The Fertile Ground of HRO Innovation

Kelly Services’ recent announcement of its new Office of Innovation was fascinating as the company has long been a leader and innovator in the staffing services field. Go global, check. Provide MSP, check. Add RPO, check. Add consulting, check. Launch mobile access applications, check. Supply chain management, check. Its success shows in the results, with 2011 revenues totaling $5.6 billion, a 12% increase over 2010.

To find out more, I had a lively discussion with Kelly Services’ Senior Vice President and Chief Innovation Officer Rolf Kleiner. Basically, Kelly Services has already done so much that it is focusing on new solutions and capabilities to remain ahead of the competition and keep up with its many Fortune 500 clients.

According to Kleiner, the company has always done well with the “little I” incremental innovations that improve and enhance its current services and capabilities. Kelly Services is also looking for new “big I” innovations, those that can move the needle on results and set precedents within the company and in the marketplace. It was felt that by adding more visibility and vetting larger scale opportunities, the Office of Innovation will be able to identify, develop, and bring new innovations to market faster.

Kleiner plans to set up a “pull” process for ideas that includes many stakeholder groups including employees, clients, suppliers, and other industry experts. He likened the process to farming. It will take working with the communities of interest on an on-going collaborative basis to develop a harvest of ideas.

There were several items I found especially interesting. One is using this effort as an opportunity for talent management. Some proof of concept and development projects will be managed by the Office of Innovation and will provide highly visible opportunities for those assigned. When projects are managed outside of the normal lines of business, integration and communications will be maintained which brings reality to planning and brings market needs and innovation participation deep into the infrastructure and culture of Kelly Services.

Also, there is a very crisp vision for the strategic initiative and clear criteria for the kind of innovation opportunities that are being sought. There is solid alignment with the goals of the company, scale for sizing market opportunities, and an openness to solutions that could include internal developments, partnerships, supplier networks, etc.

Finally, the selection of Kleiner as head of the Office of Innovation is a strong indication of Kelly Services’ seriousness with this endeavor. He reports directly to the CEO and his previous assignment was as Senior Vice President and General Manager for the KellyOCG group, which provides consulting and outsourcing services. The pulse of the market, the voice of the customer, and the operational beat of the business are all fresh and fertile ground for Kleiner’s new challenge.

Our NelsonHall HRO team always advises clients to look for service providers that can meet today’s needs as well as offer partnership for meeting the needs of tomorrow. How is your HRO vendor focusing on the future?

Linda Merritt, Research Analyst, HRO, NelsonHall

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.com with “HRO Insight” as the subject.

HRO Get Ready for the Human Age

ManpowerGroup reported its 3Q 2011 earnings last week, a bit more on that later. First, I want to highlight a “big idea” approach to talent management that the company has launched. Speaking at the 2011 World Economic Forum in Davos, Switzerland, Jeffery Joerres, ManpowerGroup Chairman and CEO, announced that we are on the cusp of “Entering the Human Age.” According to Joerres, in the Human Age, talent is the key differentiator for business success and technology becomes the great leveler, allowing skilled individuals to vault the restrictions of national borders, and increasingly, of when and where they work.

Many of the elements ManpowerGroup addresses are already known in the world of HR and HRO. The impact of the technology-enabled globalization of talent, the need to simultaneously deal with an aging workforce while engaging a mobile new generation, and the growing mismatch in available labor versus skilled talent. All of these lead to the need for a new strategy and approach to attracting, developing, and retaining talent.

The future of talent envisioned in the Human Age is both hopeful and daunting as we are only entering the transition period with a long road ahead. It is a future in which employers would benefit from a consulting/outsourcing partner with the scale and scope of ManpowerGroup, with $22bn in revenues and a presence in 80 countries.

I love big ideas that come from HRO service providers showing that HRO can be more than transaction, technology, and contact center cost and efficiency management. Big ideas can also lift and differentiate a company’s brand.

One of the keys to brand management is consistency and constancy of messaging. IBM is doing a very good job of taking a big idea phrase, i.e., smarter planet, connecting it to its brand, and naturally to its consulting and services. Going one step further, IBM makes the concept a central theme running throughout its strategic initiatives. For example, the HRO team had to show how its investment initiatives supported one or more of the six imperatives for a smarter planet.

