Posted tagged ‘Towers Perrin’

Learning Services Acquisition Frenzy

March 17, 2011

Last year, we wrote quite a bit about all of the M&A activity in benefits administration including:

  • Towers Perrin and Watson Wyatt completing its merger to become Towers Watson
  • ACS, a Xerox Company acquiring ExcellerateHRO
  • ADP acquiring Workscape
  • Aon acquiring Hewitt to become Aon Hewitt
  • Other acquisitions made by vendors including Mercer, Xafinity, and Capita.

Will learning be the next HR service area abundant in acquisitions?  Although we have seen learning services acquisitions in the past, including ACS acquiring Intellinex in 2006, and will likely continue to see more in the future, I don’t believe we will see any in learning that are equivalent in scale to the large benefits acquisitions.  However, if there was an award for the number of acquisitions in a short period of time, it would have to go to General Physics Corporation (GP). On March 10th, GP acquired RWD Technologies for $28m, its 8th acquisition in the past 18 months.  RWD is based in the U.S. near GP in Baltimore and has three additional U.S. locations as well as offices in the U.K. and Colombia.

GP got RWD at a bargain since RWD’s consulting revenues were $65m in 2010.  RWD was hit hard by the recession and GP came along at the right time with cash on hand.  As a result of the acquisition, GP inherits RWD’s IT learning expertise, where it had little prior experience.  The acquisition also strengthens GP in the petroleum, manufacturing, and automotive sectors.

Last month, GP acquired Communication Consulting to expand delivery of its training services in China.  GP’s other acquisitions were made in the U.S. and U.K. between September 2009 and December 2010.

GP’s 2010 revenues were $259.9m, an increase of 18.6% compared to 2009.  Growth was attributed to increased volumes from existing clients, new contract awards, and its acquisitions, which had the greatest impact.

Moving forward, what will happen?  Well for one thing, don’t count GP out from making future acquisitions.  GP still has ~$35m in revolving credit after the RWD deal and has stated that they will continue to seek acquisitions to grow globally.  However, with so many acquisitions, GP now faces the challenge of creating an integrated client experience and cross-selling into the strengths of these acquired companies to continue its rapid pace of growth.

It will be interesting to watch as things unfold this year.  In the meantime, we can finally put to rest the question “what’s happening with RWD”.

Gary Bragar, Lead HRO Analyst, NelsonHall

Springboarding into an HRO Spring

March 3, 2010

I like research and survey reports that provide a springboard effect. In addition to offering valuable data and insights in and of themselves, good research can launch our thinking in many directions. I am very right brained and approach data in both intuitive and analytical ways. Data “talks” to me, sometimes challenging and hectoring, but more often it lights up a pathway, and occasionally it helps make connections not seen before.  

Let’s look at a few data launching points from two recent studies, CedarCrestone’s 2009-2010 HR Systems Survey, and Towers Perrin’s Achieving Effectiveness in HR Outsourcing study. Each has a very different perspective, but each has elements of the same story.

According to Towers Perrin’s (now Towers Watson) annual HRO large market buyers survey, HR is much more aware that significant change is needed to support the retained HR staff after outsourcing. In 2006, 41 percent of respondents agreed that the retained organization needs to change to a great or very great extent to leverage the full value of the HRO model. In 2009, agreement had risen to 57 percent, an almost 40 percent increase. A total of 92 percent agree that some change is needed, but “some” underestimates the actual needs.

The Towers Perrin research shows there has consistently been a drop-off in client satisfaction with outsourcing, usually between year one and three – the terrible two’s. CedarCrestone also indicates that it takes time to achieve the full benefits of new applications and self-services, whether in an internal shared services or an outsourced environment. Look at any change management model and that mid-process dip is there.

Both reports show gains in HR-to-employee staffing ratios and less HR staff doing administrative work, largely impacted by adoption of self-services, which will provide the initial cost benefits. But less administrative work does not necessarily mean that HR is more effective or strategic, which is what ultimately provides long-term business value. 

A deep understanding is needed to be prepared for what the services being purchased will do, and what the retained HR organization must do; this may take re-skilling and will definitely take time and effort. Both studies point out the need for change management to attain the full value of new HR technologies and service strategies. Towers Perrin’s research points to addressing HR’s issues and its needed changes in roles and capabilities. CedarCrestone points to addressing resistance to technology that initially impacts adoption, but goes on to highlight a larger issue – integration across applications. 

In addition to services and applications that work and provide direct value, integrated data from many sources and applications is needed for use by the transformed HR staff to enable analysis and provide decision-impacting information to the enterprise.

Addressing people, process and technology issues on both the vendor and buyer side can lessen the depth and length of the normal dip, providing a springboard to faster benefits realization in systems, services and business results. A nice leap for HR and HRO indeed! 

