Posted tagged ‘health and welfare outsourcing’

The Evolution of TBO Deals: Part I

March 5, 2012

I am deep into research for the next NelsonHall Targeting Benefits Administration market analysis, and I noticed that like multi-process HR outsourcing (MPHRO), total benefits outsourcing (TBO) often stems from a desire to consolidate the number of service providers. The benefits of MPHRO are realized mostly by client employers with self-service convenience provided for the employees. The benefits of TBO extend beyond the client employer to its employees and retirees who get an enhanced participant experience from the services being integrated, which not only offers convenience and ease of use but may also increase the value of the offered benefits to the individual participants. 

While the drivers and benefits of TBO are often similar with clients, how TBO deals have come into existence have greatly varied.  The four different methods we’ll further discuss include:

  • The traditional big bang approach
  • The big bang approach version 2.0 (i.e., converting existing consulting clients)
  • The mass consolidation approach
  • The step-up approach.

The traditional big bang approach: This is the oldest method in existence and is quite recognizable in the market, especially with large multi-nationals. It doesn’t happen often, but it definitely creates a big bang when a large employer outsources defined benefit, defined contribution, and health and welfare program administration for the first time—with all going to one service provider!

The big bang approach version 2.0: The big bang approach version 2.0 differs from the traditional approach in that the client and service provider already have a pre-existing relationship, typically on the consulting side.  Also, the client may or may not already be outsourcing some benefits administration services to perhaps test the waters, but the majority of services remain in-house.

The mass consolidation approach: In this approach, the client has already outsourced all benefits administration services to a variety of service providers and is now seeking one vendor to manage all services. Consolidation is sometimes done by a larger vendor management strategy but is often triggered by mergers and acquisitions (M&A). Client M&A activity is a real two-edged sword for all suppliers including TBO providers. Even if separate benefit vendors are initially kept in place, the danger zone remains open for years—especially during times of contract renewal.

The step-up approach: The step-up approach is the newest method and is exactly as the name implies.  It is where clients begin using a particular service provider for one benefits administration service and then, based on performance and satisfaction, add other services accordingly.

Later this week, we’ll take a look at examples of each type of TBO deal.

 Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

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First Year+ Strong for ACS, a Xerox Company

September 9, 2011

With a year and a half passing since Xerox acquired ACS, Xerox has appropriately defined its new tagline: “Services-Led, Technology-Driven” with revenues roughly split equally between its Services segment and its Technology segment. Of Xerox Services, BPO is leading, accounting for 55% of revenues. The remainder of its Services revenue is ITO (12%) and DO (32%).

Within BPO, its four segments are HR, F&A, customer care, and transaction processing. Focusing on HR specifically, ACS is doing well according to information shared at yesterday’s Industry Analyst Meeting in NYC.  In total, the company has secured 44 HR services deals in the past 18 months.  Its first HRO deal since the acquisition was closed was a 5 year H&W services contract with P&G in March 2010.  

Some recent HRO highlights include signing a long-term TBO contract with a wireless telecommunications company, winning its largest ever learning services contract with a pharmaceutical company, and leveraging the ACS and Xerox relationship to win a multi-process HR outsourcing (MPHRO) contract from a competitor. 

Serving more than 11m employees and retirees worldwide, the company is focused on “consumer-driven solutions” or viewing the client employee as the end-consumer.  Part of this initiative includes its client collaboration group, FutureThink, which began piloting last year and has recently expanded. 

Its plans for geographic expansion are ripening.  The company has made great progress with its first target, Europe, with revenues increasing 10% and pipeline growth up more than 100%.  Approximately 90% of this pipeline improvement is the result of Xerox synergy.  Another positive is a recent MPHRO win from this region. 

Aside from Europe, ACS is targeting Latin America, specifically Brazil and Mexico, and Asia.  In Latin America, the company has a good market presence due to its acquisition of ExcellerateHRO last year. 

Additional acquisitions and partnerships can’t be ruled out either, especially for building out service capabilities.  Finally, to support all this growth, ACS has made investments in CRM, expanding its India and Malaysia centers.

Eighteen months since the acquisition has closed, Xerox has demonstrated a successful integration of ACS and signs are pointing to a positive future for HR services.

Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

The Benefits Administration Complex

November 30, 2010

One of the emerging trends identified in NelsonHall’s 2010 “Targeting Benefits Administration” market analysis is the pending globalization of benefits administration and health management programs. While provided benefits vary by culture and country mandates, total benefits costs are of concern to every employer.

Global payroll and the integrated employee data it can facilitate has been a theme for a while now in HRO and payroll outsourcing. Total labor cost has many elements, and benefits, wages and salaries are the biggest drivers of on-role employee expense. Once the tools are in place to establish today’s workforce status, the next challenge is to better manage the investment and prepare for tomorrow’s needs.

