HRO Today Forum Europe 2012 Demonstrates the Value of HRO

Gary Bragar, HRO Research Director, NelsonHall

I attended HRO Today Forum Europe in Dublin, Ireland from November 13^th to 15^th to present my “State of the Learning BPO Marketplace” analysis and to introduce subsequent speakers of the learning track.This conference was different than those I’ve attended in the past as several of the sessions were interactive small group discussions. The small groups allowed us to learn from each other, and created energy and enthusiasm!

Interactive sessions I attended included:

• The opening recruitment session where we identified top challenges and solutions
• A leadership development program workshop to identify top challenges and solutions.

There were ~260 registered attendees (the same as in Amsterdam two years ago), of which 87% were in attendance throughout the three days including ~50 HR practitioners. Here are some of the highlights from the forum:

Opening remarks: Elliott Clark, CEO of SharedXpertise, opened the conference by sharing some enlightening data from a recent survey, primarily Europe centric:

• Twice the percentage of providers think HRO is thriving compared to buyers
• 77% of vendors think M&A is good for HRO compared to 55% of buyers.

Opening keynote: David Andrews, CEO of AOI and founder of Xchanging, presented “Reshaping the HR Business and Lessons Learned from Across Europe.” David began by talking about the history of HR BPO and how BP was the first company to sign a major HRO contract with Exult in 1998 to obtain 40% cost savings to remain competitive. David’s concluding remarks were that the outsourcing space in the U.K. needs to be bigger since ~$18bn is spent by the U.K. government on back-office processes and only ~$700m is outsourced.

Panel discussion: “State of the Market Debate” was hosted by David Andrews and participants included Accenture, IBM, Logica, NorthgateArinso, and Xchanging. Margaret Spink, Managing Director of HR Services at Xchanging, stated SaaS will be the most important phenomenon in the industry and the mid-market will be the biggest growth area. I agreed with Margaret’s mid-market comment, but spent the next day wondering about SaaS until the Xchanging hosted breakfast when Margaret stated that HRO is not just about technology – I couldn’t agree more! Technology is an enabler and I believe more focus should be on implementation, process, utilization, effectiveness, and achievement of desired outcomes.

General session: The conference concluded with a payroll presentation led by Julie Fernandez of ISG followed by a panel that included SD Worx, Ceridian, and CloudPay. The focus of Julie’s presentation and panel were on multi-country payroll beginning with the benefits that include:

• Reduced number of payroll providers for better procurement pricing and contract terms
• Consolidated interfaces to HR
• Improved visibility and reporting of employee headcount and cost
• Reduced compliance and financial risk
• Harmonized payroll processes and improved governance.

Challenges of multi-country payroll include securing buy-in of all the countries and funding. Part of the challenge is the implication that all countries must fit one model using one provider. All three panelists use partners in countries where they are not able to provide service themselves.

Q&As from the multi-country payroll session included:

• Q: How do you get internal finance to have confidence in the provider to prevent an extra layer of checking on vendor performance?
• A: CloudPay stated that multi-country payroll reports into the client CFO and that one way to satisfy finance is for the vendor to do more self-audits and disclosure.

An interesting discussion also took place on “cloud” with the panel in agreement that the true meaning is you can do anything from anywhere for anything, but that the industry is not there yet due to the concern of knowing where data resides. The industry will, however, grow into acceptance.

In sum, it was a worthwhile conference for anyone interested in learning, networking, and meeting potential clients. I look forward to HRO Today Forum Europe 2013 in London, November 12^th to 14^th, expected to be the biggest event yet.

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IBM & Air Canada: Proof that Traditional MPHRO Contracts Are Not Endangered

Before blogging about other current events such as ADP’s recent acquisition of The RightThing, one final announcement from HR Tech to address further is IBM’s contract win with Air Canada.

Air Canada was an early participant for outsourcing HR services as part of its business practice. In early 2004, it awarded a 7-year multi-process HR outsourcing (MPHRO) services contract to Exult, which was acquired by Hewitt a few months later. Hewitt, and then “Aon Hewitt” since its acquisition, provided Air Canada’s ~36k employees with workforce admin, payroll, benefits admin, recruiting, and learning admin services, a very “traditional” MPHRO contract at the time.

In addition, Air Canada awarded NorthgateArinso with a 5-year contract for managed payroll services in the U.K. in late 2010.  Then it decided to shake things up by opening up its MPHRO contract for competition. Key to winning the contract would be a provider that would continue to drive innovative transformation and ensure lower costs.

