HRO Déjà Vu

Linda Merritt, HRO Research Analyst, NelsonHall

Each quarter, we publish the NelsonHall HR Outsourcing Confidence Index (HROCI) for our clients and the participating service providers. I like to share some of the highlights in my blog, but it can be hard to make fresh insights during times when the results are stable from quarter to quarter. When the confidence ratings are generally strong, as they are, then stability is pretty good news for HRO service providers.

Overall Confidence Remains Stable

The most recent HROCI shows a vendor confidence level of 157 for Q1 2013, where 100 represents unchanged confidence and higher scores indicate increased confidence. That is in line with the 156 from Q4 2012 and a bit up from the 153 one year ago. Confidence dipped mid-2012 with Q2 at 138 and Q3 at 140, which was not too surprising given the political and economic uncertainty we saw last year:

• While the overall confidence score at 157 remains stable, those suppliers reporting slightly more or much more confidence increased 13% quarter over quarter
• Increased confidence is reflective of solid pipelines of potential new sales and expectations for growth.

Growth Expectations Vary

Service lines: HR business process outsourcing service lines do not grow at the same rate. Some services like RPO and payroll remain steady performers, followed closely by benefits administration. The pipeline for benefits administration is looking especially strong. Expectations for multi-process HRO and learning remain about the same, which indicates continued slow growth.

Geography: Location matters in HRO and the patterns of growth also vary by region. The economic recovery is uneven in pace, readiness for HRO is uneven, and multi-country deals are a smaller part of the mix than in the recent past.

Overall, vendor confidence by geography has weakened with many regions showing some decline in confidence. North America, Asia Pacific, and Latin America show the strongest numbers, but there can be significant variation country by country. As we have seen for some time, growth expectations for Europe and the Middle East remain dampened.

Industry: High-tech and retail look to be the optimistic growth industries with most sectors remaining within prior modest expectations for growth. Expectations remain low for federal government and defense.

Mostly Steady and Stable Ahead

It is good to see the balancing of demand for cost savings and process standardization continuing. Client pricing expectations may still be unrealistic as there are always those who want a quick 50% off along with some freebies thrown in at the same time.

One area to watch is the growing client interest in and adoption of platform-based services. Some buyers are specifying SaaS and cloud-based services in proposals. We need to help educate buyers on leaving some room for discovering the best solution fit for each client situation.

To end on a positive note, 79% of HRO suppliers believe that a net up-turn in decision-making is taking place. Let’s get out there and get those deals signed!

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ADP Meeting of the Minds 2013 – Another Success

Gary Bragar, HRO Research Director, NelsonHall

My second ADP Meeting of the Minds (MOTM) client event once again exceeded expectations. There were 170 sessions with tracks including HR BPO, talent management, benefits, payroll, time & labor management, and personal & professional development. The following highlights the opening session and one of the general sessions I attended.

Opening Keynote by Steve Wynn

It’s no surprise that Steve Wynn’s hotel has won awards as the best place to work. At Wynn, a great customer experience is achieved by interaction with your people (i.e., employees) as only they can make others happy. To achieve human aspiration and to best serve customers, self-esteem is most important. If you can enhance self-esteem, then a single employee interaction with one guest can change the history of the enterprise. Steve views the most important person in an organization as the next person you (i.e., a guest) encounters.

According to Steve, to achieve self-esteem you need to be recognized by your boss. One form of recognition is pre-shift meetings where the supervisor asks if there are any good stories of guest interactions. That employee then gets his / her picture taken, which gets hung on the walls including in the employee cafeteria, which then motivates other employees to provide an exceptional customer experience!  Several examples of how employees have gone above and beyond the call of duty to exceed guest expectations were also provided.

RPO

Terry Terhark, president of The RightThing and Neil Efron, account manager, presented with client Tom Osmond, managing director of talent at Goldman Sachs; Neil sits onsite with Goldman in NY. Terry began with an overview of what RPO is and then Tom spoke of their journey together. Goldman has $34.2bn in revenues with 34,200 employees. At the end of 2011, Goldman signed a contract with The RightThing that commenced in March 2012. In 2012, Goldman did 7,200 hires (2,500 experienced hires, 2,000 college hires, remainder were interns).