ManpowerGroup is making a good start. The speech in Davos was backed by a special ManpowerGroup website for more information on the Human Age, including a 58 page booklet outlining the concept and providing research and experienced insight on changes that will be integral to the new age. Other 2011 white papers from ManpowerGroup are picking up the phrase and it was also used in its 3Q 2011 earnings report. Further use across the external website, news releases and other collateral, as well as internal use will strengthen the connection to ManpowerGroup.

For 3Q 2011 ManpowerGroup reported revenues of $5.8bn, up 16% overall and 9% in constant currency. EPS were $.97, up 43.5% from $.62 in the prior year quarter.

Linda Merritt, Research Analyst, HRO, NelsonHall

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.com with “HRO Insight” as the subject.

RPO Continues Its Stride in Q2 2011

If you didn’t pay attention to the news and only looked at the recent financial results reported by staffing and RPO providers, you’d think that everything is fine with the global economy.  Let’s take a look at a few of the highlights including year-over-year revenue growth in Q2 2011 compared to Q2 2010 and some numbers of contracts awarded:

• Talent2 (fiscal year 2011 for period ending June 30) +26%, RPO +57%
• Kelly Services +16%, KellyOCG + 22.5%, and RPO ~+50%
• Kenexa +59%, RPO + 45%
• Manpower + 24%, ManpowerGroup Solutions +21% with 37 RPO deals closed in Q1 and 31 new RPO contracts awarded in Q2
• Pinstripe won or extended 15 RPO contracts in H1 (revenue not reported)
• SeatonCorp +20%, PeopleScout +95% with 9 new RPO contracts signed.

Why was growth and the number of contracts awarded so high when the sad reality of the news headlines is that there are debt problems, slowdown in GDP growth, and a continually high unemployment rate?   Well, that is precisely why!  There are several reasons including:

• Organizations who have had to downsize are turning to RPO because they don’t want to invest in hiring recruiters and associated staff only to potentially downsize again (i.e., it’s better to outsource recruitment to a vendor that can provide variable pricing and who can scale up or down quicker than the client)
• Obtaining  better quality of candidates and quality of hire from an outsourcing specialist
• Allowing HR to work as a strategic partner and in-conjunction with the RPO vendor to engage employees and retain talent (instead of focusing on hiring)
• Wanting to get out of the technology management business, which isn’t usually a client’s core competency
• Reducing time to hire, improving hiring manager satisfaction, etc.

In addition to revenue growth from new contracts and renewals, growth comes from existing clients that have increased their hiring volumes. Other sources of growth are from contracts won in prior quarters that take several months before fully ramping up.

RPO does not look like it is going to slow down anytime soon.  In NelsonHall’s HR Outsourcing Confidence Index, published in June, pipeline growth reported in the prior quarter was higher for RPO than all of the other HRO services.

At NelsonHall, we’ve seen an increase from buyers wanting to know who we see as the leading RPO providers by country and region. Buyers, are you evaluating outsourcing recruitment, if you haven’t done so already?

Gary Bragar,  HR Outsourcing Research Director, NelsonHall

Staffing and RPO Surpassing 2010 Y-O-Y Results

As bullish as I’ve been on RPO, results reported to date for staffing and RPO providers have exceeded even my expectations.  As we all know, 2009 was a down year for hiring, but then there was a big turnaround in 2010 and in RPO, most vendors I interviewed for my recently published RPO report said that revenue and hiring are back to pre-recession levels. Although hiring has picked up in the U.S., I don’t think any of us would say it is going gang-busters yet.  But in comparison to overall staffing results for Q1 2010 that averaged ~12% revenue growth, Q1 2011 has about doubled thus far.  Let’s take a look at some Q1 2011 results to date and how they compare year-over-year to Q1 2010:

• Manpower up 24%
• Hays up 18%
• SeatonCorp up 25% and its RPO business PeopleScout is up 103%
• CTG up 22%
• SFN up 6% and its RPO business in SourceRight Solutions is up 83%
• Randstad up 22%
• Kenexa up 59% and its RPO business is up 56%.

