Does HRO Help or Hurt in Achieving Human Capital Leadership?

Can employers be recognized as leadership development advocates and a great place to work and still take advantage of HRO services? Yes—and recent “best companies” announcements provide plenty of examples.

Fortune’s annual 100 Best Companies to Work For list includes a number of companies known to use HRO services. RPO examples include: American Express (Hays RPO), Edward Jones and Intuit (Manpower Group), Microsoft and Novartis (Alexander Mann Solutions), and SAS and Telefonica (Ochre House). Accenture, which provides HRO services, is on the list as an employer.

HRO clients are also among the recognized companies in the 2011 Top Companies for Leaders, another recent Fortune study in association with Aon Hewitt. PepsiCo (Aon Hewitt) and Unilever (Accenture, IBM) are among the multinationals taking the lead in developing leaders. Again we see RPO as a common talent management service selection; Eli Lily and Novartis AG (The Right Thing, An ADP Company), GE and Siemens AG (KellyOCG), and Whirlpool (Kenexa). IBM, another major HRO player, is recognized, as is Wipro. Accenture is noted on the U.S. list and Infosys is on the Asia Pacific list. ADP is included in the 2012 list of 10 Best  Companies for Leaders rankings by the Chief Executive.

Business Today has just released its 11th annual “Best Companies to Work for” in India and top companies include HRO providers such as Accenture, IBM, Infosys, Wipro, and TCS. Honeywell International (SourceRight Solutions) also made the list and is on the U.S. list for Leaders as well.

The lists go on and on and you will find companies that use HRO as well as HRO providers among the best of the best. You can be a pioneer in leadership development and use HRO in critical talent management areas. You can achieve greatness in any region of the world. You can even look to some of the HRO providers to share their own expertise as a “best company” in the human capital leadership arena.

Will HRO automatically make you the best company? No. However, HRO will not slow you down and may even provide a committed partner in accelerating your success.

Linda Merritt, Research Analyst, HRO, NelsonHall

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RPO Growth Confirmed and Back on Track

Since my January 12 blog, All Signs a Go for RPO to Grow, I think it’s safe to say we are back on track with many providers stating that volumes are back to pre-recession levels.  Vendors including Kelly, SFN, Manpower, SeatonCorp, Kenexa, and Hays all reported double-digit total company revenues for the quarter ending December 31, 2010 (Talent2 were for the six months ending December 31, 2010).  RPO revenues were not reported separately, but several vendors were able to share that RPO revenues grew 50% – 70%.

That’s certainly terrific evidence that hiring volumes from existing clients has increased and that many new RPO clients were added in 2010 by all the vendors.  In Q4 announced RPO contracts included:

• Manpower’s global contract with Rio Tinto
• Hays’ contract with American Express in Europe
• Futurestep’s global contract by Cummins, Inc.
• The Talent2 and Allegis Services Group Alliance global contract with an unnamed financial services company
• PeopleScout’s contract extension by Waste Management in the U.S.
• Alexander Mann Solutions’ contract with Santander in the U.K.

For evidence of an increase in demand for job movement and hiring, I point to SFN’s Employee Confidence Index, which showed the highest employee confidence in nearly a year.  Also, four in ten workers stated that they are likely to look for a new job in the next 12 months.

What do I think?  Having recently completed twenty-seven interviews for my next global RPO market analysis (to be released within the next few weeks), I can say that 2011 will be another strong year of growth for the RPO industry.  It will be tough, but not impossible, to outdo 2010.  The report will include a revenue forecast by geography among numerous other data.

I’m bullish for several reasons including the need for scalability, and I also think a new phenomenon, expected a few years ago, will finally begin to occur in the latter part of 2011 and will ramp up over the next few years.  Baby boomers will finally begin to retire as 401(k) plans have been nicely recovering to pre-recession levels, which will increase their confidence and financial security.  This will create a huge shortage of talent in the workforce.  Employers should be wise to make sure they are doing succession planning and preparing for how they will do knowledge transfer before employees leave. This provides a great opening for staffing assistance and for all the ancillary services around workforce planning and talent management. The opportunity is coming for RPO to move up the value chain from an operational resource for staffing and recruiting to a strategic consulting partner in global talent management.

Gary Bragar, Lead HRO Analyst, NelsonHall

Some Holiday Time HRO Cheer: Some Companies will Return to Better Benefits in 2010

Per a USA Today article on December 11, 2009, many companies have announced they will reinstate suspended benefits and/or increase some of the benefits they provide to their employees in 2010. Named companies include FedEx, JPMorgan Chase, American Express and Motorola.

During the current recession, many companies reduced 401 (k) contributions and lowered merit increases and bonuses, if they indeed provided them at all. And bah humbug, some companies even reduced salaries and/or employee hours.

The good news is that two thirds of the companies that did not give pay raises this year plan to do so in 2010. And one third that cut back on their 401 (k) matches plan expect to reinstate or increase company contributions next year. While FedEx and others may not offer 401 (k) matching and other benefits on par with previous years, any step in the right direction is still good news!

So what does this mean for the HRO industry?

First, Defined Contributions (DC) Administration represents the largest share of Benefits Outsourcing revenue for providers, and over half of all vendors get paid per transaction, in addition to per participant per month. The net here for providers is that more transactional changes results in more revenue. Dealing internally with these transactional changes may not, on the surface, seem like a big deal. But as a former programmer and systems administrator, I know first hand that all such changes must be fully tested and is a huge administrative burden. Thus, with buyers happy to get out of performing this type of transactional work, a return to better employee benefits likely means happier times for providers, buyers and their employees.

Second, consistent with several of my recent blogs, the fact that some companies are beginning to again invest in training and developing their employees is driving an increase in the pipeline for learning services agreements, and has resulted in some recently signed contracts. And even though significant hiring volumes may not return for some time, attracting and retaining top talent is showing signs of increased importance, and thus most RPO providers are also reporting substantially improved pipelines.

Finally, the today-released results of a Hackett Group study, which stated earnings are significantly higher for companies with strong talent management capabilities, underscores the importance of reinstating and increasing employee benefits in order to retain existing high performers and attract key talent in the future. Ala, more opportunities for HRO providers and for smart buyers that are re-acknowledging the value of outsourcing key functions such as learning and hiring.

While my blog today started out focusing on a return to better employee benefits, much of the success in today’s competitive (although still economically limping) environment is attributable to how employees are treated, developed and managed. Given the pipeline increases and contract awards we are seeing in the learning, RPO and SaaS talent management, I’m optimistic for a happy and healthy New Year!

Gary Bragar, Lead HRO Analyst, NelsonHall