Is Your Vendor Bullish on HRO?

Sometimes we hear service provider’s recommitment to the world of HRO. Such commitment is to be expected from vendors whose entire business is HR-related. It is somewhat surprising to see such commitment from large companies that make most of their money in other service lines, including Accenture, Aon, and IBM.

Take Aon for example. Its history is largely rooted in insurance underwriting and risk management, and HR services were a minor contributor without much visible synergy. Rather than jettison the smaller business, Aon more than doubled down with the acquisition of Hewitt last year. Now Aon Hewitt is about 40% of Aon’s revenues and Aon’s CEO, Greg Case, says he is bullish on all of the opportunity areas for HR Solutions in both the consulting and outsourcing arena worldwide.

Meanwhile, Aon’s HR Solutions revenues for Q1 2011 were $1.1bn and flat in organic growth. Consulting came in at $569m with 4% organic growth. Outsourcing had $556 in revenues and was down 3% organically. Also, this quarter Aon Hewitt took a $61m write-down for a reduction in intangible assets. Such write-downs are less frequent, but not totally gone as some clients reduce HRO scope, negotiate lower pricing, or change vendors.

Other HRO issues persist due to the nature of the business and impact all of the vendors. As a matter of survival, service providers like Aon Hewitt and others have grown savvier in managing the rapid declines in client revenues when the economy tanks, employment drops, and discretionary investment dries up, while still meeting client commitments.

This is not a business for the faint of heart. Perhaps you do need to be a bit bullish to get in and stay in the HRO arena. What will it take to make HRO the business, people, and revenue growth engine we all want it to be?

For one, go where the growth is. For MNC’s that continues to be internationally, and it will be increasing as internal markets develop. Both Accenture and Aon see solid current and future growth across the world beyond the mature markets. Global footprints grow led by the larger part of the vendors business. The chance to add-on HR consulting and outsourcing will follow at less opportunity cost, often using the same delivery locations and networks and both Aon Hewitt and Accenture are continuing to add talent in select global markets.

For another, focus on moving up the business value chain. NelsonHall sees a very positive environment for process improvement-oriented offerings with organizations using both consulting and systems integration and, increasingly, BPO to adopt new business models which are more cost-effective, more globalized, and have greater customer impact. For HRO, it is key to create customer impact beyond HR cost efficiency.

Buyers, is your HRO provider building capacity where you need? Are they able to pull through from their larger business segments the insight and capabilities you need to deliver business results?

Linda Merritt, Research Director, HRO, NelsonHall

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