HRO Can Help Stem Absence Management Cost Hits – But There’s More

A recent CyberShift survey found that one third of the 1,088 respondents cited absence management as a continuing top priority. Yet 53 percent of the survey participants stated they did not have an automated system in place for absence, leave, vacation and FMLA tracking. This is a pretty scary statistic, especially when, per CyberShift, unscheduled absenteeism can cost businesses more than $760,000 per year in direct payroll costs alone.

At the same time, forward-thinking buy-side companies over the past couple of years have awarded absence management contracts to HRO providers, and the vendors are beefing up their absence management offerings. Let’s take a look.

Absence Management Contracts

• MidlandHR was awarded 10 contracts in the last two years for its iTrent HR and payroll software, including its absence management modules, by the University of Exeter, Capel Manor College, Oxford City Council, NetworkersMSB, Pentagon Investments, Preston College, Which? (yes, this is an actual company name), Manchester Fire and Rescue, Kent County Council and Farnborough College
• Wipro implemented Oracle’s PeopleSoft Enterprise HCM 9.0 for Jammu & Kashmir Bank in India. Modules implemented include absence management and approval workflow
• NorthgateArinso won a five-year contract with Hastings College for its ResourceLink HR platform, which supports absence management
• Convergys entered into a five-year contract renewal for multi-process HRO services with a leading business services company; components of the contract include absence management and leave administration
• Hewitt was awarded several unnamed contracts that include absence management
• Raet won a 10-year contract with OSG for its online HR portal, which includes absence management

Providers’ Enhanced Absence Management Offerings

Just a couple of weeks ago, Capita acquired FirstAssist Services Holdings Ltd. to strengthen its capabilities in health and workforce management, including absence management. In January, Hewitt added participant advocacy services to its absence management offering. In August, Ceridian added Presagia’s employee leave management software to support its leave management services. And Xchanging announced an alliance with absence management specialist FirstCare through which the two parties will jointly go to market with FirstCare’s absence management and occupational health pre-employment screening services and Xchanging’s portfolio of HRO services.  

Here’s my take. Leveraging software and services for absence management tracking is a great step in the right direction when it comes to stemming costs. But equally, if not more, important is drilling down into the why’s of non-authorized and non-sick absences. This maps to blogs I’ve written over the past year that focus on rampant employee dissatisfaction. Unhappy employees are more inclined to call in sick simply because they don’t want to go to their jobs. Get to the heart of employee dissatisfaction, fix what is truly broken across the enterprise, and absenteeism will decrease. Strong leadership and performance management training is invaluable in helping determine the root of employee discontent. Corporations lacking internal training programs of this type can leverage offerings from both full-scope and pure-play learning services HRO providers.

Gary Bragar, Lead HRO Analyst, NelsonHall

HRO SaaS Uptake – What, How Much and Where?

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

HRO Total Contract Value Jumps 38 Percent in 1H10 – Where are the Gains Coming From?

During our Quarterly BPO Index webinar last week, NelsonHall CEO John Willmott reported that HRO total contract value (TCV) revenue increased 38 percent in 1H10 in a year-over-year comparison to 1H09. While HRO’s gains weren’t as great billions of dollars-wise as other BPO segments such as multi-process or industry-specific BPO, it is good to see the start of an upturn.

So where are these gains coming from? Forty-five percent of the contracts were signed with North American organizations, 43 percent were awarded to European enterprises (of which two-thirds were based in U.K.), and organizations in Asia Pacific accounted for the remaining 10 percent. And by service type:

• Recruiting – 32 percent of deals – including contract wins by Hays, Manpower, Kenexa, OchreHouse, Pinstripe, CPH Consulting, Alexander Mann Solutions, The RightThing, KellyOCG and PeopleScout

• Payroll – 22 percent of deals – including contract wins by Capita, MidlandHR, Raet, NorthgateArinso, ADP, TDS and Ceridian

• Benefits Administration – 20 percent of deals – including contract wins by Workscape, Aon, Secova, Mercer, Convergys and Xafinity

• Multi-process HRO (MPHRO) – 14 percent of deals – including contract wins by Accenture, Ceridian, ADP, Xchanging and Hewitt

• Learning – Eight percent of deals – including contract wins by Edvantage Group and General Physics

• Other HR – Four percent of deals – including talent management-related contract wins by Kenexa

Overall, I was not surpised with the above breakdowns as they were very consistent with the predictions in our June 2010 quarterly HRO Confidence Index.

Digressing a bit here to add to the buzz about Aon’s acquisition of Hewitt…while much written and water-cooler discussed has been about benefits administration, a sizeable amount of Hewitt’s revenue comes from MPHRO. A good example of this is Hewitt’s five-year contract renewal with International Paper, announced in April 2010.The renewal will support 40,000 International Paper employees with payroll, workforce administration, health and welfare administration, recruiting support, SAP application support and help desk, call center and HR manager support, learning administration and flex staffing management services. Given the amount of revenue coming from Hewitt’s MPHRO client base, I believe Aon will not only happily want to continue to support these existing clients, but also want to continue to grow the MPHRO business.

Although most new MPHRO contacts will likely not be the mega deals of yesteryear, reducing the number of suppliers in the outsourcing portfolio continues to grow in appeal among buyers. If buyers are satisfied with their MPHRO deals, they will continue, albeit in smaller fashion, to benefit both buyers and providers.

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall

SaaS Solutions Continue to Emerge for HR

There’s little question that Software as a Service (SaaS) Internet-based solutions hosted by an external vendor offer a wide range of benefits to buyers including: 1) Access to a single database from any location; 2) No need for additional hardware other than existing laptops or desktop PCs; 3) No need to pay for maintenance and upgrades, as compared to in-house systems or ERP solutions; 4) No IT staff required for support or other needs; 5) The system can be accessed by users anytime 24x7x365; 6) When used across multiple locations and geographies, one system allows for standardization and efficiency, increasing compliance and lowering costs; and 7) Bottom-line reduced costs in service delivery.

But is SaaS a panacea for HR’s service delivery needs? In a word, no.  SaaS by itself is not a remedy for completely eliminating a buyer’s internal HR staff or an organization’s propensity to outsource, particularly in the mid to large market. That’s why we will continue to see an increasing array of SaaS and HRO services-bundled offerings from vendors supporting a wide range of HR processes including benefits administration, health and welfare administration, HRO analytics, RPO, outsourced training and payroll.

That said, examples of the SaaS components of these solutions include:

• MidlandHR’s iTrent software is a web-based, integrated HR and payroll system which helps its clients tackle HR issues such as payroll, talent management, succession planning, recruitment and absence management

• NorthgateArinso’s euHReka OnDemand supports HR administration and payroll processes, preconfigured for more than 50 countries, and talent management processes in 24 languages, on a single integrated platform

• Patersons, a global payroll provider, uses SaaS developed in-house to deliver payroll to companies in 160 countries via a global network of providers

• Cornerstone OnDemand is a SaaS offering that supports talent management, performance management, succession planning, learning management, compensation management, social networking and reporting and analytics (note: ADP and Cornerstone entered into a partnership in mid 2009 to enhance its talent management capability)

It’s important to note here that service providers are muddying the waters a bit by referring to their offerings as SaaS, on-demand or managed services. And while there are differences among the three – a topic we’ll cover in a future blog – suffice it to say that NelsonHall expects the volume of “SaaS-esque” contracts to significantly increase over the next several years. For data points and statistics, we’ll soon be reporting the results of our Q409 Outsourcing Confidence Index which includes a focus on “Proportion of contracts signed which were platform-based.” Stay tuned!

Gary Bragar, Lead HRO Analyst, NelsonHall

Payroll Outsourcing – Overtaking Benefits Administration as Top Outsourced HR Process

Although our May 13 blog stated that benefits administration outsourcing had taken the top spot on the HRO food chain in terms of projected annual growth rate through 2013 – this per our Targeting Benefits Administration research report published early this year – it appears the tides are changing and payroll outsourcing is taking the lead.

Preliminary findings from a Global Payroll Market Analysis I’ve just begun working on, primarily in the European market thus far, seem to indicate payroll outsourcing will see double digit growth in the next 12 months. Further, looking at HRO contracts signed in 3Q09, the pace of payroll continues to pick up speed as 50 percent of them contain payroll. These contracts are a mix of standalone payroll outsourcing services engagements – some including Software as a Service (SaaS) HR services such as talent management – payroll combined with other multi-process HRO services and SaaS-only deals.

Some of the Q3-signed payroll contracts include:

•  Aditro and Elisa for HR and payroll outsourcing

•  MidlandHR and Ofgem for payroll outsourcing and hosted HRIS

•  NorthgateArinso and Cobalt Ground Solutions for managed payroll and HR systems

•  NorthateArinso and Invensys for HR, payroll outsourcing and SaaS (this one is very large scale; services are being delivered to 21,000 Invensys employees in 50 countries)

I believe the above indicates an optimistic picture for the payroll outsourcing sector. Why? Obviously the downturn in the economy has driven a need for cost reduction among HRO buyers and providers alike. In the payroll outsourcing space, providers have added new services which have prompted existing client movement from SaaS-only and partial payroll HRO – in which the client may perform some of the activities such as data entry and Tier 1 and 2 helpdesk and the provider delivers the balance of services – to full payroll HRO services delivered by the provider. As existing clients are seeing the value of services delivered from their providers thus far, they are increasingly leveraging a fuller breadth of their providers’ capabilities, both in existing and new payroll service offerings.

Further, previously on-the-fence payroll outsourcing prospects are acknowledging the results their peer companies have achieved, and appear to be jumping on the payroll outsourcing bandwagon, whether via SaaS-only, partial payroll HRO or full payroll HRO. Finally, although the trend has shifted from multi-process outsourcing (MPHRO) to single process outsourcing, MPHRO providers that offer payroll as a standalone service point of entry appear to be contributing to the payroll outsourcing uptick, and the increased the health of the HRO industry in general, per increased demand for their other HR services offerings.

It’s a little preliminary to truly gauge the growth forecasts for payroll outsourcing as my research is in the very early stages. But the full results of NelsonHall’s Global Payroll Market Analysis, to be published in December, will tell the full story. I personally think the optimism will continue. What do you think?

Gary Bragar, Lead HRO Analyst, NelsonHall