HRO Carrying On Despite Slow, Decelerating Economy

Amy L. Gurchensky, HRO Research Analyst, NelsonHall

For those of you who are not aware, NelsonHall assesses the confidence in the HRO market on a quarterly basis. The report involves surveying HRO suppliers from all disciplines to get a pulse on the market.

 From time to time, my colleagues and I will blog about these results. I thought I would take a step back and re-examine HRO supplier confidence levels since the report began.

 As the name suggests, the supplier confidence level measures how confident HRO suppliers are in the future market with a level of 100 representing no change in confidence.

Since the report began, the index has constantly shown a healthy level, despite some fluctuations in between. The following chart graphs HRO service provider confidence levels since its inception.

HRO Supplier Confidence Chart

2011 shows a major turning point in HRO vendor optimism, revealing a downward trend line that coincides with the Employment Situation report produced by the Bureau of Labor Statistics.

There is no need to panic though. It appears that supplier expectations are now more accurately aligned to pipeline activity, which showed a slight weakening in Q1 2012. Again, the most important thing to remember is that the indices are still at a healthy level.

Despite the headwinds from the economic recovery, business for HRO has carried on as evidenced in the following contract activity:

• ADP: awarded a multi-country payroll contract by HP covering ~130,000 employees in 40 countries across Asia Pacific (excluding India), Europe, and the Americas (excluding the U.S.)
• Fidelity: awarded a DC administration contract by the University of Washington for ~31,000 employees; it is now the sole recordkeeping provider for the university
• Talent2: awarded a three year RPO contract by Bankwest in Australia providing full RPO services from job requisition through onboarding including employment branding, establishing an innovation program for sourcing, and more
• IBM: awarded a learning services contract by a government entity in South Africa including content development and delivery of learning
• Aon Hewitt: renews and expands its multi-process HR outsourcing contract with BMO Financial Group for payroll, workforce administration, H&W administration, recruitment services, and compensation administration covering 46,000 employees in the U.S. and Canada for eight years.

There will likely be continued challenges from clients such as stalled decision-making or demands for lower pricing, and some service lines will fare better than others in this slow economy that is decelerating.

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by clicking here

NorthgateArinso Proving Success with Legacy Convergys Clients

When NorthgateArinso acquired Convergys’ HR management business in March 2010, my first reaction was that this was a really good deal for NorthgateArinso because it would be gaining some big brand name clients in the U.S.  Some wondered whether NorthgateArinso would be successful in retaining these legacy clients, but I was optimistic for two reasons.

First, it is mainly the same legacy Convergys employees supporting these clients, most transferred to NorthgateArinso with the acquisition.  It is well-known that the most successful ingredient in an outsourcing relationship is how well the client and service provider can work together and have an effective relationship / partnership.

Back in October 2008, I attended the Convergys Industry Analyst Day in Cincinnati where Thomas Neltner, VP of HR at Fifth Third Bank, was a guest speaker.  Thomas spoke about why Fifth Third chose Convergys, its services outsourced, and benefits obtained, including 99% utilization of employee self-service and 40,000 transactions turned paperless.  So it is no surprise to me that this week Fifth Third agreed to extend its contract with NorthgateArinso for an additional seven years.

The original contract with Fifth Third was signed in October 2003 for five years.  Services provided to the bank’s 20,000 employees included:

• Payroll administration and processing
• Compensation administration
• Performance management support
• Benefits administration
• Time and attendance management
• Implementation of recruitment technology and a self-service web portal.

In May 2007, the contract was extended for an additional five years for 21,000 employees and services were added including recruiting and specialized staffing and employee and manager self-service.  Now, the seven year extension through 2019 also includes upgrading the banks current SAP HCM platform to NorthgateArinso’s euHReka technology platform.

euHReka is also based on SAP but is a preconfigured multi-tenant platform that is fully integrated in providing HR and payroll services. In addition, it is used as a multi-country payroll solution, although that won’t be needed with Fifth Third, but you never know what the future may bring, which brings me to the second reason why I was optimistic about NorthgateArinso’s ability to renew legacy Convergys clients.  That is, similar to how customer service is a core competency of legacy Convergys, the same is true for technology and systems integration at NorthgateArinso.  This is a strong combination that NorthgateArinso can capitalize on when other contracts with marquee clients such as DuPont and Johnson & Johnson come up for renewal in the years ahead.  It will also help with winning new business!

Gary Bragar, Lead HRO Analyst, NelsonHall

HRO SaaS Uptake – What, How Much and Where?

As a follow-on to my July 7 blog titled, “SaaS More Than Just Catching On,” let’s today look at what types of HRO SaaS clients are buying, the size of awarded contracts and the industries in which HRO SaaS has had the greatest penetration to date.

The What

By rank order of the most commonly purchased software applications/modules:

• Payroll

• HR administration

• Benefits administration, including benefits planning, health and safety, claims submission, absence management and occupational health

• Employee and manager self-service

• Talent management, including recruiting and learning

• Workforce planning

• Compensation/salary administration

• Employee development for career pathing

• Travel  

The reasons behind the rankings, especially at the top of the list, are pretty self-evident. Payroll leads as it is the most visible and frequently used (and arguably, the most important) service. And HR administration really ties into employee and manager self-service, as one of the primary drivers of SaaS implementation is self-service for cost reduction and employee satisfaction.

The Size

As I noted in my July 7 blog, the mid-market is proving to be the ripest for HRO SaaS. Using Netherlands-based HRO provider Raet as an example – and a good one at that, as it in the past six weeks inked seven new SaaS contracts and one renewal – client company size is ranging from 250 to 12,000 employees. This uptake in the mid-market makes perfect sense, particularly on the lower end, as companies in this space need access to HR technology to enhance their operational efficiency but frequently lack the budget to invest their own capital in purchasing it. In terms of contract sizes, we’re seeing a length range from four to seven years, with an average of five years.

The Industries

In looking across all HRO SaaS contracts awarded thus far in 2010, education is the top industry, followed equally by local government and retail. I don’t necessarily believe there’s any secret sauce as to why these are the top three ranking industries, as organizations in virtually all – including healthcare, media, manufacturing and financial services – may be challenged with a preponderance of multiple divisions and locations, and often have several disparate systems for HR and payroll that do not communicate with each other, causing extra administrative work and duplication of effort, etc. Thus, the driver for most existing and upcoming HRO SaaS contracts is the ability to have one singular system for HR and payroll in order to achieve standardization, data accuracy, cost savings, self-service, timely processing and data, and employee satisfaction.

Due to all the inherent advantages, I believe we will continue to see a growing number of HRO SaaS contracts in the mid-market, across all industries. In addition, but to a lesser extent, I believe we will continue to see combined SaaS and outsourcing contracts such as the one announced on August 10 between MidlandHR and Swan Housing Group. Under this contract, Swan Housing will internally host MidlandHR’s iTrent software – which provides a single platform for HR, payroll, talent management and workforce planning. Swan Housing will simply provide the payroll data via iTrent, and MidlandHR will do everything else, from the structuring of pay and deduction calculations, through to payslip printing and distribution. The advantage of these hybrid-type contracts? Economies of SaaS scale coupled with outsourcing of processes for which internal resources and/or knowledge may be lacking.

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall