Insourcing American Jobs – The Risk and Opportunity for HRO

Offshoring is once again under the harsh glare of the polarized political spotlight in a presidential election year. As my NelsonHall HRO colleague Gary Bragar commented in his blog, President Obama is increasing focus on job creation including encouraging employers to insource jobs back to the U.S. This may cast a shadow of negative publicity on outsourcing that includes offshoring, but I predict the issue poses only minimal direct threat to HRO. In fact, I see increased opportunity for savvy HRO service leaders.

In listening to the President’s remarks and reading the insourcing and investment fact sheet issued by the White House, it is clear that manufacturing jobs are the primary target.

The U.S. lost millions of manufacturing jobs and in some cases almost entire industries, as companies pursued ways to remain competitive with lower-priced global competitors. Lower wages and benefits were a key part of the equation, but there were other factors including regulations, taxation policies, and the low cost of transportation in what was still a bountiful world of low-cost oil.

Offshoring dynamics are changing, especially for manufacturing. The time delay inherent in moving products around the world now creates challenges in meeting the rapidly changing market preferences and shortened product lifecycles of a connected world. With increased competition for limited energy supplies from the emerging economies, the cost of transportation has become a significant factor. Add in moderately decreasing wage gaps and we can see why companies will be able to insource some jobs. Others will be able to create more jobs in the U.S., much like Honda, Toyota, and Mercedes Benz have been doing for years.

HRO as an industry is already a blend of onshore, nearshore, and offshore technologies and workforces. A mix of right-shoring talent and technology helps vendors meet client needs for cost, service, and value. With time and transportation being minor factors in HRO or other BPO, talent remains a primary driver.

Access to pools of affordable skilled talent is an increasingly important element in the growth of all businesses, whether small or large, local or multinational. Who has access to comprehensive data on workforces around the world including costs, turnover, and availability? Who can see trends emerging on skilled labor capabilities and capacity shortages? Who has direct experience in building and maintaining global workforces both for clients and for themselves? HRO service providers!

Think about it, in our HRO community are the likes of Accenture and IBM, growing globalists like ADP and NorthgateArinso, modern tech heavyweights like Infosys and TCS, global research and analysis specialists like Aon Hewitt and Mercer, and RPO leaders such as Alexander Mann, Hays, and Manpower, we even have learning leaders that can handle rocket science like Raytheon RPS.

We need to have a large enough vision for what we can become as an HRO community. There is so much already that we can leverage. Be confident in our value and let our light shine bright!

Linda Merritt, Research Analyst, HRO, NelsonHall

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RPO Edging Toward Global

As a follow-on to my November 22 blog on the happenings at the recent HRO Europe Summit, a question posed by an audience member to me and my fellow RPO panelists Alexander Mann Solutions, SourceRight Solutions and a professor from Lancaster University deserves a deeper look. The question was, “We hear about RPO going global. How should global RPO be defined, as compared to how people are using this term, and is a shift occurring?”

NelsonHall defines global RPO as hiring in two or more continents. And in that context, on the panel I said very few global RPO contracts have been awarded to date. There have been some multi-country contracts awarded within a given region, and a few North American contracts that include some hires in Central, Latin and South America, but not much beyond that. But, in a “we’re getting there” moment, I was able to cite that just two days earlier: 1) FutureStep was awarded a truly global RPO contract by Cummins Inc. to provide RPO services in North America, Europe, Africa, Asia Pacific and South America; and 2) Allegis Group Services and Talent2, in partnership, were awarded a multi-continent RPO contract by an unnamed global financial services company to provide RPO in several locations in North America and Asia Pacific.

And just last week, Manpower was awarded a large global RPO contract by Rio Tinto to provide approximately 11,000 hires per year in North America (US, Canada), Asia Pacific (Australia, India), Europe (France, U.K.), Middle East, South Africa and South America. Granted, three is not a crowd when it comes to critical mass of contract type indicators, but I do think we’re finally beginning to see RPO edging toward global.

As I identified in my 2009 RPO report, one of RPO buyers’ top vendor selection criteria is the ability to provide global delivery, including in-region recruiters. Subsequently, my critical success factors recommendation was that if providers did not already have a global presence, it would be prudent to begin pursuing a global recruiting partnership with vendors that could provide recruiters in countries and regions where new hires are needed. Since then, we’ve seen a number of such partnerships emerge, including the December 3, 2010 announcement of Adecco and the Beijing Foreign Enterprise Human Resources Company (FESCO) establishing a joint venture to take advantage of the emerging markets growth potential in China, and provide global RPO to multi-national corporations based in China per Adecco’s presence in 60 countries.

