Posted tagged ‘mid-market HRO’

Where the Action is At in HRO

March 8, 2011

As a follow-up to my colleague Linda Merritt’s blog last week titled “HRO is Settling in for a Good 2011,” I thought I’d write about where the most action is at thus far. If you were thinking recruitment, good guess, but it is actually benefits administration leading the way in the number of announced contracts in 2011.

In addition to Mercer being awarded a pensions administration contract by Loomis UK Ltd., which Linda also wrote about Mercer in her February 23rd blog, a number of providers have announced important contract awards, including:

Fidelity Investments, after two big five-year contract awards in Q4 2010 by AT&T and Office Depot, in January Fidelity was awarded a five-year contract renewal for total retirement outsourcing (TRO) services by BP America, Inc., a subsidiary of BP. Fidelity will continue to provide administration and recordkeeping for BP America’s 95,000 DB and 48,000 DC and nonqualified deferred compensation plans for U.S. employees. Later in the same month, Fidelity was awarded another five-year contract renewal for TRO services by HP in North America. Under this deal, Fidelity will service all of HP’s retirement plan participants, adding 162,500 participants from EDS who were previously serviced by other providers. In total, Fidelity will serve more than 135,000 DC participants and more than 192,000 DB participants for HP.

Aon Hewitt, in February announced it had gone live with eight new benefits administration clients since the beginning of the year. Across these clients, Aon Hewitt has implemented 12 services including DB, DC, and H&W and has added more than 325,000 participants and retirees to its base of 22 million participants.

Capita, in February was appointed as a preferred supplier for the administration of the Teachers’ Pension Scheme (TPS) by the U.K. Department of Education. This is a seven-year, £80m contract renewal that starts in October 2011 and includes an additional three-year option. A week later, on a smaller scale, Capita won a three-year occupational health services contract by Technip. Capita will provide its Wellness Assessment Surveillance Portal, which gives centralized visibility of health surveillance records to Technip’s 3,000 personnel in Aberdeen and offshore locations.

So will benefits administration continue to be hot this year? I believe it will, though it might be hard-pressed to exceed RPO for the full year in terms of number of contract awards.  As evidenced in the examples above, there are huge volumes of benefit plan participants that are serviced and in today’s economy, clients cannot afford internal resources to manage these programs, nor do they have the expertise and most up-to-date technology. Handling benefits administration is vitally important to employees and retirees, whether it’s the ease of an annual online enrollment or the knowledge of a service center professional in answering DB and DC questions. And it’s not just large companies that need this expertise.  As I wrote in my February 25th blog, mid-market HRO is rapidly growing as well.

A final thought about what will continue to drive contract awards in benefits administration is that buyers are increasingly looking to consolidate their outsourcing services under one provider, as evidenced by Fidelity’s contract with Office Depot. This is a trend I believe will continue and from an employee and retiree perspective is a good thing. I was fortunate enough to leave my long-term employer four years ago with H&W benefits, DB & DC plans, and voluntary benefits, of which all four were provided by four different vendors. Sounds like I should play the number four!

Gary Bragar, Lead HRO Analyst, NelsonHall

Mid-Market HRO is Hitting the Big Time

February 25, 2011

HR BPO has historically been targeted to and bought by large organizations.  However, the mid-market, defined by NelsonHall as 500 – 15,000 employees, is rapidly gaining traction.  How so?  In NelsonHall’s Targeting RPO Market Analysis, that was published this week, mid-market RPO grew from c. 1/5 of total revenue in 2008 to c. 1/3 in 2010.  The rapid growth is the result of mid-market clients looking to take advantage of the following benefits:

  • Reducing the costs of HR services
  • Improving service delivery, including standardization of technology and consistency of process across lines of business and geography
  • Gaining access to better technology that clients may not be able to invest in themselves
  • Taking advantage of expertise and knowledge of best practices.

In fact, many HRO providers have introduced solutions or made acquisitions specifically for the mid-market.  In RPO, SourceRight Solutions launched RPO One for the small to medium-sized (SMB) market in December 2010.  Targeted at organizations with 100 – 5,000 employees, RPO One provides clients with a dedicated account manager and team focused on the SMB market.  It also has a pre-configured Peopleclick ATS (applicant tracking system) bundled with SourceRight’s reporting and analytics platform and Avature’s customer relationship management (CRM) system that includes social recruiting.