Key drivers that led to outsourcing included:

• Leverage a scalable infrastructure to better support highly variable recruiting volumes
• Engage with a single provider for global delivery
• Reduce costs associated with onsite staff
• Partner with an experienced provider knowledgeable of best practices
• Incorporate advanced recruiting and sourcing technology, e.g. in 2010 job boards and mobile recruiting were not used.

The contract began with support for North America experienced hires via the NY office. Support is provided both onsite in NY and centralized from The RightThing service center in Findlay, Ohio. Today, The RightThing also provides support to the London office including scheduling of interviews.

Initial services included interview scheduling, coordination of travel, and job offer management. ADP resources are also leveraged for Green Card processing. In October 2012, a sourcing solution was designed for recruitment of niche specialist positions, e.g. how to hire investment bankers, which was expanded in 2013.

From the client perspective, ADP has enabled a more flexible and efficient recruiting model with lower cost including reduced administration and time dealing with issues.

Emerging is the ability to expand globally including sourcing for EMEA and then into APAC. Further recruiting cost reduction is to be obtained by moving from ~50% offsite/onsite to 60% offsite resources in Findlay.

Summary

If you are an ADP client and have the opportunity to attend MOTM, I highly recommend it for your personal and professional development and you will have fun!

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HRO Will Drive Ahead in 2013

Linda Merritt, HRO Research Analyst, NelsonHall

With more organizations making the decision to use HR business process outsourcing services, even in the face of a still uncertain economic environment, the overall confidence of HR outsourcing suppliers in the market over the next 12-months is at its highest level in six quarters according to the latest NelsonHall HRO Confidence Index (HROCI).The HRO vendor confidence level is up 6% year-over-year reaching 155.5, where 100 represents unchanged confidence and higher scores indicate increased confidence.

Drivers Outweigh Inhibitors

The impact of the wider economy is strengthening the drivers for HR outsourcing which appear to be outweighing its impact on the associated inhibitors such as unrealistic pricing expectations and frozen decision-making. Currently, 89% of HR outsourcing suppliers believe that a net up-turn in HRO decision-making is taking place, with just 7% of suppliers perceiving that a net down-turn in HRO decision-making is taking place.

The top principal drivers for HR outsourcing include:

• Increased cost reduction
• Greater process consistency across business units and geographies
• Organizations looking for an increased transformational emphasis.

New private sector HRO deals typically remain limited in initial size, and significant growth opportunities continue to come from existing clients in the form of added scale or scope. In line with the “increased focus on cost reduction driven by the worsening economic climate,” organizations are finally showing an increased interest in evaluating outsourcing opportunities previously rejected.

Transformation Beyond Cost Arbitrage

The HROCI supports our 2013 trends with “a clear ‘transformation’ agenda” and a focus on value. Clients are looking to vendors to help them:

• Deliver a more empowered employee experience and access to learning using technology to administer, deliver, and share learning
• Manage business outcomes by driving higher employee engagement including a better end-user experience and continual “future-thinking”
• Achieve solid productivity and accelerate time to competency.

2013 Outlook

HRO vendor expectations for 2013 look best for payroll, then MPHRO which looks solid, followed by RPO, benefits administration, and then learning services. Multi-country deals for payroll and RPO will again be common with the average number of included countries around 20.  Of little surprise is that expectations for the government sector have slightly worsened, particularly for defense and state & local government.

Have You Listened

Another NelsonHall product of interest is the BPO Index which is supported by a quarterly conference call open to all who register.

According to the January Index, total BPO contract value was down significantly for 2012, especially in North America and Europe. The global economy and the U.S. fiscal cliff added to business growth uncertainty, which drove down industry-specific BPO the most.

At the same time, back-office BPO, which includes HRO, was up 25%, and HRO was up significantly year-over-year.

If you can lower total cost, improve performance, and increase business value, you can get an HRO deal!

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What’s New Again in HRO for 2013

Linda Merritt, HRO Research Analyst, NelsonHall

Even though predictions are a perennial New Year activity, the truth is that most trends play out over many years. Most HRO “predictions” are more like annual status checks and updates.

Transformation is new again

Several aspects of our old friend, HR transformation, are back on the table for 2013:

• Operations transformation: new, upgraded, standardized, and integrated HR tools, systems, and processes
• Strategic transformation: increases in overall HR performance that improve business performance
• Accelerated transformation: the cycle of transition, standardization, and improvement needs to move at a faster pace than ever; which provider can help you get where you want to go with a track record of getting there faster?

A return to transformation fits with our NelsonHall 2013 HRO trend of value balancing cost and pent up demand for improved operations.

Even with more client and vendor maturity this go-around, we need to ensure that strategic HR transformation goes hand-in-hand with the evolution of the retained staff, HR generalists, and service delivery operations. One can either leverage and empower the other or hold back real progress in both.

Evolution and the use of new HR technologies  

Rapid technology advancement continues across all HRO services and within in each service line, providing a great opportunity for HRO buyers and a challenge for HRO service providers.

• Easy access: mobility, bring-your-own-device, and cloud-based SaaS impacts every business including HR BPO. Increasingly, not only clients, but end users are expecting the same types of access and functionality from HR as they experience elsewhere.
  • HRO providers with modern platforms can bring these technologies to clients and their employees faster and at less overall cost
  • Service provider investments and the rapid pace of introduction add cost and stress to release cycles for services rapidly becoming table stakes which could pressure margins.
• Emerging technologies: social media and analytics are new transformation tools, potentially powerful ways to improve performance of HR services and produce business results.
  • RPO leads in integrating the use of social media in recruiting, which helps RPO become a value play in the war for talent. This is a win-win: improved recruiting for clients and fuel for growth for vendors
  • Leading vendors with an active client community including early adopters will be able to create and test new and effective ways to leverage the new technologies that then can be added to service offerings. Learning vendors are already experimenting with effectively incorporating social media and gamification
  • Investments in leading-edge technologies that have not yet found breakthrough acceptance require a long view of growth and profitability, a risk that not all service providers are willing or able to take on.

From the most basic cost-reducing transactions to advanced partnerships in HR transformation, the full and growing range of HRO services has something for every organization in 2013.

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Accenture and Unilever Renew Major MPHRO Contract for Five More Years

Linda Merritt, HRO Research Analyst, NelsonHall

Let’s wrap-up 2012 on a high note for HR BPO with news of Accenture’s award of a 5-year multi-process HRO (MPHRO) contract renewal from Unilever. When orginally announced in 2006, the 7-year contract was the single largest HRO deal signed with an estimated value of $1bn.

First Generation HRO

The focus of the first generation Unilever contract was largely on cost reduction (20% – 30%) and creation of a unfied global HR operating environment of systems and services across 100 countries and 20 languages. Unilver had already begun the tranformation process by introducing shared service centers in key areas to capture some of the early gains on its own as part of its One Unilever program to reduce the cost of back-office services including HR, F&A, and IT. It then moved to HRO to make further progress in efficiency, cost, and to gain a single source of the truth in reporting and mearsurement capabilities.

Second Generation HRO

Accenture will continue to support ~130,000 Unilever employees operating in more than 100 countries through its global delivery network including multiple centers across the U.S., Europe, and Asia Pacific. MPHRO services include:

• Core HR administration
• Payroll administration
• Recruitment
• Learning services covering content sourcing and development, program planning and delivery, and learning system hosting
• Management and administrative services.

As is common with renewals, there are some expansions of scope and a greater focus on improvements, in addtion to a desire for further cost reducing efficencies.

Accenture will be introducing service improvements to drive greater efficiencies and improve the user experience and align the services it delivers with Unilever’s Talent Agenda. New elements include:

• Introducing a more proactive recruiting approach, including the expanded use of social media (Accenture itself has been using LinkedIn and Twitter to recruit staff for a few years now)
• Expanding the scope of the learning services delivered by Accenture to include professional skill-building modules in the curriculum to support Unilever’s focus on developing future leaders; learning programs will make greater use of virtual instructor-led training (VILT), which is in line with Unilever’s sustainability agenda
• Evolving in performance metrics to go beyond traditional operational SLAs to include metrics focused on the client’s desired business outcomes.

It is a good quarter when you can announce a major MPHRO deal, whether it’s new or a renewal. For FY Q1 2013, Accenture’s revenues were $7.2bn, up 5% in local currencies; EPS were up 10% to $1.06; and operating income was up 7% to $1.05bn. Outsourcing brought in $3.26bn in revenues, and $3.3bn in new bookings. A good quarter indeed!

Happy holidays from the NelsonHall HRO team: Gary Bragar, Amy Gurchensky, and Linda Merritt.

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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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Spotlight on Infosys BPO and HRO: Growing, Growing, and Growing

Amy L. Gurchensky, HRO Research Analyst, NelsonHall

Since its inception 10 years ago, Infosys has experienced great growth and success. Its fiscal 2012 BPO revenues were $495m, more than tripling since the $147m it reported in 2007. To support its growing client list over this period, Infosys has nearly doubled its headcount to more than 21k employees and has added 16 international centers to the two centers it had in 2007.

 The company provides a balanced mix of horizontals from finance and accounting to sourcing and procurement to customer service, and of course HR.

In addition to its multi-process HR outsourcing (MPHRO) offering, Infosys’ standalone HR BPO offerings include:

• Payroll
• RPO
• Learning.

The company has a very strong HRO client base in North America, which accounts for 45%. The remainder of its HRO clients are fairly distributed between Asia Pacific (30%) and Europe (25%).

While Infosys’ HR technology offering is very strong, its HR BPO business has been steadily growing, and the company is aggressive with its target revenues for HRO over the next few years. With its planned growth initiatives, I believe it has a very good chance of meeting its targets due to its:

• High client retention rate
• Ability to expand existing contracts to grow with its clients
• Healthy pipeline with the possibility of a multi-process HR outsourcing (MPHRO) win in the near future.

My overall impression of Infosys at their recent analyst day was that they are genuinely nice warm people who really listen and are transparent. All qualities which I highly admire, and apparently qualities that are valued by two of its existing clients that came to speak during the analyst day:

• A North American headquartered banking and financial services company
• A U.S. headquartered media company.

Other reasons why these clients selected Infosys for BPO services included:

• Executive attention
• Trust to do the right thing
• A broad offering for future growth opportunities
• Flexibility
• Technology capabilities.

The lesson reinforced by these clients is that organizations are looking for service providers who listen and genuinely understand them so together, they can create a strong, lasting partnership where both companies prosper in their respective area of expertise.

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H1 2012 HRO: Who Did What in the Large Market?

Linda Merritt, HRO Research Analyst, NelsonHall

There was a good amount of announced HRO contract awards of many sizes and services in the first half of 2012, especially in the large market. A nice volume of new work coming online will provide future revenue support for HRO service providers, where earnings have recently been lower than in 2011.

Learning: finally announced some major deals including:

• Capita Workplace Services: awarded a competitive win for a £250m contract by the Cabinet Office to manage civil service training services in the U.K.
• Serco: won awards with the Army in both the U.K. and the U.S.; it won a scope extension valued at $38m by the U.S. Army and a £55m training contract by the British Army
• Genpact: won  a learning services contract by Johnson Controls, extending its record of recent learning wins; last year, it won a 7 year MPHRO contract with Nissan that included learning and it also won a 5 year content development contract by JobSkills in India.

MPHRO: activity was spread around nicely with ADP, Aon Hewitt, NorthgateArinso, and Logica all bringing in MPHRO contracts. One notable deal was IBM’s multi-tower BPO and IT deal with Cemex valued at $1bn; it includes finance and accounting BPO, HR BPO, IT infrastructure management, application development, and maintenance.

RPO:  continued to see a high volume of new contracts spread across many vendors. There were also two of the largest awards ever in RPO:

• ManpowerGroup: awarded a $400m five year contract extension with the Australian Defense Force, continuing a relationship that started in 2003
• Capita: won a £440m 10 year recruiting partnership contract by the British Army; it will also deliver supporting technology for the Royal Navy and the Royal Air Force, partnering with advertising agency JWT for recruitment marketing and with Kenexa for assessment and recruitment technology.

Benefits administration: contract awards were announced by Aon Hewitt, Empyrean, HP, and Xafinity Paymaster. Fidelity Investments reported the highest volume with DC contracts adding 522k new participants to its base of over 15m participants served. It also made major renewals and brought in new competitive wins. This is Fidelity’s strongest first half sales period in the last five years.

Payroll: deals in the U.K. led the way with awards going to Ceridian, Equiniti ICS, Liberata, and Mouchel. ADP won a multi-country contract from HP and will implement its GlobalView for payroll and Enterprise eTIME system for time and labor management for ~130,000 employees across 40 countries in Asia Pacific (excluding India), Europe, and the Americas (excluding U.S.) over the next five years.

With pipelines still healthy, the second half of 2012 should bring in a year of solid HRO growth and results. Congratulations to all!

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Kenexa and Aon Hewitt New Product Offerings Help Clients Hire, Engage, and Retain Talent

By Gary Bragar, HRO Research Director, NelsonHall

Kenexa’s RPO business has been growing, including globally as evidenced by its five year RPO contract with Eli Lilly to provide services in Asia Pacific, Europe, and the Americas.

Kenexa has been expanding its business with new service offerings including those focused on talent management. Two new product offerings that help clients hire, engage, and retain talent include:

• Fit Compass
• Career Bull’s Eye.

Kenexa calls these offerings Performance Accelerators.

Fit Compass: helps clients determine the quality of the hire by providing managers with an interview guide to help probe for candidate strengths, work styles, and challenges of how they would fit into the culture of the organization. Fit Compass can also be used for employee development and career planning, team building, and team effectiveness.

Career Bull’s Eye: determines an employee’s level of engagement by assessing their purpose, passion and pay. It then helps business leaders identify where in the organization they need to focus by finding out causes of disengagement so it can make improvements and reduce turnover. It can also be used when onboarding new hires to ensure that they are engaged to avoid turnover. Results are shared during quarterly business reviews with the client. Both products are available as standalone services or can be bundled with other RPO service offerings.

Aon Hewitt provides RPO as both a part of its HR BPO offering and as a standalone service. Aon Hewitt’s RPO business has been growing globally as well. Examples include its HR BPO contract with BP where it provides RPO in North America and EMEA, and its recent contract award with a professional services company to provide RPO as a standalone service in EMEA and North America. Aon Hewitt has two new products that help organizations transform their hiring process:

• SourceSprint
• Digital interviewing capabilities.

SourceSprint: keeps applicants in a talent community for possible placement with other opportunities. Often when an organization fills a job requisition, other applicants are lost after the new hire comes on board. While the applicants may not have gotten the job they applied for, they may be good candidates for other opportunities. But, finding them again is problematic. SourceSprint changes that by using social media, optimization of search engines, and mobile communications to keep these prospects in a talent community. It remembers how applicants were originally found and their preferred communication.

Digital interviewing capabilities: improves the efficiency and experience of the hiring process for both candidates and hiring managers. Through its partnership with HireVue, Aon Hewitt clients can use the HireVue Digital Interview Platform to ask candidates scientifically validated questions that will ensure consistency and objectivity across interviews. Candidates then use a webcam to record their answers. Since it is not a live interview, candidates can respond from anywhere at their convenience, and hiring managers can watch and share the recorded interviews with colleagues anywhere.

Given these types of continuous innovative offerings, it’s no surprise to me that RPO has been rapidly growing as clients seek to attract, engage, and retain talent, while improving the efficiency of the recruitment process at the same time!

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ADP: Analyst Day Priorities

Last week, ADP held its annual industry analyst day in NYC. Its priorities for the event included communicating its identity and progress as a global HCM company, its innovations in talent management, and its benefit services. Of course no ADP analyst day would be complete without product demos.

To begin the day, Carlos Rodriguez, CEO, spoke about the company’s vision to become the global HCM market leader. With workforces expanding globally, talent shortages, and the need to be more strategic, the international HCM opportunity is huge and ADP is determined to be at the center of it all. Given its large client footprint for its payroll and time and attendance solutions, integrating talent management functions including learning, compensation, and performance will be paramount for global domination in the HCM market.

Well-timed with the analyst event was ADP’s announcement that it launched an integrated end-to-end platform for talent management. In addition to talent acquisition, compensation and performance management, and succession, the talent management suite now leverages advanced learning management tools, learning content from Bersin and Associates, and an enterprise competency framework, and will be available for both its GlobalView and Vantage platforms.

ADP’s HCM toolbox is loaded and ready to be used. The GlobalView platform is available in 81 countries; the general availability date for Vantage has moved up to June; and WorkforceNow, which includes integrated HR, payroll, time and labor management, benefits, and talent management will soon support Canada. On the back-end, it would be great to see some HR BPO opportunities beyond payroll arise, and the company has been busy making enhancements to this portfolio as well.

In addition to its acquisition of the The RightThing, which brought in RPO capabilities, ADP has been quite busy building up its benefits business. There is great potential for benefits outsourcing due to changing regulations and complexities, not to mention the fact that an HCM market leader would not be complete without a strong benefits offering. Investments began with the Workscape acquisition, and continued with Asparity (for decision-support tools, analytics, and reporting) and SHPS (for reimbursement account administration and absence management). Finally, it added a Strategic Advisory Services offering to provide value-added analytics and advice to clients.

Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

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