RPO Generation 2.0 is Ready to Go

Linda Merritt, HRO Research Analyst, NelsonHall

Recruitment Process Outsourcing (RPO) is one of the younger HRO service lines and it is both growing and maturing quickly. The March issue of HRO Today recognizes the emergence of RPO 2.0.  NelsonHall’s RPO specialist, Gary Bragar, would certainly agree. Gary’s October 2012 Targeting Recruitment Process Outsourcing market analysis highlighted many of the same developments in this rapidly growing HRO segment.

What is New in RPO 2.0?

The rapid growth and incorporation of social media for recruiting is a big part RPO 2.0, one that keeps pushing RPO to the leading edge of innovation in the HRO space.

RPO services are rapidly moving up the value chain, and changing client expectations is the key. While reducing the cost of service provision is always on the table, it is no longer the number one issue. Flexibility and scalability will always remain important as well, given how quickly hiring needs can change.

Today’s RPO 2.0 clients are looking for more value:

• Improved quality of hires
• The latest tools and technologies for social and mobile
• Expertise in accessing talent pools and passive hires
• Greater focus on candidate experience
• Analytics and insights, in addition to metrics and reports
• Improved retention
• Access to advanced services including employment branding, talent management, talent engagement, and integration with workforce planning.

Clients Simply No Longer Want To Do It

In the last few years, many buyers reduced internal recruiting staff in line with the reduced volume of hires, and they do not want to rebuild and reinvest in the rapidly evolving technologies and advanced skill sets it takes to succeed in today’s competitive, social, mobile, and global recruitment process market.

Buyer Choice is Broad

For every large staffing company that does RPO including Adecco, Kelly, Manpower, and Randstad, there are smaller vendors that specialize in RPO such as Ochre House and Pinstripe.   Most leading RPO vendors of all sizes can offer services in most of the regions of the world as they have partnered and made acquisitions to make their footprints global.

Not long ago, major multi-process HRO (MPHRO) providers either did not provide end-to-end RPO or saw it taken out of contracts. Now, more MPHRO providers have full RPO services strong enough to be offered as standalone services including ADP, Aon Hewitt, Infosys, and IBM.

With RPO 2.0 You Can Have It All

While having it all may still be a bit aspirational for most of us, we are finding evidence that successful client / provider RPO partnerships can improve process efficiencies (e.g., reduce time to hire 20% to 50%), reduce the total cost of hire (often 20% to 30% or more), along with increasing hiring manager and candidate satisfaction.

Imagine what we can achieve with RPO 2.0!

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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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The Seams Matter in HRO

To complete our review of HRO’s total cost of ownership (TCO), I want to expand on the factors that can either ramp-up or create a drag maximizing savings. The ADP studies on TCO do more than show the savings that real customers are achieving; the research also looks at why.

First, we need to understand what goes into TCO, which can help create a base case for outsourcing and in tracking the results. Included in the ADP TCO research are:

• Systems cost for initial implementation, upgrades (both amortized over three years), and system maintenance
• Direct fully loaded labor costs for associated administrative and IT employees
• Non-direct labor cost for overheads like facilities and corporate overheads
• Supplier or outsourcing costs.

Some of the costs are hidden in budgets other than HR’s, including IT, finance, or corporate. Remember that some of the employee costs are also hidden out in the field. We call them the shadow staff—people who support HR processes part-time. It’s important to understand the full cost of providing pre-outsourced services to be able to determine the difference in operating expenses after outsourcing.

There are also costs that result from the “seams.” Seams create gaps and can be found between technologies, processes, and people. These costs are seldom apparent or included in base cases, but they are real and can make the difference in 8-10% savings versus 20-30% savings.

Why does using a single vendor for multiple integrated processes create additional savings? With more services on one vendor integrated platform there are fewer interfaces to maintain, which costs less. When using various separate technologies and vendors, more complexity is in the system, and that generates an increased need to ensure that interfaces are maintained and addressed every time a change is introduced; it also increases the need for customizations and workarounds. When a payroll change was made, I could not understand why it took so long. It was because payroll data touches so many other HR processes that every calculation and interface needs to be addressed, tested, and ensured, many of which touch other suppliers and outsourcers, which adds even more time and cost.

Fewer systems, fewer non-integrated interfaces, and fewer vendors reduce complexity and can further reduce cost. The same concept is true for processes and people. Changing and standardizing internal processes and behaviors across the enterprise is hard. Persistence over time can make the difference in achieving 20% savings and 40% or greater savings.

The good news is that you do not have to do this all alone. Understand what you can expect from your primary HRO vendor(s) and what is included in standard pricing and what additional services are available at additional cost. HRO vendors like ADP, IBM, and Infosys, while specializing in various areas of HRO services, understand the importance of ongoing HRO governance, relationship management, change management, and step-by-step maturity along the way to maximizing the TCO benefits of HRO.

Linda Merritt, Research Analyst, HRO, NelsonHall

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HRO Focuses on the Future

HRO buyers want service providers that meet today’s needs. Sophisticated buyers also want partners who can help manage changes over time as new service needs and technologies emerge. In a rapidly changing industry, it is not enough to know what customers are buying and what their competitors are currently doing today, each vendor must also invest in the future.

Here are three different ways service providers are focusing on the future:

• Ÿ   Kelly Services recently opened an Office of Innovation and appointed a Senior Vice President and Chief Innovation Officer to define the next generation of workforce solutions for its global customer base. To meet the rapid rate of workplace changes, Kelly intends to accelerate the process of creating and launching new services. Kelly Services was one of the founders of the temporary services market and has evolved into providing a full suite of services including outsourcing and consulting. Given the company’s history of innovation, it makes sense for Kelly Services to see added strategic focus and investment in order to continue as a market-leading innovator of HRO services.
• Ÿ   Infosys opened a new ‘Alternative Delivery Model’ HR-shared service center in a Tier 4 town in India. The company considers this as an important strategic move to differentiate its services and benefit clients by providing additional flexibility and competitiveness. Infosys is partnering with local suppliers, like Desicrew, to set up centers in Tier 3 and Tier 4 communities, creating a more sustainable model to access talent and provide long-term career opportunities in other areas of India. My NelsonHall HRO colleague, Gary Bragar, commented that by opening up a center in a Tier 4 city, Infosys can offer clients a reduced offshore price point, with the added promise of greater staff loyalty and lower attrition rates.
• Ÿ   Lumesse, a provider of integrated talent management applications and services, completed its acquisition of SaaS-based learning provider Edvantage Group last October to add a full suite of learning services including learning management, content development and management, online content delivery, and custom course development. The combined business will have over 1,900 customers in 70 countries worldwide and around 2 million active users of its technology.

Just like buyers and vendors, in following news of the HRO community, we tend to focus more on the current activities and news of the day. Stopping periodically to review HRO business news over a several month period reveals trends and provides clues on service provider strategies for growth and the future.

Lumesse made a big acquisition to quickly add a major new service line. Infosys is adding cost-competitive capabilities for clients and the company should benefit from the reduced operating costs due to lower turnover in the outlying centers. Kelly Services is continuing its heritage of innovation to internally develop and speed to market new capabilities.

There is no single approach to preparing for the future, there are many ways to buy, build, or partner your way forward in HRO.

Linda Merritt, Research Analyst, HRO, NelsonHall

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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

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Infosys BPO Analyst Day: A Rounding Success

Although a little late, I wanted to give Infosys kudos for hosting a very informative and engaging BPO Analyst Day in late October, which included presentations by two very satisfied North American based clients.

First, I’d like to highlight the progress Infosys has made:

• From 2006 to 2011, BPO revenue has grown approximately five-fold with the number of clients increasing almost four-fold and global headcount increasing nearly six-fold
• Although I can’t disclose HRO revenues, they are rapidly growing globally, led by North America and followed by Europe
• BPO delivery capability is global from centers across North America, Latin America, South America, Europe, and Asia Pacific.

