Posted tagged ‘HRO Confidence Index’

Earnings Reports Point to Global RPO Growth

October 26, 2010

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

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

Benefits Administration – Not a Lame Duck HRO Process

August 5, 2010

Although we’ve indicated that our most recent HR Outsourcing Confidence Index found benefits administration lagging behind other HR services in terms of revenue and pipeline growth, it’s important to put that into proper context:

• On the NelsonHall HRO Confidence Index scale of 1 to 5, with 5 being “strong increase” and 3 being “unchanged,” benefits admin came in at 3.6 relative HRO growth, right behind learning (3.7), and multi-process and payroll (both at 3.8)

• Benefits admin outsourcing contracts are indeed being won in 2010

For example, Mercer announced today that it added 10 new benefits admin clients – a mix of defined contribution, health and benefits, and total benefits/total retirement outsourcing – to its portfolio in 1H10. The new deals include leading brands such as CBS Corporation, Primerica and Global Equity Capital, LLC. In total per these new agreements, Mercer is now servicing nearly 190,000 additional benefits admin participants.  

Additional benefits wins announced in 2010 include:

• Xafinity, for pension administration, by BAE and Loganair

• Workscape, for both its Outsourced Benefits Administration (OBA) web-based benefits administration service and for employee call center support, by Global Imaging Services, a wholly owned subsidiary of Xerox

• Workscape, for its OBA solution, by kgb, a multi-country directory assistance and information services company

• Convergys, a contract renewal for COBRA, leave of absence and annual enrollment services, by Office Depot

And benefits is not just being awarded as a standalone service. Rather, it continues to be provided along with multi-process HRO services. For example, Ceridian earlier this year was awarded a contract by Fifth Third Processing Solutions which included payroll, health and welfare administration, HR compliance, time and attendance, leave administration and learning and recruiting technology. And Hewitt and International Paper entered into a five-year contract renewal deal which covers payroll, workforce administration, health and welfare administration, recruiting support activities, SAP application support and help desk services, call center and HR manager support activities, learning administration and flex staffing management services.

As clients continue to seek reduced costs, ensure compliance with health care reform, increase employee satisfaction, better leverage technology, and improve delivery of services to employees – including self-service capabilities – I believe we will see continued growth in benefits admin outsourcing. NelsonHall is currently conducting a Benefits Administation Market Study. When it’s complete we’ll take a deeper-dive look at just how much it’s growing, and in which specific areas.

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall

NelsonHall HRO Confidence Index finds Banking, Healthcare, Pharma and Manufacturing Industries to Experience Strongest Growth

June 17, 2010

My blog last week focused on geographical HRO growth per the findings of NelsonHall’s most recent HRO Confidence Index. Today, the focus is growth by industry sector. When asked about expected changes in 2010 HRO revenues by industry sector, year-on-year relative to 2009, the HRO providers that participated in our most recent Index responded similarly to the prior quarter, with strong growth continuing to be expected in the banking (3.9 on a 1 – 5 scale), healthcare, pharmaceutical and manufacturing (all 3.8 on a 1 – 5 scale) industries.

On the opposite end of the spectrum, expectations from the state and local government sectors declined during the quarter. Addressing this drop first (always nice to end on a more upbeat note!), although a few state and local government contract renewals and new wins created some optimism in the second half of 2009, frozen decision making remains as many states struggle to pass budgets. State and local government HRO contracts are few and far between, and have an extremely long sales cycle. In today’s environment, as jobs are hard to come by and the recovery is taking longer than most of us thought or hoped, state talk of outsourcing, even without job reduction, will be hard to pass muster.

Now on to the positive. Supporting high growth in the pharmaceutical industry, RPO provider The RightThing issued a press release on June 1, 2010 stating that as hiring freezes across the U.S. begin to lift, there has been a major trend in pharmaceutical client hiring as organizations begin to rebuild their employee base. Over the last four months, The RightThing has assisted in major expansions (to the tune of 2,300 total positions) with five North American pharmaceutical companies including Boehringer Ingelheim.

And the NelsonHall contract database provides evidence of HRO’s growth in the banking and manufacturing industries. A hefty number of the most recently signed HRO contracts include Xafinity with BAE (pension administration), Kenexa with MphasiS (a 360-degree survey program), Xchanging with Insyte (multi-process HRO), Alexander Mann with Premier Foods (contingent workforce), Liberata with the U.K. Ministry of Justice (a portion of which is for payroll outsourcing), Hewitt with International Paper (multi-process HRO) and Manpower with Techcombank (RPO and staffing).

