However, the secret to a productive workforce is offering services that address work, life, and health issues. While saving enough for retirement is one possible source of the problem, there are many others that can be addressed with a full EAP offering.

Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

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The anticipation of continued growth is based on the experience of 2011 contract growth and expansion in renewals and existing contracts, where service providers have seen the addition of geographies and new processes. At the same time, there has been no change in the perennial barriers of frozen decision making and unrealistic buyer expectations for pricing and savings.

A sign of the times is that payroll services (4.1 out of 5.0) replaced RPO as the strongest individual HR outsourcing service line in Q3 2011. Multi-process HR outsourcing (MPHRO) activity strengthened to 3.9.  This is great to see given that some organizations have been scared of adopting large-scale MPHRO services due to fears of the associated timescales and investments. Vendor MPHRO capability is once again maturing beyond employee administration and payroll services. Organizations are being asked to add in greater support for a wider range of HR functions; prompted by the strengthening need to achieve maximum cost savings in G&A functions as the economic situation threatens to worsen.

Expectations for RPO 2012 service line growth dropped to second place with a still very strong 4.0, with payroll remaining in the lead at 4.2. MPHRO comes at 4.0, showing continued strength for the latest generation of standardized processes starting out with initially smaller scale and scope. Look for buyer interest in multi-country and regional standardized and platform services to continue for payroll, RPO and MPHRO. North America and the U.K. will remain the target for modest growth in benefits administration at 3.5. Good news, despite a small drop in pipeline activity for learning (3.4), all service lines are healthy and are showing a reasonable amount of activity.

Will there be continued economic and political uncertainty? Sure. The good news is that HRO deals can and are being done when the basics of demonstrating both proven business value and cost justified efficiency are clear. So let’s get real and get on with the business of life and business – and have a Happy New Year!

Linda Merritt, Research Analyst, HRO, NelsonHall

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I had a conversation with NorthgateArinso’s  Jonathan Legdon, Sales Director, and Nick Carlson, Strategic Marketing Director for the U.K. and Ireland to learn more about what is driving success. The answer is not one secret to success, but many that are working together.

NGA is one of the HRO market leaders in the U.K. with reference clients across many verticals in the private and public sectors. Still, there were other worthy competitors bidding for the services, so I wanted to know what else is setting NGA apart.

One secret of success is the sales team structure and environment. (For those of us who go way back in HRO, sales teams were not always the friend of forming client service provider partnerships based on more than price, met expectations and were profitable for the vendor.) The sales team includes a mix of sales and operations personnel and the integrated team can realistically represent NGAs services and strengths and demonstrate the expertise and commitment to client services. Also, NGA uses a unique approach to sales team compensation to incent and reward building client relationships that deliver value for clients and needed margins for NGA.

A reputation for HR expertise and innovative technologies and services that produce results is also important. Gatwick Airport is at the beginning of a ten year transformation plan and it selected NGA as a partner committed to delivering exceptional staff services. Gatwick is also looking to NGA for RPO services that will help attract and engage the highest caliber employees.  The Church of England is planning to use the Resource Link Aurora talent management capabilities to improve the efficiency of the selection and training of clergy. LSHTM wants to eliminate bureaucracy with web-based self-serve that will meet the changing needs of a complex workforce.

Clients recognize that the NGA sales teams take the time to listen and understand their needs.  LSHTM said NGA was the most intuitive bidder and understood the needs of the public sector. Gatwick cited the match of corporate cultures and values. The Church of England selection team said that NorthgateArinso, through its thorough engagement with the team, had demonstrated a very clear understanding of the Church’s requirements.

Focusing on HRO success is a good way to wrap up the year. Happy Holidays on behalf of the NelsonHall HRO Insight team, Gary Bragar, Amy Gurchensky, and Linda Merritt.

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Do be aware that the markets for services like HRO already exist and are served by local and regional providers. Hence, new entrants offering unfamiliar brands to A/P buyers will need to assess their competitive value propositions for this vast, yet very localized market with a wide range of languages, price sensitivity, and HRO needs.

One of the largest A/P regional HRO service providers is Talent2, which offers payroll, RPO, traditional recruiting searches, HR administration, learning, talent management, and HR advisory services. Talent2 has services in 31 Asia Pacific and Middle Eastern countries, and its FY 2011 (ended June 30, 2011) revenues were AU$360m, up 26% from FY 2010. In operations since 2003, the company has ~1,700 personnel with offices and service centers spread across the region.

Talent2’s growth over the years had been organic, until 2008 when it added acquisition as a growth strategy and subsequently bought PCA in Japan, a payroll outsourcing and HR consulting provider. In 2010, it acquired Singapore-based Zapper Services with payroll outsourcing and HR administration in 14 A/P countries, adding ~1,000 clients, including multinational corporations (MNCs).

Having an available range of technologies and services is a benefit, especially when there are clients that are expanding their businesses for the first time and need a foundation of basic HR services with a high degree of subject matter expertise. This is also the case for large clients in mature markets looking for top quality and performance at a lower cost. Talent2 has multiple payroll offerings and other services to mix and match to meet the specific needs of clients of many sizes, verticals, with employees in one country to pan-national or global, using a broad range of languages and onshore and nearshore locations.

