Highlights and Trends in the HRO Market for H1 2013: Part 1

Amy L. Gurchensky, HRO Research Analyst, NelsonHall

It’s hard to believe that H1 2013 is complete, which makes it an ideal time to recap highlights and trends from the HRO world this year.

Overall Activity

There was a healthy number of new contracts awarded across all HRO service lines in H1 2013. In addition, renewals and contract extensions signed were consistent with H1 2012. There was, however, an increase in activity with organizations changing their existing service provider, particularly within benefits administration and RPO.

For the last few years, attention has been on the mid-market (500-10k employees), among other things, as an area for growth within HRO. Quarter-over-quarter, mid-market activity has made strides relative to the large market. In fact, in H1 2013, the majority of activity reported was from the mid-market.

Beyond HRO, the number of HR software contracts signed globally was up substantially compared to H1 2012. For example, in the U.S., ADP was awarded a contract for its Vantage HCM platform, including HR, payroll, benefits and onboarding modules, by The Paradies Shops covering 4k employees. In the U.K., Ceridian gained traction with its automatic enrollment module with Asda for 175k employees and WH Smith for 16k employees.

Payroll

Despite being a mature service line, payroll outsourcing does not disappoint. The biggest news reported in H1 2013 would have to be ADP’s acquisition of Payroll S.A., which will expand its LATAM payroll capabilities to Chile, Argentina and Peru. ADP already had in-country services in Brazil, and had capabilities through GlobalView and Streamline to serve multinationals in other LATAM countries.

Other news within payroll includes Acrede opening an office in Singapore to expand its global payroll reach into Asia-Pacific. Growth opportunities in the region include Japan and South Asia-Pacific.

RPO

The RPO market continues to be a hot one to watch. Contracts were awarded in various countries, including the U.S., U.K. and China, and ~20% of contract activity in H1 2013 was from multi-country deals.

The level of M&A activity was consistent with H1 2012, but the level of RPO partnerships has dwindled. Nevertheless, RPO vendors were busy expanding service offerings and delivery capabilities, and launching new websites. Some examples include:

• Randstad Sourceright launching an RPO integrated assessment program
• Manpower U.S. launching a multi-channel delivery model
• Ochre House launching a COE to drive innovation
• Randstad Sourceright opening a shared services center in Budapest
• Hays launching a new mobile website
• AMN Healthcare launching a redesigned website.

Although technically within H2, it is timely to mention the Pinstripe and Ochre House merger.

Learning

After a rather long lull, the learning BPO market has shown many signs of improvement. New contracts include Raytheon and GM Korea for content development and training administration services, and delivery of sales and non-technical training.

GP continued its acquisition frenzy focused on strengthening and expanding its geographic footprint with Prospero Learning Solutions (Canada) and Lorien Engineering Solutions (U.K. and Poland). Not to mention Capita’s acquisition of KnowledgePool.

Stay tuned next week for more highlights and trends from H1 2013 that are specific to benefits administration and MPHRO. I’ll also share some insights on what to expect in H2 2013 based on NelsonHall’s recent HRO Confidence Index survey.

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HRO Today Forum In Vogue

I found my attendance at last week’s HRO Today Forum to be very worthwhile. I presented my newly published research on the “State of the Learning BPO Marketplace,” including the emergence of social learning. While there, I took full advantage of attending many of the other sessions and meeting with several companies including: The Good Jobs, KellyOCG, Pinstripe, Randstad Sourceright, Kenexa, Aon Hewitt, Raytheon Professional Services, NorthgateArinso, Seven Step Recruitment, and Hays. Here are some of the highlights from the forum.

The Good Jobs: The Good Jobs is an online service that allows job seekers and employers an innovative way to find each other. Employers not only advertise job opportunities, but also their employment brand, culture, and corporate values to candidates. Job seekers can identify their life and work style priorities, and target those employers who meet their needs. Matching talent desired to employer desired will lead to employee engagement and retention in addition to business results, including increased productivity and lower cost by reduced attrition. No surprise The Good Jobs won the iTalent competition.

Where do Jobs Come From Panel: This panel was led by Prudential HR SVP Sharon Taylor and included Brink Lindsey from the Kauffman Foundation; Scott Case, CEO of Startup America; and John Haltiwanger from the University of Maryland. A few interesting data points from this session included the following:

• 90% of companies are small, but 65% of employees work for large companies
• 2003 – 2007 saw high job growth averaging 200,000 hires per month but it was not as strong as the 1990s
• From ~1977 – 2003, there were only 5 years that job growth exceeded layoffs for non-start-up companies, i.e. a net creation in jobs
• I missed the time period, but the point was that more jobs have been created in startups (3.5m) vs. established private sector companies (2.5m)
• The fastest growing businesses are also the most profitable.

Is Outsourcing Good for America Debate: Interesting points from the pro side included:

• 90% of outsourcing serves companies outside of the U.S.
• 95% of world consumers are outside of the U.S.
• 90% of what is made abroad gets sold abroad
• Foreign companies invest more in the U.S. (e.g. Honda, Nissan, BMW) than the U.S. invests abroad (it’s a 2 way street)
• The U.S. tax rate is one of the highest in the world adding to why some companies shift a portion of their business and jobs offshore.

Congratulations to all Bakers Dozen MSP winners led by Randstad Sourceright, Staff Management, Allegis Group Services, Adecco Solutions Group, The Bartech Group, Guidant Group, Advantage xPO, KellyOCG, Hyphen, Agile 1, Yoh, Hays Plc, and WorkforceLogic.

Congratulations to HRO Award recipients including providers NorthgateArinso, Pinstripe, Aon Hewitt, KellyOCG, and Evolv, Inc.; provider executives Cynthia Crose of IBM and Mike Ettling of NorthgateArinso; and buyer executive Chris Payton of Bank of America.

Gary Bragar, HRO Research Director, NelsonHall

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What are the Top Global Skill Shortages?

Even when the U.S. unemployment rate was over 10%, we’ve heard that the unemployment of skilled workers with college degrees remained low at ~4-5%, and we’ve read data on just how bad the skill shortage is, including ManpowerGroup’s findings that 52% of U.S. companies are struggling to fill key jobs. We’ve also heard from me as an analyst (and former HRO buy-side client), pointing to the fact that development and retention of talent are more paramount than ever. But not as much has been written about what are the top global skill shortages. Well not until last week when U.K.-based global recruitment and RPO provider Hays issued a good concise summary of the top ten global skill shortages.

The list divides the skills by soft skills and hard skills that are in shortage globally.

Soft Skills

• Languages
• People and communication
• Team management and leadership
• Organization.

Hard Skills

• Financial and budgetary
• IT
• Green skills
• Procurement and negotiation
• Research and development
• Healthcare.

Beyond being good for job candidates and employees to know the skills they need to focus on; employers need to do a better job of investing in their workforce to develop and retain the talent that they already have. In fact, employees are looking for that. Mercer’s newly released eBook, “What’s Working Around the World”, points to the fact that career advancement and training opportunities are among the top priorities of the employee value proposition in many countries and are needed to address low levels of employee engagement.

As I get ready to publish my next global learning BPO report, I am optimistic to hear that talent management focus is no longer just a desired priority but is now a business imperative. Clients are increasingly focused on learning linked to talent management, including the linkage of learning to performance management and developmental plans. To meet client needs to attract, develop, and retain talent, vendors have been developing their talent management capability. This includes MPHRO vendors such as Xerox, Aon Hewitt, Talent2, IBM, and Accenture, whose talent management offering includes workforce forecasting and analytics, recruitment, performance management, succession planning, and learning.

In the report, I also wrote about the advent of social learning. For now, I’ll just say that speed to competence, followed by how the new generation of employees that are entering the workforce wants to learn, as well as the need for improved talent management, are what’s driving the acceleration of social learning.

If you are not already following me on Twitter, please do so at @GaryB_NH as I will tweet when the LBPO report is published. I’m targeting the 30^th of April, in time for my presentation at the HRO Today Forum on May 1^st titled State of the Learning BPO Marketplace and the Emergence of Social Learning.

