U.S. Jobs Grow – How Will It Impact HRO

By now, most have heard last Friday’s favorable jobs news.

In the U.S., 243,000 jobs were added in January, bringing the unemployment rate down to 8.3%, and as noted on one of the staffing provider’s earnings calls last week, down to 4.2% for college graduates. Government jobs have contracted as expected, while the private sector had the gains in the services industry, specifically in leisure, hospitality, education, healthcare, and retail, and in manufacturing, including construction.

Also last February 3, Randstad reported a five-point rise in its U.S. Employee Confidence Index.  The index measures the workers’ confidence in their personal employment situation and optimism in the economic environment. This is the biggest increase since the survey started seven years ago.

With good reason to be optimistic, many RPO providers are realizing the gains with increased hiring volumes by existing clients. Even before this welcome employment news, 2011 had been a good year for HRO. In RPO, many vendors achieved significant growth, including Kelly OCG, whose RPO revenue was up 40% year-over-year from 2010; Pinstripe was up 58% y-o-y with 21 new contracts and extensions; and for Q4, Kenexa reported an RPO growth of 54% y-o-y.

But the benefits go far beyond RPO. Increased hiring bodes well for providers of payroll, benefits, and learning as the number of employees they serve increases. For example, ADP, who already pays 1 of 6 U.S. employees, announced the number of employees on its U.S. client payroll increased by 2.8% in fiscal Q2 2012, for the period ending December 31, 2011. Benefits administration providers including Aon Hewitt, Fidelity, and Mercer reported numerous contract awards in 2011. In MPHRO, in North America, ADP won several new contracts, while IBM was awarded a large MPHRO contract with Air Canada and NorthgateArinso awarded a seven-year MPHRO renewal by Fifth Third Bank. In learning, vendors including Raytheon, Xerox, and Accenture won several contracts. There are more updates to follow on learning as NelsonHall is currently conducting a global learning BPO market analysis.

However, a few words of caution by ManpowerGroup were given last February 3 that demand is expected to continue to fluctuate and it would be prudent for employers to adopt flexible workforce models that include: full-time, contingent, and virtual-skilled workers to ensure productivity.

There are a few key implications here:

• Providers who haven’t yet provided recruitment services that include RPO, MSP, and Contingent Workforce services would be prudent to evaluate doing so and/or consider partnering with a vendor that does
• Given the ManpowerGroup statistic that 52% of U.S. companies are struggling to fill key jobs, focus on the development and retention of talent is more paramount than ever. Buy-side organizations should be continuously monitoring employee satisfaction, reviewing attrition rates, conducting exit interviews to find out why people leave, and developing action plans to improve organizational effectiveness. If buyers do not have this capability, they may want to consider a talent management vendor who can help them, which has become a key HRO vendor focus and for good reason!

Gary Bragar, HRO Research Director, NelsonHall

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RPO Continues Its Stride in Q2 2011

If you didn’t pay attention to the news and only looked at the recent financial results reported by staffing and RPO providers, you’d think that everything is fine with the global economy.  Let’s take a look at a few of the highlights including year-over-year revenue growth in Q2 2011 compared to Q2 2010 and some numbers of contracts awarded:

• Talent2 (fiscal year 2011 for period ending June 30) +26%, RPO +57%
• Kelly Services +16%, KellyOCG + 22.5%, and RPO ~+50%
• Kenexa +59%, RPO + 45%
• Manpower + 24%, ManpowerGroup Solutions +21% with 37 RPO deals closed in Q1 and 31 new RPO contracts awarded in Q2
• Pinstripe won or extended 15 RPO contracts in H1 (revenue not reported)
• SeatonCorp +20%, PeopleScout +95% with 9 new RPO contracts signed.

Why was growth and the number of contracts awarded so high when the sad reality of the news headlines is that there are debt problems, slowdown in GDP growth, and a continually high unemployment rate?   Well, that is precisely why!  There are several reasons including:

• Organizations who have had to downsize are turning to RPO because they don’t want to invest in hiring recruiters and associated staff only to potentially downsize again (i.e., it’s better to outsource recruitment to a vendor that can provide variable pricing and who can scale up or down quicker than the client)
• Obtaining  better quality of candidates and quality of hire from an outsourcing specialist
• Allowing HR to work as a strategic partner and in-conjunction with the RPO vendor to engage employees and retain talent (instead of focusing on hiring)
• Wanting to get out of the technology management business, which isn’t usually a client’s core competency
• Reducing time to hire, improving hiring manager satisfaction, etc.

In addition to revenue growth from new contracts and renewals, growth comes from existing clients that have increased their hiring volumes. Other sources of growth are from contracts won in prior quarters that take several months before fully ramping up.

RPO does not look like it is going to slow down anytime soon.  In NelsonHall’s HR Outsourcing Confidence Index, published in June, pipeline growth reported in the prior quarter was higher for RPO than all of the other HRO services.

At NelsonHall, we’ve seen an increase from buyers wanting to know who we see as the leading RPO providers by country and region. Buyers, are you evaluating outsourcing recruitment, if you haven’t done so already?

Gary Bragar,  HR Outsourcing Research Director, NelsonHall

HRO Confidence Continues to Pick Up (some) Steam

Results from NelsonHall’s just-released quarterly HR Outsourcing Confidence Index – which gauges the health of the HRO industry via input from a wide range of HRO service providers – indicate the higher level of confidence we began seeing in Q3 2009 has continued into Q1 2010. 27 percent of providers are much more confident in the growth of their business over the next 12 months as compared to the previous 12 months, 40 percent are slightly more confident, and 33 percent are as confident. That we didn’t see any “less confident” responses is a good sign in and of itself!

Looking at relative revenue and pipeline growth in Q4 2009 as compared to Q4 2008, in ranked order by specific HRO processes on a 1 – 5 scale (with 5 being strong increase), providers stated:

RPO:  4.6 revenue growth; 4.4 pipeline growth

Payroll: 4.0 revenue growth; 4.0 pipeline growth

Multi-Process HRO: 3.8 revenue growth; 4.0 pipeline growth

Benefits administration: 3.5 revenue growth; 3.0 pipeline growth

Learning: 2.8 revenue growth; 3.0 pipeline growth

The providers also stated average HRO revenue growth was 16 percent in Q4 2009 compared to Q4 2008, and pipeline growth was up 40 percent in the same 12 month period. All these numbers – which are consistent with what my colleague Linda and I heard at NY HR Week earlier this month – indicate the HRO industry is picking up a bit of steam after being in a figurative bed-ridden state for the past two years.

Need more evidence of an HRO industry recovery? A resurgence of contracts signed in Q1 2010 – including KellyOCG’s multi-year RPO contract with Novartis Pharma France, NorthgateArinso’s managed payroll and hosted HR software contract with Johnson Service Group, Ochre House’s RPO contract with Agilent Technologies in EMEA, Ceridian’s contract with Fifth Third Processing Solutions for payroll and HR services, and Xafinity’s contract for pension administration services with Loganair – tell part of the story. And up quarterly earnings reports – such as Manpower’s 12.5 percent revenue increase in Q1 2010 as compared to Q1 2009, and SeatonCorp’s 26 percent increase in the same 12 month period – tell us even more.

All of this shows the HRO industry is gaining momentum, and there’s a brighter prospect for HRO in the year ahead. We may not be sprinting by the end of the year, but the cast is off, the walker is gone and we may be off crutches by December 31!

Gary Bragar, Lead HRO Analyst, NelsonHall

Hays and SourceRight Solutions: A Different and “Right Time” Global Recruitment Alliance

On March 16, 2010, Hays plc and SourceRight Solutions announced a strategic alliance to offer global talent acquisition solutions. The two vendors will provide customized recruiting services to clients around the world, including in the U.S., Canada, Europe, Middle East and Asia. Over the past couple of years other partnerships have been formed to offer global recruiting solutions including: Pinstripe and OchreHouse, The RightThing and Alexander Mann Solutions, and KellyOCG and IBM. So what makes the Hays/SourceRight alliance different from the rest of these partnerships?

This alliance is similar in that recruiters can be provided in-country, but Hays and SourceRight Solutions are also offering solutions that will encompass:

•  Recruitment process outsourcing (RPO)

•  Managed service programs

•  Professional contingent workforce services

Hays and SourceRight will tailor recruitment solutions that can include any combination of the above, including by industry and geography, and which can be delivered by dedicated account teams with 4,500 recruiters around the world.

Further, this more highly customized and comprehensive recruitment services alliance may be coming to market at just the right time; during the recession, permanent recruiting has been largely on hold and many buy-side organizations have been utilizing temporary hires and contingent workforces due to uncertainty of their business outlook. Tailored, multiple option recruiting solutions should open many doors between Hays/SourceRight and buyers looking for a combination of permanent placement and temporary staffing assistance from the equivalent of one provider across geographies. 

I continue to believe – as I wrote in my 2007 and 2009 global RPO market analysis reports – that global presence and the ability to partner to provide global recruiting services are critical success factors for providers in the talent acquisition space. While the global recession, which resulted in staff reductions and temporary hiring freezes, has somewhat impeded the uptake, I strongly believe the time is right for a buy-side adoption increase, especially for highly tailored, comprehensive recruitment solutions.

Gary Bragar, Lead HRO Analyst, NelsonHall