HRO Providers – Are You Sweating Yet?

You may be sweating because it is deep in the dog days of summer, hot humid and hazy. Or perhaps you are sweating and fretting wondering when the recession will end. Instead, as an HRO service provider, you should be sweating to ensure you are ready to hit the ground running as the recession truly begins to end.

At the Federal Reserve’s annual retreat last week, Chairman Ben Bernanke, said, “The prospects for a return to growth in the near term appear good.” And according to the August 21 New York Times, Bernanke and European and Asian central bankers were all expressing increased optimism. At the same time, Bernanke repeated his warning that economic recovery was likely to be slow and arduous, and that unemployment would remain high for another year.

Okay, so no one expects a no-sweat recovery, but we are seeing signs that the recession is ending and the recovery is soon to begin. The question is, are you ready? Really, really ready?

Did you invest wisely?

ACS is doubling down in a big way, having already invested more than $28 million in strengthening its Total Benefits Outsourcing offerings.  Infosys and Genpact are among the Indian entrants into the multi-process HRO space that are building their own platforms for technology and service delivery.

Have you managed your footprint?

Some have partnered to strengthen their geographic footprint, or fill a gap in their services portfolio.

•  Xchanging, a major U.K.-based HRO provider, is partnering with U.K’s RPO vendor Alexander Mann Solutions (AMS), to enter new markets with complementary services.

•  AMS is also the partner of choice for The RightThing, an American RPO provider looking to expand international coverage for its multi-national clients.

How confident are you in your plans for new growth?

I have spoken to one vendor who is specifically targeting the small and mid-market, and another who is looking for the single service entry point, with plans to expand to multi-process over time.

Is your vision and value proposition crystal clear?

Being all things to all people turned into a Mid-Summer’s nightmare for many early entrants in the large market enterprise play space. We have all seen the changes in direction for Hewitt, Fidelity and most recently ExcellerateHRO, to focus on areas in which they have the greatest strengths.  

Those providers which have positioned themselves for changed buyer expectations in the new competitive post-downturn environment, and those that can show a cost-effective plan for HR buyers to get back on the path of strategic HR transformation will benefit from the their sweat equity as the frozen corporate decision-making begins to thaw. Are you sweating yet?

Linda Merritt, Research Director, HRO, NelsonHall

Will Multi-Process HRO Survive, or Will the Baby Be Thrown Out With the Bath Water?

The large multi-process HRO (MPHRO) deals born in the last 10 years or so brought HRO to a new level of awareness and created something of a cottage industry to support it before anyone in the equation really knew what it was and what it could really do. The first few service providers and buyers begat advisors to guide buyers, lawyers to write deals, analysts to research and comment on the emerging market, and HR-specific and more mainstream media to cover the phenomenon. Dedicated magazines and professional associations like HRO Today, HRO Europe and the HR Outsourcing Association quickly formed, and conference promoters and general HR consultancies swarmed.

It all looked so much like fun at first. One-stop HR shopping with almost every HR services you could name from one end-to-end provider, wow! (One hand to shake, or one throat to choke, take your pick. And yes, newbies, that language was actually used.) Anchor client HR operations lifted and shifted with rebadged employees, and systems and processes moved to the new providers with plans to become the foundation for multi-client services. Marketing promos promising 20, 30 and even 40 percent or more in savings were pitched by sales teams to HR and C-suite executives. HR RFPs were big and vendor responses were bold. Vendor and buyer due diligence assessments? Not so much. Either parties tests for customer readiness? Non-existent. 

What Went Wrong – The Short Story

Then we all found out it was much harder than it looked. Take just two elements out of a very complex market dynamic. Transitions were longer, more complex and costly than embedded in the deal structures – something that would come back and haunt both service providers and buyers in the coming years. Transforming anchor clients or pre-existing technology platforms and processes into global multi-client capabilities with room for buyer discounts and customer satisfaction, while still leaving a reasonable profit margin, also turned out to be more problematic than anticipated.

In the meantime, the single process HRO field did not intend to be displaced or subsumed behind MPHRO vendors. Some joined the fray as new MPHRO vendors. Others dug in to defend, expand and promote their HR specialty point solution services in areas including benefits, payroll and learning. Today there are more standalone HRO options than ever. The struggles in MPHRO with some high-value, but complex, services even likely fueled the growth and expansion of services like RPO.

