HR Tech Another Success: Part 2

Gary Bragar, HRO Research Director, NelsonHall

In my blog earlier this week, I wrote about highlights from the new Outsourcing Track at HR Tech as well as the RPO meetings I attended. In related news, my fourth global RPO market analysis report was published on Monday.

In addition to walking through the exhibit hall and attending technology demonstrations, my additional meetings at HR Tech included:

• Patersons: Its 2012 revenue growth is 70% YTD, driven by multi-country payroll. Safeguard World International has also reported similar success due to high growth for multi-country payroll services according to a business update two weeks ago.
• IBM: The company is experiencing increased demand for its RPO and learning services and many of its key learning clients have renewed in 2012. New learning contracts include one in South Africa and pipeline activity includes a large global bank. The Kenexa acquisition will bring in new RPO and talent management opportunities that IBM will enhance with its social and analytics capabilities.
• Hogan Assessments and SHL Assessments: Both companies provide personality assessments to predict work performance. SHL has also issued a talent management report with key findings showing that Eastern Europe ranks 1^st in supplying IT and essential business skills; the U.S. ranks 23^rd.
• Secova: The benefits administration provider offers online enrollment, a 24/7 call center, eligibility verification, billing management, and leave management services that are delivered from their ISO/IEC 27001:2005 certified platforms. Services are provided from California, New Jersey, and Chennai.
• Equifax Workforce Solutions: This was formerly operating as TALX, which rebranded as a result of its increased emphasis on the provision of workforce analytics and business intelligence to help clients improve their company’s performance.
• HireVue: Offers a Digital Interview Platform that saves time, travel, and costs by allowing clients to create online interview guides with scientifically proven questions. Candidates then record answers via a webcam, which recruiting and hiring managers then view on demand, including from smart phones, to build digital talent pools.
• JobVite: Provides a modular SaaS-based recruiting platform for applicant tracking, recruiter CRM, and sourcing talent.

Highlights from ADP include having ~30,000 clients for its cloud-based HCM platforms including:

• ADP Workforce Now: Launched in October 2009, it supports clients with 50 – 1,000 employees. The majority of its 20k+ clients purchase the broader HCM suite.
• ADP Vantage HCM:Piloted in October 2011 with general availability launched in June 2012, this platform, which targets employers with >1,000 employees, already has >30 clients. ADP has been adding ~5 – 6 new clients a month with a high percentage buying talent management, benefits (H&W), and time & attendance in addition to payroll. New wins include:
  • A national restaurant chain with ~24,000 employees
  • An employee healthcare staffing company with 15,000 employees
  • A retail chain with 4,500 employees.
• ADP GlobalView: It now includes ADP Talent Management globally and has won several major clients including an electronics manufacturer with 85,000 employees in 29 countries including the Americas, EMEA, and APAC, which recently added the compensation module.
• ADP Talent Management: It provides recruiting, performance, learning, compensation, and succession in 14 languages and 80 currencies for ~4,000 clients.
• ADP Mobile Solutions: Deployed globally and offered in 12 languages, the app has ~30,000 clients and ~450,000 users.

See you all next year at HR Tech in Las Vegas October 7 – 9, 2013.

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Quarterly Earnings Announcements – A Bellwether of the State of the HRO Industry

Just as our regular trips to doctors and dentists provide us with our own health updates, HRO providers’ quarterly earnings announcements serve as a bellwether of the health of the industry. With the most recent round of quarterly earnings reports: Diagnosis = Sick, Prognosis = Improving.

For example, in the RPO/staffing space, overall revenue among AMN Healthcare, Kelly Services and Randstad was down year over year ranging from -29 percent to -36 percent. The primary reason for this plummet is that most RPO/staffing revenue is dependent on hiring for both permanent jobs and temporary positions, and the recession has led to a drastic cut in hiring volume at many client companies.

While this sounds relatively bleak, we can inject a dose of positive news here:

•  RPO revenue, part of overall staffing company revenue, has not declined as steeply as traditional staffing due to renewals and expansion of existing services contracts, as well as new contract signings

•  Though overall results are steeply down year over year, declines in Q2 2009 revenue in comparison to Q1 2009 are lower. And in a bit of an anomaly, Kenexa’s revenue increased from $38.5 million in Q1 2009 to $39.5 million in the second quarter of 2009

•  On earnings calls, companies are reporting the initial signs of stabilization and stating that the worst of the economic storm is behind them, but are not quite prepared to say when revenue will increase again, other than a rather nebulous “should pick up by mid-2010”

Non-staffing/recruiting and transactional services providers fared better, but are also experiencing some revenue declines. For example, in ADP’s case, its fiscal Q4 2009 (for the period ended June 30, 2009) revenues were -0.5 percent in Employer Services, +6.6 percent in PEO Services, and -9.5 percent in Dealer Services. It jumped over RPO and staffing providers’ quarterly revenue reports because, as in payroll and benefits, revenue is commonly generated by number of employees paid. While headcount is down at many client companies, the decline is not nearly as steep as the reduction in hiring volume.  New business has also helped ADP offset declines in volume, For example, in May 2009 it was awarded a contract for managed payroll services by Swiss Re to support 10,000 employees in approximately 25 countries.

Aon’s revenue was down only -4 percent constant currency (comparisons excluding the impact of changes in foreign currency exchange rates). Further, it reported a modest increase in benefits administration outsourcing. As for its RPO business, in June 2009 it was awarded a large sub-contract by Lockheed Martin to perform hiring for the Transportation Security Administration (TSA), which may enable it to be one of the few RPO providers to achieve double-digit growth in 2009.

And TALX, a provider of services to HR, payroll and tax departments, reported an increase of 12 percent in Q2 2009 revenue. As found in our recent Q2 2009 Outsourcing Confidence Index, the strongest revenue growth will continue in the more transactional areas of HR outsourcing, including payroll services, which in part explains TALX’s revenue increase.

One of the customer-valued strengths of outsourcing is variable pricing that moves with volumes. Non-leveraged customer-specific customized services can tolerate only limited volume movement and trap costs for both the client and provider. For the newer SaaS and PaaS (Platform as a Service) models, which are typically priced on number of employees served and number of processes delivered, and to a greater degree in RPO which can have wide volume swings, the service providers pick up the risk of ensuring scalability and must be able to quickly keep operating expenses as closely aligned with volumes as possible. Providers with a mix of service offerings, including those where volumes move more slowly, or even move against the market, are showing less volatility. For example, for ADP, payroll is a more constant/consistent service, and for Aon, additional benefits outsourcing offset declines as customers look to increase services like absence management and dependent audits to reduce benefit spend.

Yes, the HRO industry has been ill, but a dose of economic recovery will help it regain its health.

Gary Bragar, Lead HRO Analyst, NelsonHall