For example, balancing total relative compensation equity and a locally compelling employee value proposition requires extensive internal and external data, as well as depth of knowledge in changing regional workforce trends and issues. An HRO service provider that supports integrated global employee data, enhanced reporting and analytics with up-to-date sources of in-country and regional knowledge can be a value added strategic partner for internal HR operations. 

Health care costs are continuing to rise, and premiums are expected to be up 14 percent this year in the U.S. Use of consumer-driven health care programs is still growing, and increases the need for effective communications, decision support tools and flexible spend accounts. Also, look for the use of flexible benefits plans to increase as employers adapt to not only global but also multi-generational diverse workforces.

Even when employees are in a country where the employer does not directly fund health care coverage, labor costs are driven up through expenses related to paid absences as well as through the additional staffing or contingent workers needed to maintain coverage. A disruptive amount of absences can lead to increased turnover and decreased customer satisfaction and financial results.

As I have mentioned in prior blogs, health in general is a growing employer concern. We are seeing more proactive programs that cross from managing health expense for insurance and illness into employee wellness and workforce productivity. The opportunity this represents is huge, but not without risk for employers and service providers.

All of the points above, and more in the full report, demonstrate the increasing complexity of even basic benefits administration. There is going to be less and less room for plain old operational benefits administration that is little more than automation of paperwork and record keeping.

Buyers, look beyond operational cost, as important as that is, and select a service provider that can also offer true total benefits outsourcing. HRO and benefits providers, have you made the investments, expanded your geographic footprint and service offerings, and fully tapped the knowledge sources of your employee and supplier networks to become the partner of choice in the new world of the benefits administration complex?

Linda Merritt, Research Director, HRO, NelsonHall

The Changing World of Benefits Administration Outsourcing

November 17, 2010

I am pleased to report that NelsonHall recently published its “Targeting Benefits Administration” market analysis, and that it is chock-full of valuable findings on where this market segment is and is going over the next several years. To begin with, we expect a moderate growth rate of 4.8 percent for overall benefits administration through 2014. The Health & Welfare (H&W) segment, which covers H&W administration, reimbursement accounts, leave of absence and COBRA/HIPPA administration, remains the most dynamic part of the benefits administration outsourcing market, and will continue to bring the most opportunity for growth at a robust rate of 11.6 percent.

Total retirement outsourcing (TRO) is currently the largest portion of the benefits administration market at 67 percent. But that share will decline to 54 percent by 2014 as H&W’s share increases from 31 percent to 43 percent. With its maturity, the continued decline in defined benefits plans and economic pressures on defined contribution plans, the opportunities for growth in TRO will be hard to come by.

On the other hand, many of the major benefits administrators are also major benefits consultants, and the opportunities for consulting will offer more growth. Plan sponsors still need to reduce administration costs and provide a quality employee experience, and it is likely that more plans will close. Combined with the activity driven by the boomer generation moving through the retirement process, this should lead to improvement projects that help offset the lower covered participant populations.

Investment consulting is another growth area for plan sponsors and participants. In the U.S., regulations have changed to allow both greater information provision and automatic enrollment. Hewitt (now Aon Hewitt) is capitalizing on this trend through its acquisition of EnnisKnupp to add to its investment advisory services, and Mercer is partnering with Robert Powell to increase financial analysis and retirement advice.

The high rate of M&A activity in 2010 was largely about growing H&W capabilities through acquisition and partnership. Consumer directed benefit capabilities, wellness, advocacy, dependent audits, retiree health care services, absence management and flexible spend accounts were all subjects of acquisitions and partnerships this year.

With the highest growth rate, expect continued H&W activity into 2011. ADP’s CEO, Gary Butler, was quite open during its recent 3Q 2010 earnings call that the company is assessing further movement into the health care arena, even as its integration of Workscape is underway. Given that H&W continues to be one of the hottest areas of NelsonHall client inquiries, I am sure it is not the only HRO service provider considering further expansion plans in this area.

Some of the drivers for benefits administration outsourcing have been reprioritized and new concerns added, reflecting the continued slow and uncertain recovery amidst ever escalating health care costs. While the number one driver, reduce operating costs, has not changed, new is access to quick ROI-related results, which has really opened up the market for point solutions like dependent audits and leave administration. Jumping up in priority is help in navigating the complexities and requirements of regulatory compliance and changing legislation.

Look for more on the changing world of benefits administration outsourcing in upcoming HRO Insights blogs.

Linda Merritt, Research Director, HRO, NelsonHall

Don’t Rain on My HRO Parade

September 21, 2010

The HRO community deserves a break, and the latest NelsonHall HR Outsourcing Confidence Index is here to deliver with lots of good news. Strike up the band and let’s have a virtual HRO parade!

