Benefits Outsourcing is Blooming

Linda Merritt, HRO Research Analyst, NelsonHall

Benefits administration is producing a bountiful crop of new and expanding services. Recent contract award announcements included ADP, Aon Hewitt, Ceridian, Equiniti, Fidelity, Mass Mutual and Merrill Lynch. A wide range of industry segments were represented: banking; food; education; non-profits; hi-tech; pharmaceuticals; and travel. This week, I have taken a look at some of the newer benefit outsourcing “crops” that are starting to grow nicely.

Managed Retirement Accounts

Fidelity’s relatively new managed retirement account offering – Fidelity Portfolio Advisory Service at Work – was designed to address the low rate of adequate preparation for retirement by many employees by combining Fidelity Investments plan sponsor customized portfolio active management services with auto enrollment and available advisory services to help bridge the gap in achieving retirement goals from a defined contribution plan. The service grew in both participants and assets by 50% in 2012. Already in 2013, another 135 new clients have been added, bringing the total to more than 1,800 plan sponsors.

• Fidelity awarded a contract for Portfolio Advisory Service at Work by ADM.

Health and Wellness

ADP’s Vitality wellness solution supports employers with between 50 and 1,000 employees manage rising healthcare costs and also reduce employee absenteeism. Vitality’s incentive-based program includes an interactive wellness portal, health risk assessments, biometric screenings and personalized wellness plans with recommended goals and activities. It integrates with social networking sites, mobile applications and fitness technologies; and when employees achieve planned goals, they earn points towards lowering their health plan contributions. The service is also integrated with ADP’s payroll services.

• ADP awarded a contract by Jackson Companies for ADP Vitality services.

Benefits Bouquet Bundles

HRO buyers want multiple related services from one vendor under one contract; and health and wellness lends itself to packaging separate services into bundles. Ceridian’s LifeWorks.com combines EAP, work-life, and wellness services into one program with its own portal and mobile access. Also available is Health Coaching – a program for high-risk employees that provides access to comprehensive health assessments and personalized guidance programs – and Client Value Dashboard – included for employers to monitor reports usage data and ROI information.

• Ball State University chooses Ceridian’s LifeWorks.com

Private Employer Exchanges

Mercer’s Marketplace allows employers to improve management of their benefits spending and administrative responsibilities for active employees. Employers determine how much to contribute toward the cost of their benefits program and can select from a range of insured and self-funded products and providers. The platform includes full benefits outsourcing and provides employees with call center and online decision support.

• Mercer recently announced names of 10 of its 20 national, regional and state carriers that have joined Mercer Marketplace for providing core medical and voluntary benefits.

A good garden has a variety of plants. Some base crops are evergreen like benefits enrollment and management services, while others are changed out to meet growing market demand. Benefits HRO: how does your garden grow? Very well thank you.

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Fast or Slow for HRO?

The economic signals for the second half of 2011 remain mixed. Looking at the macro markets combined with global debt situations and unemployment rates, it looks like we are on the edge again. The long struggle to reaching agreement on raising the U.S. debt ceiling rattled nerves around the world.

Alternately, if we look at the NelsonHall HRO Confidence Index for Q2 2011, we see that service provider’s confidence level is 168, near the all time high of 170. Supplier expectations for 2011 for most industry sectors have improved with banking remaining the strongest followed by high-tech and telecoms, with the state and local government sector also up. Expectations are a bit lower for automotive, professional services, and transportation. Geographic growth expectations continue to be positive in emerging markets and have strengthened in the mature markets like the U.S. and some areas of Europe.

HRO vendors see what is happening in the larger economy, they know there is a chance of a double-dip recession or at least several more sideways quarters. At the same time, strength in new sales and expanded scope with existing clients along with still strong pipelines provides them with a more optimistic view. Let’s hope they are right!

