Q4 2010 HRO Ends on an Up Note

While we wait to see 2010’s full year HRO financial results, we can review activities in the fourth quarter.  HRO growth is occurring across most industry segments, with the public sector lagging.  The fastest growth rates are still outside of the mature economies in North America, U.K., and Europe for the global providers, although the U.S. is starting to rebound.

Benefits administration showed a nice level of new business activity, even in the mature areas.  Congratulations to Fidelity for the competitive wins of AT&T for both defined contributions and defined benefits and Office Depot for broad benefits administration services.  There were also notable benefits wins by Mercer, Aon Hewitt, Ceridian and Xafinity.  Meanwhile, we are still waiting for a major jump start in learning and multi-process HRO contracts.

The volume of new business and growth with existing clients will continue to rise in 2011, but the pricing environment will not likely ease much in 2011 as buyers remain price sensitive.  Maintaining efficiency will be critical in order to win with both clients and investors.  For example, The Right Thing recently introduced dedicated Solution Teams to manage the transition from sales and implementation into operations. Managing implementation was a costly problem for service providers and customers in multi-process HRO for years, so it is good to see the lessons learned extending to other areas of HRO.

Preparing for further growth also continues in partnerships, mergers, and acquisitions.  Aon Hewitt is expanding its benefits capabilities in Scotland via a pension services partnership with Babcock International Group.  Towers Watson is jumping back into the benefits fray with a partnership with Wage Works and the acquisition of Aliquant, a mid-range benefits service provider.

Fourth quarter good news stories continued with revenues up in most areas of HRO.  Several HR service providers reported a 4% to 6% increase in revenues including ADP Employer Services up 6%, Aon Consulting up 4%, and Mercer up 6%. RPO and staffing companies continued recovering at a rapid pace, leading the way out of the downturn just as they led the way into it.  Revenues for Manpower were up 19% and The Right Thing’s revenues were up 30%.  GP Strategies, Kelly, and Kenexa all had increased revenues in the mid-20% range.

Operating margins are remaining consistent as the HRO industry adds back employees indicating they will be able to manage growth while keeping an eye on hard-won profitability.  Investments in technology and global service delivery capabilities will now be bearing fruit and should also support margin growth.

Happy New Year – may 2011 be a great year for us all in the HRO community in every way!

Linda Merritt, Research Director, HRO, NelsonHall

Back to School Time for Recruiters

As you begin packing up your kid’s bag lunches for another school year, you may want to stock up your pantry to pack others (perhaps skipping the peanut butter and jelly) for your in-house or outsourced recruiting staff. Why? Talent acquisition remains the top issue faced by today’s HR organizations, despite the recession. And the advent of advanced recruiting technologies and explosion of social media sites such as LinkedIn and Facebook demands recruiters be trained on how to best leverage these new opportunities for both active and passive recruiting or get lost in the old school dust.

Some recruiting process outsourcing (RPO) providers have already stepped up to the plate in this new recruiter training arena. For example:

•  AIRS, a The RightThing company, recently launched an online Social Sourcing Certification Class. Designed for both in-house and third-party recruiters, the class focuses on techniques to assist recruiters in sourcing passive candidates, helps participants better understand how they strategically benefit recruitment strategy and covers how social media can be leveraged to build a strong employment brand. After the class, attendees have the opportunity to earn their Certified Social Sourcing Certification through a certification exam.

•  And KellyOCG partners with industry leaders to coach and certify its recruiters in leading edge sourcing techniques, and its recruiters utilize its proprietary sourcing technology to enhance their ability to quickly connect with both active and passive candidates.

The importance of training extends beyond how to recruit using social media and advanced technologies into using metrics to prove the value and ROI of the staffing function, whether in-house or outsourced, to the business. And despite acknowledging the importance of doing so, few organizations know how to measure and consistently use the data to demonstrate improved business performance. An example of an RPO provider offering such training is The Workplace Group, which, during the past month delivered two webinars and two in-person training classes at its corporate headquarters on how to implement and use metrics to demonstrate ROI. The company also offers on-site classes at client locations.

And in an example of moving beyond a common, though important, recruitment metric of time-to-hire, Aon Consulting was able to improve the timeliness and selection process of sales professionals for a computer systems company, leading to higher close rates, equating to $120 million additional sales per quarter for the client’s company.

As the HR community, and the business community in general, views talent acquisition as a primary corporate critical success factor, the importance of upping recruiter’s skills to utilize new techniques and platforms, and how to measure their output, should not be underestimated. And while cost and lack of time are frequently cited as inhibitors to training programs, the expense involved is comparatively low and with hiring volumes down, now is a perfect time to invest in recruiting staff members.

Forward-thinking organizations are investing today in their recruiters in preparation for the hiring uptick that’s expected in 2010. Our advice? Start arming your recruiting staff now to leverage new school recruiting techniques, platforms and mediums. It’s a highly worthwhile competitive investment.

Gary Bragar, Lead HRO Analyst, NelsonHall