What particularly impressed me at the event was the lengthy discussion titled “Our people are our biggest assets,” led by managing director and CEO Swami Swaminathan. The topic may sound cliché, but it was from the heart because Infosys truly wants employees to have a career for life that’s achieved by:

• Leadership focus
• Performance-based compensation
• Recognition and reward
• Career planning and development
• Comfort with the working environment
• Pride in being an Infosys employee.

There’s too much good business information to capture in a short blog, but to summarize, Infosys is helping clients build tomorrow’s enterprise by:

• Enabling clients to transform their business
• Moving operations up the value chain, including Centers of Excellence with benchmarking and best practices
• Deploying new engagement models including business process as a service, technology enabled process automation, and cloud-enabled services
• Leveraging technology to create value including dashboards and customer portals.

Client presentations were by a large apparel retailer and a large global telecom.  The retailer outsourced both F&A and HR.  HRO services included platform-based BPO with PeopleSoft 9.0 and modules for core HR including self-service; benefits including annual enrollment; time and attendance; payroll; and components of the HR helpdesk. Its reasons for choosing Infosys included:

• Access to technology and tools to transform
• Quality of resources to support the account and its ability to work with the client to achieve its goal
• Cultural fit and reputation.

The telecom client outsourced to transform, leverage best in class processes, people and technology, and augment its sourcing group with new talent. F&A outsourcing included source to pay.

Concluding the day and joined by clients at the larger colloquium were two successful panel discussions.  The first was titled “Sustaining complex change” and included the buy-side from Montreal, Charming Shoppes Inc., and Cisco.  I had the pleasure of facilitating the second discussion that was titled “What is the defining role of HR in shaping tomorrow’s business: Globalization, convergence, social media, and talent management.  This panel included the buy-side from Charming Shoppes and Transfield Services.

In all, it was a very impressive day to round out numerous analyst events I attended in 2011, and this one will be memorable!

Gary Bragar, HRO Research Director, NelsonHall

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Focus on Talent Management

For those following my blogs, you know I am keenly focused on talent management.  A future and past event prompted my thoughts.

The future event I’m referencing and looking forward to attending is Infosys’ BPO Analyst Day on October 19^th, which also includes a separate HRO breakout session.  At the event, I will be moderating a six member panel discussion titled “Globalization, Convergence and Social Media, and Talent Management: What is the defining role of HR in shaping tomorrow’s business.” The panel will consist of clients, industry experts, and the global HR leader of Infosys.

More than ever talent management is critically important. In my June 13^th blog titled ManpowerGroup Solutions Analyst Day – It’s All About Talent – Part II, I wrote about the global talent shortage.  Social Media, including its use in the attraction and engagement of talent, will be critical. This is a global phenomenon and companies are beginning to look across borders to meet their demands for talent.

I’m excited to moderate Infosys’ panel discussion since I attended Ochre House’s Annual HR Directors Symposium last week in the U.K.  The event was focused on “re-defining business value through a talent centric approach.” Executives from 50 companies attended and ranged from the Global Head of Engagement to the Director of Global Talent and Organizational Development among others.

Ochre House’s event started with presentations that included:

• Talent Economics: The Business Case by Gyan Nagpal, CEO & Principal, PeopleLENS Global Associates
• People for the Future by David Stephenson, Head of Learning and Development, Telefonica UK
• Beginners Mind: Characteristics of a Talent Centric Organization by Simon Wright, former CEO & President, Virgin Entertainment Group.

