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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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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The Logic in Logica’s Focus on MPHRO

Linda Merritt, HRO Research Analyst, NelsonHall

Logica has long been an HRO service provider in the U.K. and Europe. With much of its HRO revenues from payroll, it has been a bit quiet on the multi-process HRO (MPHRO) front. So I wasn’t sure that I saw the logic in Logica’s increased investment in MPHRO capabilities, especially when there are other major MPHRO players already in the economy-constrained market.

The HRO group at Logica recognized the developing opportunity for MPHRO as some buyers, especially second generation HRO users and multi-country businesses, began to want more than just transactional low-cost contracts. This created space for an HRO partner to help clients transform HR to increase business and workforce agility in responding to rapidly changing market conditions.

Logica is emphasizing its transformational HRO capabilities by:

• Assisting organizations to align their HR objectives and services with those of the wider organization and manage HR against business goals such as increased employee engagement
• Change management and ensuring that change management is both carried out up-front and carried through to a detailed sub-process level using service simulations to promote operational change as necessary
• Composing a common HR process taxonomy to be used as a common language across both outsourced processes and the retained HR processes
• Program management and its real-time PMO tools.

In terms of process design, the company is looking to use a set of standard Logica HR processes for Logica-delivered processes; for client-retained HR processes, it will provide workflow tools. Logica is also looking to encourage innovation beyond minor process improvements by establishing jointly managed innovation funds and innovation groups with its clients.

In technology terms, Logica currently supplements Oracle’s PeopleSoft HCM 9.1 and Oracle’s E-Business Suite with specialist HR applications where necessary. It may also consider SAP-based HRMS implementations downstream.

To date, the investments are starting to pay off. BPO, including HRO, was the fastest growing segment for Logica in FY 2011, up 23.8%. In the last 12 months, Logica has also been awarded several major MPHRO contracts including:

• BAE Systems:  a six year contract supporting 33,000 participants in the U.K. with a new single-tenant, hosted Oracle HR platform; payroll services; absence and attendance; employee care; and administration services in support of talent management functions including recruiting and learning
• Ahold, a Dutch headquartered supermarket retailer: a nine year contract supporting ~100,000 participants in the Netherlands, Slovakia, and the Czech Republic with a new Oracle PeopleSoft 9.1 platform; HR administration services; HR service desk; and payroll services, which will be subcontracted to ADP.

Other MPHRO contracts were awarded by a British telecom and a Swedish financial services firm, both for five years.

Logica is well underway working its five year roadmap for services development, which includes strategic new services, increasing its partnership ecosystem, and practical elements like adding more mobile apps. Logica is also a relationship-focused partner, and that trust factor, along with results realization from the new wins, will help it continue to grow in MPHRO. Logical indeed!

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HRO Confidence Remains Steady for 2012

Every quarter, my colleague Amy Gurchensky surveys HRO vendors for the NelsonHall HR Outsourcing Confidence Index (HROCI), which is then available for our clients and the participating service providers. In normal times, the HROCI does not change drastically from quarter to quarter; it more shows changes in trends over time. In uncertain times, however, it is a timely way to see changes in market perceptions even before disruptions occur in contract values, volumes, and revenues.

It is of some comfort that the HROCI is in a steady state of small changes from quarter to quarter. That is not a sign of upcoming exuberant growth, but it is a predictor that we will continue to see solid continuous HRO growth throughout 2012.

The most recent HROCI shows a vendor confidence level of 153, where 100 represents unchanged confidence and higher scores indicate increased confidence. While 153 is down a bit from 164 in 1Q 2011, it is in line with 3Q and 4Q 2011 at 151 and 147 respectively. Vendor confidence is often based on how current business is going, along with the pipeline. In HRO, growth from existing clients is just as important as new business. Ever since deals got smaller in scale and scope, there has been increased focus on retaining and growing existing accounts, and we see positive vendor confidence here as well.

Looking at some of the HR lines of service, payroll is once again in the leading position for growth, followed by RPO, multi-process HRO (MPHRO), benefit administration, and learning. MPHRO is expected to perform well in 2012, primarily driven by the need of organizations to standardize HR services across regions and geographies. Vendors such as ADP and NorthgateArinso that previously offered primarily payroll and employee administration services have been very active in acquiring or partnering to extend capabilities to a wider range of platform-based MPHRO functions. In addition, Logica is becoming increasingly successful in this space in Europe.