The continued growth in the banking industry is due to a number of factors. Hit exceptionally hard by the recession with downsizing in HR departments/across the board and in a current state of reorganization, banks are now trying to be more efficient and, in doing so, no longer want to assume the risk of investing in technology and HR staffs when they may be required to downsize again. And there are common roots to continued growth in the healthcare, pharma and manufacturing industries. In addition to reducing risk and becoming more efficient (obviously requisites for any private or public sector organization), it’s also about being able to quickly scale up and down. For example, if the U.S. Food and Drug Administration approves a new drug to prevent or cure a life threatening disease, manufacturers will need to rapidly hire staff to meet demand. Swift hiring of large numbers of employees, which has implications for payroll, benefits and learning, is often difficult for a company to do internally. HRO providers with much more abundant resources can more quickly deploy resources to meet this new demand.

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall

Geographical HRO Growth: The NelsonHall HRO Confidence Index Says…

June 11, 2010

Earlier this week my colleague Linda Merritt wrote about the over-arching tune and tone of optimism and anticipated growth in the HRO industry, per the results of NelsonHall’s just-released HRO Confidence Index.  Today, let’s talk about geographical growth.

When asked about expected changes in 2010 HRO revenues by geography, year-on-year relative to 2009, the HRO providers that participated in this most recent HRO Confidence Index see increased growth in both mature and emerging economies in Asia Pacific and Latin America, expect maintenance of the growth experienced at the end of 2009 in the U.S. and U.K., and anticipate higher growth in major continental economies including France, Germany, Benelux and the Nordics.

Specifically – on a scale of 1 to 5, with 5 meaning a strong increase and 1 meaning a strong decrease – the geographical ratings were: 

Focusing specifically on the Asia Pacific market here (as it’s an emerging market for HRO) – and especially relative to RPO growth – data points made by Dr. Chris Chan (Chairman of the MBA Program at Hong Kong University), at the recent HRO Summit in Singapore support our HRO Confidence Index findings. For example, Dr. Chan stated:

• At 11.9 percent sustained year-over-year growth, China and Hong Kong have the world’s fastest growing economy

• The Indian economy has grown from $32 billion in the 1980’s to more than $1 trillion today

• 64 percent of Chinese, 50 percent of Hong Kong-based and 54 percent of Singaporean businesses expect to increase hiring in 2010

And it is clear that RPO activity is actually taking place and not just being talked about in Asia Pacific in 2010, with recent contracts being won by Hays, Kenexa, Manpower and Accenture.

However, hiring increase requirements in Asia Pacific come with a significant challenge, as noted on June 7, 2010 by Manpower Chairman Jeff Joerres at the World Economic Forum on East Asia summit in Vietnam. According to Mr. Joerres, talent shortages in Asia Pacific are 10 percent higher than the global average, led by Japan with 76 percent of companies struggling to source talent, attributable to an aging workforce and lack of immigration. On the one hand – as pointed out by Mr. Joerres – young people need to be encouraged to learn in-demand skills for jobs including technicians, engineers and skilled trades. On the other hand, this represents an opportunity for learning outsourcing providers to help re-train existing workers, and an opportunity for RPO providers to help source requisite talent via their rich local job banks and talent pools in other geographies, as well as develop innovative sourcing strategies. 

One thing I find very interesting is that the talent shortage problems currently faced by Asia Pacific organizations will soon need to be addressed in the U.S. and parts of Europe. Four or five years ago there was great fear that the boomers retiring and leaving the workforce would result in a severe talent dearth. While the recession has stemmed that fear, when the economy picks up and net worth restores, that exodus will begin and the talent shortage will become a reality. How should companies address this challenge? You know my answer.

In my next blog, a focus on industry growth per the most recent NelsonHall HRO Confidence Index.

Gary Bragar, Lead HRO Analyst, NelsonHall

Keeping in Tune with the HRO Beat

June 8, 2010

The general economic tone seems to be all over the musical map. Some are playing pop tunes, others dirges, and many are wobbling about tunelessly. So what is the tenor in HRO? The latest NelsonHall HR Outsourcing Confidence Index – being released this week to our clients and study participants – croons that in HRO we do seem to be on the same playlist, if not singing the same tune, and the general tone is upbeat. Eighty percent of participating HRO service providers reported a slightly to much more confident outlook for the next twelve months, the highest level in the last six quarters.

HRO optimism is bopping along on expectations of peppy pipelines and up-tempo revenues pretty much across the board of service lines, geographies and industries. Reports of pipeline growth continue to rise, with RPO leading the way followed by payroll, multi-process HRO and mobility services. Lagging a bit in pipeline growth are learning and benefits administration, which are expected to remain at current levels. Mobility, which includes relocation services, is still on the dance party sidelines, held back by continued slowness in corporate relocations and market evaluations and financing issues in the real estate market. 

Although declining, reports of frozen prospect and client decision making are still a dragging foot in the pace of signing new deals. While the new deal tempo is a bit of a slow waltz, expectations of growth in revenues are doing a nice quick step. Service providers have several ways to grow revenues, and there is greater new client contract activity – especially in RPO – along with some expansions in scope and services within existing contracts. Interestingly, although learning outsourcing has yet to see a solid pipeline boost, service providers expect their revenues to increase in the learning process. This reflects that, because HRO contracts are heavily priced on volumes, when client activity levels increase, so do revenues on existing business.

There is also some upturn in contract values, with 40 percent of service providers seeing increases in contract values. The level of multi-country contracts remains strong as companies continue to focus on standardizing payroll and other HR processes across geographies and business units, a likely factor helping to increase the average contract value.

We have a long way to return to volumes of old, so this feels more like preparations to return to growth rather than the sustainable breakthrough we all want. Service providers modify their general optimism by putting out one to several quarters before we see the full impact of the upturn.

That said…HRO buyers, feel the beat, start moving and loosen up that frozen decision making. It is time to get back into the dance. HRO service providers, fine tune your footwork, take your current clients and new prospects for a sweep around your fresh and expanded dance floor. They are playing your tune.

Linda Merritt, Research Director, HRO, NelsonHall

“What a Difference a Day (plus 364) Makes” for Staffing and RPO

May 13, 2010

As I read Kelly Services’ Q1 2010 financial results yesterday, the song “What a Difference a Day Makes” popped into my mind. Add 364 more days (although for service providers it likely felt more like 2548 in dog days) and in year-over-year financials comparisons, staffing and RPO providers are finally seeing some rays of sunshine. And these rays – even though they don’t yet call for sun block with a 30 SFP – indicate a strengthening economy and thus good news for everyone.

While wider HRO results were mostly flat in Q1 2010, staffing and RPO provider revenues were mostly up. For example, in year-over-year comparisons, providers including SeatonCorp, Manpower, Kelly Services, SFN Group, Adecco and Kenexa all reported positive growth, with overall revenue growth ranging from single digits to a high of mid 20 percent. And specifically in the RPO space, KellyOCG’s revenue was up 13.5 percent and SourceRight Solutions’ was up 13.4 percent.

However, not all providers saw positive growth. For example, Netherlands-based Randstad’s revenues were nearly flat (down 0.5 percent) in Q1 2010 and Q1 2009 comparisons. But the company did experience strong year-over-year improvement, as its revenues decreased 28 percent in Q1 2009. Randstad’s results, as well as those from some other providers which experienced overall revenue increases in Q1 2010, indicate that staffing growth has not yet returned across Europe. Yet similar to other staffing providers, Randstad saw growth return in the U.S., Latin America and Australia.

The providers’ Q1 financial results confirm the findings of NelsonHall’s recently-released HRO Confidence Index, referenced in my April 22 blog, in which providers cited RPO revenue growth of 4.6 and 4.4 pipeline growth on a 1-5 scale.

Q2 2010 is also off to a good start. For example, KellyOCG was awarded a multi-year RPO contract by Novartis Pharma France on April 21, and Manpower and Vietnam’s Techcombank entered into a two-year end-to-end (including job profiling, on-boarding and staff development) RPO contract.

While I don’t believe we will see pre-recession hiring levels in 2010, I feel that the tide has turned and we will continue to see quarterly year-on-year growth in staffing and RPO for the remainder of 2010.

Gary Bragar, Lead HRO Analyst, NelsonHall