Breakout groups included “Talent: HR’s Future in Business Value Creation.” I’ll share some ideas generated in a future blog, but a few thoughts standout and are worth mentioning now:

• Simon Wright, during his presentation, said HR is good at providing data, but needs to bring solutions.  HR cannot sit back and wait for business leaders to ask.
• David Stephenson said all organizations need to innovate, the people who think different move the world forward. Although he used examples such as Steve Jobs, the point is that HR professionals can shape business and move it forward.
• Chris Eaton, former Regional Manager at Smiths Medical who joined in a panel discussion, said people with good technical skills are often put in leadership positions and people management is not high enough on the prioritization list.
• An audience member chimed in the discussion saying HR and the business is too busy doing transactional work to focus on talent.

HRO to the rescue! Not just for administration, but to help attract, engage, and retain talent. HRO vendors and the retained HR can’t replace line managers and business leaders, but can help by providing the tools, training, advising, coaching, and facilitating the processes.

Gary Bragar, HR Outsourcing Research Director, NelsonHall

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Does HRO Stifle Innovation?

A question since the earliest days of HRO has been, what about innovation? We all want cake and want to eat it too, and that’s what buyers have always wanted: lower costs, improved performance, and innovation in HR business process management. Even when a deal was structured for the lowest cost pricing and standard SLA performance, clients soon asked “where’s the innovation?”

Knowing if a service provider is a market leader in HRO innovation is important to some clients, especially those companies that use innovation as a competitive advantage. Perhaps an equally important question is can an innovative company risk using HRO and will it help or hurt?

The Forbes List of The World’s Most Innovative Companies may help us determine if HRO providers can be innovative and if HRO is being used by innovative companies. The list is based on an “innovation premium” which is defined as “the premium the stock market gives a company because investors expect it to launch new offerings and enter new markets that will generate even bigger income streams.”

First, can HRO providers be innovative? Well, ADP (#87) is on the list of the top 100 that includes the likes of Apple, Google, Amazon, and Starbucks. Infosys (#15) is on the list and it also offers HRO services. Congratulations to both ADP and Infosys!

Next, can innovative companies risk using HRO? Yes, they can and they do. Here are some of the top 100 companies on the list known to use HRO and their vendor partners. Notable is IBM HRO with at least three clients on the list: P&G, Kraft, and Avon Products. IBM HRO focuses on large market HRO and clearly can be a valued partner in HR transformation with leading innovators.  Other partnerships include Unilever with Accenture; KAO with ADP; Kellogg and PepsiCo with Aon Hewitt; and Agilent with NorthgateArinso. RPO providers are also represented with the triple threat of The RightThing providing RPO support for Amazon, Campbell Soup, and Praxair. I am sure there are many more connections to HRO among the top 100. Congratulations to all, let’s have a piece of cake in their honor!

According to the newly published “The Innovator’s DNA,” the 3P framework for innovation is people, processes, and philosophies that foster innovation as everyone’s job and there are key leadership skills and behaviors than can be developed to weave innovation DNA into the company. Of course HRO, even at its most innovative, cannot make a client an innovator. That must come from within. HRO can support each element of the framework for innovation and become an enabling partner to clients that are innovative or those that are striving to be.

Do you have an innovation premium? Is your HRO service provider capable of enhancing your journey of innovation?

Linda Merritt, Research Analyst, HRO, NelsonHall

Success Factors for the Market Segments of MPHRO

Last week, I discussed the four market segments of multi-process HR outsourcing (MPHRO) as defined in my 2011 NelsonHall MPHRO report: multi-country standardization, client-specific shared service transformation, core business focus, and technology-led HR service enhancement.  This week, I’ll examine success factors for service providers within each segment.

In the “multi-country standardization segment,” which is the segment with the highest growth rate for the next five years, it is critical for vendors to be able to support a client’s operations across a wide range of countries including emerging markets. Providers must also be able to rollout standardized HR administration and payroll to create a global system of record. Examples of service providers operating in this segment include ADP, HP, and NorthgateArinso.