There is a slight tempering of growth expectations that can be seen in the data, although pipelines still seem solid. I think this is the same kind of hedge-your-bets thinking that is in the larger economy and what we are seeing from HRO buyers. Everyone still has a healthy sense of caution in case things suddenly go sideways.

Luckily, more and more HRO buyers and clients are willing to move ahead and get on with doing business, even if a bit cautiously. Other buyers still suffer from frozen decision-making and unwillingness to make long-term investments. Buyers with clear direction for what they want to achieve through HRO are the most likely to be deal ready – as along as prices are right and there is not too much upfront investment. The earlier service providers can assess readiness, the faster they will be able to fill pipelines with well-qualified prospects.

Linda Merritt, HRO Research Analyst, NelsonHall

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Recapping the Not-so-Dog-Days of HRO’s 2010 Summer

One of the biggest HRO stories of 2010 will be the flurry of big and small acquisitions in the benefits administration space. The three big acquisitions – ACS and ExcellerateHRO, ADP and Workscape, and Aon and Hewitt – have recently closed.

As acquisition mania played out, many HRO deals were getting done, and this week, as the weather has finally, thankfully, started to cool, I’m taking a look at some of the deal activity over the long hot summer.

There were not a lot of announced deals in benefits administration, but a Hewitt summary indicates plenty of activity was still quietly going on. Hewitt won new awards across the span of benefits administration in the large and mid-market, including several in defined benefits and defined contributions. But the greatest activity was in health and welfare, and for point solutions like dependant audits and flex spend accounts.

While not necessarily matching North America in total contract value, the U.K. and Europe were also quite active in HRO. Logica was awarded a £10m payroll and pensions HRO contract extention by U.K’s Metropolitan Police, with new scope this time around including increases in employee and manager self services and electronic pay slips. And Midland HR won a deal for its iTrent HR platform including HR administration, employee and manager self-service, payroll, talent management and workforce planning.

In RPO, CPH won a contract with Opal Telephone, and Alexander Mann was awarded  a contract for recruitment and contingent labor by Cobhan. On the continent, HRO activity included HR administration and payroll deals by Reat and HR Access in the mid-market.

ADP parlayed existing payroll services for KAO, a Japan-based consumer products manafacturer, into extended HR administration and payroll services across Asia Pacific including China, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, Taiwan, Thailand, Vietnam and Japan. In addition, ADP won a global managed payroll services contract with BT that will cover more than 40 countries in North America, Europe and Asia Pacific when fully implemented.

It was refreshing to see a spate of learning contract awards won by Expertus, General Physics, Intrepid and The Learning Associates. However, as most of the learning outsourcing activity was in the public sector, we still need to see more of an uptick in the private sector before we can say learning is fully on the road to recovery.

RPO maintained its lead position as the most active single service area, with the greatest increase in revenues and new contracts. RPO activity was highest in the U.S., followed by the U.K., and was spread nicely across providers including Alexander Mann, CPH, Kelly Services, Manpower, PeopleScout and SourceRight. Several of the awards were for contingent labor or combined RPO, with the contingent labor focuses indicating that employers are still cautious about a full return to permanent hires.

There were no announcements of the HRO mega-deals of yore, but it was very nice to see the increased activity levels across many HRO service lines and service providers. Now that the cooler weather of fall is here, we’ll  hopefully see an even more serious return to getting business done before the end of the year!

Linda Merritt, Research Director, HRO, NelsonHall

The Next Shore for HRO – Finding Cultural Compatibility

HRO clients have become more open to multishoring to gain cost, scalability and flexibility advantages. And as the major HRO vendors have globalized their service delivery capabilities, some portion of the work is increasingly likely to be done offshore in order for their clients to benefit from optimized services. 

Voice services have been the most challenging area to find culturally compatible locations with a scalable English speaking talent base. According to the new NelsonHall market research report, “BPO Delivery from the Philippines,” the Philippines is a growing location for both voice-based and back-office BPO services, with more than 386,000 personnel across a growing number of service providers. The largest segment by far is customer management services for the U.S., with F&A, especially order to cash outsourcing, as the next largest.  Major BPO vendors, including Convergys, IBM, Infosys, Logica, NorthgateArinso and Wipro, are already there.

