Infosys, Wipro, TCS and other Offshore Providers: How Strong an HRO Play Can They Make?

Against the backdrop of Infosys’ most recent quarter-end financials announcement – of which 6.1 percent of revenue was attributed to BPO, and five to 10 percent of that BPO revenue is estimated to have come from HRO – how viable can it and its Indian brethren be in the HRO space? Despite inherent challenges and both real and perceived buyer concerns about offshoring HR processes, offshore providers are making strong investments in and “upping the ante” of their HRO capabilities.

For example, Infosys within the last several months launched a new SaaS plus BPO platform offering which supports HR processes. And other Indian providers such as Wipro, Caliber Point, Secova, Modis and TCS are partnering, primarily with Oracle and SAP, for a technological BPO backbone which supports HRO processes, and then building more standardized BPO services around that technology.

Further, to address language and cultural barrier concerns of many buyers, India-based offshore providers are understandably touting their centers in locations such as Romania and Poland as HRO delivery sites.

Finally, price points are clearly lower in India and other low-cost locations such as the Philippines in which offshore providers have centers. In today’s economy, given that providers such as Hewitt and Convergys have been challenged to meet the cost-cutting requirements of their existing clients without themselves utilizing offshore resources, there are clearly some natural opportunities for offshore providers.

But the operative word above is “some” natural opportunities. Remember, there are many concrete and ostensible inhibitors to offshore HRO. So where are offshore providers making, and can they make, their play?

At least for the relative near-term, it’s in the low-cost transactional services and low- and mid-level analytics processes. For example:

•  In recruitment process outsourcing (RPO), CV/resume screening and, in some cases, candidate short-listing. But beyond these initial activities, most will require onshore hand-off

•  In learning business process outsourcing (LBPO), managing course scheduling and learner assistance around which courses are suitable, etc. But with language, cultural and proximity issues, the possibility of venue management, course development and learning delivery is null to void

•  In back-office processes, those which are non-voice-related, such as payroll reconciliations, accounting within pensions arrangements, fulfillment, etc., in benefits administration

•  In HRO analytics, low-end processes such as monthly and quarterly reporting on employees per business unit, geography or employee population diversity; cost per hire; hiring manager satisfaction; learner satisfaction and utilization rates for decision support tools. Mid-level analytics provided by offshore providers could include loyalty and attrition modeling

•  And of course the IT support around all of these HR processes

The bottom line is that offshore providers are viable contenders in the HRO space, but we believe buyers are still cautious about fully embracing offshore outsourcing, so are likely to engage only in the non-high-touch areas. If a buyer is seeking lower cost, transactional services, offshore HRO is certainly worth examining.

Helen Neale, Research Director, Human Resources Outsourcing, NelsonHall

Potential ExcellerateHRO Suitors: Who’s Suited?

In just the few short weeks since Hewlett-Packard repurchased all of Towers Perrin’s shares in ExcellerateHRO and the Watson Wyatt/Towers Perrin merger was announced, there has been considerable speculation on ExcellerateHRO’s fate. Will H-P retain it or put it up on the sales block?

H-P hasn’t demonstrated any interest in growing or even supporting its HRO business. And while ExcellerateHRO hasn’t made much headway in the multi-process HRO space, it’s a relatively strong player in benefits administration outsourcing. As a result, we believe – as do many in the marketplace –it’s a potential and solid acquisition target for providers who are already heavy into benefits administration or others interested in entering the space.

What does ExcellerateHRO have to offer potential suitors?

•  Its new technology investment in the BA7 platform, which offers enhanced self-service capabilities, allows for increased customization to enable benefits portals to look and feel more like the client company’s overall HR environment, provides more modeling capabilities, and gives plan sponsors improved reporting capabilities by enabling them to slice and dice data across multiple domains

•  34 million participants per claims of approximately 400 clients, the largest of which itself has 23 million participants

•  Strong experience in managing complex benefits administration relationships, e.g., companies with many different plan structures post M&A, grandfathered benefits, and those with complex formula calculations and offsets

•  Stock plan administration capabilities, which may see a requirement uptick as companies seek alternatives to salary increases

•  Flexible benefits administration capabilities in Europe, particularly in the U.K., which we estimate has high double-digit growth potential by 2013

•  About 20 clients in European pensions administration. European benefits administration business is estimated to generate approximately one quarter of the company’s revenue

All the above make ExcellerateHRO appealing to a select group of providers, especially those looking to bolster their technology capabilities in benefits administration and expand their geographic footprint beyond North America.

Who might be interested in acquiring ExcellerateHRO?

Fidelity, Hewitt and Mercer – to capture additional market share in the health and welfare and defined benefits/defined contributions spaces, as well as greater market share in the U.K. which will require additional servicing when auto-enrollment is introduced to pension schemes in 2012

Empyrean – following its failed ING acquisition, it may be interested in acquiring ExcellerateHRO’s health and welfare portfolio of business to gain more market share. The question in this scenario is what would happen to the remainder of ExcellerateHRO’s businesses? Perhaps they would be hived off to local providers in the U.K., e.g., Capita, and retirement administrators in the U.S.

ACS – the level of noise it has made in the HRO space following its launch of SyncHRO could signal acquisition interest. However, the integration challenges it faced with its purchase of Mellon might deter ACS from making another acquisition in the near-term

ADP – although highly speculative, it might be interested to enable penetration into the larger benefits administration marketplace and to gain defined benefits capabilities

Offshore BPO providers – ExcellerateHRO’s technology would provide the base for offshore BPO providers, most of who have acknowledged proprietary technology is an absolute must in order to effectively serve benefits administration clients directly, rather than as the offshore arm of an existing third-party benefits provider. However, a strong looming question is whether existing ExcellerateHRO clients would accept a purchase by an offshore organization, particularly if there was a threat that first-line contact for processes such as health and welfare were moved offshore

We’ll be keeping a close eye on developments on ExcellerateHRO’s destiny, and so encourage you to keep an eye on our HRO Insights blog for more on this and other hot topics!

Until next time, happy sourcing!

Helen Neale, Research Director, Human Resources Outsourcing, NelsonHall