To be successful in the “client-specific shared service transformation segment,” the largest of the four, vendors must provide HRO support directly or through a partner for all HR service lines (i.e., payroll, benefits, learning, RPO, and workforce development services) and have a high degree of multi-shore delivery capabilities to support clients in various locations.  Equally important is a service provider’s ability to be able to work with the client’s existing HR technology.  One of the biggest challenges faced by vendors in this group is getting clients to transition more than just back-office functions to its offshore service centers to reduce operating costs.  Service providers operating in this segment include those that have been long-term players in the MPHRO market such as Accenture; IBM; Aon Hewitt; ACS, a Xerox Company; and U.K.-based Capita.

Within the “core business focus” market segment, success is contingent on a provider’s ability to quickly deploy HR services and be accessible when expertise is required.  In terms of HRO offerings, standardized HR administration and payroll are a must and providing support for talent management services is very appealing.  The biggest challenge for vendors operating here is all the competition that exists from some of the following vendors: Genpact, TCS, Talent2, Infosys, HCL, Wipro, and Caliber Point.

Success in the final segment, “technology-led HR service enhancement,” requires vendors to provide their own standard technology for HR administration and payroll that includes talent management functions.  Also, it’s important that this technology be rolled-out relatively quickly.  Providers that fall within this segment mirror the multi-country standardization segment, but also include vendors such as Ceridian.

There’s lots of room in the MPHRO market for all types of buyers, so it’s critical for service providers to decide which segments are of strategic value and to define their sweet spots in their MPHRO portfolios and fill in capability gaps where contracts can be lost to competitors.

Amy Gurchensky, Research Analyst, HRO, NelsonHall

Differentiating HRO – Use What You Know

How many ways can a HRO vendor differentiate?  The lowest total cost, the latest and greatest in technology, the broadest range of services in the most places, etc.?  When there are multiple reputable service providers, vendors have to reach further to create HRO differentiation.

In the early days of HRO, it was sufficient for a vendor to provide services that were as good as what had been provided in-house, becoming the base of most service levels (SLAs).  HRO vendors quickly found that meeting SLAs did not equate to overall client satisfaction, with clients stating that while they may have been getting what they contracted for, they were not getting what they wanted or needed.

Today, “as good as” is not good enough.  HRO service providers need to know more than the client in each service area.  Knowing more may be in the form of compliance and reporting expertise, local knowledge of covered geographies, advanced application use, or even change management expertise.  Client confidence that the selected vendor does indeed “know how” is important.  Confidence that the vendor will be a partner in what happens next is even rarer and is a key differentiator that top tier HR clients seek.

Times of uncertainty create opportunity to build client confidence with your ability to see around corners or at least keep up with the twists and turns.  Consulting capabilities are particularly important in HR.  But, even top consulting capabilities will not build the HRO practice if there is no flow-through of learning and innovation as well as improved process and performance.

Many HRO service providers with roots in consulting offer forward-looking research, publications, webinars, and even conferences to help clients keep up with best practices, new trends, and regulatory happenings, all while demonstrating thought leadership and subject matter expertise.  Many names come easily to mind including Accenture, ADP, Aon Hewitt, Ceridian, IBM, and Mercer.

For example, Towers Watson has published human capital research and recently released its latest HR services report.  Kenexa’s client conferences also offer sessions of broader related HR practitioner interest.  Finally, Infosys provides a good example of application expertise and consultative relationship management when it brings tailored ideas to clients on how they can improve their processes.

Vendors that offer multiple service lines or are an industry leader in a particular area can cross data streams.  Think of ADP’s weekly report on employment or Administaff who has PEO trends that show which U.S. regions are leading and lagging in returning to growth for the small business market.  Also, ACS, a Xerox Company and IBM support client interaction opportunities that can lead to innovation communities.

How can data from IT, F&A, or even Ceridian’s Pulse of Commerce Index be tapped for HRO?  Think about how you can go beyond the obvious and use everything in your kit bag to develop leverageable and differentiating HR and HRO insights.

Linda Merritt, Research Director, HRO, NelsonHall