Last week, it became clear that IBM was the provider that Air Canada was looking for when it signed a ~8 year MPHRO contract for Air Canada’s North American employees and retirees.  Services include HR contact center, employee data management, employee travel support, payroll, benefits admin, leave management, recruiting services with support from Manpower, and software application support for the HR systems used to provide the services.  This recently announced contract is proof that traditional MPHRO contracts are not endangered.

Several weeks ago, I discussed the four market segments of MPHRO that exist in the market.  Among the emerging segments such as “multi-country standardization” was the “client-specific shared service / transformation” group, which represents many of the traditional, transformative deals that occurred in the early to mid 2000’s such as Hewitt’s contract with Air Canada.  Although growth for this segment isn’t expected to be quite as high as the other emerging segments, it is still expected to increase modestly through 2015 contrary to popular belief.

IBM and Aon Hewitt are both leaders within MPHRO.  Within the shared service transformation segment, Aon Hewitt is ranked first in terms of revenue with nearly ~19% market share; IBM is ranked second with ~14% market share.  Aon Hewitt is also doing its part to keep this segment alive; earlier this year it signed a MPHRO contract of significant size with an unnamed financial services organization.

While all the focus lately is on the newer species of MPHRO contracts, specifically the multi-country standardization contracts, the four existing segments can and will continue to co-exist in the larger ecosystem.

If you’re a MPHRO provider focused on the shared service transformation market segment be sure to tout your contract awards and renewals, so everyone knows that this segment is alive and well.  We love to share the good news!

Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

 

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It’s a Pac-Man World in HRO – ACS Buys ExcellerateHRO from HP

Google celebrated the thirtieth anniversary of the release of Pac-Man, one of the most successful and long lasting video arcade games, by putting the game on its home page. Created by Namco in Japan, the license to Pac-Man was bought by Atari, the biggest name in early gaming. And Atari hit big time with Pac-Man, selling a then outstanding seven million games. Unfortunately, it manufactured twelve million copies of the game. Success in the early stages of an emerging market is not always the path to long term success.

ACS, a Xerox Company, just announced it is acquiring ExcellerateHRO (EHRO) from HP, ending the rampant industry speculations, including those from NelsonHall, on who might want EHRO.  Almost from the start there was conjecture that EHRO was not a strategic fit with HP, which maintains focus on computing and IT-related services. (Try finding any references to EHRO services on the HP website.)

EDS acquired EHRO for around $400 million. Now being sold for an estimated $125 million in cash, EHRO now joins Exult – which was purchased by Hewitt in 2004 – and Convergys – which is in the process of being acquired by NorthgateArinso for ~$85 million –  as early HRO providers chomped by industry consolidation. 

Exult flew the highest first, literally helping birth the comprehensive HRO industry. Exult rapidly won a large book of large clients in the first generation of lift and shift deals that took over management of clients’ HR processes in place of complex ERP and legacy systems. But once the exhilaration of creation and big deal fever passed, it turned out to be a hard way to make money. Hewitt quickly learned this after its acquisition of Exult. In fact, given the major money lost by the early players year after year, it is amazing that the game is still alive and being played by a stronger, albeit smaller, field of service providers.

A shakeout and consolidation is not unusual in the early stages of industry development, especially when tempting bargains are there to be found. Just as the HRO industry was finding its way through the maze to a new level of services fueled by newer technologies and lower cost service delivery networks, the worldwide recession gobbled up growth and cornered hard won margins, leading to the availability of several of the early leaders at discount prices.

The question was, who was hungry enough to bite? NorthgateArinso wanted into the U.S. market in a bigger way and it is snapping up Convergys to do so. ACS is also hungry in its own way. Already a first tier player, it wants to be even bigger in segments such as benefits administration.

ACS has already spent more than $20 million on upgrading and enhancing its services and platform for benefits, and has been on an aggressive campaign to win share in benefits administration. And what could be even more enhancing than a shiny new acquisition? With the support of Xerox and the addition of EHRO’s assets, ACS will be significantly increasing its market share in corporate relocation services and benefits administration, especially in pension administration and health and welfare outsourcing.

Pac-Man survives thirty years. Long live Pac-Man. Long live HRO.

Linda Merritt, Research Director, HRO, NelsonHall

The Zen of HRO

How does an HRO service provider achieve a Zen-like balance in HRO? Evidently, not very easily.

I recently wrapped up a research project on corporate relocation providers for one of NelsonHall’s buy-side clients. I wanted to summarize my findings across several bundles of criteria, and I selected financial risk management, participant care and client care.

In the case of corporate relocation, financial risk management includes a focus on helping clients manage home purchase programs. Given the challenging real estate market, a home buyout program can be a high risk and high cost benefit. The basic services and pricing models are very similar across the top tier of relocation management companies, so which service providers have better adapted to the changed home sale marketplace where many homes are underwater, worth less than the mortgage owed, or hard to sell amidst a sea of foreclosures and short sales?  

The reviewed vendors had all stepped up client policy review consultations, and now offer pre-decision services. This helps both the hiring/receiving organization and the potential hire or transferee gain access to all the information possible to make a balanced determination on whether to proceed. Good stuff to be sure. Still, what came across from several vendors was that if you offer fewer benefits and reduce coverage, you can save money. Being aware of total cost and where your company’s relocation policy is compared to industry benchmarks is helpful information, and some trimming may be prudent. Yet only a few of the providers showed an understanding that just reducing relocation benefits could jeopardize acquiring and keeping the desired high potential/ high performing talent.

I did find that several corporate relocation providers had improved capabilities in dealing with the current real estate market, offering increased consultative services and new online analytical and reporting tools to allow clients to keep up in real time with all potential and in-process relocations. 

Even though financial risk management was a current top concern, the client also wanted to maintain a high level of transferee satisfaction and work with a responsive service provider. When we went over my findings the client was a tad disappointed that no one vendor was rated at the highest rating across all three elements – financial risk management, participant care and client care.

The parallel is there to all of HRO. It is a tall order to deliver and balance over the course of multiple year contracts business impacting financial advantages with efficient and effective service delivery innovations and a consultative client relationship that adapts to the constant changes that is life in HR and modern business. 

When that balance is attained it leads to expansions of services and renewals. International Paper just added more services and extended its multiple process HRO contract with Hewitt for five more years.  International Paper was one of the first generation of major HRO deals with Exult in 2001, and it came with the problems and joint learning curve common to those early relationships. Ten years later, the client says Hewitt demonstrated its value as “our trusted HR partner” and “they come to us with new ideas, new solutions and innovative approaches. It’s only natural to extend our relationship.”

HRO service providers, how are you balancing the Zen of HRO?

Linda Merritt, Research Director, HRO, NelsonHall

Hewitt Gets Back on the Bicycle

I listened to Hewitt’s Q4 and fiscal year 2009 earnings call last week. It was rolling along in the same vein as others this quarter: explaining declining revenues, the impact of foreign currency, being cautiously optimistic that we have seen the bottom of the recession and offering conservative guidance of low to mid single digit growth in fiscal year 2010.

Then the call started to get more interesting. First, there was relatively good news on the HRO front, with a loss for Q4 of only $2 million. That is quite good when in the same quarter last year its loss was $21 million. (For more on Hewitt’s earnings analysis, see this week’s NelsonHall HRO Insight newsletter.) Then Russ Fradin, Hewitt’s CEO, mentioned in his highlights segment that the company had just signed a major new multi-process HRO (MPHRO) client.

My ears perked up. MPHRO? Hadn’t Hewitt pretty much backed away from this space after spending much time and effort to terminate, restructure and renegotiate problem contracts it had inherited from its acquisition of Exult? As if that hasn’t been enough of a challenge, it was also hit with the liquidation of two major retail clients, Mervyn’s and Circuit City.

In addition, Hewitt dropped that it has quietly onboarded several new clients in 2009! Now I was sitting up straight. And it was a good thing I was sitting, because Russ went on to say Hewitt was “getting back on the bicycle,” and were targeting adding three to four new MPHRO clients per year.

By the way, in a follow-up call I found that the new MPHRO deal is a competitive win and the client is a major global beverage company.

The news disclosed during the Hewitt call reminded me of one of the premiere U.S. Olympic-level velodromes for bicycle racing and the home of gold medal winner Marty Nothstein.

Some of the cycle races are just what you would expect, all out speed races from start to finish. Other races are as much about strategy, positioning, timing and knowing your competitors moves as they are about stamina and speed. And in racing at this level, top technology in equipment is a must. These bikes bear little resemblance in features or cost to the Scwhinn’s many of us had in childhood.

This is good news, not just for Hewitt, but for large market clients. A robust field of viable providers ensures choice and spurs competitive pricing and innovation. Welcome back, Hewitt.

Make room on the field and let the racing begin. May all the competitors win!

Linda Merritt, Research Director, HRO, NelsonHall