RPO, A Bright Future on the Path to Business Impact

Linda Merritt, HRO Research Analyst, NelsonHall

The future of RPO is bright with growth opportunities in every area of the world. According to NelsonHall’s “HRO Market Forecast 2012 – 2013,” RPO will remain the fastest growing area within HRO.

RPO is still evolving as a service line, moving from back-office paperwork administration to the front lines of recruiting, predictive assessment, and employer brand management. Contract renewals and extensions are now a regular part of the RPO news stream. Among those with announcements of renewals and extensions are:

• Alexander Mann Services
• Capita
• Manpower Group
• Novotus
• Pinstripe.

RPO is not for the faint of heart

With great opportunity comes increased risk. Growth is seldom in a straight path upwards and RPO is also on the leading edge of any business downturn that impacts hiring. It is not uncommon to see up and down swings in revenues of 20% or more between good and bad years. RPO providers need to be ready to rock and roll incredibly fast and be flexible in responding to changes in demand while balancing its own core of subject matter expertise.

RPO is the trail blazer

It is hard for any business including HRO service lines to keep up with new technologies, global service delivery networks, social media, and open device access. To recruit highly skilled multi-generational talent anywhere on the planet, RPO needs the latest tools and technologies to bring capabilities to employers they could not easily and affordably duplicate.

RPO has a direct path to business impact

Dr. John Sullivan, a respected HR thought leader, recently said that RPO has the greatest business impact of any HR function. Dr. Sullivan is referring to The Boston Consulting Group’s (BCG) “Realizing the Value of People Management from Capability to Profitability” research that rates the relative business impact of different HR functions on growth and profitability.

This was a major study of over 4,000 respondents across 102 countries, comparing the difference in revenue growth and profit margins at firms with “very high capability” individual HR functions to the business impacts of “low capability” HR functions. The firms studied had been named to Fortune’s “100 Best Places to Work For” list at least three times in the last ten years; their stock price growth was then compared to the stock price growth of the S&P 500. The “best companies” with great HR saw their stock price increase an average of 109% when the S&P 500 rose only 10% over the last 10 years, up to 10 times higher. Wow!

BCG found that the top ten performing HR functions in rank order were:

• Recruiting
• Onboarding and retention
• Managing talent
• Employer branding
• Performance management and rewards
• Leadership development
• Mastering HR process
• Global people management and global expansion
• Enhancing employee engagement
• Providing HR shared services and outsourcing.

In addition to the good news for RPO, the broader picture is the need for integrated talent management and the boost for HR outsourcing. Great HR can and does directly support great business results, and great RPO and HRO can be a part of that success story.

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IBM Accentuates its RPO and Talent Management Offering by Acquiring Kenexa

Gary Bragar, HRO Research Director, NelsonHall

Although a bit smaller than the $1.9bn Oracle paid for Taleo (coincidentally at $46 per share as well) and the $3.4bn SAP paid for SuccessFactors, I believe that IBM’s acquisition of Kenexa, a cash transaction at $46 per share or ~$1.3bn and closing in Q4 2012, will have a much more immediate and larger impact than the aforementioned acquisitions.

Both Taleo and SuccessFactors were specifically acquired for their talent management (TM) technology. Beyond the strength of Kenexa’s technology, however, is the provision of TM services including:

• Consulting
• RPO
• Employee engagement
• Leadership development.

According to an IBM study conducted earlier this year, 71% of respondents cited “human capital” as the leading source of sustained economic value, above products and services innovation and significantly higher than technology. Kenexa, as a HCM and TM provider, will compliment IBM’s TM offering, which focuses on the full TM life cycle of attracting, developing, rewarding, and retaining talent. Specifically, IBM’s TM offering includes:

• Recruiting
• Learning
• Performance management
• Compensation
• Succession management.

In addition to its multi-process HRO (MPHRO) offering, which includes TM, IBM also specializes in providing workforce strategy transformation, social technology, and analytics to predict and measure performance.

While RPO is part of IBM’s MPHRO offering, it also provides RPO on a standalone basis to GM. Kenexa’s RPO capabilities, however, will accelerate IBM’s RPO market share, making it one of the largest RPO providers globally with clients headquartered in North America, Europe, and Asia Pacific. Kenexa also delivers RPO services in Latin America including South America in ~25% of its contracts.

