IBM & Air Canada: Proof that Traditional MPHRO Contracts Are Not Endangered

Before blogging about other current events such as ADP’s recent acquisition of The RightThing, one final announcement from HR Tech to address further is IBM’s contract win with Air Canada.

Air Canada was an early participant for outsourcing HR services as part of its business practice. In early 2004, it awarded a 7-year multi-process HR outsourcing (MPHRO) services contract to Exult, which was acquired by Hewitt a few months later. Hewitt, and then “Aon Hewitt” since its acquisition, provided Air Canada’s ~36k employees with workforce admin, payroll, benefits admin, recruiting, and learning admin services, a very “traditional” MPHRO contract at the time.

In addition, Air Canada awarded NorthgateArinso with a 5-year contract for managed payroll services in the U.K. in late 2010.  Then it decided to shake things up by opening up its MPHRO contract for competition. Key to winning the contract would be a provider that would continue to drive innovative transformation and ensure lower costs.

Last week, it became clear that IBM was the provider that Air Canada was looking for when it signed a ~8 year MPHRO contract for Air Canada’s North American employees and retirees.  Services include HR contact center, employee data management, employee travel support, payroll, benefits admin, leave management, recruiting services with support from Manpower, and software application support for the HR systems used to provide the services.  This recently announced contract is proof that traditional MPHRO contracts are not endangered.

Several weeks ago, I discussed the four market segments of MPHRO that exist in the market.  Among the emerging segments such as “multi-country standardization” was the “client-specific shared service / transformation” group, which represents many of the traditional, transformative deals that occurred in the early to mid 2000’s such as Hewitt’s contract with Air Canada.  Although growth for this segment isn’t expected to be quite as high as the other emerging segments, it is still expected to increase modestly through 2015 contrary to popular belief.

IBM and Aon Hewitt are both leaders within MPHRO.  Within the shared service transformation segment, Aon Hewitt is ranked first in terms of revenue with nearly ~19% market share; IBM is ranked second with ~14% market share.  Aon Hewitt is also doing its part to keep this segment alive; earlier this year it signed a MPHRO contract of significant size with an unnamed financial services organization.

While all the focus lately is on the newer species of MPHRO contracts, specifically the multi-country standardization contracts, the four existing segments can and will continue to co-exist in the larger ecosystem.

If you’re a MPHRO provider focused on the shared service transformation market segment be sure to tout your contract awards and renewals, so everyone knows that this segment is alive and well.  We love to share the good news!

Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

 

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.com with “HRO Insight” as the subject.

Expect Payroll Outsourcing to Proliferate in Financial Services and other Struggling Sectors

Our March 2009 “User Requirements from Payroll Services” research study found that today’s most critical payroll management necessities include:

•  Consistent, standardized payroll processes across the enterprise, particularly when the organization operates in multiple countries or is poised to enter into other geographies

•  Common-view access to complete payroll data across the enterprise to enable HR to make better strategic decisions

•  Cost reduction resulting from increased efficiency, self-service capabilities and Web 2.0 technologies

Thus, two very recent payroll outsourcing deals come as no surprise. On May 19, 2009, ADP announced it had entered into a payroll outsourcing engagement with Swiss Re, a leading and highly diversified global reinsurer. During the five year contract, ADP will service the payroll needs of up to 10,000 employees and 2,500 pensioners across Switzerland, Germany, the U.K. and the U.S., and smaller populations across more than 20 other countries. And on June 9, 2009, NorthgateArinso announced it had entered into a payroll outsourcing deal with One Housing Group, a non-asset holding parent that brings together three housing associations serving London and adjacent countries under a group structure.

It also comes as no surprise that both of these contracts are in industries struggling in today’s current economic climate, as cost reduction in many areas including services delivery is key to their survival. We anticipate seeing an increase in signed contracts for managed payroll services globally – particularly within the financial services, manufacturing and professional services industries – especially those which enable client organizations to leverage the provider’s technology solutions and self-service/Web 2.0 implementations to reduce overall HR costs and improve global data management and integration without heavy capital outlay requirements.

Until next time, happy sourcing!

Helen Neale, Research Director, Human Resources Outsourcing, NelsonHall