HRO Total Contract Value Jumps 38 Percent in 1H10 – Where are the Gains Coming From?

During our Quarterly BPO Index webinar last week, NelsonHall CEO John Willmott reported that HRO total contract value (TCV) revenue increased 38 percent in 1H10 in a year-over-year comparison to 1H09. While HRO’s gains weren’t as great billions of dollars-wise as other BPO segments such as multi-process or industry-specific BPO, it is good to see the start of an upturn.

So where are these gains coming from? Forty-five percent of the contracts were signed with North American organizations, 43 percent were awarded to European enterprises (of which two-thirds were based in U.K.), and organizations in Asia Pacific accounted for the remaining 10 percent. And by service type:

• Recruiting – 32 percent of deals – including contract wins by Hays, Manpower, Kenexa, OchreHouse, Pinstripe, CPH Consulting, Alexander Mann Solutions, The RightThing, KellyOCG and PeopleScout

• Payroll – 22 percent of deals – including contract wins by Capita, MidlandHR, Raet, NorthgateArinso, ADP, TDS and Ceridian

• Benefits Administration – 20 percent of deals – including contract wins by Workscape, Aon, Secova, Mercer, Convergys and Xafinity

• Multi-process HRO (MPHRO) – 14 percent of deals – including contract wins by Accenture, Ceridian, ADP, Xchanging and Hewitt

• Learning – Eight percent of deals – including contract wins by Edvantage Group and General Physics

• Other HR – Four percent of deals – including talent management-related contract wins by Kenexa

Overall, I was not surpised with the above breakdowns as they were very consistent with the predictions in our June 2010 quarterly HRO Confidence Index.

Digressing a bit here to add to the buzz about Aon’s acquisition of Hewitt…while much written and water-cooler discussed has been about benefits administration, a sizeable amount of Hewitt’s revenue comes from MPHRO. A good example of this is Hewitt’s five-year contract renewal with International Paper, announced in April 2010.The renewal will support 40,000 International Paper employees with payroll, workforce administration, health and welfare administration, recruiting support, SAP application support and help desk, call center and HR manager support, learning administration and flex staffing management services. Given the amount of revenue coming from Hewitt’s MPHRO client base, I believe Aon will not only happily want to continue to support these existing clients, but also want to continue to grow the MPHRO business.

Although most new MPHRO contacts will likely not be the mega deals of yesteryear, reducing the number of suppliers in the outsourcing portfolio continues to grow in appeal among buyers. If buyers are satisfied with their MPHRO deals, they will continue, albeit in smaller fashion, to benefit both buyers and providers.

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall

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