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
HRO Insights 
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