To gauge HRO confidence, we use a scale in which 100 equals no change and 200 means all participants are highly confident. Compared to the dearth of optimism at 115 in Q2 2009, the 3Q 2010 HRO Confidence Index is at a high of 168. HRO vendors stating they are much more confident in their HR outsourcing business increased from a dismal 10 percent to a buoyant 41 percent.

We have been reporting for some time that pipelines are filling and looking better, and that continues. And yet, providers’ financial results have not yet shown a logjam break in frozen decision-making and willingness to commit in many HRO service lines.

On the other hand, this quarter we finally see an upswing in contract value growth. In fact, we have a triple play of good news underway! HRO service providers are reporting increases in:

  1. New contract activity
  2. Scope expansion with existing clients
  3. Volume in existing contracts

New contract activity is now outpacing increasing scope with existing clients. New deals signed, given the lag time before revenues flow, will take a while to show up in results. Volumes beginning to pick-up with existing clients will show up sooner in results, especially if vendors can gear up to increasing activity levels quickly and efficiently.

RPO and payroll continue to lead the parade to revenue growth recovery, with multi-process HRO also improving. While learning has been slow, its current 3.5 ranking in NelsonHall’s 3Q 2010 HRO Confidence Index indicates a much brighter outlook as compared to its score of 2.8 in Q4 2009.(Note that we use a scale of 1 – 5, with 5 being a strong increase.) 

Benefits administration outsourcing revenue growth expectations have been stable for several quarters around 3.5, but the outlook for pipeline growth is lower for benefits administration outsourcing than other HRO areas. Expected increases in health and welfare consulting should lead longer term to opportunities, but vendors are not seeing it yet. There may be short term distraction caused by the spate of mergers and alliances this year. ADP recently reported the successful acquisition of Workscape, now an ADP company, and Aon announced the leadership slate for the soon to be Aon Hewitt team.

Global delivery remains a factor in HRO growth in two ways. First, multi-country contracts, at 34 percent of deals, continue as organizations seek to standardize payroll and other HR processes. Also, acceptance of multi-shoring HRO continues. Onshore HRO delivery is still in the lead at 71 percent, but nearshore and offshore delivery are now 29 percent of HRO contract values.

People have parades for many reasons including celebration, commemoration and optimism. Our virtual parade is for optimism with a tad of celebration thrown in. Let’s save the full celebration parade for when the earnings results match the current high level of optimism.  Hmm, when and where do you think we should have a real HRO community parade?

Linda Merritt, Research Director, HRO, NelsonHall

Online Chat Usage Increasing in HR Outsourcing

August 12, 2010

Picture this: You need to ask your bank a question. After navigating through its website unable to find the needed information and then trying to determine what you think is the correct toll-free phone number to dial, the fear sets in. Will I get lost forever in an IVR queue? Will I be on hold for an interminable period of time? Will I finally reach a live person only to be transferred and put on hold…again and again? We’ve all faced this, and it’s not pretty. But recently, after spending way too much time searching for the information I needed from my bank, I had a great experience getting an actual answer – yes, it’s true! – via its live online chat feature. After I clicked the button, the online agent greeted me in less than a minute, and within three minutes I had the information I needed, including follow up questions I had.

Granted, a key component of HRO providers’ core expertise is top-notch customer service via both websites and call centers. But what if there was another, alternative method for gaining desired information? Enter a Mercer news release issued earlier this week which carried the headline, “Mercer reports significant increase in online chat usage.” The announcement stated that use of its online chat capabilities has increased 55 percent since it piloted the offering with two clients in the beginning of 2009. 11 clients are now making the service available to their employees, and a number of clients plan to roll out the capability later this year. And usage by employees of the two pilot clients has upticked by 48 percent and 10 percent, respectively, in usage volume between 1H09 and 1H10.

Such a large increase in number of online chat sessions clearly indicates desire and demand for this type of communication – whether it be for questions on defined contribution plans, defined benefits plans or virtually any outsourced HR process. One of the reasons we’re seeing this surge is that live chat marries online ease and personal touch.

My advice to HRO providers considering adding live chat capabilities to their offerings portfolios – and I know of several that are currently evaluating the possibility – is that customer support must be absolutely world-class, employee satisfaction-focused. Within seconds responses, kept-to promises of when the answer will be delivered to the employee if it’s not immediately available, highly knowledgeable and skilled reps – not only in policies and programs, but also in quelling concerns…all of these are critical to ensuring the success of online chat. Fail in any of these areas and you’ll not only have an unsuccessful offering, you’ll have those who experienced a poor interaction blogging and tweeting about it. They will…you can be certain of it. These are tech-comfortable individuals who will have no qualms – or technological challenges – in doing so. Be prepared, start with a pilot, learn from the pilot and you may have a winning service offering for you, your clients and their employees.

Care to share your online chat experience?

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall