Posted tagged ‘NelsonHall BPO Index’

HRO Will Drive Ahead in 2013

January 25, 2013
Linda Merritt, HRO Research Analyst, NelsonHall

Linda Merritt, HRO Research Analyst, NelsonHall

With more organizations making the decision to use HR business process outsourcing services, even in the face of a still uncertain economic environment, the overall confidence of HR outsourcing suppliers in the market over the next 12-months is at its highest level in six quarters according to the latest NelsonHall HRO Confidence Index (HROCI).The HRO vendor confidence level is up 6% year-over-year reaching 155.5, where 100 represents unchanged confidence and higher scores indicate increased confidence.

Drivers Outweigh Inhibitors

The impact of the wider economy is strengthening the drivers for HR outsourcing which appear to be outweighing its impact on the associated inhibitors such as unrealistic pricing expectations and frozen decision-making. Currently, 89% of HR outsourcing suppliers believe that a net up-turn in HRO decision-making is taking place, with just 7% of suppliers perceiving that a net down-turn in HRO decision-making is taking place.

The top principal drivers for HR outsourcing include:

  • Increased cost reduction
  • Greater process consistency across business units and geographies
  • Organizations looking for an increased transformational emphasis.

New private sector HRO deals typically remain limited in initial size, and significant growth opportunities continue to come from existing clients in the form of added scale or scope. In line with the “increased focus on cost reduction driven by the worsening economic climate,” organizations are finally showing an increased interest in evaluating outsourcing opportunities previously rejected.

Transformation Beyond Cost Arbitrage

The HROCI supports our 2013 trends with “a clear ‘transformation’ agenda” and a focus on value. Clients are looking to vendors to help them:

  • Deliver a more empowered employee experience and access to learning using technology to administer, deliver, and share learning
  • Manage business outcomes by driving higher employee engagement including a better end-user experience and continual “future-thinking”
  • Achieve solid productivity and accelerate time to competency.

2013 Outlook

HRO vendor expectations for 2013 look best for payroll, then MPHRO which looks solid, followed by RPO, benefits administration, and then learning services. Multi-country deals for payroll and RPO will again be common with the average number of included countries around 20.  Of little surprise is that expectations for the government sector have slightly worsened, particularly for defense and state & local government.

Have You Listened

Another NelsonHall product of interest is the BPO Index which is supported by a quarterly conference call open to all who register.

According to the January Index, total BPO contract value was down significantly for 2012, especially in North America and Europe. The global economy and the U.S. fiscal cliff added to business growth uncertainty, which drove down industry-specific BPO the most.

At the same time, back-office BPO, which includes HRO, was up 25%, and HRO was up significantly year-over-year.

If you can lower total cost, improve performance, and increase business value, you can get an HRO deal!

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HRO – When Will the Horizontal Go Vertical to Grow?

January 20, 2011

Most HRO Insight blogs provide commentary on HRO market news. Occasionally, I like to speculate and dream about how HRO can fully become the linchpin in leveraging HR into the strategic business partner the HR profession has long desired – and business has long needed.  This week, I blend a bit of both market news and pondering on the vertical specialization of HRO.

According to the January 2011 NelsonHall BPO Index, 2010 was an uneven year for BPO recovery.  Total contract value (TCV) for HRO declined from $2.3Bn to $1.5Bn largely due to the drop off in Europe.  North America HRO almost held its own with $1.3Bn in 2010 compared to $1.6Bn in 2009.

Which BPO area grew its piece of the smaller BPO pie?  The options include back office, middle office, and front office.  Back office BPO functions are horizontal and include HRO and F&A; middle office BPO functions cover vertical industry-specific services such as mortgage processing or check processing in the banking sector, etc.; and front office BPO includes customer contact and sales centers.  Middle office, or industry-specific BPO, is the winner with the largest area at $13Bn and 69% of 2010 TCV, leaping up from a 40% share in 2009.  Growth in a down market is surely the sign of compelling client interest and savvy vendors meeting their needs.

Horizontal BPO processes cross the enterprise and are part of almost every business.  The problem is mistaking universality for being generic.  HRO is too often marketed on the strengths of cost and process functionality.  Customization is used for adapting to the quirks of client’s prior HR systems and processes.  To fight the costly morass of over-customization, HRO service providers have strengthened the use of preprogrammed selectable parameters – building in cost effective flexibility, but also reinforcing the generic aspect of HRO.

Rajiv Raghunandan, Infosys BPO Strategic Business Practice Head for Sales and Fulfillment, was recently interviewed by SSON and commented on how Infosys is taking an end-to-end process view of the F&A order-to-cash process and expanding its revenue, client relationships, and market opportunities.  Infosys leveraged its internal knowledge and experience from its client base to find areas of critical mass to take what was a horizontal process and verticalize it for a growing list of industry segments.

Vertical specialization can and should be done for HR as well.  As I have previously mentioned, TriNet, a PEO and HRO service provider in the small and mid market, is already offering integrated solutions for software and banking.  TriNet combined its core technology with customized services for hiring, compensation, performance management, and risk mitigation.

Sustainable growth in HRO is dependent on breaking the bounds of cost-driven volume administrative transaction processing and moving up the value chain to strategic business impacting partnerships.  There is a largely untapped HRO gold mine out there.  Just think of what the large HRO service providers could do with a gathering and packing of the knowledge and services already resident in their client bases!

Linda Merritt, Research Director, HRO, NelsonHall

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

January 12, 2010

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