HRO: Mobility is a Link in the Talent Management Value Chain

Mobility outsourcing is largely a standalone service from specialty providers. ACS, a Xerox Company offers global mobility as part of its multi-process HRO (MPHRO) suite of services while most MPHRO providers do not.

On one hand, it makes sense to leave mobility services to specialty providers because relocation is dynamic with constant changes requiring depth of knowledge and it rides the leading edge waves of economic tides. According to Worldwide ERC’s 2010 Transfer Volume and Cost Survey, relocation is trending up again after the severe trough in 2009. Although it will take some time to reach pre-recession levels, up is good and mobility is joining recruitment outsourcing as an indicator of recovery. For example, Cartus went from $320m in revenues in 2009 to $405m in 2010 and managed 148k relocations. Even in the downturn, it proceeded with the acquisition of Primacy in 2010 and the combined entity added 140 new clients and expanded services with 300 existing clients.

On the other hand, leaving mobility services solely to specialty providers can leave a weak link in the value chain. The answer for most HRO service providers is to ensure inclusion of a strong mobility vendor in the preferred and integrated supplier ecosystem.

Mobility matters because of the continuing evolution of talent management which includes a growing awareness of the link with mobility. While one would think the link is obvious, it is not always managed as an integrated component of succession planning, talent acquisition, and retention, especially on a global basis. In many HR organizations relocation is under the purview of compensation and benefits and talent management is elsewhere.  Add in multiple vendors and a consultant or two and you have a situation needing a bridge of connectivity.

Who will bridge the gap? Mobility providers have really increased their pace of innovation and made strides in becoming strategic advisors in order to survive the recession. The use of new services like pre-decision relocation assessments increased from 9% to 40% since 2007. In addition to administering the relocation process and paperwork, the relocation specialist may help the client decide on a temporary rotational assignment with the lower cost of temporary living versus a permanent relocation with a home sale in a down market. Or they may advise a transferee on renting versus buying, all based on knowledge of client policies, costs, and local markets. It is this group that is raising their eyes over the fence of talent management and going, hmm.

I am not predicting that a mobility provider is going to leap into full scale talent management tomorrow. I do see a new player in the mix for client mind and wallet share. If you are a HRO vendor with talent management as a major offering, think about more than just which technology to use. Do not let mobility be a missing link in your HR value chain.

Linda Merritt, Research Director, HRO, NelsonHall

Keeping in Tune with the HRO Beat

The general economic tone seems to be all over the musical map. Some are playing pop tunes, others dirges, and many are wobbling about tunelessly. So what is the tenor in HRO? The latest NelsonHall HR Outsourcing Confidence Index – being released this week to our clients and study participants – croons that in HRO we do seem to be on the same playlist, if not singing the same tune, and the general tone is upbeat. Eighty percent of participating HRO service providers reported a slightly to much more confident outlook for the next twelve months, the highest level in the last six quarters.

HRO optimism is bopping along on expectations of peppy pipelines and up-tempo revenues pretty much across the board of service lines, geographies and industries. Reports of pipeline growth continue to rise, with RPO leading the way followed by payroll, multi-process HRO and mobility services. Lagging a bit in pipeline growth are learning and benefits administration, which are expected to remain at current levels. Mobility, which includes relocation services, is still on the dance party sidelines, held back by continued slowness in corporate relocations and market evaluations and financing issues in the real estate market. 

Although declining, reports of frozen prospect and client decision making are still a dragging foot in the pace of signing new deals. While the new deal tempo is a bit of a slow waltz, expectations of growth in revenues are doing a nice quick step. Service providers have several ways to grow revenues, and there is greater new client contract activity – especially in RPO – along with some expansions in scope and services within existing contracts. Interestingly, although learning outsourcing has yet to see a solid pipeline boost, service providers expect their revenues to increase in the learning process. This reflects that, because HRO contracts are heavily priced on volumes, when client activity levels increase, so do revenues on existing business.

There is also some upturn in contract values, with 40 percent of service providers seeing increases in contract values. The level of multi-country contracts remains strong as companies continue to focus on standardizing payroll and other HR processes across geographies and business units, a likely factor helping to increase the average contract value.

We have a long way to return to volumes of old, so this feels more like preparations to return to growth rather than the sustainable breakthrough we all want. Service providers modify their general optimism by putting out one to several quarters before we see the full impact of the upturn.

That said…HRO buyers, feel the beat, start moving and loosen up that frozen decision making. It is time to get back into the dance. HRO service providers, fine tune your footwork, take your current clients and new prospects for a sweep around your fresh and expanded dance floor. They are playing your tune.

Linda Merritt, Research Director, HRO, NelsonHall

The Zen of HRO

How does an HRO service provider achieve a Zen-like balance in HRO? Evidently, not very easily.

I recently wrapped up a research project on corporate relocation providers for one of NelsonHall’s buy-side clients. I wanted to summarize my findings across several bundles of criteria, and I selected financial risk management, participant care and client care.

In the case of corporate relocation, financial risk management includes a focus on helping clients manage home purchase programs. Given the challenging real estate market, a home buyout program can be a high risk and high cost benefit. The basic services and pricing models are very similar across the top tier of relocation management companies, so which service providers have better adapted to the changed home sale marketplace where many homes are underwater, worth less than the mortgage owed, or hard to sell amidst a sea of foreclosures and short sales?  

The reviewed vendors had all stepped up client policy review consultations, and now offer pre-decision services. This helps both the hiring/receiving organization and the potential hire or transferee gain access to all the information possible to make a balanced determination on whether to proceed. Good stuff to be sure. Still, what came across from several vendors was that if you offer fewer benefits and reduce coverage, you can save money. Being aware of total cost and where your company’s relocation policy is compared to industry benchmarks is helpful information, and some trimming may be prudent. Yet only a few of the providers showed an understanding that just reducing relocation benefits could jeopardize acquiring and keeping the desired high potential/ high performing talent.

I did find that several corporate relocation providers had improved capabilities in dealing with the current real estate market, offering increased consultative services and new online analytical and reporting tools to allow clients to keep up in real time with all potential and in-process relocations. 

Even though financial risk management was a current top concern, the client also wanted to maintain a high level of transferee satisfaction and work with a responsive service provider. When we went over my findings the client was a tad disappointed that no one vendor was rated at the highest rating across all three elements – financial risk management, participant care and client care.

The parallel is there to all of HRO. It is a tall order to deliver and balance over the course of multiple year contracts business impacting financial advantages with efficient and effective service delivery innovations and a consultative client relationship that adapts to the constant changes that is life in HR and modern business. 

When that balance is attained it leads to expansions of services and renewals. International Paper just added more services and extended its multiple process HRO contract with Hewitt for five more years.  International Paper was one of the first generation of major HRO deals with Exult in 2001, and it came with the problems and joint learning curve common to those early relationships. Ten years later, the client says Hewitt demonstrated its value as “our trusted HR partner” and “they come to us with new ideas, new solutions and innovative approaches. It’s only natural to extend our relationship.”

HRO service providers, how are you balancing the Zen of HRO?

Linda Merritt, Research Director, HRO, NelsonHall

The Incremental Recovery – When will HRO Really Take Off?

The last round of major HRO vendor’s quarterly earnings calls suggested business will pick-up more in the second half of the year, but they still expect to see flat to slight declines in revenues in 2010. In a few weeks the next round of earnings call will begin, and we will see if forecasts remain the same, or get more or less optimistic.

What can we see now that will support a sustainable acceleration in revenues?

Bookings – business sold and being implemented – is a top predictor of coming revenues. The largest providers like IBM and Accenture have been reporting solid bookings. For example, Accenture reported last week on its fiscal 2010 second quarter and bookings were up. On the flip side, revenue predictions remain at the lower end of its range, consulting was expected to remain flat to single digit growth, and no comments were made on HRO growth.

Unemployment rates have recently started to stabilize. Worker productivity – the output per hours worked – has increased and provided a cushion for companies reluctant to hire full time staff.  My NelsonHall colleague Gary Bragar recently commented that the increases in temporary staffing may finally be ready to lead into more hires.  Accenture is doing its part as it again increased its own global hiring estimates from 45,000 to 50,000 for the year.

Relocation outsourcing was hit particularly hard during the recession, and volume dropped by thirty to as much as fifty percent! However, I am talking to a number of relocation companies and each is reporting that although volume has not yet returned to normal, it is picking up nicely.

The major buy-side corporations are sitting on big cash reserves amassed during the downturn due to cost cutting and steep spending reductions…cash to the tune of $832.4 billion, according to Standard and Poor’s.  And on the sell-side, Accenture has $4 billion in cash. Spending by the largest corporations stimulates business up and down the supply chain, including for HRO service providers, so we need them to spend!

Yet, the incremental nature of the recovery has left even those with piles of cash reluctant to make big bets. So far, the main use of the cash has been to continue stock buy-back programs. Sooner or later organizations need to return to investing in growing their businesses.  Since 60-70 percent of the economy is consumer-driven, we all need consumers to consume. The U.S. Commerce Department recorded another monthly increase in consumer spending, 0.3 percent in February.

If we are to do our part in ensuring the recovery accelerates, we too need to spend. So go, buy something today!

Linda Merritt, Research Director, HRO, NelsonHall