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!

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by clicking here.

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.

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by clicking here.

The Parable of IBM and Kenexa: Part II

Linda Merritt, HRO Research Analyst, NelsonHall

It’s common for major HRO announcements to be followed by a conference call, and sometimes one-on-one briefings are also offered for analysts as in the case of the IBM and Kenexa deal.  Naturally, the NelsonHall HRO team including myself, Gary Bragar, and Amy Gurchensky took advantage of both opportunities.  

IBM’s Own View

The initial announcement was largely from the perspective of the IBM Social Business group that will add Kenexa’s HCM capabilities to its combination of social media, content management, and analytics. IBM believes that this creates value through the application of social technology to front office processes and generates ROI by creating social networks of expertise that leverage analytic insights to improve business processes. In sum, a “Smarter Workforce.”

It is the Whole Elephant…

In Part I, I compared the various views of the IBM and Kenexa news to the analogy of the blind men and the elephant. The answer is that all of the following interpretations are rationales of the deal:

• Builds upon IBM’s social media, analytics, and professional services including BPO
• Brings valuable software, HRO expertise, as well as talent management capabilities
• Increases competition and cross-selling to both IBM’s and Kenexa’s base of Fortune 500 customers
• Delivers value to C-suite executives, HR executives, and the whole value chain of management and employees.

…and Much More

The IBM Global Process Service’s HRO team was involved from the start and will be deeply involved throughout the integration process. RPO services will be combined creating an even bigger global footprint with new service centers including three in the U.S. Kenexa’s learning platform will be reverse engineered to support IBM’s learning services. There are also other parts of Kenexa that can be kept or spun off such as compensation services, behavioral sciences surveys and assessments, and middle market customers.

Kenexa will be a wholly-owned subsidiary for the first year to allow time to determine the best options for unleashing the full value of the deal. Kenexa brings innovative and collaborative intellectual capabilities and a portion of the value is greater than the “stuff” that can be divided up. Even with Kenexa’s leadership intact, the decisions will be many, with lots of players due to the matrix nature of the services and opportunities adding to the normal M&A complexities.

IBM’s Smart Workforce incorporates the concept of the boundary-less enterprise that works across the “whitespace” between processes and organizational silos. IBM wants to make human capital management an integral part of business operations by enabling people to unleash their talent when, where, and how it is most needed to create measureable value.

We each see the world through our own lens of experience and expectations, and sometimes the truly new and innovative “elephant” is harder to see. IBM and Kenexa can create the truly new and we should all hope they do. HCM, HR, HRO, HR tech, IT, social media, and more will have to raise their game to benefit from the new technology, services, and consulting opportunities. And that is a good thing!

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by clicking here.

HRO Carrying On Despite Slow, Decelerating Economy

Amy L. Gurchensky, HRO Research Analyst, NelsonHall

For those of you who are not aware, NelsonHall assesses the confidence in the HRO market on a quarterly basis. The report involves surveying HRO suppliers from all disciplines to get a pulse on the market.

 From time to time, my colleagues and I will blog about these results. I thought I would take a step back and re-examine HRO supplier confidence levels since the report began.

 As the name suggests, the supplier confidence level measures how confident HRO suppliers are in the future market with a level of 100 representing no change in confidence.

Since the report began, the index has constantly shown a healthy level, despite some fluctuations in between. The following chart graphs HRO service provider confidence levels since its inception.

HRO Supplier Confidence Chart

2011 shows a major turning point in HRO vendor optimism, revealing a downward trend line that coincides with the Employment Situation report produced by the Bureau of Labor Statistics.

There is no need to panic though. It appears that supplier expectations are now more accurately aligned to pipeline activity, which showed a slight weakening in Q1 2012. Again, the most important thing to remember is that the indices are still at a healthy level.

Despite the headwinds from the economic recovery, business for HRO has carried on as evidenced in the following contract activity:

• ADP: awarded a multi-country payroll contract by HP covering ~130,000 employees in 40 countries across Asia Pacific (excluding India), Europe, and the Americas (excluding the U.S.)
• Fidelity: awarded a DC administration contract by the University of Washington for ~31,000 employees; it is now the sole recordkeeping provider for the university
• Talent2: awarded a three year RPO contract by Bankwest in Australia providing full RPO services from job requisition through onboarding including employment branding, establishing an innovation program for sourcing, and more
• IBM: awarded a learning services contract by a government entity in South Africa including content development and delivery of learning
• Aon Hewitt: renews and expands its multi-process HR outsourcing contract with BMO Financial Group for payroll, workforce administration, H&W administration, recruitment services, and compensation administration covering 46,000 employees in the U.S. and Canada for eight years.

There will likely be continued challenges from clients such as stalled decision-making or demands for lower pricing, and some service lines will fare better than others in this slow economy that is decelerating.

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by clicking here

Let’s Not Forget About Learning

According to a survey by KnowledgePool, a U.K.-based managed learning services provider, 70% of internal client learning and development (L&D) organizations are too busy doing daily fire-fighting to focus on strategic talent and learning issues in their company. Out of 104 L&D managers, 69% say their training department does not have enough resources and 42% say that training receives inadequate support from senior managers. Yet 80% of L&D managers said they could improve their organization’s training ROI; 77% think new opportunities for improvement could be identified through rigorous analysis of their training spend and evaluation data; and 75% say improvements could be made by using more informal and on-the-job learning methods.

Sound like an opportunity for outsourcing? You bet!  The good news from NelsonHall’s most recent quarterly HR Outsourcing Confidence Index is that learning services, which has been the last of the HR outsourcing service lines to recover, is expected to continue to strengthen as the year progresses. Following several strong quarters of growth within RPO, the need is now shifting toward implementing and optimizing learning programs. Good news in learning since the beginning of Q2 includes:

• Genpact winning a content development contract by JobSkills in India
• Raytheon Professional Services winning a contract to develop an e-training program for NATO
• CIBER’s Federal division winning a 5-year training development contract with a potential value of $30.7m by the Center for Strategic Leadership, an institute of the U.S. Army War College
• Accenture winning an e-learning contract with a major bank that may later add classroom ILT
• General Physics winning $3m in 5 new contracts from energy companies across Africa, the Middle East, South America, and Asia
• Edvantage group winning a safety e-learning contract by Yara International, providing 7 interactive e-learning courses for 3,000 technicians, operators, engineers, and supervisors at 30 plants across 17 countries.

In NelsonHall’s last learning BPO report, top drivers of why companies are outsourcing learning, which support KnowledgePool’s findings, include:

1.        Lowering costs (average client savings of 26%)
2.        Increasing training effectiveness and ROI
3.        Improving the quality of learning for employees
4.        Accessing experts in the industry whose core competency is                       learning
5.        Flexible services, aligning learning with the customer’s                                 strategic objectives
6.        Focusing on strategic work, not transactional activities.

Look for increased learning outsourcing to continue the remainder of 2011, including by the likes of IBM who continue to see increased demand globally. In 2012, I think learning outsourcing will really soar. Although uncertainty in the economy continues to cause delayed decision-making, there is no doubt in my mind that we will see a boost in learning as companies unanimously agree talent management is more important than ever. To improve and engage talent, you have to invest in your people. There is only so long you can just say the words, eventually you have to walk the talk!

Gary Bragar,  HR Outsourcing Research Director, NelsonHall