A Steady State in HRO for 2Q 2011

After several quarters of new HRO activity, the pace settled down a bit in the second quarter, but was still plenty interesting. Here are several samples from 2Q 2011.

Capita stands out for its volume and breadth of HRO activities. It is the largest MPHRO provider in the U.K. according to the NelsonHall MPHRO 2011 market report. Capita was awarded preferred supplier status by NHS in North Mersey, providing a potential of up to £27m by offering a mix of HR, payroll, and RPO services to 12 Mersey NHS trusts. There were also two awards for occupational health services, which it is expanding into the more holistic well-being services. An acquisition was also in the mix. Team24 was brought in to enhance medical RPO capabilities, further strengthening a market segment in which Capita is rated third in the U.K.

I like to look at the mix of new partnerships, offerings, and mergers and acquisitions to see where vendors are placing their bets on expansion and growth. Global remains hot and deal activity is there to keep hopefuls in the game of capturing new markets.

A leading example is ManpowerGroup’s strategic moves in China. It purchased REACH HR in south China, added Xi’ an Fesco with its 10k associates, and partnered with the city of Kaifeng in the Henan Province to add coverage in the west and north central area of China. To top off this spree, ManpowerGroup aligned itself with China’s Ministry of Industry & Information Technology (MIIT) for a five year plan.  It will develop a talent exchange center, enabling ManpowerGroup’s local partners to provide workforce solutions focused on manufacturing.

Remember that China is not a market you can just jump into and Manpower has been on the ground in mainland China for 17 years. It has the needed relationships and is well-positioned to benefit from the development expansions now moving into inland China.

Other APAC activity included Australia. Mercer was awarded a superannuation pensions administration contract by RBK. Also, Towers Watson is partnering with Link Group to enter the superannuation market in Australia which is not big in numbers, but each group plan can have a large number of members. Finally, Futurestep opened global service management centers in Australia and New Zealand.

Elsewhere in APAC, Genpact was selected for a five year learning content development contract by JobSkills in India; Merce r launched a flex benefits offering in Hong Kong, and is partnering with PayrollServe to offer its HR services in APAC; and ManpowerGroup acquired Web Development Company in India to strengthen IT recruiting.

With plenty of recent HRO deals in implementation and early stabilization, along with perkier volumes and special projects in existing contracts, service providers need to focus on balancing delivery performance with new acquisitions. Compared to some of the things we have experienced in HRO, a steady state is not such a bad thing!

Linda Merritt, Research Analyst, HRO, NelsonHall

Where the Action is At in HRO

As a follow-up to my colleague Linda Merritt’s blog last week titled “HRO is Settling in for a Good 2011,” I thought I’d write about where the most action is at thus far. If you were thinking recruitment, good guess, but it is actually benefits administration leading the way in the number of announced contracts in 2011.

In addition to Mercer being awarded a pensions administration contract by Loomis UK Ltd., which Linda also wrote about Mercer in her February 23rd blog, a number of providers have announced important contract awards, including:

Fidelity Investments, after two big five-year contract awards in Q4 2010 by AT&T and Office Depot, in January Fidelity was awarded a five-year contract renewal for total retirement outsourcing (TRO) services by BP America, Inc., a subsidiary of BP. Fidelity will continue to provide administration and recordkeeping for BP America’s 95,000 DB and 48,000 DC and nonqualified deferred compensation plans for U.S. employees. Later in the same month, Fidelity was awarded another five-year contract renewal for TRO services by HP in North America. Under this deal, Fidelity will service all of HP’s retirement plan participants, adding 162,500 participants from EDS who were previously serviced by other providers. In total, Fidelity will serve more than 135,000 DC participants and more than 192,000 DB participants for HP.

Aon Hewitt, in February announced it had gone live with eight new benefits administration clients since the beginning of the year. Across these clients, Aon Hewitt has implemented 12 services including DB, DC, and H&W and has added more than 325,000 participants and retirees to its base of 22 million participants.

Capita, in February was appointed as a preferred supplier for the administration of the Teachers’ Pension Scheme (TPS) by the U.K. Department of Education. This is a seven-year, £80m contract renewal that starts in October 2011 and includes an additional three-year option. A week later, on a smaller scale, Capita won a three-year occupational health services contract by Technip. Capita will provide its Wellness Assessment Surveillance Portal, which gives centralized visibility of health surveillance records to Technip’s 3,000 personnel in Aberdeen and offshore locations.

So will benefits administration continue to be hot this year? I believe it will, though it might be hard-pressed to exceed RPO for the full year in terms of number of contract awards.  As evidenced in the examples above, there are huge volumes of benefit plan participants that are serviced and in today’s economy, clients cannot afford internal resources to manage these programs, nor do they have the expertise and most up-to-date technology. Handling benefits administration is vitally important to employees and retirees, whether it’s the ease of an annual online enrollment or the knowledge of a service center professional in answering DB and DC questions. And it’s not just large companies that need this expertise.  As I wrote in my February 25th blog, mid-market HRO is rapidly growing as well.

A final thought about what will continue to drive contract awards in benefits administration is that buyers are increasingly looking to consolidate their outsourcing services under one provider, as evidenced by Fidelity’s contract with Office Depot. This is a trend I believe will continue and from an employee and retiree perspective is a good thing. I was fortunate enough to leave my long-term employer four years ago with H&W benefits, DB & DC plans, and voluntary benefits, of which all four were provided by four different vendors. Sounds like I should play the number four!

Gary Bragar, Lead HRO Analyst, NelsonHall