HRO services are there as well. HRO is a small, but growing, portion of the service base in the Philippines. The top HRO services supported are employee care and payroll.  With HRO service providers using sophisticated workflow technology and processes, portions of service lines can be handled from just about any location. In the Philippines, initial screenings for RPO, and enrollment and inquiries for learning BPO are supported, as are employee data management, benefits administration and mobility services.

Right now services from the Philippines are highly centered on the U.S., followed by Canada and the U.K. Future growth is expected from English-speaking Asia Pacific countries like Australia and New Zealand. In addition to organic growth for the services already located there, healthcare from both the payer and provider sides is seen as a good opportunity for expanded services.

Latin America is also growing as a BPO region. I recently spoke with country representatives from Chile and Jamaica, and both countries would like to add HRO to the other BPO service lines already migrating to Latin America as it grows as a near shore region and as its own market.

The HRO community can look forward to a wide range of shoring options and cost points. The HRO back-office location will increasingly be by vendor choice, and less and less visible to clients. HRO voice services will remain a client decision to balance cultural compatibility, scalability, flexibility and cost.

Linda Merritt, HRO Research Director, NelsonHall

Will Talent Management be the Next Hot Thing in HRO?

One of the challenges for any business, including HRO, is balancing meeting today’s needs while getting ready for the future. I am seeing a positive tone change emerging in HR articles, blogs, service provider and consulting firm research and marketing. Broader workforce issues are starting to get attention again, and will hopefully lead to more business for HRO.

Talent management is one of the topics getting a lot more coverage. After the deep cuts, cost controls and contraction of the labor market of the recent past, employers are now interested in how they are going to shape their talent programs going forward.

HRE Online has a very good article by Tom Starner, Refocusing on Talent Management, that references recent talent management research by Ernst & Young and Mercer. According to Mercer, 51 percent of surveyed employers rated talent management as a top priority, and 76 percent expect it will be a top priority in the next three to five years.

Ernst & Young’s study highlighted three key initiatives: rebuilding the internal talent pipeline; understanding and coordination global talent for key positions; and offering flexible work strategies.

With the expected slow return to growth, employers want to know how well targeted talent management investments are working. Mercer reports that only five percent of respondents were confident in their ability to effectively measure the impact of talent decisions and investments, and 41 percent said they were not at all effective.

Institute for Corporate Productivity (i4cp) research indicates that high-performance organizations were more than twice as likely to emphasize the measurement of talent management (37 percent) than low-performing organizations (16 percent).

A talent management application suite can help organizations manage, track and report on talent management activities, and there many in the marketplace. But some clients have learned that no matter how capable the application, if it isn’t well understood and used, it is no bargain.

Mercer has just launched its new offering, Human Capital Direct, a rewards and talent management consulting and technology service based on software from Peopleclick Authoria. Mercer is embedding its own intellectual capital, and will be implementing and hosting the software and surrounding the whole package with pre- and post-implementation consulting.

Companies can get talent management applications as stand-alone services. The same is true for the broader systems that cover HR, payroll and more; buyers can contract directly from Oracle and SAP for HR SaaS applications. They can also obtain them as fully supported BPO services where vendors such as ADP, Logica, NorthgateArinso, Infosys and others add portals, tools, services and reporting, along with implementation support and hosting.

I always like seeing a full range of available HRO offerings, from client-managed to vendor-managed, from basic cost saving functionality to fully featured transformative vendor relationships. Each type and level of HRO has its time and place.

Can talent management be turned into a full platform BPO service? Is now the time? Mercer is hoping the answer is “yes.” What do you think?

Linda Merritt

NelsonHall

Research Director, HRO 

Linda Merritt, Research Director, HRO, NelsonHall

HRO Providers’ Quality Programs – Where’s the Beef?

Just last week a NelsonHall client asked me about HRO service providers’ quality programs. A bit surprisingly, my mini-research found a scattershot representation of available information. While I know more complete details would have been available had I done a full research analysis, and that vendors can present their capabilities for RFP responses, I was little taken aback at the limited data available on the providers’ web sites and in many marketing and briefing packages.

There was quite a bit of information on certifications such as SAS70, CMMI levels and various ISO certifications. Some providers, including ACS, Ceridian, IBM, Logica and Wipro, specifically mentioned use of Six Sigma and Lean programs. One vendor listed the vague, “other quality assurance programs and tools.” Yes, technical certifications are valuable, and use of named quality programs like Six Sigma is good, but these may or may not indicate that quality is integrated across the business and reaches well beyond the IT and data centers.

