Three Forces Shaping HRO for 2012

As 2011 comes to a close, let’s look ahead to 2012 and the three current trends that will continue into the New Year and beyond.

HR SaaS has been around for years. Now that the breadth of cloud coverage is in the HR ERP space it is opening up the middle market for HRO at long last, and is swimming upstream into the large client market. HR mobile applications are proliferating and vendors will be hard-pressed to deal with the rising demand by clients and participants for more on-the-go functionality. What seemed like an innovative differentiator is quickly becoming a competitive requirement.

HRO globalization has long been on the agenda of many HRO vendors, mainly targeted by major multinational companies (MNCs), but there are only so many global MNCs. We are now seeing additional focus on regional service networks for multi-country companies. HRO activity in emerging markets is also picking up for MNCs and for in-country client services. Expect to see HRO acquisitions, partnerships, and new offices for sales and service delivery grow in 2012 as service providers continue to fill-in geographic footprints and service gaps.

The globalization of RPO will continue to be a big story in 2012. RPO vendors are gearing up to meet the demand and two of the largest acquisitions in 2011 included SourceRight (part of SFN Group), which was acquired by Randstad, and The RightThing, which was acquired by ADP.

The growing global RPO demand was illustrated in a big way by Kenexa when it was awarded with a five-year RPO contract by Eli Lilly and Company, which includes recruiting in Asia Pacific, Europe, and the Americas. NelsonHall estimates the deal to be worth more than $50 million, one of the largest RPO contracts to date.

HRO contract awards will continue to increase across Asia Pacific, with some year to year variability due to economic conditions. Three years ago, ~10% of contracts included Australia, with half of those for clients headquartered in Australia. Two years ago, it was ~11%, with about an even split of Australian-based clients. In the past year, the number has jumped to ~16%, with the majority of contracts for clients based in Australia.

China has also emerged as a client base for HRO, including for in-country services. As emerging market companies reach a fast-growth stage and expand their services internationally, the need for HR technology, processes, and delivery capabilities can outstrip the local talent base for HR. For example, Manpower made two acquisitions in China, REACH HR in South China and Xi’ and Fresco in Henan Province.

These are three of the forces shaping the future of HRO. Those HRO vendors that are able to update their portfolio of services and quickly and cost effectively invest in the acquisition or development of new capabilities will gain an advantage in the growing marketplace for HRO.

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.com with “HRO Insight” as the subject.

The Rise of Smartphone Apps in Benefits Administration

Over the past year, HRO service providers have launched various smartphone apps. One of the first apps I became aware of was ADP’s RUN app for small business owners. It’s been interesting monitoring the progress of this app since its launch in October 2010. Within six months, it reached 100,000 users while only available for Apple devices. It has since been made available to the Android and RIM platforms, adding even more users.

Payroll seemed like an ideal place for HRO service providers to develop apps. ADP then took it one step further and launched the ADP Mobile Solutions app, which provides users with HR, payroll, and benefits information including retirement savings information such as current 401(k) allocations, distribution percentages, account balances, and rates of return.

Towers Watson also has an app, TWGlobal50. It provides HR and benefits professionals with various information including planned pay increases, changes in employee engagement levels, talent mobility interest rates, and changes in healthcare benefit costs.

Unlike payroll, apps within benefits administration can cover a broad range of topics such as Morneau Shepell’s My EAP app, which provides the following:

• Health and wellness articles (from its workhealthlife.com website)
• Access to confidential e-counseling
• LifeSpeak On Demand video clips on a range of personal and work-related topics.

Other apps available from benefits administration providers allow users to access more personalized data. For example, Buck Consultants’ Benefits Genie Lite and Benefits Genie apps enable users to track a wide variety of health and insurance information for themselves or other family members including:

• Allergy information
• Prescription medications
• Vaccinations
• Operations
• Family history
• Physician contact information
• Benefits co-payments and deductibles, etc.

Although not an app per se, Aon Hewitt is also enabling its client employees to access their personal health and retirement information from smartphones via secure websites, allowing users to make changes to their retirement plans and even enroll for benefits.

These more interactive personalized apps make it easy for employees to stay connected and engaged as more responsibility is being shifted on individuals to manage their own retirement savings and health. Also, with healthcare reform, we are likely to see apps expanding to new areas such as healthcare exchanges.

Mobile access from any device will quickly move from a differentiator to a requirement, including for HRO. The difficulty is the development time, costs, and security challenges for services that will not likely generate new revenues as much as protect revenues and support continued growth. Technology investment decisions will be critical in staying current and still managing needed margins.

Stay tuned.

Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

 

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.com with “HRO Insight” as the subject.

ADP Sets a Steady Course For Continued Growth

ADP announced fiscal Q2 2011 Employer Services revenues of $1,663m, up 7% year-over-year.  PEO Services came in at $358m, up 15%.

Payroll and tax filing revenues were flat primarily because certain end-of-year service billings fell into January.  U.S. beyond payroll revenues increased 16% with the help of recent acquisitions and growth across tax services, T&L services, benefits administration, BPO, and HR services.

Pretax margins for Employer Services declined 80 basis points for the quarter due to planned higher selling expenses, investments in sales and service headcount, and recent acquisition activity.

For the second quarter in a row, ADP increased its 2011 forecast.  Employer Services revenue growth is now expected to be 5%, up from 4%.  Including acquisitions, Employer Services revenue is expected to be 6% to 7%, up from 5%.  With a solid pipeline, increased sales force, and its own unique payroll window into economic recovery, ADP is confident in achieving higher results than the original forecast of 1% to 3% revenue growth.

In a sign of general business health, ADP has seen an uptick in clients funding wage increases and paying bonuses.  Its U.S. clients increased employee payrolls by 2.4%, the single largest quarterly increase since 2007.  Also, the ADP large client segment is finally seeing growth in employee payrolls.  While Europe is not adding employees back yet, the rate of decline is slowing.

Employer Services completed two acquisitions during the quarter, including MasterTax for approximately $10m and Byte Software, the largest payroll and HR products and services provider in Italy, for c. $60m.  ADP was already the second largest provider in Italy and now it will be solid in the top position.

The quarterly earnings call was handled from Barcelona, Spain where senior ADP leaders were hosting their annual Global View conference for more than 100 clients.  This is a great opportunity to listen and learn about client HR service needs and gain business insight into the large multinational market.  This was especially important for Global View which represents a major investment for ADP.  Even with growth on track and a solid pipeline, the platform is not expected to breakeven until fiscal year 2013.

In February, ADP’s RUN mobile payroll app, which is already available for the iPhone, will be released for other Smartphone platforms.  Watch for ADP to roll out more HR mobile apps with increased functionality later this year.

ADP knows its business and understands how each aspect is linked to growth and margins and it continues to confidently execute on its long-term strategy of balanced organic growth and expansion through acquisitions.  Steady as she goes – forward.

Linda Merritt, Research Director, HRO, NelsonHall