In payroll, NorthgateArinso recently launched agoHRa, a payroll solution for companies with up to 500 employees per country.  agoHRa can be used as a standalone local payroll solution or as part of a multi-country solution.  It can also be linked into NorthgateArinso’s euHReka platform.

In benefits, Aon Hewitt’s acquisition of RealLife HR was an early example of a provider expanding its services, particularly health and welfare benefits administration, to employers with fewer than 15,000 employees and/or retirees.  Mercer rolled out its Enterprise Momentum service to help mid-market employers gain an advantage navigating the insurance broker market.  In addition, Mercer acquired Innovative Process Administration in 2010 for its recordkeeping and enrollment technology as part of its growth plan in the health and benefits mid-market outsourcing space.

In learning, IBM is targeting the mid-market with a new offering, Smart Business Learning Services, a cloud-based solution with quick implementation and variable pricing.  Although it’s geared toward the mid-market, it offers all the services and functionality of an LMS for the large market.  IBM has also recently launched Smart Business Learning Content Services for the mid-market, which is delivered on the cloud as well and priced on a per user basis.

NelsonHall continues to see and capture mid-market HRO contract wins in our tracking service, providing evidence of success with this market.  Consequently, expect HRO providers to continue to launch offerings with cloud-age technology, services, and cost points that will finally bring mid-market HRO into the big time.

Gary Bragar, Lead HRO Analyst, NelsonHall

Bang the HRO Drum Slowly

September 29, 2010

In my blog last week, Don’t Rain on my HRO Parade, it was fun accentuating the positive signs of health returning to the HRO market. This week I’m taking another look at the latest NelsonHall HR Outsourcing Confidence Index, this time with a moderating eye.  

Total contract values are starting to rise as scope slightly increases, but remain far below historic levels. HRO contracts are still smaller in scale and scope, and there are fewer $100,000+ deals. Further, more deals are occurring in the mid-market, and platform HRO is making inroads, both of which will also lower the average total contract value. All these factors look to become part of the new normal, at least for the foreseeable future.

While the grand plan for multinationals may still be to go global, deal patterns indicate organizations are starting with a more regional approach with fewer countries in the initial roll out. Fewer service lines are also now typical, with payroll and basic HR administrative processes remaining strong as the entry point for companies looking to standardize processes across the enterprise.

 This continues to make it look like the era of multi-process HRO is over. And yet, part of what has traditionally buoyed HRO service providers is follow-on contract expansions of scale and scope, including new services. That approach will only grow more important, putting greater emphasis than ever on making sure the initial client experience is as smooth and positive as possible to build the base for attracting more share of the HRO wallet. With buyers demonstrating willingness to go with multiple vendors and multiple stand-alone services, the role and value proposition of a primary vendor needs to be refocused and honed to meet today’s reality.

Frozen decision-making is finally thawing, albeit very slowly. Service providers report that about 20 percent of buy-side organizations remain iced up on sourcing decisions, down only three percent from the previous quarter. Other inhibitors are reducing in impact, but do remember that given continued economic uncertainty, getting senior management’s attention on making a decision for a major change and financial commitment like HRO will still be difficult.

Expect buyers to continue wanting HRO solutions that do not require large upfront investments and provide robust technology at a transparent price. HRO vendors are increasingly emphasizing the business value in their propositions, which is important to build a bridge for the future. At the same time, buyers are increasingly looking for proof points of real business results before they are willing to commit to crossing the bridge with a service provider. 

The news is moderately good for HRO, but bang the heralding drum a bit slowly, as the celebration parade is not here yet.

Linda Merritt, Research Director, HRO, NelsonHall

HRO SaaS Uptake – What, How Much and Where?

August 19, 2010

As a follow-on to my July 7 blog titled, “SaaS More Than Just Catching On,” let’s today look at what types of HRO SaaS clients are buying, the size of awarded contracts and the industries in which HRO SaaS has had the greatest penetration to date.

The What

By rank order of the most commonly purchased software applications/modules:

• Payroll

• HR administration

• Benefits administration, including benefits planning, health and safety, claims submission, absence management and occupational health

• Employee and manager self-service

• Talent management, including recruiting and learning

• Workforce planning

• Compensation/salary administration

• Employee development for career pathing

• Travel  

The reasons behind the rankings, especially at the top of the list, are pretty self-evident. Payroll leads as it is the most visible and frequently used (and arguably, the most important) service. And HR administration really ties into employee and manager self-service, as one of the primary drivers of SaaS implementation is self-service for cost reduction and employee satisfaction.

The Size

As I noted in my July 7 blog, the mid-market is proving to be the ripest for HRO SaaS. Using Netherlands-based HRO provider Raet as an example – and a good one at that, as it in the past six weeks inked seven new SaaS contracts and one renewal – client company size is ranging from 250 to 12,000 employees. This uptake in the mid-market makes perfect sense, particularly on the lower end, as companies in this space need access to HR technology to enhance their operational efficiency but frequently lack the budget to invest their own capital in purchasing it. In terms of contract sizes, we’re seeing a length range from four to seven years, with an average of five years.

The Industries

In looking across all HRO SaaS contracts awarded thus far in 2010, education is the top industry, followed equally by local government and retail. I don’t necessarily believe there’s any secret sauce as to why these are the top three ranking industries, as organizations in virtually all – including healthcare, media, manufacturing and financial services – may be challenged with a preponderance of multiple divisions and locations, and often have several disparate systems for HR and payroll that do not communicate with each other, causing extra administrative work and duplication of effort, etc. Thus, the driver for most existing and upcoming HRO SaaS contracts is the ability to have one singular system for HR and payroll in order to achieve standardization, data accuracy, cost savings, self-service, timely processing and data, and employee satisfaction.

Due to all the inherent advantages, I believe we will continue to see a growing number of HRO SaaS contracts in the mid-market, across all industries. In addition, but to a lesser extent, I believe we will continue to see combined SaaS and outsourcing contracts such as the one announced on August 10 between MidlandHR and Swan Housing Group. Under this contract, Swan Housing will internally host MidlandHR’s iTrent software – which provides a single platform for HR, payroll, talent management and workforce planning. Swan Housing will simply provide the payroll data via iTrent, and MidlandHR will do everything else, from the structuring of pay and deduction calculations, through to payslip printing and distribution. The advantage of these hybrid-type contracts? Economies of SaaS scale coupled with outsourcing of processes for which internal resources and/or knowledge may be lacking.

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall

Poll: What Topics Would You Like Us To Cover In HRO Insights?

June 29, 2009

As I’m on holiday today, it seemed like an ideal time to ask what you’d like to read about in upcoming HRO Insights blog postings. Our goal is to keep HRO buyers, providers and influencers informed, in an ultra-timely manner, on all things HRO. But we want to make certain we cover the topics which address your most compelling needs and areas of interest.

By taking just five minutes out of your busy day to respond to this survey, you’ll provide us with the insights we need to arm you with the drill-down data and intelligence most relevant to you.

We look forward to receiving your input!

Until next time, happy sourcing!

Helen Neale, Senior HRO Analyst and HRO Research Manager, NelsonHall

Standardized Health and Benefits Admin Outsourcing Services Proliferating for the Mid-Market

June 22, 2009

As my colleague Gary stated in his May 27 blog, standardization is key in making mid-market HRO affordable, efficient and sustainable for both buyers and providers. And given the skyrocketing costs associated with healthcare and delivering health and benefits administration services to employees, it should come as no surprise that Mercer on June 11 introduced an expanded health and benefits administration outsourcing platform to offer a standardized solution for clients with 5,000 to 10,000 employees.

With this new service offering, Mercer joins the ranks of HRO vendors – including Hewitt and ExcellerateHRO (which, as of last week, is now exclusively owned by HP following its purchase of Towers Perrin’s shares in the company) – which have developed and are providing standardized health and welfare offerings to the mid-market. What’s the value proposition of such standardization for mid-market buyers?

