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Highlights and Trends in the HRO Market for H1 2013: Part 2

August 14, 2013
Amy L. Gurchensky, HRO Research Analyst, NelsonHall

Amy L. Gurchensky, HRO Research Analyst, NelsonHall

Last week, I zeroed in on specific market activity within the payroll, learning and RPO service lines. This week, I’ll take a closer look at H1 2013 activity within benefits administration and MPHRO as well as provide some insights on what to expect in H2 2013 based on NelsonHall’s recent HRO Confidence Index.

Benefits Administration

Contract signings aside, there has been a plethora of activity within benefits administration in H1 2013, including:

  • New offerings:
    • Mercer launched a private benefits exchange, Mercer Marketplace
    • Buck Consultants launched an automatic enrollment offering in the U.K.
    • Secova launched a Coordination of Benefits (COB) audit offering to coordinate benefits with insurance carriers
  • Acquisitions: Wageworks acquired Crosby Benefit Systems and Benefit Concepts to strengthen its H&W administration offering, including reimbursement account and COBRA administration
  • Partnerships:
    • Fidelity partnered with Extend Health, a Towers Watson company, to provide retiree healthcare services
    • JLT Employee Benefits partnered with Vielife for health and wellbeing services in the U.K.
  • New technologies:
    • Xerox launched an account-based benefits portal, BenefitWallet, to assist with managing multiple health accounts on one platform, including HSAs, HRAs, FSAs, HIAs (health/wellness incentive accounts) and other specialized services
    • Aon Hewitt launched an absence management tool, 360 Absence Solutions, to help clients manage absence-related costs, compliance risks, the administrative burden and lost productivity
  • Educational resources:
    • Mercer and ADP both launched websites to provide information on healthcare reform
    • Ceridian launched an auto-enrollment knowledge center in the U.K.

MPHRO

In recent years, the MPHRO market has been relatively quiet in terms of contract announcements and H1 2013 was no exception. However, my last MPHRO research study, published in February 2013, revealed that the market is very much alive with new wins and contract renewals from all the major vendors, including IBM and Accenture. In fact, IBM recently won a new seven-year, multi-country MPHRO contract, which was bundled with F&A outsourcing services. Other wins include ADP and Marriott Vacations Worldwide for core HR, payroll, time & labor management and talent management covering ~9.2k employees.

Many vendors have been focused on their strategies for expansion, including Aon Hewitt with its acquisition of OmniPoint Workday Services. Although still early, NelsonHall expects ADP to make inroads in LATAM with its MPHRO services since it added RPO capabilities in this region from its acquisition of The RightThing and now expands its payroll footprint from the Payroll S.A. acquisition.

H2 2013

So what does the rest of the year have in store? NelsonHall’s recent HRO Confidence Index survey finds that overall expectations for HRO revenue growth remain at the same level as those reported for the last five quarters; with payroll leading followed by RPO. Top industry sectors for HRO services include healthcare, pharmaceuticals and high-tech. By geography, vendors have reported increased confidence for revenue growth in Central and Eastern Europe and Central and Latin America.

Needless to say, it will be interesting to see how the rest of the year unfolds for HRO.

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Talent2’s Competitive Edge

July 8, 2013
Linda Merritt, HRO Research Analyst, NelsonHall

Linda Merritt, HRO Research Analyst, NelsonHall

The NelsonHall HRO team recently spoke with Mary-Sue Rogers, Talent2’s global general manager for HR managed services, for an update on the major Asia-Pacific, pan-regional HRO service provider with ~2.6k clients across 30 countries. Its client base includes companies of all sizes in both the private and public sectors. The company had a busy fiscal Q4 2013 winning more than 60 contract awards across its service lines, including payroll, RPO, learning and HR advisory services.

The Asia-Pacific HRO Market is Competitive

Asia-Pacific is a huge and diverse region with many of the individual nations still considered “emerging markets,” with opportunities for long-term growth. Talent2’s in-region competitors are largely global HRO providers, some span all service lines and others go head-to-head-on a single service like RPO.

So how does a ten-year-young company compete with many of the biggest names in HRO? Its competitors also have in-region locations but find it hard to match Talent2’s 40+ HRO-dedicated locations supporting 31 languages in 16 Asia-Pacific countries, including parts of the Middle East. In May 2013, Talent2 further expanded its operations in support of the Asia-Pacific region by opening a service delivery center in the Philippines.

Succeed With a HRO Competitive Edge

It is a core part of providing multi-country services to offer local subject-matter expertise on employment rules, regulations, taxation and compliance reporting, and all of the competitors can provide such services directly or through vetted local partners.