ADP and NorthgateArinso are two major global players that have been in the region for many years. As the A/P HRO market expands, more players will be looking to gain a foothold. With growth in many areas and services, Talent2 will need to focus its own value proposition and investments to maximize its regional advantages against what will be an even more competitive market. A sign that the company is ready to do just that is the addition of Mary Sue Rogers, one of the leading lights in the HRO community and previously the global leader of HRO for IBM. Rogers recently joined Talent2 as the Global Managing Director of HR services including payroll, HR advisory, and learning services.

No matter where the sun sets, at the end of the day, succeeding in emerging markets is the same as achieving HRO success anywhere: provide high-quality, high-performance subject matter expert services at the optimum price that solves business problems and delivers business results.

Linda Merritt, Research Analyst, HRO, NelsonHall

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Don’t get me wrong, SaaS talent management is a great enabler, and terrific for SAP to have, providing employers with the tools to do performance management. But talent management is about attracting, developing, and retaining the best talent. Good recruitment technology helps attract candidates and software can help in doing performance management, but it is not going to develop and retain talent for you — now that would be a breakthrough if it did! As most of us are keenly aware, thanks to data provided by the likes of Randstad and Manpower (http://bit.ly/ujuMhC), there is a talent shortage and employers can help themselves by engaging and retaining the talent that they have. To do so requires the good old fashioned basics that the cloud cannot replace.

Organizational change is not going to happen if continual investment is not made in people as well as technology. Having conducted retention studies and managed employee programs, I can tell you first hand that the top reasons why talent leaves typically include:

• Dissatisfaction with supervision and/or leadership
• Lack of recognition
• Lack of developmental opportunities
• Lack of a career path
• The desire for more challenging and engaging work
• Work/life balance.

Money by itself is not a motivator!

Call me old school, but I’m much more excited when I see things like:

• Cornerstone sponsoring a Ken Blanchard webinar on the 14th of December: Helping People Win at Work, including the use of performance reviews to develop people, how to set clear goals, provide year-round coaching, and build an engaging performance-based culture
• PageUp’s webinar last week showing  global employers how to retain critical talent with career planning
• Contracts awarded to Kenexa for employee engagement surveys, including with Unilever for 140,000 employees globally, to not just conduct surveys, but help with action planning to act on any issues identified to improve employee engagement
• Many of Ochre House’s RPO contracts also include: KPIs to reduce attrition, accomplished by conducting exit interviews, providing a dashboard with reasons why people leave, exploring problem areas in depth, and making recommendations to client leadership. In addition, OchreHouse often conducts employee satisfaction surveys and has a “Keep In Touch” program for recruiters to keep in touch with new hires to ensure successful transition and retention.

I’m just beginning to conduct my next global learning BPO market analysis. My Q4 2010 study found that companies are just beginning to invest again in leadership and performance management to increase employee engagement and retention. I’ll be looking for evidence that this is happening.

Employers, are you making the investments needed in your employees?

Gary Bragar, HRO Research Director, NelsonHall

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In the U.K., the primary answer lies in the automatic enrollment (AE) requirement of the Pensions Act of 2008. The AE requirement compels employers to automatically enroll their employees into qualifying pension schemes and to contribute to the pension as well. AE will commence in October 2012 and will be rolled out in stages based on employer size until September 2016 with large organizations (i.e., those with more than 120,000 employees) starting first.

Trying to predict the success that AE will have in the U.K. is difficult, but perhaps the Pension Protection Act of 2006 (PPA) in the U.S. can provide some guidance.

Recently, Fidelity highlighted the positive impact that the PPA has had on participation rates among other things. Fidelity’s plans that offer AE have increased to 21%, up from 2% in 2006. Furthermore, the AE feature is a part of 63% of plans with more than 50,000 participants, and Fidelity has seen participation increasing as a result of AE.

The average participation rate for plans without AE is 55%; but with AE, the participation rate is 82%. More interesting is the effect that AE is having on younger employees, who are typically not too concerned with saving for retirement. For employees between ages 20 and 24 years old, the participation rate for plans with AE is 76% and only 20% for plans without AE.

While the PPA in the U.S. does not require AE by all employers, it is proving to be an effective way to encourage participation to actively save for retirement, and it can also provide further opportunities for HRO service providers.

In the U.K., for example, Capita has already won business related to the AE requirement of the Pensions Act of 2008. It was awarded a 7 year £105m contract by the U.K. Pension Regulator to support direct communications and transactional processes with employers for AE that began in October 2011. Capita’s responsibilities include:

• Communicating campaign messages to employers
• Communicating AE duty dates to employers
• Ensuring employers register with the regulator
• Operating a customer contact center
• Some enforcement activities such as administering compliance notices and penalties for non-compliance.

Shortly after Capita’s contract award, Xafinity became the first pension administration provider to launch an AE offering that:

• Identifies who to automatically enroll and when to enroll them
• Sets a course of action for all stakeholders
• Runs financial analysis on different scenarios and take-up rates based on employee data, and selects a strategy that supports corporate objectives
• Provides AE administrative services including member communications; employee identification; auto-enrolling, opting out, and re-enrolling employees; and reporting.

Expect to see more HRO service providers based in the U.K. and others doing business there to launch an AE offering. Some may be late to the game though since the first staging date is less than a year away and compliance can take ~18 months to achieve. It is an area with lots of potential and service providers like Capita and Xafinity are well-poised to gain the first-mover advantage.

Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

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