Earlier in my career I was in Quality for many years, doing everything from facilitating quality teams to developing and delivering training and helping design and implement quality programs. I had big fun during the early days of the U.S. Baldrige Awards system for business, becoming an internal examiner for my company’s (AT&T) internal awards program, as well for preparation before official Baldrige Award examiner visits. So I know what an integrated quality system can do for customer satisfaction, employee engagement, and the bottom line business results that please shareholders.

The days of high promoting of quality programs has passed, and while information on quality does not need to lead in marketing materials, it should be available and easy to find. Clients and prospective buyers want to know the provider has a current record of meeting its SLA obligations and cares about customer satisfaction. Since HRO vendor decisions tend to be longer term commitments with substantial barriers to changing, buyers also want assurance the vendor will be able to deliver in the future.

Clients do not pay for vendor quality programs, even when certified and award-winning. Clients pay for business performance achieved through quality programs. Excellence in quality is an indicator that a service provider can reliably deliver on service, operational and compliance promises.

A comprehensive quality program has competitive advantages for both clients and the service provider – ensuring performance for clients and achieving performance objectives for the business – and should be driven by the service provider’s strategy and business objectives.

Today, major HRO providers have distributed service delivery networks, many global and often including a complex array of suppliers. The more the services and workflow is segmented, the more important quality becomes. Quality should have an equal focus on the internal business efficiency needed to achieve profitability and the ability to fuel future growth.

HRO vendors, let’s see more complete, easy to find quality program information. And please support the information with more than a list of programs and certifications; “beef” it up with  at least some lean protein tidbits which provide evidence that your programs are widespread and effective. Even more importantly, make sure your quality system is robust and is serving both your clients and your business as the fight continues to maintain and increase your margins to sustainable levels while retaining and adding satisfied clients.

Linda Merritt, Research Director, HRO, NelsonHall

The Public Sector – an HRO Opportunity, One Way or the Other

The public sector is a dual factor in HRO. The first factor is government’s role in legislation and regulations that impact commercial sector client needs. The greater the uncertainty, changes and compliance focuses, the greater the opportunity for HRO providers to emphasize their subject matter expertise and risk mitigation partnership capabilities as added value incentives beyond the traditional cost savings and administration benefits.

The second is that the public sector is a major market for services for those providers with the stamina and fortitude to persevere in the long wave sales cycle public arena, the skin thick enough to survive the public commentary of creating change in organizations with often polarizing interest groups, and the management and technology wizardry to make margins at the same time as operating under more restrictions than with commercial clients.

The January 2010 NelsonHall BPO Index showed that 2009 global public sector BPO awards outpaced the private sector, led by Europe where government BPO spend was a whopping 74 percent of total contract value.

We can see the impact on HRO with some examples of 2009 public sector awards and renewals:

• RPO ended 2009 on an up note with Manpower being awarded a $200 million contract by the Australian Defence Force, as well as public sector RPO awards won by Carlisle Managed Solutions in the U.K. and Kelly Government Solutions in the U.S.

• CSS, General Physics and Raytheon each won major new and renewal military and defense learning contracts

• Health and welfare did very well, with Ceridian being awarded a $477 million contract for additional Military OneSource services and with Hewitt winning a flexible benefits contract by the State of Georgia

• European municipalities awarded contracts and renewals for Pensions, Payroll and HR administration services that included Logica in Sweden, KMD in Denmark, and Capita Hartshead and Mouchel in the U.K.

• Convergys stayed the course and received a two-year renewal by the Texas Health and Human Services Commission and a five-year and $185 million extension by the State of Florida

Jamie Liddell points out in his Shared Services & Outsourcing Network (SSON) article on Public Sector Outsourcing After the Recession that economic pressures are continuing to grow on revenue-strapped public sector organizations in the U.S. and Europe, driving increased interest in outsourcing options. Jamie says that, “the U.K. is widely viewed as a ‘world leader’ in public sector outsourcing,” and that outsourcing already accounts for about thirteen percent of government spending. The U.S. has not yet seen a similar surge in outsourcing, but economic pressures will encourage both public sector agencies and HRO providers to address and overcome barriers to increased outsourcing. As we see from the U.S. awards in a down year like 2009, it can be done and we will see more in 2010.

There is no way around it. The public sector will continue to be a major opportunity in 2010, both as a regulatory driver and as a major HRO buyer.

Linda Merritt, Research Director, HRO, NelsonHall