Talent2 demonstrates deep knowledge of local regulations as well as cultural and business environments. It knows the nuances that others may miss, which can help develop a service offer that is right on the mark for design and cost. For example, in the first instance, Talent2 addresses the following questions:

  • What style of payroll service center support is preferred by employees in different areas of its region?
  • What are the differences in an MNC headquartered in the West versus one headquartered in the target region?

As a result, 50% of its clients use multi-country services led by payroll and followed by RPO. Some start with one targeted country and add more over time.

Quality services and competitive pricing, along with its deep knowledge, provides a winning combination for Talent2, achieving a NelsonHall estimated ~10% growth in FY 2013.

Then Change to Remain Competitive

Talent2, which became a private company in 2012, is working its way through its stated development roadmap. The multi-pronged plan is focused on upgrading and rationalizing its technology platform to meet current and future client needs and going environmentally green to control internal costs and lower the total cost of ownership for its clients.

HR services are changing rapidly all over the world, as are client needs and interests, and no service provider can long rest on its laurels. Therefore, the question arises: does your HRO service provider’s competitive edge match your needs today, and will it tomorrow?

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HRO Inflection Points

June 28, 2013
Linda Merritt, HRO Research Analyst, NelsonHall

Linda Merritt, HRO Research Analyst, NelsonHall

Everywhere around us inflection points are occurring. Inflection points are a sign that change is occurring that will create a new order of things. Whether we see them, understand their long-term implications, and leverage them to our advantage is another issue.

Social Inflection Points Impact HRO

Today the U.S. Supreme Court ruled on two issues impacting marriage law that will change who is entitled to marriage-related federal benefits.

Major social change invariably impacts HR and HRO services, and the marriage law rulings by the U.S. Supreme Court will have wide-ranging implications for workplace benefit plans in at least 12 states.

The long-term implications may take many years to become clear, but leveraging in the short term has already begun. ADP was the first HRO vendor I saw tweet about the court’s ruling by announcing an upcoming webinar on the changes to the Defense of Marriage Act (DOMA). Mercer quickly followed with a ‘benefits administration alert’ letter.

Technology Inflection Points Impact HRO

As a disruptive technology, SaaS has started a global “cloud war” that is only just beginning. HR and HRO are just a small piece of the IT landscape and we will see skirmishes as new entrants and long-term leaders battle for market share, industry leadership and shareholder value as they transform not only technology offerings, but revenue streams and business models.

Oracle’s Larry Ellison has been in the news for the last two weeks reporting on earnings that were already impacted by SaaS and the cloud war. Here was one of the industry’s titans comparing Oracle’s SaaS revenues (annualized at ~$1bn) to comparable revenues posted by perennial competitor SAP and upstart Workday!

Upgrade or rip-and-replace decisions are becoming imminent for HR clients and HRO services providers. Many vendors, including Ceridian, Mercer and Talent2, are already developing integrated service platforms and more cloud offerings for organizations of all sizes.

Client Inflection Points Impact HRO

To identify current trends in HRO customer requirements I reviewed current (2013) sources, including NelsonHall’s Targeting Payroll BPO market analysis and HR Outsourcing Confidence Index, and also HRO vendor discussions. Further, I reviewed a research survey by Mandy Sim, a University Teaching Fellow with the Business School at the University of Nottingham Malaysia Campus, entitled the HRO Adoption Survey Report 2012, which identified key Asia-Pacific HRO practices based on a survey conducted on delegates who attended the HRO Today Forum APAC 2012.

Following are my findings on what today’s HRO clients, across service lines and geographies, are wanting from prospective vendors:

  • Value for price, balancing cost with improved outcomes and business impact
  • Standardization of processes and technologies
  • Advanced subject-matter expertise and best practices
  • Scalability across services and geographies
  • Access to new tools, technologies and services.

Ready or not, change is coming to HRO. Are you ready for how will it impact you and your organization?

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HRO and Innovation – Getting Practical

May 31, 2013
Linda Merritt, HRO Research Analyst, NelsonHall

Linda Merritt, HRO Research Analyst, NelsonHall

Innovation in multi-process HRO (MPHRO) has been a topic of discussion, and some contention, since the early mega-deals that created the modern MPHRO market more than ten years ago.

Even in the early days there was a desire for innovation, but there was also a lack of common definitions and mutual understanding, along with difficulty in articulating innovation in contract language.

There was an even greater barrier – systems spaghetti. Early MPHRO clients had highly-customized ERP infrastructure, aging legacy systems, and third-party applications, much of which may have been non-centralized and non-integrated. Each major customer was in their own bubble of services and systems. It quickly became apparent that it would be hard to add new and different innovations within the constraints of the contracts and the technologies.

Platforms for Innovation

Major MPHRO service providers now have global multi-client service delivery and data centers with sophisticated workflow processes. Early clients have been moved bit-by-bit into the common support infrastructure, even if they remain on their own, licensed ERP systems.

Many HRO clients are ready for increased standardization and multi-client platforms to reduce cost and to improve performance. Innovative cloud-based SaaS and services platforms are opening up new services to the mid-market and parts of the large client market:

  • Clients on a shared service platform benefit from ongoing incremental improvements
  • Clients benefit from access to new products and services without paying a significant portion of the R&D needed for a one-off innovation.

Some tension between continuous improvement and innovation is natural, as the line between an “included enhancement” and what is “new and different to be added as an extra charge” looks very different depending on whether you are a buyer or a supplier.

Collaborative Innovation

Client user groups support both HRO improvement and innovation. Vendors were originally reluctant to let clients communicate with each other (partially because the clients might “gang-up” on the vendor – and sometimes they did!).

Companies like IBM and Xerox were leaders in developing client advisory boards. These interactive groups provide feedback on the services, give input into common needs, and even offer guidance on parts of the vendor’s development roadmap. They are not just “the voice of the customer”; they are also a built-in base of beta testers. Willingness to put some skin into the game is also a great way to test market viability and further strengthen relationships.

Infrastructure of Innovation

Buyers can develop their processes for HRO innovation in the following ways:

  • Assess vendors for innovation capabilities as part of the selection process
  • Develop the language and mutual expectations for measurable innovation upfront and include in the terms of contract. Include who pays, and when, determine if there will be vendor incentives, and clarify the client’s role
  • Use the governance process to jointly monitor, manage, and measure improvements and innovations over the course of the relationship.

The good news is that we are beginning to build the HRO infrastructure for future innovation; common language, standardized multi-client platforms, and client user groups.

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Benefits Outsourcing is Blooming

May 9, 2013
Linda Merritt, HRO Research Analyst, NelsonHall

Linda Merritt, HRO Research Analyst, NelsonHall

Benefits administration is producing a bountiful crop of new and expanding services. Recent contract award announcements included ADP, Aon Hewitt, Ceridian, Equiniti, Fidelity, Mass Mutual and Merrill Lynch. A wide range of industry segments were represented: banking; food; education; non-profits; hi-tech; pharmaceuticals; and travel. This week, I have taken a look at some of the newer benefit outsourcing “crops” that are starting to grow nicely.

Managed Retirement Accounts

Fidelity’s relatively new managed retirement account offering – Fidelity Portfolio Advisory Service at Work – was designed to address the low rate of adequate preparation for retirement by many employees by combining Fidelity Investments plan sponsor customized portfolio active management services with auto enrollment and available advisory services to help bridge the gap in achieving retirement goals from a defined contribution plan. The service grew in both participants and assets by 50% in 2012. Already in 2013, another 135 new clients have been added, bringing the total to more than 1,800 plan sponsors.

  • Fidelity awarded a contract for Portfolio Advisory Service at Work by ADM.

Health and Wellness

ADP’s Vitality wellness solution supports employers with between 50 and 1,000 employees manage rising healthcare costs and also reduce employee absenteeism. Vitality’s incentive-based program includes an interactive wellness portal, health risk assessments, biometric screenings and personalized wellness plans with recommended goals and activities. It integrates with social networking sites, mobile applications and fitness technologies; and when employees achieve planned goals, they earn points towards lowering their health plan contributions. The service is also integrated with ADP’s payroll services.

  • ADP awarded a contract by Jackson Companies for ADP Vitality services.

Benefits Bouquet Bundles

HRO buyers want multiple related services from one vendor under one contract; and health and wellness lends itself to packaging separate services into bundles. Ceridian’s LifeWorks.com combines EAP, work-life, and wellness services into one program with its own portal and mobile access. Also available is Health Coaching – a program for high-risk employees that provides access to comprehensive health assessments and personalized guidance programs – and Client Value Dashboard – included for employers to monitor reports usage data and ROI information.

  • Ball State University chooses Ceridian’s LifeWorks.com

Private Employer Exchanges

Mercer’s Marketplace allows employers to improve management of their benefits spending and administrative responsibilities for active employees. Employers determine how much to contribute toward the cost of their benefits program and can select from a range of insured and self-funded products and providers. The platform includes full benefits outsourcing and provides employees with call center and online decision support.

  • Mercer recently announced names of 10 of its 20 national, regional and state carriers that have joined Mercer Marketplace for providing core medical and voluntary benefits.

A good garden has a variety of plants. Some base crops are evergreen like benefits enrollment and management services, while others are changed out to meet growing market demand. Benefits HRO: how does your garden grow? Very well thank you.

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HRO SaaS for the Small Business Employer

May 3, 2013
Linda Merritt, HRO Research Analyst, NelsonHall

Linda Merritt, HRO Research Analyst, NelsonHall

SaaS systems for HR administration and payroll have opened up the small business market to the benefits of web-based HR systems with self-service and easier implementations. The rapid uptake by clients is testimony that a ‘sweet spot’ has been reached in cost, ease and value.

MoorepayHR

I followed up with Anne Fitzpatrick, Moorepay managing director, for an update on how MoorepayHR, a cloud-based SaaS payroll and HR administration platform with BPO services, is doing one year after its launch in the U.K. small business market.

Moorepay, a NorthgateArinso (NGA) subsidiary, is already “large” in the U.K. small business market with >10,000 clients. However, past success does not guarantee future success. The company saw the need for an integrated HR and payroll platform and wanted to achieve this in its own way by combining new technology with its existing BPO managed payroll and HR services, including on-hand subject-matter experts for guidance on employee issues, into a business process as a service (BPaaS) service.

At first there was some concern if the market was ready for a SaaS multitenant cloud service. Moorepay quickly found that buyers understand the cloud based on their own experiences as consumers and were actually eager for the new service. By the end of April, MoorepayHR had signed its 1,000th customer, and this week the entire company is holding a company-wide celebration!

The client base is 80% new and 20% from existing clients.57% of clients add on payroll, and even more select one or more of the BPO options, led by compliance support for employment law and health and safety advisory.

Moorepay will be adding more offerings to the system, including a newly-released ‘lite’ version. Next for the company is the rolling-out of an advanced version that adds functionality for recruiting, performance management and learning. Targeted at businesses with up to 500 employees, MoorepayHR will be expanded to up to 1,000 employees in the near future.

RUN Powered by ADP

ADP first introduced its RUN system nationally in the U.S. in 2010 for the very small market (1-49 employees). More HR features and payroll functionality have been added to the SaaS cloud-based mobile platform on a regular basis. In addition to ease-of-use, RUN offers a 24×7 help desk with certified HR professionals and an online HR library. RUN added its 200,000th customer in April 2013.

Two Vendors, One Success Story

Both Moorepay and ADP understands that clients of any size have similar needs. As Anish Rajparia, president of ADP’s small business services division, commented: “Small business owners demand flexible tools and resources tailored for them to help manage the risks associated with running their business.”

There are already a variety of options in the market for the small business owner and I am sure we will see many more. One size never fits all, and I am pleased to see that this class of buyer now has HRO choice.

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Targeting Payroll BPO, Part II

April 26, 2013
Linda Merritt, HRO Research Analyst, NelsonHall

Linda Merritt, HRO Research Analyst, NelsonHall

There is so much in my colleague Gary Bragar’s NelsonHall Targeting Payroll BPO market analysis that I will cover a few more items this week. The payroll market is divided into three parts: payroll software services; service bureau payroll (also called managed payroll, where the vendor manages payroll production and the client manages data input and employee help desk services); and payroll business process outsourcing (where the end-to-end payroll process is outsourced, including tier 1 and tier 2 employee help desk support).

Payroll BPO market share is growing

Payroll BPO is what NelsonHall follows most of all, and it is a growing part of the overall payroll market. Even as SaaS payroll products become more ubiquitous, many clients will still want support for the whole process. We can see some of the reasons why in the changing pattern of client requirements. As I covered in the first Targeting Payroll blog, cost remains the number one priority. However, other needs have increased in importance over time:

  • Standardization of centralization of processes and technology: Instead of defending customization, now buyers are demanding standardization to increase efficiency and reduce costs from maintaining disparate systems
  • Compliance/risk management: Compliance with ever-more complex and changing regulations and work rules needs the time and attention of fulltime experts. For example, in Europe the complexity of regulations combined with employee populations spread over multiple countries adds to the challenges of compliance
  • Better employee experience: Users want access that is easier and simpler, including 24×7 access to data, self-service, and mobile. Payroll self-service is widely available and has become table stakes. The vendors that deliver the most useful mobile applications, the fastest and with the greatest security, will create valuable market differentiation.
  • Payroll subject matter expertise: Clients expect improved quality of payroll with augmented accuracy, which can lower overpayment and off-cycle payroll runs.

Payroll Cost #1 with a new spin

While cost remains the number-one client requirement, there is a new aspect and it is the same one NelsonHall is seeing in other HRO areas; balancing cost with value. Value for price is especially understood by second- and third-generation buyers who indicate their willingness to change vendors to get it!

Payroll Analytics

It has been my view for some time that the focus on improved payroll processes and systems is driven by more than the need to pay employees timely and accurately. It is also driven by the need to manage the total cost of labor with real-time access to data and analytics for decision-making that leads to improved business performance. Payroll is increasingly being seen as a valuable management strategic tool, and clients will be looking to payroll BPO providers to help them access and develop workforce analytics expertise.

It great to see how dynamic the payroll outsourcing industry has become!

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