I do believe that the rest of the year will be strong for staffing, but it’s hard to believe that RPO will maintain quite the same momentum.  That said, hiring will improve and I agree completely with Manpower’s findings on May 6^th stating that  U.S. companies must hire again as workers are stretched to the max doing more with less.  In my view, it’s been this way long before the recession, mostly in part to how Wall Street rewards companies for their performance, but we’ve reached a tipping point and I’m almost certain this is not just a U.S. phenomenon.

But instead of just reading about it, come join us at the HRO Forum in Las Vegas May 24 – 25 that combines the HRO, RPO, and MSP Summits along with the HR Demo Show.

As a speaker, I’ve been extended an offer to invite buy-side HR execs with a 60% discount and also an offer for a limited number of RPO buy-side practitioners to be able to attend all four Summits for free, get reimbursed for travel up to $500, and get 2 hotel nights for free. If you are interested, then send me an email at gary.bragar@nelson-hall.com and I’ll send you the info/codes to register.

Gary Bragar, Lead HRO Analyst, NelsonHall

Benefits Administration Outsourcing — Mercer has an Ace in the Hole

Mercer held its cards during the 2010 benefits administration merger poker marathon while others drew cards to fill in service lines, add scale, and expand geographically. Satisfied with its service mix and global coverage, Mercer decided to play its own hand with a benefits portfolio of consulting, outsourcing, and investment management to leverage growth.

Revenues for Q4 2010 were $910m, up 5% in constant currency and outsourcing was up 5% to $180m. Full year revenues came in at $3,478m, up 2% and outsourcing was up 3% to $671m. The U.S. led with the largest share of growth and Canada, U.K., Latin America and Asia Pacific also showed gains.

Mercer’s hand is stronger than it may appear from the 2010 results. While the first half of the year was slow, Q3 and Q4 showed accelerated recovery from the recession. Health and benefits consulting revenues increased 8% for the second quarter in a row. Rewards, talent, and communications consulting was up 15% for Q4, compared to only 2% for the year. The recent positive trends indicate that employers are ready to address employee benefits issues.

Mercer was awarded 25 new outsourcing contracts in 2010, which crossed the full service line-up of DC, DB, and health and welfare. One deal was for TRO (DB + DC) and four were for TBO (DB/DC and H&W). FOX Entertainment and Halliburton will be new global services clients. In 2009, Mercer also signed 25 new contracts. The key difference between the past two years is the number of participants added. In 2009, it was ~400k and in 2010 it doubled to ~800k. In addition, renewals are exceeding expectations, which together with the new clients should up the ante on outsourcing revenue growth for 2011. This is all good, but the real magic in having a balanced portfolio of services is if you can cross leverage each component to strengthen the whole.

The added advantage for Mercer, its ace in the hole, may be its capability to coordinate and collaborate across service lines on behalf of its clients. For example, it is seeing an uptick with bundling consulting and outsourcing services because of the close relationship. Escalating health care costs and compliance complexity (even with the U.S. health care reform wild card) continue to attract joint consulting and service opportunities, especially for the mid-market where the new business pipeline is filling nicely. Areas under cost pressure that can bring hard dollar savings, like total absence management and wellness initiatives, should also be places to double down for growth.

Mercer’s clients have a single relationship manager, no matter how many services and locations supported, who is measured on client satisfaction, not revenues. The same set of consistent performance elements and satisfaction with all areas touching the client are rolled up at the account level.

Mercer’s client focus is more than business strategy, it is cultural and structural. What’s your HRO ace in the hole?

Linda Merritt, Research Director, HRO, NelsonHall

RPO Growth Confirmed and Back on Track

Since my January 12 blog, All Signs a Go for RPO to Grow, I think it’s safe to say we are back on track with many providers stating that volumes are back to pre-recession levels.  Vendors including Kelly, SFN, Manpower, SeatonCorp, Kenexa, and Hays all reported double-digit total company revenues for the quarter ending December 31, 2010 (Talent2 were for the six months ending December 31, 2010).  RPO revenues were not reported separately, but several vendors were able to share that RPO revenues grew 50% – 70%.

That’s certainly terrific evidence that hiring volumes from existing clients has increased and that many new RPO clients were added in 2010 by all the vendors.  In Q4 announced RPO contracts included:

• Manpower’s global contract with Rio Tinto
• Hays’ contract with American Express in Europe
• Futurestep’s global contract by Cummins, Inc.
• The Talent2 and Allegis Services Group Alliance global contract with an unnamed financial services company
• PeopleScout’s contract extension by Waste Management in the U.S.
• Alexander Mann Solutions’ contract with Santander in the U.K.

For evidence of an increase in demand for job movement and hiring, I point to SFN’s Employee Confidence Index, which showed the highest employee confidence in nearly a year.  Also, four in ten workers stated that they are likely to look for a new job in the next 12 months.

What do I think?  Having recently completed twenty-seven interviews for my next global RPO market analysis (to be released within the next few weeks), I can say that 2011 will be another strong year of growth for the RPO industry.  It will be tough, but not impossible, to outdo 2010.  The report will include a revenue forecast by geography among numerous other data.

I’m bullish for several reasons including the need for scalability, and I also think a new phenomenon, expected a few years ago, will finally begin to occur in the latter part of 2011 and will ramp up over the next few years.  Baby boomers will finally begin to retire as 401(k) plans have been nicely recovering to pre-recession levels, which will increase their confidence and financial security.  This will create a huge shortage of talent in the workforce.  Employers should be wise to make sure they are doing succession planning and preparing for how they will do knowledge transfer before employees leave. This provides a great opening for staffing assistance and for all the ancillary services around workforce planning and talent management. The opportunity is coming for RPO to move up the value chain from an operational resource for staffing and recruiting to a strategic consulting partner in global talent management.

Gary Bragar, Lead HRO Analyst, NelsonHall

ADP Sets a Steady Course For Continued Growth

ADP announced fiscal Q2 2011 Employer Services revenues of $1,663m, up 7% year-over-year.  PEO Services came in at $358m, up 15%.

Payroll and tax filing revenues were flat primarily because certain end-of-year service billings fell into January.  U.S. beyond payroll revenues increased 16% with the help of recent acquisitions and growth across tax services, T&L services, benefits administration, BPO, and HR services.

Pretax margins for Employer Services declined 80 basis points for the quarter due to planned higher selling expenses, investments in sales and service headcount, and recent acquisition activity.

For the second quarter in a row, ADP increased its 2011 forecast.  Employer Services revenue growth is now expected to be 5%, up from 4%.  Including acquisitions, Employer Services revenue is expected to be 6% to 7%, up from 5%.  With a solid pipeline, increased sales force, and its own unique payroll window into economic recovery, ADP is confident in achieving higher results than the original forecast of 1% to 3% revenue growth.

In a sign of general business health, ADP has seen an uptick in clients funding wage increases and paying bonuses.  Its U.S. clients increased employee payrolls by 2.4%, the single largest quarterly increase since 2007.  Also, the ADP large client segment is finally seeing growth in employee payrolls.  While Europe is not adding employees back yet, the rate of decline is slowing.

Employer Services completed two acquisitions during the quarter, including MasterTax for approximately $10m and Byte Software, the largest payroll and HR products and services provider in Italy, for c. $60m.  ADP was already the second largest provider in Italy and now it will be solid in the top position.

The quarterly earnings call was handled from Barcelona, Spain where senior ADP leaders were hosting their annual Global View conference for more than 100 clients.  This is a great opportunity to listen and learn about client HR service needs and gain business insight into the large multinational market.  This was especially important for Global View which represents a major investment for ADP.  Even with growth on track and a solid pipeline, the platform is not expected to breakeven until fiscal year 2013.

In February, ADP’s RUN mobile payroll app, which is already available for the iPhone, will be released for other Smartphone platforms.  Watch for ADP to roll out more HR mobile apps with increased functionality later this year.

ADP knows its business and understands how each aspect is linked to growth and margins and it continues to confidently execute on its long-term strategy of balanced organic growth and expansion through acquisitions.  Steady as she goes – forward.

Linda Merritt, Research Director, HRO, NelsonHall