Our January 2009 Mid-Market HR Outsourcing Market Analysis found that the top drivers for outsourcing benefits administration services are: 1) Better technology than clients have the capital to invest in themselves; 2) Improved employee experience; 3) Standardized and streamlined processes; and 4) Reduced expenses. And indeed, the standardized health and welfare offerings from today’s HRO providers are helping mid-market companies meet each of these needs. Let’s look quickly at each one.

Better Technology – due to economies of scale, providers have been able to cost-effectively develop or invest in technological platforms which enable rapid implementation – and thus quicker payback – of automated functions and robust self-service capabilities for their clients’ managers and employees.

Improved Employee Experience – whether it’s changing a deductible amount, applying for a Leave of Absence, enrolling in a benefits program or adding or removing a spouse or dependent to an insurance policy, employees feel more in control when they can manage health and benefits-related activities themselves via self-service. And they can do so 24/7, rather than during regular working hours.

Standardized and Streamlined Processes – enterprise-wide consistency regarding activities such as how to enroll in a benefits program, how to determine the impact of healthcare policy changes, who to call for questions and where to go for online portal-based FAQs is advantageous for employees and their companies alike in terms of satisfaction, bandwidth and cost savings.

Reduced Expenses – our above-mentioned Mid-Market Analysis found that mid-market health and benefits administration outsourcing buyers are reducing their costs by an average of 26 percent.

We estimate more than half of the health and welfare outsourcing market is comprised of mid-market organizations. Further, we anticipate growth in overall benefits administration in the mid-market will be 10 percent through 2013, which signals a continuing trend for mid-market organizations to address technology, service delivery and cost issues through outsourcing.  But questions do remain. Which companies will jump on the bandwagon, and which won’t? Will health and welfare outsourcing for the mid-market live up to its promises? This is certainly a space to keep an eye on.

Until next time, happy sourcing!

Helen Neale, Research Director, Human Resources Outsourcing, NelsonHall

Selection and Assessment Tools Help Companies Separate the Jewels from the Trinkets

June 10, 2009

With near double digit unemployment rates, today’s recruiters and hiring mangers are being inundated with hundreds of applicants for every job opportunity. Yet despite such tight economic times, our recent RPO market analysis found that talent acquisition demand continues to be the top HR issue organizations face. So how can someone tasked with hiring sift through volumes of resumes to select only the most viable candidates?

There is an increasing array of selection and assessment tools – both those developed and utilized by RPO providers on their clients’ behalf as well as SaaS purchases leveraged directly by in-house recruiters – in the marketplace. These tools not only assist in identifying those candidates who meet the skills and experience qualifications of a given job and then assess best fit based on multiple criteria, but also considerably reduce cost-to-hire in terms of recruiters’ and hiring managers’ time expenditure.

Let’s look at several examples.

Aon Consulting’s Screen Machine combines applicant tracking, custom assessment and back-office functions appropriate for entry-level and skilled positions, designed for specific industries. It begins by screening applicants for basic skills and job fit followed up by a custom realistic job preview. Next, the applicant must pass an online assessment which measures their work habits, dependability and retention likelihood. If qualified, the applicant schedules himself or herself for an interview. 

Kenexa Performance Indicators is a web-based suite of pre-employment assessment tools designed to identify prospective employees who have a propensity to be engaged, to work well in a team and to demonstrate excellent customer service orientation. It and other Kenexa offerings help organizations select and retain top performers based on seven key areas that predict individual performance and potential – experience, skills, abilities, personality, motivation, judgment and culture fit.

An offshore services provider uses a Predictive Index tool which measures each candidate across four distinct parameters per a software-based test completed by the candidate. The system-generated scores are used to determine the suitability of each candidate for a specific job.

We believe the use of candidate selection and assessment tools will increase, not only today when there is such a job applicant glut, but also after the current economic crisis subsides. It makes sound business sense to continually develop and leverage new and improved automated tools to reduce the number of potential candidates to only those who meet key specified criteria.

Gary Bragar, Lead HRO Analyst, NelsonHall