HRO is Never Static or Still

During every stage of the economic lifecycle, HRO service providers are doing something to either anticipate or react to changes in the marketplace and client needs while simultaneously striving to achieve strategic goals. This week I wrap-up NelsonHall’s review of 3Q 2010 HRO activity with a look at what’s new in offerings, partnerships and acquisitions.

One way to quickly expand a service line or fill-in gaps is to partner with a provider that is already offering the service or operating in the target geography. Last quarter was most active for RPO. Those announcing new RPO-related partnerships included Alexander Mann Solutions (AMS), Kelly Services, Kenexa, Pinstripe and The RightThing. Notably, two of the partnerships were to continue to expand RPO services internationally in the Asia Pacific region, with AMS adding reach into India and Kelly in Vietnam.

A more committed path to rounding out or adding new services is to buy it. Making small to large acquisitions is another constant in the world of HRO as players define and redefine their portfolios. In addition to the close of the three game changing major acquisitions in the benefits community (ADP/Workscape, ACS/ExcellerateHRO, and Aon/Hewitt), other folks were also making deals. For example, Mercer acquired IPA and ORC, and Xafinity bought PwC’s pension consulting and administration business in the U.K. Further, Randstad continued its acquisitive ways, this time outside of Europe, with its planned acquisition of FujiStaff in Japan.

Health and welfare (H&W) outsourcing used to be limited to the U.S., and that will remain the major market. But no matter how health insurance and care is funded, H&W concerns are growing globally. In the U.S., Fidelity is partnering with RedBrick Health to offer its clients wellness services, and in the U.K., Capita is acquiring FirstAssist Services to add to its health service offerings.

Finally, if you cannot find what you want in the marketplace, you can build or expand it yourself. Ceridian wants to truly offer a new line of BPO services and has announced it is ready to consult, build and manage the health insurance exchanges that some states will need in a couple of years as part of the U.S. health care reform program. 

Most announcements of “new offerings” are incremental additions. For example, Hewitt is adding Micromedex medical reference information to its advocacy service offering. You can also simply package what you have and call it new. Aditro has done that with a standardized set of payroll services that include preset services levels and implementation process to make a lower cost bundled option.

Yet another variation blends supply chain partnerships with building it yourself to make a new service offering. Take a SaaS HR service from Oracle or Sap and wrap in value added enhancements and services additions and, voila, you have a new HRO service platform. Mercer introduced its Human Capital Direct that uses PeopleClick Authoria’s talent management suite as the core, surrounded by Mercer’s consulting, tools and methodologies such as decision support, competency models and analytics.

In HRO, somebody is always doing something. What have you done lately?

Linda Merritt, Research Director, HRO, NelsonHall

Surprise, Surprise (not): Cost Reduction Reigns as Top HRO Driver in 2010

Although reduced service delivery costs are not always the key reason companies outsource to third parties, it comes as no surprise (and really, why should it?), that the overriding issue which continues to concern HR departments in 2010 is the ongoing need for HR service cost reduction.

NelsonHall’s just published research report, “HR Issues and Outsourcing Intentions,” found that 78 percent of the 120 buy-side HR executives interviewed – with a nice cross-section of participants from the banking, consumer products, healthcare, high-tech, insurance, media, pharmaceuticals, retail, telecommunications and utilities industries – ranked the corporate requirement for reductions in HR administration costs as their number one issue. Other issues and challenges 2010 HR departments are facing include providing support for organizational restructuring and retraining, of course while reducing HR costs, and standardizing HR processes and providing improved HR information in an environment in which there is little management support for internal investment in HR technology.

This need for cost reduction with minimum investment is having a major impact on the manner in which organizations are approaching HRO. A full 60 percent of our buyer interviewees stated cost decreases (“maintenance of our current services and systems, with only minor changes/additions”) was their main HRO need and expectation over the next 12 to 18 months.

Overall, organizations are seeking average cost reductions of approximately eight percent from their HR services during 2010. However, they will be seeking significantly higher cost reductions from their outsourced HR services. Consequently, they will negotiate with their providers for further cost reductions within existing HRO contracts, and engage in additional HRO deals that focus on both process standardization and cost reduction.

As a result, we’ve seen an increasing number of announcements of new standardized service offerings, particularly in the small and medium enterprise (SME) market. For example, earlier this week Sweden-based Aditro, an outsourcing provider of payroll and HR services to Nordic countries, announced a packaged payroll service for SMEs that includes a standardized payroll service with pre-defined service levels, enabling clients to receive the benefits of outsourcing, but at a lower price.

In an upcoming blog we’ll speak in detail about uptake of SaaS-based vendor hosted applications, another topic we covered in detail in our “HR Issues and Outsourcing Intentions” research report. But, given the extensive nature of the report, (it’s more than 176 pages!), there are many other areas we can also try to cover in future blogs. Interested in hearing more about the key issues HR departments are facing relative to HR service delivery, and initiatives planned in response to these issues? Level of satisfaction with current HR service delivery? Expectations from HRO, including benefits sought and attitudes toward use of hosted HR platforms and offshore service delivery? Let us know!

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall

Payroll Outsourcing – Overtaking Benefits Administration as Top Outsourced HR Process

Although our May 13 blog stated that benefits administration outsourcing had taken the top spot on the HRO food chain in terms of projected annual growth rate through 2013 – this per our Targeting Benefits Administration research report published early this year – it appears the tides are changing and payroll outsourcing is taking the lead.

Preliminary findings from a Global Payroll Market Analysis I’ve just begun working on, primarily in the European market thus far, seem to indicate payroll outsourcing will see double digit growth in the next 12 months. Further, looking at HRO contracts signed in 3Q09, the pace of payroll continues to pick up speed as 50 percent of them contain payroll. These contracts are a mix of standalone payroll outsourcing services engagements – some including Software as a Service (SaaS) HR services such as talent management – payroll combined with other multi-process HRO services and SaaS-only deals.

Some of the Q3-signed payroll contracts include:

•  Aditro and Elisa for HR and payroll outsourcing

•  MidlandHR and Ofgem for payroll outsourcing and hosted HRIS

•  NorthgateArinso and Cobalt Ground Solutions for managed payroll and HR systems

•  NorthateArinso and Invensys for HR, payroll outsourcing and SaaS (this one is very large scale; services are being delivered to 21,000 Invensys employees in 50 countries)

I believe the above indicates an optimistic picture for the payroll outsourcing sector. Why? Obviously the downturn in the economy has driven a need for cost reduction among HRO buyers and providers alike. In the payroll outsourcing space, providers have added new services which have prompted existing client movement from SaaS-only and partial payroll HRO – in which the client may perform some of the activities such as data entry and Tier 1 and 2 helpdesk and the provider delivers the balance of services – to full payroll HRO services delivered by the provider. As existing clients are seeing the value of services delivered from their providers thus far, they are increasingly leveraging a fuller breadth of their providers’ capabilities, both in existing and new payroll service offerings.

Further, previously on-the-fence payroll outsourcing prospects are acknowledging the results their peer companies have achieved, and appear to be jumping on the payroll outsourcing bandwagon, whether via SaaS-only, partial payroll HRO or full payroll HRO. Finally, although the trend has shifted from multi-process outsourcing (MPHRO) to single process outsourcing, MPHRO providers that offer payroll as a standalone service point of entry appear to be contributing to the payroll outsourcing uptick, and the increased the health of the HRO industry in general, per increased demand for their other HR services offerings.

It’s a little preliminary to truly gauge the growth forecasts for payroll outsourcing as my research is in the very early stages. But the full results of NelsonHall’s Global Payroll Market Analysis, to be published in December, will tell the full story. I personally think the optimism will continue. What do you think?

Gary Bragar, Lead HRO Analyst, NelsonHall