Linda Merritt, Research Director, HRO, NelsonHall

HRO – a Story in Numbers

December 15, 2009

I spent many of my career years dealing with data. From budgets to surveys to process performance to benchmarks, the subjective and the objective — I grew to love it all. Note that I am not a statistician. I am very right brained and data “talks” to me. It tells stories, gives glimpses and hints, albeit sometimes elusively. It can also obscure, mislead and provide false comfort. The fact is data on its own is inert. Its value as a decision support tool lies in what we make of it and how we use it.

Business process outsourcing (BPO) and HRO both lend themselves particularly well to analysis by the numbers; baseline performance and financial data, pricing units, discounts, service levels, satisfaction surveys and benchmarks. Plot them all on trend line charts, control charts, pie charts, radar webs and colorful dashboard with green, yellow and red indicators. Such fun!

Towers Perrin’s 2009 HRO Effectiveness Survey is one of my favorite studies. There is a lot in the study for buyers and providers, so let’s look at just one story today.

According to the survey results, there was a tie for the number one HRO goal: cost savings and removing the distraction of administrative and transactional HR work were both cited by 73 percent of the respondents.

So how well does today’s HRO deliver? Sixty four percent of respondents said their HRO vendor delivered cost savings. That’s pretty good. Fifty percent reported that HRO did eliminate the distraction of administrative and transactional HR work. Fifty percent felt they successfully obtained a higher level of service and support, but 50 percent said this was unsuccessful. That’s okay, but not good enough given the time, cost and effort needed to move into a multiple process HRO environment.

To get a deal done today, the financial issues are critically important and both the buyer and provider need to ensure the numbers work and there is a viable path through implementation into operations. 

The survey data says that those neutral or dissatisfied with their vendor underestimated during the selection process the importance of the vendor’s staff quality/expertise, technological capabilities, per employee costs and flexibility to meet specific needs. Yes, there’s no doubt that cost is important, but I remain convinced that cost savings alone does not create a satisfied client. At the same time we negotiate price, we need to look at what creates long-term satisfaction.  

HRO is very complex and no one measure or survey can fully tell its story. To help ensure HRO satisfaction, gather a rich set of various data types and listen closely. See and hear the story being told, then figure out what that story means to you and how you will translate its messages into actions in the real world.

Linda Merritt, Research Director, HRO, NelsonHall

The Towers Perrin/Watson Wyatt Merger: What Will Happen to Benefits Admin Outsourcing?

July 3, 2009

Encapsulating the reported highlights of the much-publicized Towers Perrin/Watson Wyatt merger: Towers Watson, with a combined workforce of 14,000, is expected to have annual revenues in excess of $3.5 billion, 55 percent of which will come from benefits services – administration, solutions and consulting. The approximate cost for integration of the two firms is $80 million, with most of the financial hit occurring in the first two years of the anticipated three year period it will take the company to achieve “full realization of synergies.” But the company also anticipates approximately $80 million in pretax annual synergies.

Oh yes, this is a big deal. And of course with any deal of this magnitude there are positives and challenges.

On the plus side, the merger works for the companies in strengthening consulting areas they lacked as standalone organizations. This may facilitate expansion into new consulting markets, such as emerging countries in Latin America and Asia Pacific. The merged company will have greater geographic coverage, increased service breadth and perhaps stronger communications and survey capabilities, which will enable a more complete HR services portfolio. Further, Watson Wyatt’s technology offerings will likely enable stronger solutions, particularly within performance management and compensation, two current hot button topics due to pressures put on HR departments to achieve success without salary increases. And finally, office spread potentially allows the Watson Wyatt side to enter new administrative markets through existing Towers Perrin locations. However, this would be a longer-term strategy as one would expect that growing existing market share would take priority over new market entry per the current economic climate.

On the challenges front, the integration of two such large organizations will take a long time (and at no little expense), and will unquestionably be unsettling to employees, existing clients and prospects alike, particularly as consolidation efforts will likely have a negative impact on morale and employee retention. There will also be layoffs due to redundancy, resulting in competitor’s ability to snatch up strong talent. And, given “big fish/little pond, big pond/little fish”, there are undoubtedly prospects that will prefer to work with smaller professional services firms.

One area I think will be very interesting to monitor is the extent to which Towers Watson maintains Watson Wyatt’s level of service delivery in benefits administration outsourcing. We estimate $300 million of Watson Wyatt’s total FY08 revenue of $1,760,000 can be attributed to benefits administration services. That represents nine percent of Towers Watson’s anticipated annual revenue of $3 billion, which is no small potatoes given that it’s a recurring revenue stream, as compared to one-off consulting engagements. On the other hand, integrations of this scale promise to be bumpy, and benefits administration outsourcing service levels could, as a result, decline, even if temporarily. And attitudinally, existing clients may well be cautious about staying with such a large organization, and some may even prematurely jump ship due to these concerns. As many questions loom, we’ll be keeping an eye on this space.

Finally, we believe this represents an opportunistic merger based on the value of the deal due to current economic conditions, and is unlikely to herald a glut of such transactions within HR consultancy organizations, certainly not on this behemoth scale.

Until next time, happy sourcing!

Helen Neale, Research Director, Human Resources Outsourcing, NelsonHall