Will Multi-Process HRO Survive?

Yes, MPHRO is changing, but it is not about to go away any time soon. Granted a few deals did not survive, and some others have been less than 100 percent successful for either buyers or providers. Still, this a multi-billion dollar market segment with millions of employees served worldwide. MPHRO works for most buyers across many service lines, and many major contracts have already been updated, extended or renewed, although with little of the early fanfare.

Shakeouts are to be expected in any new market, perhaps even more so in a down economy.  Some are playing in the field of mergers and acquisitions, like ExcellerateHRO going to HP. Others, such as Hewitt and Fidelity, are choosing to refocus on core services. However, most of the major HRO providers like Accenture, Convergys and IBM are staying the course, and there are even still new entrants, including offshore providers such as Infosys and Wipro, ensuring the MPHRO marketplace will exist, continue to evolve and provide buyers with a wide range of competitive options.

A topical article in the June 2009 of HRO Today entitled, “In today’s changing market, who has the advantage: End-to end or point solution? Industry experts weigh in,” also sees room for both MPHRO and point solution options.

But exactly how is MPHRO changing and adapting today, and how does it plan to compete tomorrow? It is time to find out. My first major NelsonHall Market Analysis study, planned to be published in October, will be on MPHRO. The results will be very telling!

Linda Merritt, Research Director, HRO, NelsonHall

Infosys, Wipro, TCS and other Offshore Providers: How Strong an HRO Play Can They Make?

Against the backdrop of Infosys’ most recent quarter-end financials announcement – of which 6.1 percent of revenue was attributed to BPO, and five to 10 percent of that BPO revenue is estimated to have come from HRO – how viable can it and its Indian brethren be in the HRO space? Despite inherent challenges and both real and perceived buyer concerns about offshoring HR processes, offshore providers are making strong investments in and “upping the ante” of their HRO capabilities.

For example, Infosys within the last several months launched a new SaaS plus BPO platform offering which supports HR processes. And other Indian providers such as Wipro, Caliber Point, Secova, Modis and TCS are partnering, primarily with Oracle and SAP, for a technological BPO backbone which supports HRO processes, and then building more standardized BPO services around that technology.

Further, to address language and cultural barrier concerns of many buyers, India-based offshore providers are understandably touting their centers in locations such as Romania and Poland as HRO delivery sites.

Finally, price points are clearly lower in India and other low-cost locations such as the Philippines in which offshore providers have centers. In today’s economy, given that providers such as Hewitt and Convergys have been challenged to meet the cost-cutting requirements of their existing clients without themselves utilizing offshore resources, there are clearly some natural opportunities for offshore providers.

But the operative word above is “some” natural opportunities. Remember, there are many concrete and ostensible inhibitors to offshore HRO. So where are offshore providers making, and can they make, their play?

At least for the relative near-term, it’s in the low-cost transactional services and low- and mid-level analytics processes. For example:

•  In recruitment process outsourcing (RPO), CV/resume screening and, in some cases, candidate short-listing. But beyond these initial activities, most will require onshore hand-off

•  In learning business process outsourcing (LBPO), managing course scheduling and learner assistance around which courses are suitable, etc. But with language, cultural and proximity issues, the possibility of venue management, course development and learning delivery is null to void

•  In back-office processes, those which are non-voice-related, such as payroll reconciliations, accounting within pensions arrangements, fulfillment, etc., in benefits administration

•  In HRO analytics, low-end processes such as monthly and quarterly reporting on employees per business unit, geography or employee population diversity; cost per hire; hiring manager satisfaction; learner satisfaction and utilization rates for decision support tools. Mid-level analytics provided by offshore providers could include loyalty and attrition modeling

•  And of course the IT support around all of these HR processes

The bottom line is that offshore providers are viable contenders in the HRO space, but we believe buyers are still cautious about fully embracing offshore outsourcing, so are likely to engage only in the non-high-touch areas. If a buyer is seeking lower cost, transactional services, offshore HRO is certainly worth examining.

Helen Neale, Research Director, Human Resources Outsourcing, NelsonHall