Gary Bragar, HRO Research Director, 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.

Insourcing American Jobs – The Risk and Opportunity for HRO

Offshoring is once again under the harsh glare of the polarized political spotlight in a presidential election year. As my NelsonHall HRO colleague Gary Bragar commented in his blog, President Obama is increasing focus on job creation including encouraging employers to insource jobs back to the U.S. This may cast a shadow of negative publicity on outsourcing that includes offshoring, but I predict the issue poses only minimal direct threat to HRO. In fact, I see increased opportunity for savvy HRO service leaders.

In listening to the President’s remarks and reading the insourcing and investment fact sheet issued by the White House, it is clear that manufacturing jobs are the primary target.

The U.S. lost millions of manufacturing jobs and in some cases almost entire industries, as companies pursued ways to remain competitive with lower-priced global competitors. Lower wages and benefits were a key part of the equation, but there were other factors including regulations, taxation policies, and the low cost of transportation in what was still a bountiful world of low-cost oil.

Offshoring dynamics are changing, especially for manufacturing. The time delay inherent in moving products around the world now creates challenges in meeting the rapidly changing market preferences and shortened product lifecycles of a connected world. With increased competition for limited energy supplies from the emerging economies, the cost of transportation has become a significant factor. Add in moderately decreasing wage gaps and we can see why companies will be able to insource some jobs. Others will be able to create more jobs in the U.S., much like Honda, Toyota, and Mercedes Benz have been doing for years.

HRO as an industry is already a blend of onshore, nearshore, and offshore technologies and workforces. A mix of right-shoring talent and technology helps vendors meet client needs for cost, service, and value. With time and transportation being minor factors in HRO or other BPO, talent remains a primary driver.

Access to pools of affordable skilled talent is an increasingly important element in the growth of all businesses, whether small or large, local or multinational. Who has access to comprehensive data on workforces around the world including costs, turnover, and availability? Who can see trends emerging on skilled labor capabilities and capacity shortages? Who has direct experience in building and maintaining global workforces both for clients and for themselves? HRO service providers!

Think about it, in our HRO community are the likes of Accenture and IBM, growing globalists like ADP and NorthgateArinso, modern tech heavyweights like Infosys and TCS, global research and analysis specialists like Aon Hewitt and Mercer, and RPO leaders such as Alexander Mann, Hays, and Manpower, we even have learning leaders that can handle rocket science like Raytheon RPS.

We need to have a large enough vision for what we can become as an HRO community. There is so much already that we can leverage. Be confident in our value and let our light shine bright!

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.

From Public to Private – RPO Can Help – Part 2

Last week, I discussed the importance of identifying skill gaps needed and eluded that there was more to the story.  Have you considered what else is important?

Matching talent to available positions is just half of it.  It’s also important to let prospective candidates know about you and what it would be like to work for you.  This is where employer branding comes in.

Although employer branding is an emerging service, some providers such as Hays have been helping its clients with this for quite some time.  For example, Hays has a 3-year contract with Santander for end-to-end RPO services including employer branding for all Santander U.K. retail locations. Contracts are also beginning to be awarded specifically for employment branding.  For example, Alexander Mann Solutions was awarded a contract earlier this year for employment branding and recruitment advertising by U.K.-based E.ON.

Other services that RPO vendors can provide to help with the transition include:

• Outplacement services that include career workshops
• Robust onboarding and retention services such as Ochre House’s “Keep in Touch Program.”

The services that RPO vendors can provide are indeed important.  Manpower recently issued its 6^th annual Talent Shortage Survey with its findings that a third of employers worldwide can’t find qualified talent despite the over-supply of available workers.

RPO service providers who track and understand the market for talent on a multi-country basis will have the opportunity for an expansion of services into workforce strategic planning and workforce management based on the availability of key skills and capabilities in mature and emerging markets. By leveraging its base of recruiting and staffing expertise and global data, RPO can move into a linchpin position in the talent management supply chain linking learning, career development, mobility, and contingent labor.

RPO vendors are needed more now than ever, and the opportunities for RPO provider growth are as great as the world around us.

