Archive for the ‘HRO Confidence Index’ category

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