ADP echoed this divergent view on its FY 2011 earnings call. It is well aware of the current economic conditions, including a still possible downgrade in the U.S. credit rating. ADP’s FY2012 forecast calls for continued growth based on its strong performance in FY2011, with Employer Services (ES) up 8% to $6.9bn, and a better-than-ever pipeline. It is also benefiting from recent acquisitions and new service innovations that have broadened and refreshed its service lines, especially adding more beyond payroll options in Europe. While payroll continues to be the largest service line for ADP at 66% of ES revenues, 33% is now from beyond payroll services including full HR BPO. In the pipeline, it is now an almost even split: 52% payroll, 48% beyond payroll.

As seen during the recession, HRO can be hit hard and fast in a full-fledged downturn. So, how can a HRO provider like ADP defy the larger economic outlook now? ADP was willing to take a small hit to operating margins to hire and train several hundred sales and service people ahead of the upturn. It was able to affordably acquire added capabilities to round out service lines and invest in new services that have been successful right out of the box, including Workforce Now and Run, which currently has over 120k clients in the small market on its cloud platform using self-service and Smartphone access. At the same time, ADP retains focus on client satisfaction and retention to stabilize recurring revenues.

In a recovery, even a weak one like we are experiencing, a well-prepared HRO vendor can beat the odds. Is your HRO provider one that is beating the odds?

Linda Merritt, Research Analyst, HRO, NelsonHall

HRO – When Will the Horizontal Go Vertical to Grow?

Most HRO Insight blogs provide commentary on HRO market news. Occasionally, I like to speculate and dream about how HRO can fully become the linchpin in leveraging HR into the strategic business partner the HR profession has long desired – and business has long needed.  This week, I blend a bit of both market news and pondering on the vertical specialization of HRO.

According to the January 2011 NelsonHall BPO Index, 2010 was an uneven year for BPO recovery.  Total contract value (TCV) for HRO declined from $2.3Bn to $1.5Bn largely due to the drop off in Europe.  North America HRO almost held its own with $1.3Bn in 2010 compared to $1.6Bn in 2009.

Which BPO area grew its piece of the smaller BPO pie?  The options include back office, middle office, and front office.  Back office BPO functions are horizontal and include HRO and F&A; middle office BPO functions cover vertical industry-specific services such as mortgage processing or check processing in the banking sector, etc.; and front office BPO includes customer contact and sales centers.  Middle office, or industry-specific BPO, is the winner with the largest area at $13Bn and 69% of 2010 TCV, leaping up from a 40% share in 2009.  Growth in a down market is surely the sign of compelling client interest and savvy vendors meeting their needs.

Horizontal BPO processes cross the enterprise and are part of almost every business.  The problem is mistaking universality for being generic.  HRO is too often marketed on the strengths of cost and process functionality.  Customization is used for adapting to the quirks of client’s prior HR systems and processes.  To fight the costly morass of over-customization, HRO service providers have strengthened the use of preprogrammed selectable parameters – building in cost effective flexibility, but also reinforcing the generic aspect of HRO.

Rajiv Raghunandan, Infosys BPO Strategic Business Practice Head for Sales and Fulfillment, was recently interviewed by SSON and commented on how Infosys is taking an end-to-end process view of the F&A order-to-cash process and expanding its revenue, client relationships, and market opportunities.  Infosys leveraged its internal knowledge and experience from its client base to find areas of critical mass to take what was a horizontal process and verticalize it for a growing list of industry segments.

Vertical specialization can and should be done for HR as well.  As I have previously mentioned, TriNet, a PEO and HRO service provider in the small and mid market, is already offering integrated solutions for software and banking.  TriNet combined its core technology with customized services for hiring, compensation, performance management, and risk mitigation.

Sustainable growth in HRO is dependent on breaking the bounds of cost-driven volume administrative transaction processing and moving up the value chain to strategic business impacting partnerships.  There is a largely untapped HRO gold mine out there.  Just think of what the large HRO service providers could do with a gathering and packing of the knowledge and services already resident in their client bases!

Linda Merritt, Research Director, HRO, NelsonHall