Gary Bragar, Lead HRO Analyst, NelsonHall

From Public to Private – RPO Can Help – Part 1

According to data from the Office for National Statistics in the U.K., in 2010, public sector employment fell by 132,000 jobs with local government accounting for the largest proportion at 66,000.  In Q4 2010 alone, 45,000 public sector jobs were lost, including 24,000 in local government, 9,000 in central government, and 8,000 in Civil Service.

It is estimated that an additional 330,000 jobs will be lost in the public sector over the next four years.  While this is, of course, not good news, especially for those workers directly impacted, employment in the private sector increased by 77,000 jobs in Q4 2010.  Thus, the article last week by Hays is timely in that more needs to be done to support workers who are transitioning from the public sector to the private sector.

Hays and the London Chamber of Commerce and Industry (LCCI) partnered to publish a report called “The challenges of transition: from public to private.” Public and private sector employers were interviewed and in the report the LCCI and Hays identified six important steps to ensure successful transition including:

1. Encourage better understanding – Coaching, mentoring, and peer-support schemes for public sector workers prior to, during, and after transition to the private sector should be encouraged. These would increase the retention of new employees and also enable the private sector to identify the skills available in the public sector.
2. Incentivize the private sector – The government should subsidize recruitment and training costs for private sector employers who hire public sector employees. One option would be to adapt the Redundancy Action Scheme in Wales, which gives employers a contribution to salaries and training if they hire someone who has been made redundant.
3. Identify regional skill gaps – Local enterprise partnerships and recruiters should work with trade associations and professional membership bodies to identify the skill shortages that will be created by future job vacancies and look at how former public employees can fill those gaps.
4. Review on-boarding procedures – Private sector employers should review their onboarding (induction programs for new employees) in anticipation of recruiting people from the public sector to ensure successful transitions.
5. Enhance existing support programs – Public sector employers should be more proactive in their support for workers facing the prospect of redundancy with practical job-seeking and career planning programs specifically designed to equip them for the private sector.
6. Promote self-reliance and resourcefulness – Public sector workers should be encouraged to work with recruiting experts who understand both the private and public sector and can provide free advice on CVs, job applications, and interviews.

Public sector employees have many skills that are needed in the private sector.  However, to shift such a large proportion of workers will require specialist help.  That is where RPO providers come in. Although the loss of jobs in the public sector is more of a current U.K. phenomenon, RPO providers can help in several ways in all regions.  In NelsonHall’s recently published RPO market analysis report, the following trends are occurring:

• Clients are seeking vendors that can help with their talent strategy and workforce planning. For example, vendors such as Hays provide workforce planning as part of their service offering and have seen an increase in the use of this service during the economic recovery.  Other vendors in the U.K. providing this are Ochre House in its contract with SAS and Carlisle Managed Solutions in its contract with Luton Borough Council.  In the U.S., Adecco’s recent RPO contract with SI includes employment branding, research, and talent market mapping.
• Clients are looking for vendors that can provide consulting services around workforce planning, such as Fosters did in its contract with Futurestep, which includes hiring for positions in the U.K.  Part of the vendor selection criteria included the ability to provide value-added services beyond recruitment, including workforce planning.

But, there’s more to the story than just identifying skill gaps.  Take the weekend to think about it and we’ll pick this up again.

To be continued.

Gary Bragar, Lead HRO Analyst, 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

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

Earnings Reports Point to Global RPO Growth

In confirmation of NelsonHall’s past several quarterly HRO Confidence Indexes, this season’s earnings reports demonstrate that RPO is continuing to make a nice comeback compared to a year ago. For example, SeatonCorp’s PeopleScout RPO business reported 88 percent year on year revenue growth, with its best quarter ever (11 new contracts), Manpower total company achieved 19 percent growth and 24 percent in constant currency, and Hays total company reported 21 percent growth in net fees and 18 percent in constant currency.

From this representative sampling of RPO providers’ reported quarterly earnings, not too shoddy from the doldrums of a year ago. And the additional good news is that this growth is global. Looking at different world regions:

In the U.S.