I believe we will see continued demand by global clients to have one provider manage all of their recruitment needs, and that, in turn, we will see many more global RPO contracts signed in 2011. However, getting buy-in and cooperation from business leaders in local countries is a massive change management issue requiring significant attention, care and effort. Providers can help prospective clients during due diligence to quantify current costs, time to hire, hiring manager satisfaction, attrition and other metrics to help make the case. 

Buyers and providers will be watching the success of these new global deals; and if they are indeed successful, they will create the impetus for increased global RPO demand in 2011 and beyond.

Gary Bragar, Lead HRO Analyst, NelsonHall

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

Recapping the Not-so-Dog-Days of HRO’s 2010 Summer

One of the biggest HRO stories of 2010 will be the flurry of big and small acquisitions in the benefits administration space. The three big acquisitions – ACS and ExcellerateHRO, ADP and Workscape, and Aon and Hewitt – have recently closed.

As acquisition mania played out, many HRO deals were getting done, and this week, as the weather has finally, thankfully, started to cool, I’m taking a look at some of the deal activity over the long hot summer.

There were not a lot of announced deals in benefits administration, but a Hewitt summary indicates plenty of activity was still quietly going on. Hewitt won new awards across the span of benefits administration in the large and mid-market, including several in defined benefits and defined contributions. But the greatest activity was in health and welfare, and for point solutions like dependant audits and flex spend accounts.

While not necessarily matching North America in total contract value, the U.K. and Europe were also quite active in HRO. Logica was awarded a £10m payroll and pensions HRO contract extention by U.K’s Metropolitan Police, with new scope this time around including increases in employee and manager self services and electronic pay slips. And Midland HR won a deal for its iTrent HR platform including HR administration, employee and manager self-service, payroll, talent management and workforce planning.

In RPO, CPH won a contract with Opal Telephone, and Alexander Mann was awarded  a contract for recruitment and contingent labor by Cobhan. On the continent, HRO activity included HR administration and payroll deals by Reat and HR Access in the mid-market.

ADP parlayed existing payroll services for KAO, a Japan-based consumer products manafacturer, into extended HR administration and payroll services across Asia Pacific including China, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, Taiwan, Thailand, Vietnam and Japan. In addition, ADP won a global managed payroll services contract with BT that will cover more than 40 countries in North America, Europe and Asia Pacific when fully implemented.

It was refreshing to see a spate of learning contract awards won by Expertus, General Physics, Intrepid and The Learning Associates. However, as most of the learning outsourcing activity was in the public sector, we still need to see more of an uptick in the private sector before we can say learning is fully on the road to recovery.

RPO maintained its lead position as the most active single service area, with the greatest increase in revenues and new contracts. RPO activity was highest in the U.S., followed by the U.K., and was spread nicely across providers including Alexander Mann, CPH, Kelly Services, Manpower, PeopleScout and SourceRight. Several of the awards were for contingent labor or combined RPO, with the contingent labor focuses indicating that employers are still cautious about a full return to permanent hires.

There were no announcements of the HRO mega-deals of yore, but it was very nice to see the increased activity levels across many HRO service lines and service providers. Now that the cooler weather of fall is here, we’ll  hopefully see an even more serious return to getting business done before the end of the year!

Linda Merritt, Research Director, HRO, NelsonHall

RPO, MSP and Continent Labor Contracts Gaining Ground

In my April 16 blog “An RPO and MSP Combo: the Best of Both Worlds,” I wrote about the value of workforce solutions that are rooted in both RPO and Managed Service Provider (MSP) services to meet the dynamic and evolving needs for both contingent and permanent employee hiring. We’re now seeing an increasing number of these types of contracts being inked, and some providers are partnering to gain the breadth of offerings needed to win to-be-awarded deals.

Recently awarded contracts include:

• SourceRight Solutions’ – originally an RPO provider – multi-year deal with Siemens for provision of contingent labor procurement programs in the U.S.

• An MSP and RPO agreement between AMN Healthcare and Hendrick Medical Center

• Alexander Mann Solutions’ three-year recruitment, contingent workforce and employer branding contract in the U.K. with aerospace and defense engineering firm Cobham

Recent partnerships and M&As for the RPO/MSP combo include:

• The RightThing with ZeroChaos to provide contingent labor services alongside RPO. The RightThing, which was always considered a pureplay RPO provider, partnered with ZeroChaos to enable it to provide a broader range of recruitment solutions in today’s moving-target hiring marketplace

• AMN Healthcare acquiried Medfinders for its clinical workforce managed services program

• SourceRight Solutions and Hays, per their strategic alliance announced in 1Q10, launched WorldSource, a new service offering to manage and integrate global RPO and MSP programs. (And SourceRight Solutions also further expanded its own MSP offering)

The primary driver of escalating contract and partnership activity in this HRO segment is clear: as companies remain cautious due to continued low consumer confidence and ongoing market uncertainty, they are hiring more temporary employees and utilizing more contingent workforces than on-boarding new full-time hires. And let’s not forget buyers’ increasing desire to keep their portfolio of service providers to a minimum, particularly when in the same service line.   

The bottom line is that vendors and buyers both win with the right workforce combination that best meets clients’ organizational objectives. I believe we will continue to see additional pureplay RPO specialists looking to partner to provide MSP and contingent workforce solutions to meet continued demand. And while contingent workforce solutions can be used in any industry, I believe the nature of seasonal demand and spikes in volumes will drive more of these types of contracts in healthcare, pharma, manufacturing, retail, technology and defense.

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall

HRO Total Contract Value Jumps 38 Percent in 1H10 – Where are the Gains Coming From?

During our Quarterly BPO Index webinar last week, NelsonHall CEO John Willmott reported that HRO total contract value (TCV) revenue increased 38 percent in 1H10 in a year-over-year comparison to 1H09. While HRO’s gains weren’t as great billions of dollars-wise as other BPO segments such as multi-process or industry-specific BPO, it is good to see the start of an upturn.

So where are these gains coming from? Forty-five percent of the contracts were signed with North American organizations, 43 percent were awarded to European enterprises (of which two-thirds were based in U.K.), and organizations in Asia Pacific accounted for the remaining 10 percent. And by service type:

• Recruiting – 32 percent of deals – including contract wins by Hays, Manpower, Kenexa, OchreHouse, Pinstripe, CPH Consulting, Alexander Mann Solutions, The RightThing, KellyOCG and PeopleScout

• Payroll – 22 percent of deals – including contract wins by Capita, MidlandHR, Raet, NorthgateArinso, ADP, TDS and Ceridian

• Benefits Administration – 20 percent of deals – including contract wins by Workscape, Aon, Secova, Mercer, Convergys and Xafinity

• Multi-process HRO (MPHRO) – 14 percent of deals – including contract wins by Accenture, Ceridian, ADP, Xchanging and Hewitt

• Learning – Eight percent of deals – including contract wins by Edvantage Group and General Physics

• Other HR – Four percent of deals – including talent management-related contract wins by Kenexa

Overall, I was not surpised with the above breakdowns as they were very consistent with the predictions in our June 2010 quarterly HRO Confidence Index.

Digressing a bit here to add to the buzz about Aon’s acquisition of Hewitt…while much written and water-cooler discussed has been about benefits administration, a sizeable amount of Hewitt’s revenue comes from MPHRO. A good example of this is Hewitt’s five-year contract renewal with International Paper, announced in April 2010.The renewal will support 40,000 International Paper employees with payroll, workforce administration, health and welfare administration, recruiting support, SAP application support and help desk, call center and HR manager support, learning administration and flex staffing management services. Given the amount of revenue coming from Hewitt’s MPHRO client base, I believe Aon will not only happily want to continue to support these existing clients, but also want to continue to grow the MPHRO business.

Although most new MPHRO contacts will likely not be the mega deals of yesteryear, reducing the number of suppliers in the outsourcing portfolio continues to grow in appeal among buyers. If buyers are satisfied with their MPHRO deals, they will continue, albeit in smaller fashion, to benefit both buyers and providers.

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall

NelsonHall HRO Confidence Index finds Banking, Healthcare, Pharma and Manufacturing Industries to Experience Strongest Growth

My blog last week focused on geographical HRO growth per the findings of NelsonHall’s most recent HRO Confidence Index. Today, the focus is growth by industry sector. When asked about expected changes in 2010 HRO revenues by industry sector, year-on-year relative to 2009, the HRO providers that participated in our most recent Index responded similarly to the prior quarter, with strong growth continuing to be expected in the banking (3.9 on a 1 – 5 scale), healthcare, pharmaceutical and manufacturing (all 3.8 on a 1 – 5 scale) industries.

On the opposite end of the spectrum, expectations from the state and local government sectors declined during the quarter. Addressing this drop first (always nice to end on a more upbeat note!), although a few state and local government contract renewals and new wins created some optimism in the second half of 2009, frozen decision making remains as many states struggle to pass budgets. State and local government HRO contracts are few and far between, and have an extremely long sales cycle. In today’s environment, as jobs are hard to come by and the recovery is taking longer than most of us thought or hoped, state talk of outsourcing, even without job reduction, will be hard to pass muster.

Now on to the positive. Supporting high growth in the pharmaceutical industry, RPO provider The RightThing issued a press release on June 1, 2010 stating that as hiring freezes across the U.S. begin to lift, there has been a major trend in pharmaceutical client hiring as organizations begin to rebuild their employee base. Over the last four months, The RightThing has assisted in major expansions (to the tune of 2,300 total positions) with five North American pharmaceutical companies including Boehringer Ingelheim.

And the NelsonHall contract database provides evidence of HRO’s growth in the banking and manufacturing industries. A hefty number of the most recently signed HRO contracts include Xafinity with BAE (pension administration), Kenexa with MphasiS (a 360-degree survey program), Xchanging with Insyte (multi-process HRO), Alexander Mann with Premier Foods (contingent workforce), Liberata with the U.K. Ministry of Justice (a portion of which is for payroll outsourcing), Hewitt with International Paper (multi-process HRO) and Manpower with Techcombank (RPO and staffing).

The continued growth in the banking industry is due to a number of factors. Hit exceptionally hard by the recession with downsizing in HR departments/across the board and in a current state of reorganization, banks are now trying to be more efficient and, in doing so, no longer want to assume the risk of investing in technology and HR staffs when they may be required to downsize again. And there are common roots to continued growth in the healthcare, pharma and manufacturing industries. In addition to reducing risk and becoming more efficient (obviously requisites for any private or public sector organization), it’s also about being able to quickly scale up and down. For example, if the U.S. Food and Drug Administration approves a new drug to prevent or cure a life threatening disease, manufacturers will need to rapidly hire staff to meet demand. Swift hiring of large numbers of employees, which has implications for payroll, benefits and learning, is often difficult for a company to do internally. HRO providers with much more abundant resources can more quickly deploy resources to meet this new demand.

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall

Can RPO Help Ease Chinese and Japanese Employees’ “I Can’t Get No Satisfaction” Woes?

What can employers in China and Japan learn from those in Denmark, Norway and Canada? Seems quite a bit, according to the results of staffing and recruiting provider Randstad’s new global Workmonitor survey released earlier this month. The online survey, administered by a third-party among minimum 400 full-time employees per country, found that only six percent of Chinese employees and seven percent of Japanese employees are “very satisfied” with their current employer, compared to more than 35 percent for those in Denmark, Norway and Canada. (FYI – The “very satisfied” levels for U.K., Australia and the U.S. were 20 percent, 24 percent and 31 percent, respectively.)

While Asia Pacific has been slower than other world regions to embrace HRO, NelsonHall research forecasts the Asia Pacific region to have the highest growth rate of HRO adoption over the next five years. Given the sobering results from the Randstad survey, China- and Japan-based employers may be well served by considering recruitment process outsourcing (RPO) services sooner than later, especially when the contracts include talent management, employee development and retention solution components. Although RPO itself is not an end-all solution to improving employee satisfaction, if it includes the aforementioned services, it will go a long way toward helping to improve it!

We’ve already seen some evidence of RPO activity in China including the Talent2/VivaKi China contract signed in November 2009, and the April 2009-announced partnership between Kenexa and R&J Management Consultants, which resulted in the creation of Shanghai Kenexa. And a variety of other RPO providers, including Manpower, Hays, Futurestep, Adecco, Hudson and Alexander Mann, are stepping up their delivery capabilities and reach into the Asia Pacific market.

My advice to RPO providers servicing (or considering doing so) the Asia Pacific region, especially China and Japan: present your local market knowledge and delivery capabilities, not only in recruiting but also in retention-related activities such as expanded on-boarding processes with linkage to learning, reaching out to new hires at periodic intervals, conducting regular employee satisfaction surveys, conducting exit interviews to find out why people are leaving and then feeding those results with recommendations to senior leaders for action, etc.

My advice to China- and Japan-based employers: with the delicate state of your workforces’ satisfaction levels, robust on-boarding, performance management, talent management, employee development and other retention solutions are very important – as they are for employers around the world. It could be highly advantageous to leverage the expertise of an RPO provider to support you in these areas.

Gary Bragar, Lead HRO Analyst, NelsonHall

Hays and SourceRight Solutions: A Different and “Right Time” Global Recruitment Alliance

On March 16, 2010, Hays plc and SourceRight Solutions announced a strategic alliance to offer global talent acquisition solutions. The two vendors will provide customized recruiting services to clients around the world, including in the U.S., Canada, Europe, Middle East and Asia. Over the past couple of years other partnerships have been formed to offer global recruiting solutions including: Pinstripe and OchreHouse, The RightThing and Alexander Mann Solutions, and KellyOCG and IBM. So what makes the Hays/SourceRight alliance different from the rest of these partnerships?

This alliance is similar in that recruiters can be provided in-country, but Hays and SourceRight Solutions are also offering solutions that will encompass:

•  Recruitment process outsourcing (RPO)

•  Managed service programs

•  Professional contingent workforce services

Hays and SourceRight will tailor recruitment solutions that can include any combination of the above, including by industry and geography, and which can be delivered by dedicated account teams with 4,500 recruiters around the world.

Further, this more highly customized and comprehensive recruitment services alliance may be coming to market at just the right time; during the recession, permanent recruiting has been largely on hold and many buy-side organizations have been utilizing temporary hires and contingent workforces due to uncertainty of their business outlook. Tailored, multiple option recruiting solutions should open many doors between Hays/SourceRight and buyers looking for a combination of permanent placement and temporary staffing assistance from the equivalent of one provider across geographies. 

I continue to believe – as I wrote in my 2007 and 2009 global RPO market analysis reports – that global presence and the ability to partner to provide global recruiting services are critical success factors for providers in the talent acquisition space. While the global recession, which resulted in staff reductions and temporary hiring freezes, has somewhat impeded the uptake, I strongly believe the time is right for a buy-side adoption increase, especially for highly tailored, comprehensive recruitment solutions.

Gary Bragar, Lead HRO Analyst, NelsonHall

RPO Acquisitions Improve Geo Reach, Economies of Scale and Overall Delivery Value

My July 22 blog focused on partnerships between RPO providers to improve multi-geo and global RPO capabilities in order to serve the needs of buyers looking for recruiting support beyond domestic regions and to boost their own revenue growth. 

And as we identified in our May 2009 Targeting Recruitment Process Outsourcing report, a growing number of providers in the RPO space are taking the acquisition route to gain the same benefits for themselves and their clients. In fact, 40 percent of all RPO providers have acquired another company, and 28 percent have completed an acquisition in the past two years.

The most recent example was yesterday’s announcement of The RightThing acquiring Capital H Group’s RPO division, based in Milwaukee, to expand its geographical reach in the upper mid-west region of the U.S. Others include Kenexa’s acquisition of Quorum International to strengthen its RPO capability in EMEA, Alexander Mann’s purchase of Capital Consulting to enhance its ability to serve the European and Asian markets, and Adecco’s acquisition of TalentTrack to strengthen its position in North America.

What benefits do acquisitions deliver to RPO providers and buyers?

•  RPO contracts often begin with the provision of services in one or two geographies. But if the relationship proves successful and the provider can service all the client’s geographies, the number of suppliers with which the client works can be reduced and the contracts can be expanded

•  The economies of scale gained by standardization of processes and technologies across geographies reduces expenses for providers and increases cost savings for buyers

•  In countries and regions outside the U.S., clients often want recruiters to be onsite for in-person requirements discussions with hiring managers, to meet candidates during interviews, and greet new hires on their first day and help with the on-boarding process

•  Even in the U.S. where provision of services is more service-center oriented, clients still want providers to be close by to accomplish similar objectives

While growing organically is important, acquisitions can help RPO providers meet revenue growth objectives and satisfy client needs. As a result, we expect further consolidation via acquisition in the RPO provider space. And this consolidation will not only be between big-name players but also with smaller providers that may be experiencing financial difficulties due to reduced hiring volumes and where most of their revenue is paid on a per hire basis.

Gary Bragar, Lead HRO Analyst, NelsonHall