Kenexa’s BrassRing technology is one of the two most widely used applicant tracking systems in RPO contracts. Kenexa also brings its Kenexa 2x Recruit platform, which in addition to recruiting and learning contains the following performance management modules:

• Goal setting
• Competencies
• Performance appraisals
• Compensation
• Career development and pathing
• Succession planning.

NelsonHall estimates that Kenexa has more than tripled the size of its RPO business since 2006 with brand name clients including Ford and multi-regional contracts with Baker Hughes and Eli Lilly.

IBM’s price of $46 per share is a 42% premium over Kenexa’s August 24^th close, but it will be well worth it. IBM is getting much more than software technology; it is getting assets, including human talent that can make a HCM difference. IBM’s plan is to combine its approach to social business, analytics, and TM to transform business processes to create smarter workforces with measureable business results. Given Kenexa’s record of growth and IBM’s experience with integrating acquisitions, this sounds like a good plan and a great business opportunity for both companies.

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Bridging Talent Management and Workforce Management with HRO

Linda Merritt, HRO Research Analyst, NelsonHall

One of the hottest topics in HR and HRO has been talent management (TM), including everything from recruiting and RPO to performance management and employee engagement. Major ERP vendors have snapped up TM software leaders to strengthen HR product lines, e.g., SAP and SuccessFactors; Oracle and Taleo. Very good moves and very on trend, but let’s not forget about the less flashy powerhouse: workforce management (WM).

TM and WM are both critical components of human capital management (HCM) and depending on definitions and models, there can be a lot of overlap. For my purpose here, TM is about the individual and the capabilities for a specific job position and WM is about groups of workers and managing multiple positions.

TM involves attracting, retaining, and developing people with the required capabilities according to requested volumes and performance management. WM involves workforce planning and forecasting the capabilities and volumes needed and day-to-day scheduling and time and attendance. It takes both processes to have the right number of people, with the right skills, in the right places, at the right time.

Let’s consider two more elements, HR analytics and ROI, that will also benefit from seamless HR systems and processes, which our dear HRO community can enable and deliver. Timely and accurate workforce data is a foundation block upon which HR is built. At least part of the drive for multi-country payroll has been to get better employee data, and there is an important feeder into payroll: time reporting. Today’s leading time and attendance systems offer great flexibility in capturing the detailed data needed for payroll plus analyses of productivity, labor costing, pricing, project billing, workforce planning, etc.

Everybody wants to tie HR and HRO to ROI. Lowering the cost of HR operations alone is not enough. We must show real impact in measurable business results. Simplifying a bit, TM supports improved business results through customer satisfaction and revenues generated; WM supports improved business results through optimizing SG&A via operations and reducing losses.

Many HRO offerings come in basic and advanced levels. HRO providers– ensure you offer both levels of time and attendance, scheduling, and attendance management services. Buyers – take the time to determine whether advanced workforce management services will not only provide better data, but will pay for itself through reductions in overtime and the impact of absences. Also, for many positions and industries, ensuring all customer-facing seats are filled at the right capacity, capability, and time has a direct link to productivity and revenues. Finally, don’t forget about compliance with wage, hour, and labor regulations where accurate records and proactive scheduling are a great defense against fines and losses.

HR and HRO in partnership can be the bridge to strengthen TM and WM across the entire human capital value chain.

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The Logic in Logica’s Focus on MPHRO

Linda Merritt, HRO Research Analyst, NelsonHall

Logica has long been an HRO service provider in the U.K. and Europe. With much of its HRO revenues from payroll, it has been a bit quiet on the multi-process HRO (MPHRO) front. So I wasn’t sure that I saw the logic in Logica’s increased investment in MPHRO capabilities, especially when there are other major MPHRO players already in the economy-constrained market.

The HRO group at Logica recognized the developing opportunity for MPHRO as some buyers, especially second generation HRO users and multi-country businesses, began to want more than just transactional low-cost contracts. This created space for an HRO partner to help clients transform HR to increase business and workforce agility in responding to rapidly changing market conditions.

Logica is emphasizing its transformational HRO capabilities by:

• Assisting organizations to align their HR objectives and services with those of the wider organization and manage HR against business goals such as increased employee engagement
• Change management and ensuring that change management is both carried out up-front and carried through to a detailed sub-process level using service simulations to promote operational change as necessary
• Composing a common HR process taxonomy to be used as a common language across both outsourced processes and the retained HR processes
• Program management and its real-time PMO tools.

In terms of process design, the company is looking to use a set of standard Logica HR processes for Logica-delivered processes; for client-retained HR processes, it will provide workflow tools. Logica is also looking to encourage innovation beyond minor process improvements by establishing jointly managed innovation funds and innovation groups with its clients.

In technology terms, Logica currently supplements Oracle’s PeopleSoft HCM 9.1 and Oracle’s E-Business Suite with specialist HR applications where necessary. It may also consider SAP-based HRMS implementations downstream.

To date, the investments are starting to pay off. BPO, including HRO, was the fastest growing segment for Logica in FY 2011, up 23.8%. In the last 12 months, Logica has also been awarded several major MPHRO contracts including:

• BAE Systems:  a six year contract supporting 33,000 participants in the U.K. with a new single-tenant, hosted Oracle HR platform; payroll services; absence and attendance; employee care; and administration services in support of talent management functions including recruiting and learning
• Ahold, a Dutch headquartered supermarket retailer: a nine year contract supporting ~100,000 participants in the Netherlands, Slovakia, and the Czech Republic with a new Oracle PeopleSoft 9.1 platform; HR administration services; HR service desk; and payroll services, which will be subcontracted to ADP.

Other MPHRO contracts were awarded by a British telecom and a Swedish financial services firm, both for five years.

Logica is well underway working its five year roadmap for services development, which includes strategic new services, increasing its partnership ecosystem, and practical elements like adding more mobile apps. Logica is also a relationship-focused partner, and that trust factor, along with results realization from the new wins, will help it continue to grow in MPHRO. Logical indeed!

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HRO and Talent Management by Client Market Position

Talent management, in all of its various forms, rises and falls depending on how clients perceive its importance at a given time. For high performing companies, it is never too far from the top of the mind.

The talent management services that are wanted and needed by a client can vary by the market position of the enterprise. According to the i4cp survey on The Critical Human Capital Issues of 2011, the top issues change in order of importance between higher and lower performing companies:

      Higher Performers                                         Lower Performers

1. Succession planning                       1. Strategy execution/alignment

2. Leadership development             2. Managing/coping with change

3. Talent management                        3. Leadership development

4. Performance management          4. Talent management

5. Knowledge retention                      5. Innovation and creativity

While many companies are returning to plans for growth, others are still struggling with getting performance improvement.

As the economy recovers, it will once again be harder to attract and retain needed talent. Aon Hewitt’s 2011 Talent Survey shows that engagement levels remain low, that there is a lack of confidence that leaders will retain their critical talent, and that middle management will be essential to business strategy execution and engaging the workforce.

Combine these items with an assessment of a client’s outsourcing maturity and a service provider can shape an offer to show how its services can meet the current and future needs of the client. For example, managing the succession pool for the very top deck is easy enough to do without commercial tools, but it is harder to gain visibility into middle and direct management, or hard to source jobs, without supporting tools and access to standardized organizational data sources.

A company low in outsourcing maturity and lower in performance within its markets may just need a few basic tools to increase process efficiency at the lowest possible cost. Anything too complex may go largely unused and bring complaints of being oversold or not worth the price. The highest warning signals must go to a lower performing organization that does not understand the roles that only its own managers can play – the best HRO services in the world cannot substitute for leadership and this is especially quickly apparent in the talent management arena.

A higher performing company with a trusted HRO service provider partner may be ready to add a fully integrated talent management suite (perhaps with consulting services) to connect with and add value to existing services, and use advanced workforce analytics to attract, retain, and develop talent for the future and for today’s business results. Here, the client/HRO partnership can be nicely synergistic, enhancing both parties.

Companies ready to improve performance and grow are great candidates for HRO. Just be sure to understand each clients starting position and show how HRO services and partnerships can help each one reach its various goals with a service plan and path that is just right for them.

Linda Merritt, Research Director, HRO, NelsonHall

Employee Engagement, High Performance, and HRO

Employee engagement is down to the lowest levels seen in many years. Low engagement makes it hard to be high performing and can later raise turnover as employment opportunities improve.

• In early 2010, The Conference Board found that only 45% of employees were satisfied with their job, the lowest rate seen in the 22 years of the survey.
• This year, the 2011 Aon Hewitt Trends in Global Employee Engagement survey found that 56% of employees are engaged on average, down from 60% in the prior year, the largest year-over-year drop seen in 15 years. Declines were seen across Asia-Pacific, Europe, and North America, with only Latin America showing improvement.

My colleague, Gary Bragar, has consistently brought attention to the engagement topic because it is important and makes a difference for all: employers, employees, and HRO service providers. It can also make quite a difference! Aon Hewitt’s research indicates there is a strong correlation between employee engagement and financial performance. Organizations with high levels of engagement (65% or more) outperformed the total stock market index and had shareholder returns 22% higher than average in 2010. Companies with low engagement (45% or less) had shareholder returns 28% lower than the average.

Naturally, employee engagement that contributes to high performance business results is first and foremost a critical issue for C-level and management teams and there is a myriad of advice available, including consulting services from many of the HRO providers. Every organization, industry, and market has a life cycle and the management challenges will vary depending upon the stage. Accenture’s new book, “Jumping the S-Curve,” identifies three s-curves and outlines the critical issues for each cycle, including the importance of transitioning from one stage to another.

I see within the very insightful Accenture management advice opportunities for HRO contributions. For example, to climb the cycle of business success based on a winning idea, you need to reach a threshold of capabilities and competence and to attract and keep top talent in critical areas to maximize growth without collapse. As the cycle of achieving business success begins to end, new talent problems can arise as turnover increases due to fewer advancement opportunities and talent poaching. As a new cycle starts, a change may be needed in leadership and business competencies at the executive and other levels. Talent needs to be continually monitored, nurtured, and refreshed – all appropriate to the current and next cycle of the enterprise and what is happening in the broader market and economy.

Layering talent management services (e.g., recruiting, staffing, performance management, succession and career planning, and workforce planning) on top of a capable HR system for employee data management that’s supported by HR analytics can go a long way in helping clients see where they are now, identify gaps and emerging issues, and use HRO services and support to achieve a truly high performance-based business transformation.

Linda Merritt, Research Director, HRO, NelsonHall

Employee Engagement: Outsourcing Providers Get It

I finally listened to my first two Bill Kutik radio shows and I’m glad I did (replays are available online).  Two weeks ago, Bill interviewed Mary Sue Rogers, General Manager of Global HR, Learning and Recruiting for IBM, who shared her perspectives on HRO.

More recently, Bill interviewed Rudy Karsan, CEO of Kenexa, for his views on balancing work and life and the nature of how jobs are changing with insights from his recently co-authored book titled “We: How to Increase Performance and Profits through Full Engagement.”  Research findings cited from global employee surveys and company case studies revealed three essential elements that keep employees engaged and productive: pay, purpose and passion.  During the interview with Bill, Rudy noted a January 2010 study which indicated that 45% of employees were disengaged.  That figure is now a staggering 84% (Ouch!).  Just think of the productivity that would occur if companies could make that 84% engaged.

To measure employee engagement, Rudy states that companies must first measure employee engagement though employee surveys.  Once those results are compiled and analyzed, conversations on how to improve need to occur with employees.  Having managed employee programs including employee satisfaction for a global telecom for a few years in my prior life, I can attest to all the amazing things that happen when employees become engaged!

Another important element in employee engagement is to analyze employee actions and anticipate trends before they become major problems.  In her discussion with Bill, Mary Sue emphasized the wealth of workforce information that is already inherent in HR data warehouses and systems.  An experienced HRO vendor can help connect the systems, provide the HR analytic tools, and even assist in building an engaged employee base, which is critical for success in an ever-changing global business environment.

An example of another HRO provider walking the talk is HCL.  Vice Chairman and CEO Vineet Nayar penned his management philosophy in his 2010 book titled “Employees First, Customers Second,” which says it all.

So, why aren’t more companies actively trying to ascertain employee satisfaction?  I could write my own mini novel on all of the excuses organizations give, but rather I’ll simply say just do it.  If you have the resources and the commitment, employee engagement can be managed internally.  But, if you don’t have the bandwidth, talent management providers such as Kenexa and OchreHouse have the capability to help.  In either case, companies must be committed to the process, from senior leaders down to first line supervisors.  If you don’t have the commitment to doing anything with the results, then my advice is don’t bother measuring to begin with as you risk disengaging employees more.  As an organizational leader, which side of the 84% do you want to be on?

Gary Bragar, Lead HRO Analyst, NelsonHall

An HRO Provider on the “100 Best Companies to Work For” List… Now That’s Walking the Talk

I was very pleased to see an HRO provider, Accenture, named on Fortune’s “100 Best Companies to Work For” list for the third year in a row.  Last week I wrote about customer service being important to customer retention, so I thought this was an appropriate blog to write about this week, particularly when you are a true believer in the adage that employee satisfaction = customer satisfaction = increased profitability.

Accenture was cited for initiatives including its “Future Leave” program, which is a three-month, self-funded, sabbatical with continued benefits and assurance to be able to return to work when the leave is over.  Accenture also has a number of other programs for employees including:

• Learning and development: A global online learning portal with 20,000 courses available.  All Accenture employees are assigned a career counselor to help them manage their careers
• Flexible work arrangements: Options of how and where employees perform their work to help achieve a better work-life balance

Another HRO provider walking the talk is Kenexa.  Its CEO, Rudy Karsan, recently co-authored a book titled “We: How to Increase Performance and Profits Through Full Engagement.” The book highlights three common factors that drive engagement that I completely agree with:

1. “Growth: We need to feel that we are advancing in our careers or are learning new things.
2. Recognition: We need to feel appreciated and believe that our ideas count.
3. Trust: We need to trust our senior leaders and feel confident about the future.”

More HRO providers are offering talent management services and can help clients improve employee engagement.  For example, Kenexa was recently awarded a contract by Unilever to survey 140,000 employees globally in 2010 and again in 2012 to assess employee engagement.  Kenexa will also help Unilever with action planning for any issues identified to improve employee engagement.

Manpower is another example of an HRO provider, helping companies in Asia to develop effective workforce strategies to improve their competitiveness.

As I’ve written before, as the economy improves and more jobs become available, it will be even harder to retain talent.  HRO providers can help and where needed, implement new employee programs or strengthen existing ones that are not achieving the desired results.  In assessing which HRO vendor to work with on tools and services designed to increase employee retention and engagement consider the vendor’s own human capital management practices. Who better to work with than an HRO partner that walks their own talk!

Gary Bragar, Lead HRO Analyst, NelsonHall

Top Topics at Last Week’s HRO Europe Summit

Although a working trip for me – as a learning session co-presenter with Raytheon, and on two panels, one on learning and one on RPO – I can easily say last week’s HRO Summit Europe got great marks in my book. About 40 percent of participants were buyers – a rare occurrence at conferences these days – with the balance being presenters, providers, analysts, press, researchers, staff and others. Discussions were lively and engaging, and…need I say anything about the beauty of Amsterdam, especially its architecture and canals?

My co-presentation with Raytheon, a learning outsourcing session called, “Bridging the Customer-Provider Divide,” was immediately followed by the learning panel, and witnessed buyer questions including: 1) What role does the retained HR learning organization play, including the role of the retained learning director, HR business partners and governance team?; 2) What lessons learned should a buyer that has just implemented a learning BPO contract incorporate?; 3) Why we are seeing more selective LBPO contracts and less full LBPO contracts?; and 4) What role does LBPO play in retaining knowledge as more employees will inevitably begin to retire? 

While tracks and presentations covered the HRO gamut, two of the major focuses were talent issues and RPO. Dr. Peter Cappelli, Director of the Center for Human Resources at the Wharton School of Business, opened the conference with a keynote entitled, “A Question of Talent.” He began by discussing that, in the 1950’s and 1960’s, 24 years of service with just one company was the average tenure per employee. At the time, companies invested heavily in continuous training, and believed in lateral and upward mobility. He then moved to the sobering stats of today’s workforce. Companies of course still want loyal employees, yet very few do little to give their employees in-turn loyalty, and only one in four of succession plans are utilized. The result is organizations spending thousands of dollars in employee development, only to lose them to competitors.

It almost feels as if organizations accept this as a looming cloud norm in today’s workforce environment. But I vehemently oppose that viewpoint. If you look at the pure financials alone, conservative estimates are that it costs one and a half times as much of an employee’s salary to replace that individual due to the cost of recruitment, development, learning curve, etc. How can that possibly be perceived as good business? I am feeling like an evangelist as I’ve written about it so many times in my blogs, but employee satisfaction and robust initiatives focused on talent retention are vital to competitive advantage and business growth.

One of the largest and most well attended tracks at the conference was on RPO. I was also a member of an RPO panel discussion entitled, “Deep Dive: Driving the Future State of RPO,” along with Alexander Mann Solutions, SourceRight Solutions and a professor from Lancaster University. One question posed by a buyer member in the audience was how RPO has evolved. Each panelist, of course, had its own answer. Mine, not surprisingly as an industry analyst, is that by providing what I call “value-added services” or what I consider to be the “richer RPO services,” you are a true end-to-end RPO provider. This means: 1) services on the front end in workforce planning, talent strategy and employment branding to ensure the right employees with staying power are hired; 2) services in the middle to manage internal recruiting/mobility; and 3) services on the back end, including robust onboarding and ongoing, bi-directional employee engagement.

There are other shifts occurring, including interest in global RPO, and I will cover more on that and learning outsourcing issues discussed at the conference in upcoming blogs!

Gary Bragar, Lead HRO Analyst, NelsonHall

Smart HRO Buyers and Providers Strengthening Focus on Employee Engagement

In my April 29 and August 26 blogs I talked about grim levels of employee satisfaction and engagement, and a couple of ways in which HRO providers can help employers raise these levels.

Well folks, sadly, recent analyses show that employee sat and engagement are still exceptionally low in most world geos, and continue to drop. Hewitt  last month announced that approximately half of all companies around the world showed a significant drop in employee engagement as of the end of 2Q10, the largest decline it has seen in the 15 years it has been conducting employee engagement research. And Kenexa Research Institute’s 2010 WorkTrends Annual Report, released earlier this week, cited that India ranked highest in employee engagement at 71 percent, Japan the lowest at 38 percent, but that when employees report they follow effective leaders, the average employee engagement index score is 91 percent. Bleak numbers, and dangerous for employers as they try to recover from the economic downturn and emerge in a position of strength.

But some forward-thinking companies are taking steps to increase their employee engagement levels, and they serve as models for the types of things other organizations may want to consider doing. For example, Unilever contracted with Kenexa to conduct in 2010 and 2012 an employee engagement survey with 140,000 employees around the world, and also to help with action planning to address issues identified per the surveys. MphasiS India awarded Kenexa a contract to provide a 360-degree survey program. And Vodafone’s operating company in Qatar engaged Kenexa to deliver a leadership program to help 65 senior managers more effectively lead by minimizing misunderstandings and cultural conflict.

Further, a variety of providers are improving their talent management capability, including Mercer, which launched Human Capital Connect (powered by Peopleclick Authoria), a rewards and talent management consulting and technology solution, and ADP’s acquisition of Workscape is strengthening its performance management capability.

And speaking of strengthening performance management, in recent interviews for my upcoming learning market analysis, several vendors around the world have cited increased demand for leadership and performance management training. For example, Australia-based provider The Learning Factor stated that companies are trying to reinvent themselves and are investing in management programs, including performance management, across all countries and regions. One of its clients recently implemented a new performance management system, processes and required training for all managers. The training includes how to set goals and objectives, and how to provide feedback.

During the recessionary crisis of the past two years, organizations have been functioning in survival mode, focusing on cost cutting and downsizing rather than being proactive in practicing what they preach – “people are our most important asset.” Yet top leaders and companies are starting again to walk the talk. What are you walking and talking?

Gary Bragar, Lead HRO Analyst, NelsonHall