90 percent of PeopleScout’s revenue came from North America, including RPO contracts with United Road and Chicago Career Tech. And Manpower grew its revenues by 84 percent in the U.S., in part due to an RPO contract with AIR-serv.

In Asia Pacific

Manpower increased its revenues in this region by 30 percent, led by Australia with 80 percent growth, and Hays increased net fees by 59 percent, with Australia and New Zealand permanent placement net fee growth up 60 percent, and Asia up 76 percent.

In Continental Europe

Hays and Manpower both experienced strong growth in several countries, including Germany, as Continental Europe’s economy has started to demonstrate signs of recovery.

In The Americas (outside the U.S.)

Manpower achieved growth of 31 percent in Mexico and 33 percent in Argentina, and Hays grew revenue by 35 percent in Brazil.

It’s important to note here that this increased hiring is not just patchwork quilting to plug short-term gaps. For example, Manpower reported that permanent recruitment was up across all regions, and Hays’ growth by segment was 34 percent permanent and 12 percent temporary.

So why the increase in hiring and use of RPO? Buy-side companies around the world are again acknowledging that it is not enough to improve earnings results by cost cutting, but rather that they must grow top line revenue and increase sales. As a result, they are beginning to reinvest in and grow their businesses, and thus are again facing the build versus buy dilemma when it comes to the recruiting process. But having lived through two drastic economic downturns in just this decade alone, many companies are recognizing the value of leveraging the expertise, scale and technological capabilities of third-party recruiting organizations, rather than rebuilding their internal recruiting departments only to potentially need to downsize them again someday. 

NelsonHall is initiating its third global RPO study of leading providers next month. When the results are in, I’ll share deep dive insights on how recruitment services are evolving and what lies ahead.

Gary Bragar, Lead HRO Analyst, NelsonHall

RPO, MSP and Continent Labor Contracts Gaining Ground

In my April 16 blog “An RPO and MSP Combo: the Best of Both Worlds,” I wrote about the value of workforce solutions that are rooted in both RPO and Managed Service Provider (MSP) services to meet the dynamic and evolving needs for both contingent and permanent employee hiring. We’re now seeing an increasing number of these types of contracts being inked, and some providers are partnering to gain the breadth of offerings needed to win to-be-awarded deals.

Recently awarded contracts include:

• SourceRight Solutions’ – originally an RPO provider – multi-year deal with Siemens for provision of contingent labor procurement programs in the U.S.

• An MSP and RPO agreement between AMN Healthcare and Hendrick Medical Center

• Alexander Mann Solutions’ three-year recruitment, contingent workforce and employer branding contract in the U.K. with aerospace and defense engineering firm Cobham

Recent partnerships and M&As for the RPO/MSP combo include:

• The RightThing with ZeroChaos to provide contingent labor services alongside RPO. The RightThing, which was always considered a pureplay RPO provider, partnered with ZeroChaos to enable it to provide a broader range of recruitment solutions in today’s moving-target hiring marketplace

• AMN Healthcare acquiried Medfinders for its clinical workforce managed services program

• SourceRight Solutions and Hays, per their strategic alliance announced in 1Q10, launched WorldSource, a new service offering to manage and integrate global RPO and MSP programs. (And SourceRight Solutions also further expanded its own MSP offering)

The primary driver of escalating contract and partnership activity in this HRO segment is clear: as companies remain cautious due to continued low consumer confidence and ongoing market uncertainty, they are hiring more temporary employees and utilizing more contingent workforces than on-boarding new full-time hires. And let’s not forget buyers’ increasing desire to keep their portfolio of service providers to a minimum, particularly when in the same service line.   

The bottom line is that vendors and buyers both win with the right workforce combination that best meets clients’ organizational objectives. I believe we will continue to see additional pureplay RPO specialists looking to partner to provide MSP and contingent workforce solutions to meet continued demand. And while contingent workforce solutions can be used in any industry, I believe the nature of seasonal demand and spikes in volumes will drive more of these types of contracts in healthcare, pharma, manufacturing, retail, technology and defense.

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall