Posted tagged ‘state of HRO industry’

The Demise of the ING/Empyrean Deal: What’s Next for ING and the H&W Marketplace?

June 19, 2009

A recently posted Note from the CEO on the Empyrean Benefit Solutions website reads, “Empyrean spent three months evaluating and proposing on an acquisition of ING’s health and welfare outsourcing business. At the end of the process, we did not reach a mutually advantageous agreement with ING.”

The fact is that while there may have been other contributing factors, ING’s lack of a solid health and welfare (H&W) technology platform and the jumping ship or tendering for work of at least five of ING’s 11 H&W clients are what ultimately caused the deal to fail.

So what does this mean for ING and the H&W administration marketplace in the U.S.?

It is clearly damaging for ING. Its client base has shrunk and is likely to continue contracting. The resulting instability of its business is undoubtedly unsettling for its employees, and this will likely cause significant morale problems and staff exits, even if layoffs aren’t forced. The company could try and find another buyer, such as defined contribution administrators looking to grow their H&W businesses (for example Fidelity), or other H&W providers, e.g., Workscape, Hewitt and Watson Wyatt, hoping to increase share. Its only other option is to resign itself to losing its whole book of business to other providers.

We believe the latter will happen. It’s far more likely that other providers will look to pick up ING clients without the cash outlay to buy the business, especially in its unstable and dwindling state. But that said…

A cautionary note to H&W providers: be wary of taking on ING clients too quickly with first conducting appropriate due diligence on the contracts. ING has clearly had challenges servicing its clients, and that may not all stem from issues in its own operations. It’s worth paying close attention to the contracts it was bound to honor to ensure there are no hidden pitfalls such as unrealistic cost saving expectations or inappropriate governance structures.

And a word of warning to buyers: if you’re considering outsourcing to the H&W arms of a traditional defined contribution administrator, make certain the provider has made a long-term commitment to the H&W space, perhaps evidenced through investment in real-time decision support tools, self-serve enhancements and analytics technologies. A lack of robust commitment to fully servicing H&W clients may place you in a similar position in which your provider exits the business and you must unexpectedly transition to another supplier.

Until next time,

Helen Neale, Research Director, Human Resources Outsourcing, NelsonHall

The Impact of HR Job Declines on HR Departments and Sourcing Strategies

June 15, 2009

Although the global recession is showing signs of easing a bit and we’re seeing a little uptick in unemployment figures in general, the HR industry continues to suffer in terms of job declines. For example, the May 12, 1009 Monster Employment Index U.K. stated that demand for jobs in the HR sector in the U.K. has now fallen by almost 70 percent year on year (although some experts aren’t convinced the situation is quite as bleak as the Index suggests.) And the U.S. Bureau of Labor Statistics stated that administrative and support functions – the area in which HR jobs likely reside – lost 18,400 jobs between April and May 2009, and an average of 95,400 jobs in the three months prior.

What impacts are and will these HR job declines have on HR departments and sourcing strategies?

HR Departments

•  HR departments, and those retained in the department, are being required to do more with less including managing large redundancy programs

•  Career progression is becoming much more challenging within the HR profession as without hiring there’s simply nowhere to go

•  As it indicates an overall tendency to cut costs within HR, other areas in HR, such as technology refresh and new strategic initiatives, will also likely be affected

•  HR professionals are being required to “skill up” for two reasons: 1) to assume roles that previously would have been hired in but budget cuts preclude doing so; and 2) to take on new responsibilities for managing sourcing relationships that result from the reduced hires

•  HR activities must be viewed as contributing to and benefiting the company’s overall business strategy and bottom line, so HR departments must place greater emphasis on HR metrics to prove their worth to the business

Sourcing Strategies

•  Outsourcing is continuously becoming more about cost and less about employee satisfaction, and while cost reduction is critical in today’s economic climate, this unbalanced emphasis is not a sound going forward strategy for when the economy rebounds

•  There will be substantial increases in the introduction of self-service and Web 2.0 technologies through outsourcing service providers, rather than internal license buying and implementation

•  Senior HR executives attempting to do more with less will increasingly look to outsourcers to try and plug some of the skills gaps. For example, learning services focused on the provision of one domain of learning such as IT skills in a short-term relationship with a third-party provider, or a longer term payroll contract to manage the compliance regulations skills gap in a company with significant European operations

•  Providers must continuously prove their value to their clients to ensure they have sufficient buy-in in existing relationships to guard against their services being cut in an effort to reduce expenses

The upshot? Sourcing strategies haven’t changed forever. However, to move the HR industry as a whole back to a healthy level, HR departments must actively work to re-skill to assume new, expanded roles and responsibilities, and prove their intrinsic and strategic value to their parent organizations.

Until next time, happy sourcing!

Helen Neale, Research Director, Human Resources Outsourcing, NelsonHall