Archive for the ‘HRO Confidence Index’ category

Let’s Not Forget About Learning

August 30, 2011

According to a survey by KnowledgePool, a U.K.-based managed learning services provider, 70% of internal client learning and development (L&D) organizations are too busy doing daily fire-fighting to focus on strategic talent and learning issues in their company. Out of 104 L&D managers, 69% say their training department does not have enough resources and 42% say that training receives inadequate support from senior managers. Yet 80% of L&D managers said they could improve their organization’s training ROI; 77% think new opportunities for improvement could be identified through rigorous analysis of their training spend and evaluation data; and 75% say improvements could be made by using more informal and on-the-job learning methods.

Sound like an opportunity for outsourcing? You bet!  The good news from NelsonHall’s most recent quarterly HR Outsourcing Confidence Index is that learning services, which has been the last of the HR outsourcing service lines to recover, is expected to continue to strengthen as the year progresses. Following several strong quarters of growth within RPO, the need is now shifting toward implementing and optimizing learning programs. Good news in learning since the beginning of Q2 includes:

  • Genpact winning a content development contract by JobSkills in India
  • Raytheon Professional Services winning a contract to develop an e-training program for NATO
  • CIBER’s Federal division winning a 5-year training development contract with a potential value of $30.7m by the Center for Strategic Leadership, an institute of the U.S. Army War College
  • Accenture winning an e-learning contract with a major bank that may later add classroom ILT
  • General Physics winning $3m in 5 new contracts from energy companies across Africa, the Middle East, South America, and Asia
  • Edvantage group winning a safety e-learning contract by Yara International, providing 7 interactive e-learning courses for 3,000 technicians, operators, engineers, and supervisors at 30 plants across 17 countries.

In NelsonHall’s last learning BPO report, top drivers of why companies are outsourcing learning, which support KnowledgePool’s findings, include:

1.        Lowering costs (average client savings of 26%)
2.        Increasing training effectiveness and ROI
3.        Improving the quality of learning for employees
4.        Accessing experts in the industry whose core competency is                       learning
5.        Flexible services, aligning learning with the customer’s                                 strategic objectives
6.        Focusing on strategic work, not transactional activities.

Look for increased learning outsourcing to continue the remainder of 2011, including by the likes of IBM who continue to see increased demand globally. In 2012, I think learning outsourcing will really soar. Although uncertainty in the economy continues to cause delayed decision-making, there is no doubt in my mind that we will see a boost in learning as companies unanimously agree talent management is more important than ever. To improve and engage talent, you have to invest in your people. There is only so long you can just say the words, eventually you have to walk the talk!

Gary Bragar,  HR Outsourcing Research Director, NelsonHall

RPO Continues Its Stride in Q2 2011

August 16, 2011

If you didn’t pay attention to the news and only looked at the recent financial results reported by staffing and RPO providers, you’d think that everything is fine with the global economy.  Let’s take a look at a few of the highlights including year-over-year revenue growth in Q2 2011 compared to Q2 2010 and some numbers of contracts awarded:

  • Talent2 (fiscal year 2011 for period ending June 30) +26%, RPO +57%
  • Kelly Services +16%, KellyOCG + 22.5%, and RPO ~+50%
  • Kenexa +59%, RPO + 45%
  • Manpower + 24%, ManpowerGroup Solutions +21% with 37 RPO deals closed in Q1 and 31 new RPO contracts awarded in Q2
  • Pinstripe won or extended 15 RPO contracts in H1 (revenue not reported)
  • SeatonCorp +20%, PeopleScout +95% with 9 new RPO contracts signed.

Why was growth and the number of contracts awarded so high when the sad reality of the news headlines is that there are debt problems, slowdown in GDP growth, and a continually high unemployment rate?   Well, that is precisely why!  There are several reasons including:

  • Organizations who have had to downsize are turning to RPO because they don’t want to invest in hiring recruiters and associated staff only to potentially downsize again (i.e., it’s better to outsource recruitment to a vendor that can provide variable pricing and who can scale up or down quicker than the client)
  • Obtaining  better quality of candidates and quality of hire from an outsourcing specialist
  • Allowing HR to work as a strategic partner and in-conjunction with the RPO vendor to engage employees and retain talent (instead of focusing on hiring)
  • Wanting to get out of the technology management business, which isn’t usually a client’s core competency
  • Reducing time to hire, improving hiring manager satisfaction, etc.

