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

SaaS-based HRO is More than Catching On

The current economic environment is increasingly leading buy-side organizations to up-step their usage of SaaS-based, vendor-hosted applications to underpin outsourced HR services, with the adoption of new HR technology becoming an important enabler of improved HR process cost-effectiveness. NelsonHall’s recently published HRO buyer report, “HR Issues and Outsourcing Intentions,” found that 72 percent of the HR executives who participated in the study cited increased likelihood of using SaaS applications for new outsourced services. And HRO service providers responding to NelsonHall’s 1Q10 HRO Confidence survey cited that 44 percent of client prospects are seriously considering platform-based HRO. Gasp! Can you recall the last time buyers’ anticipated uptake of – well, name it – outpaced the providers’ predictions?

To properly frame HR departments’ increased utilization or consideration of SaaS, it’s important to remember HR is typically the process area in which there is greatest organizational acceptance of use of vendor technology, driven by the traditional low priority given to HR in terms of HR investment. But this historically minimal investment is exactly the point – and much of the upside – to leveraging SaaS-based HR applications. Buyers don’t need to make a capital investment in, but have access to, the most up-to-date technology without worrying about upgrades. Add to the benefits mix the elimination of multiple – and oftentimes outdated – HR and payroll systems many medium and large companies around the world still have in force, with the resulting reduced redundancy and further savings costs.

The services provided using hosted HR applications are these days largely singular in nature. For example, the HRO services enabled by supplier-hosted SAP human capital management (HCM) services are typically restricted to payroll services and employee care. There is also an increase in the use of supplier-hosted applications that support single services including learning, recruitment process outsourcing (RPO), and HR administration. For example, earlier this year MidlandHR was awarded an HR and payroll software contract by Kent County Council utilizing its iTrent software to provide several modules including learning and recruitment. And NorthgateArinso was awarded a six year contract for payroll and employee administration software by Garlands Call Centres. NorthgateArinso’s ResourceLink Aurora system will be used to support administartion of employees’ personal details and employment records, process hires and leavers, and run the payroll process for 1,500 employees.

Based on contracts I’ve seen and research I’ve conducted, I believe we will continue to see an increasingly high number of platform- and SaaS-based contracts, particularly in the mid-market. There will also be more platform- and SaaS-based HRO contracts in the large market, but they will be supported by more comprehensive BPO in terms of outsourcing of people (e.g., recruiters in BPO) in addition to technology to perform service delivery, as buyers look to maximize quality in delivery of services and further reduce headcount and costs. 

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall