H1 2012 HRO: Who Did What in the Large Market?

Linda Merritt, HRO Research Analyst, NelsonHall

There was a good amount of announced HRO contract awards of many sizes and services in the first half of 2012, especially in the large market. A nice volume of new work coming online will provide future revenue support for HRO service providers, where earnings have recently been lower than in 2011.

Learning: finally announced some major deals including:

• Capita Workplace Services: awarded a competitive win for a £250m contract by the Cabinet Office to manage civil service training services in the U.K.
• Serco: won awards with the Army in both the U.K. and the U.S.; it won a scope extension valued at $38m by the U.S. Army and a £55m training contract by the British Army
• Genpact: won  a learning services contract by Johnson Controls, extending its record of recent learning wins; last year, it won a 7 year MPHRO contract with Nissan that included learning and it also won a 5 year content development contract by JobSkills in India.

MPHRO: activity was spread around nicely with ADP, Aon Hewitt, NorthgateArinso, and Logica all bringing in MPHRO contracts. One notable deal was IBM’s multi-tower BPO and IT deal with Cemex valued at $1bn; it includes finance and accounting BPO, HR BPO, IT infrastructure management, application development, and maintenance.

RPO:  continued to see a high volume of new contracts spread across many vendors. There were also two of the largest awards ever in RPO:

• ManpowerGroup: awarded a $400m five year contract extension with the Australian Defense Force, continuing a relationship that started in 2003
• Capita: won a £440m 10 year recruiting partnership contract by the British Army; it will also deliver supporting technology for the Royal Navy and the Royal Air Force, partnering with advertising agency JWT for recruitment marketing and with Kenexa for assessment and recruitment technology.

Benefits administration: contract awards were announced by Aon Hewitt, Empyrean, HP, and Xafinity Paymaster. Fidelity Investments reported the highest volume with DC contracts adding 522k new participants to its base of over 15m participants served. It also made major renewals and brought in new competitive wins. This is Fidelity’s strongest first half sales period in the last five years.

Payroll: deals in the U.K. led the way with awards going to Ceridian, Equiniti ICS, Liberata, and Mouchel. ADP won a multi-country contract from HP and will implement its GlobalView for payroll and Enterprise eTIME system for time and labor management for ~130,000 employees across 40 countries in Asia Pacific (excluding India), Europe, and the Americas (excluding U.S.) over the next five years.

With pipelines still healthy, the second half of 2012 should bring in a year of solid HRO growth and results. Congratulations to all!

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HRO Confidence Continues to Soar!

Our recently published Q2 2011 HRO Confidence Index indicates that 50% of HRO suppliers, which includes payroll, RPO, learning, benefits, and MPHRO vendors, are much more confident in the HR Outsourcing business over the next twelve months compared to the previous twelve month period.  Thirty-five percent are slightly more confident and 15% are as confident.  The driving factors are two-fold.  The top reason is new contract activity, first reported as the main reason in Q3 2010, and the other reason is increased scope of existing contracts.

In the past, my colleague Linda Merritt and I have written about new contract awards. For this blog, I wanted to focus on the importance of contract renewals, including increases in scope expansions as they are closely following new contract activity as the reason for this high confidence in HRO!

A few examples of recent contract renewals and scope expansions include the following:

• Last week, Genpact was awarded a 7 year MPHRO contact by Nissan to include payroll, recruiting, training, and benefits administration.  Genpact had been providing HR services to Nissan group companies and affiliates.  It has also been providing services outside of HR that included F&A, procurement, collections, customer service, and analytics.  As part of the contract, Genpact acquired Nissan’s HR shared service center in Yokohama, Japan, which handles HR functions for 54,000+ employees globally. The center, renamed Genpact Japan Service Co., Ltd., will serve Nissan, its affiliates, and other Genpact clients.
• In June, NorthgateArinso was awarded a 7 year MPHRO renewal and scope expansion by Fifth Third Bank that I wrote about in my blog on the 23rd.
• In June, Pinstripe was awarded two RPO contract extensions and scope expansions by Johns Manville and Rayonier. For Rayonier, the scope was expanded  from professional hires for one division to include all professional and hourly hiring for all divisions.
  • In April, Aon Hewitt was awarded a flexible benefits contract by Emap, a business-to-business media group in the U.K.  Aon’s Risk Solutions business had already been providng services to Emap.
  • In addition to winning a total retirement outsourcing (TRO) renewal earlier this year with BP America, Fidelity Investments also won a  5 year contract renewal for TRO in North America by HP, adding 162,500 participants from EDS who were previously serviced by other providers.

I believe we will of course continue to see contract renwals, but within the next one to three years, we will see an even larger increase in scope expansions.  Why?  Although buyers are increasing their propensity to outsource, since the recession began in 2008 we’ve seen new HRO buyers treading more lightly to test the waters before diving more deeply.  A common example I see is in recruiting, where a new contract may start out for a particular business unit or geography, but then expand based on client satisfaction and increased benefits to enterprise-wide RPO, similar to the Pinstripe example above. When these contracts come up for renewal and the clients are happy, having  obtained the benefits they signed up for and maybe even had their expectations exceeded, then there’s a good chance these clients will be looking to increase whatever scope they can.

We’ll come back to additional findings and trends in our HRO Confidence Index in a future blog, but in the meantime , NelsonHall clients can view the full report at the NelsonHall website.

Gary Bragar,  HR Outsourcing Research Director, NelsonHall