In addition to revenue growth from new contracts and renewals, growth comes from existing clients that have increased their hiring volumes. Other sources of growth are from contracts won in prior quarters that take several months before fully ramping up.

RPO does not look like it is going to slow down anytime soon.  In NelsonHall’s HR Outsourcing Confidence Index, published in June, pipeline growth reported in the prior quarter was higher for RPO than all of the other HRO services.

At NelsonHall, we’ve seen an increase from buyers wanting to know who we see as the leading RPO providers by country and region. Buyers, are you evaluating outsourcing recruitment, if you haven’t done so already?

Gary Bragar,  HR Outsourcing Research Director, NelsonHall

Fast or Slow for HRO?

August 5, 2011

The economic signals for the second half of 2011 remain mixed. Looking at the macro markets combined with global debt situations and unemployment rates, it looks like we are on the edge again. The long struggle to reaching agreement on raising the U.S. debt ceiling rattled nerves around the world.

Alternately, if we look at the NelsonHall HRO Confidence Index for Q2 2011, we see that service provider’s confidence level is 168, near the all time high of 170. Supplier expectations for 2011 for most industry sectors have improved with banking remaining the strongest followed by high-tech and telecoms, with the state and local government sector also up. Expectations are a bit lower for automotive, professional services, and transportation. Geographic growth expectations continue to be positive in emerging markets and have strengthened in the mature markets like the U.S. and some areas of Europe.

HRO vendors see what is happening in the larger economy, they know there is a chance of a double-dip recession or at least several more sideways quarters. At the same time, strength in new sales and expanded scope with existing clients along with still strong pipelines provides them with a more optimistic view. Let’s hope they are right!

ADP echoed this divergent view on its FY 2011 earnings call. It is well aware of the current economic conditions, including a still possible downgrade in the U.S. credit rating. ADP’s FY2012 forecast calls for continued growth based on its strong performance in FY2011, with Employer Services (ES) up 8% to $6.9bn, and a better-than-ever pipeline. It is also benefiting from recent acquisitions and new service innovations that have broadened and refreshed its service lines, especially adding more beyond payroll options in Europe. While payroll continues to be the largest service line for ADP at 66% of ES revenues, 33% is now from beyond payroll services including full HR BPO. In the pipeline, it is now an almost even split: 52% payroll, 48% beyond payroll.

As seen during the recession, HRO can be hit hard and fast in a full-fledged downturn. So, how can a HRO provider like ADP defy the larger economic outlook now? ADP was willing to take a small hit to operating margins to hire and train several hundred sales and service people ahead of the upturn. It was able to affordably acquire added capabilities to round out service lines and invest in new services that have been successful right out of the box, including Workforce Now and Run, which currently has over 120k clients in the small market on its cloud platform using self-service and Smartphone access. At the same time, ADP retains focus on client satisfaction and retention to stabilize recurring revenues.

In a recovery, even a weak one like we are experiencing, a well-prepared HRO vendor can beat the odds. Is your HRO provider one that is beating the odds?

Linda Merritt, Research Analyst, HRO, NelsonHall

HRO Confidence Continues to Soar!

July 21, 2011

Our recently published Q2 2011 HRO Confidence Index indicates that 50% of HRO suppliers, which includes payroll, RPO, learning, benefits, and MPHRO vendors, are much more confident in the HR Outsourcing business over the next twelve months compared to the previous twelve month period.  Thirty-five percent are slightly more confident and 15% are as confident.  The driving factors are two-fold.  The top reason is new contract activity, first reported as the main reason in Q3 2010, and the other reason is increased scope of existing contracts.

In the past, my colleague Linda Merritt and I have written about new contract awards. For this blog, I wanted to focus on the importance of contract renewals, including increases in scope expansions as they are closely following new contract activity as the reason for this high confidence in HRO!

A few examples of recent contract renewals and scope expansions include the following:

  • Last week, Genpact was awarded a 7 year MPHRO contact by Nissan to include payroll, recruiting, training, and benefits administration.  Genpact had been providing HR services to Nissan group companies and affiliates.  It has also been providing services outside of HR that included F&A, procurement, collections, customer service, and analytics.  As part of the contract, Genpact acquired Nissan’s HR shared service center in Yokohama, Japan, which handles HR functions for 54,000+ employees globally. The center, renamed Genpact Japan Service Co., Ltd., will serve Nissan, its affiliates, and other Genpact clients.
  • In June, NorthgateArinso was awarded a 7 year MPHRO renewal and scope expansion by Fifth Third Bank that I wrote about in my blog on the 23rd.
  • In June, Pinstripe was awarded two RPO contract extensions and scope expansions by Johns Manville and Rayonier. For Rayonier, the scope was expanded  from professional hires for one division to include all professional and hourly hiring for all divisions.
    • In April, Aon Hewitt was awarded a flexible benefits contract by Emap, a business-to-business media group in the U.K.  Aon’s Risk Solutions business had already been providng services to Emap.
    • In addition to winning a total retirement outsourcing (TRO) renewal earlier this year with BP America, Fidelity Investments also won a  5 year contract renewal for TRO in North America by HP, adding 162,500 participants from EDS who were previously serviced by other providers.

I believe we will of course continue to see contract renwals, but within the next one to three years, we will see an even larger increase in scope expansions.  Why?  Although buyers are increasing their propensity to outsource, since the recession began in 2008 we’ve seen new HRO buyers treading more lightly to test the waters before diving more deeply.  A common example I see is in recruiting, where a new contract may start out for a particular business unit or geography, but then expand based on client satisfaction and increased benefits to enterprise-wide RPO, similar to the Pinstripe example above. When these contracts come up for renewal and the clients are happy, having  obtained the benefits they signed up for and maybe even had their expectations exceeded, then there’s a good chance these clients will be looking to increase whatever scope they can.

We’ll come back to additional findings and trends in our HRO Confidence Index in a future blog, but in the meantime , NelsonHall clients can view the full report at the NelsonHall website.

Gary Bragar,  HR Outsourcing Research Director, NelsonHall

HRO is Settling in for a Good 2011

March 2, 2011

HRO is back in the swing of things as evidenced by the NelsonHall Q1 2011 HRO Confidence Index, which is based on a questionnaire completed by HRO service providers. While the full report is for clients and survey participants, we like to share tidbits for our HRO Insight blog readers.

The HRO Confidence Index hit a low of 115 in Q2 of 2009 as the full impact of the recession hit home. On the rise since, it peaked at 170 in Q4 2010. The Q1 2011 HRO confidence level is 164. Some of the ratings slightly declined since the last quarter but remain at very positive levels, indicating a settling in of vendor confidence with a dash of realism.

Renewals and increases in scale and scope are going very well with existing clients. New deals are being signed and there is some increase in total contract values as geographic coverage continues to expand.  Multi-country coverage is in ~30% of contract activity and the average number of countries included is 11. Growth is even expected to increase for multi-process HRO and there are hints that multi-tower deals may return as buyer confidence increases.

Revenue growth expectations are still positive, although with moderation from perhaps a bit too much holiday cheer in Q4 2010. On a scale of 1-5, with 5 being a strong increase, overall HRO expectations for revenue growth slipped from 4.3 to 3.6. RPO which had shown the greatest return to revenue growth throughout 2010, dipped to 3.7 from its high of 4.2 last quarter. A slight decline was also experienced by geography. The U.S. and Asia Pacific are still seen as the greatest opportunities along with Canada and the U.K. as traditional hot spots. Not surprisingly, given the current turmoil, the largest scaling back for growth was in the Middle East which dropped from 3.7 to 3.1.

The HRO outlook is quite positive and yet hurdles will always present themselves and awards will often be hard won. Getting the final commitment made and dotted line signed is still an issue. Clients continue to push hard for low prices and cost reductions. Across all BPO, including HRO, expectations for immediate and overall cost savings can be unrealistic. HRO is challenged to refocus on the overall value to the business in addition to operational cost to support its pricing.

Clients are growing in sophistication and understanding of outsourcing options. Fewer buyers are trying for lift and shift deals and are starting to wean themselves off of wanting heavily customized technology set-ups. They are also cautious about vendors with only a single offshore delivery center. This should ease the way for HRO vendors with growing multi-shore delivery options and expect business to continue to increase for hybrid and platform HR technology systems.

It is time to settle in and get down to the business of business and ensure a good year for HRO.

Linda Merritt, Research Director, HRO, NelsonHall