Posted tagged ‘Towers Watson’

Benefits Administration Outsourcing – Driving Business Value

April 6, 2011

Managing the annual benefits enrollment process is a core value of benefits administration outsourcing (BAO) and for years large companies have taken advantage of its cost and convenience. According to Towers Watson’s Annual Benefit Enrollment 2011 survey, 78% of large companies outsource enrollment, while almost half of midsized companies still insource. The scale will continue to tip towards outsourcing as three fourths of the responding midsized employers that currently insource indicated plans to outsource enrollment.

What is causing this tipping point? I think it is the addition of complexity to the healthcare equation for both the employer and the employee. Start with the ever rising healthcare costs driving increasing use of consumer driven health plans and healthcare savings accounts, add in the U.S. healthcare reform changes, and the options and implications start to multiply exponentially.

Even with the success of web-based enrollment, now at 89% according to Aon Hewitt’s 2011 Annual Enrollment Insights, calls to service centers are still in demand. Change and uncertainty increase the need to talk to someone as helping employees understand new plan features and any changes in pricing create communication challenges. Service providers see increasing use of decision support tools (DSTs) to help employees. For those using BAO, Towers Watson reports 69% DST usage compared to 44% that insource.

BAO also makes the process of accommodating changes for healthcare reform a bit easier. Aon Hewitt saw a jump in enrollment of 15% in the number of covered dependents as participants added children between 19-25 who are now eligible for coverage under one of the first major reform changes. Even a change that is relatively simple to implement has broader implications including increased employer interest in ongoing dependent eligibility rather than just as an audit, and some are moving to per child pricing over family pricing.

New best practices will emerge in response to benefit changes.  Service providers highlight the importance of incorporating a participant’s actual health claims data into decision support tools. Aon Hewitt has already seen that 48% of participants using advanced DSTs changed their elections. This is another opportunity to strengthen the value of BAO as Towers Watson indicates that 83% of the survey respondents have not yet integrated claim data.

Another emerging best practice is incorporating wellness communications into the enrollment tools and process stream. One reason for this is pure practicality as enrollment is a prime time to think about wellness. Another reason is that more employers are making completing assessments or participating in condition management plans a requirement to receive incentives or participate in premium benefit levels.

The BAO sale can be made on cost, convenience, and complexity. With a crowded market of quality providers, the differentiating theme that should run throughout the year is how to drive behavior change that creates business value.  Does your benefits service provider add business value?

Linda Merritt, Research Director, HRO, NelsonHall

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

Differentiating HRO – Use What You Know

February 16, 2011

How many ways can a HRO vendor differentiate?  The lowest total cost, the latest and greatest in technology, the broadest range of services in the most places, etc.?  When there are multiple reputable service providers, vendors have to reach further to create HRO differentiation.

In the early days of HRO, it was sufficient for a vendor to provide services that were as good as what had been provided in-house, becoming the base of most service levels (SLAs).  HRO vendors quickly found that meeting SLAs did not equate to overall client satisfaction, with clients stating that while they may have been getting what they contracted for, they were not getting what they wanted or needed.

Today, “as good as” is not good enough.  HRO service providers need to know more than the client in each service area.  Knowing more may be in the form of compliance and reporting expertise, local knowledge of covered geographies, advanced application use, or even change management expertise.  Client confidence that the selected vendor does indeed “know how” is important.  Confidence that the vendor will be a partner in what happens next is even rarer and is a key differentiator that top tier HR clients seek.

Times of uncertainty create opportunity to build client confidence with your ability to see around corners or at least keep up with the twists and turns.  Consulting capabilities are particularly important in HR.  But, even top consulting capabilities will not build the HRO practice if there is no flow-through of learning and innovation as well as improved process and performance.

Many HRO service providers with roots in consulting offer forward-looking research, publications, webinars, and even conferences to help clients keep up with best practices, new trends, and regulatory happenings, all while demonstrating thought leadership and subject matter expertise.  Many names come easily to mind including Accenture, ADP, Aon Hewitt, Ceridian, IBM, and Mercer.

For example, Towers Watson has published human capital research and recently released its latest HR services report.  Kenexa’s client conferences also offer sessions of broader related HR practitioner interest.  Finally, Infosys provides a good example of application expertise and consultative relationship management when it brings tailored ideas to clients on how they can improve their processes.

Vendors that offer multiple service lines or are an industry leader in a particular area can cross data streams.  Think of ADP’s weekly report on employment or Administaff who has PEO trends that show which U.S. regions are leading and lagging in returning to growth for the small business market.  Also, ACS, a Xerox Company and IBM support client interaction opportunities that can lead to innovation communities.

How can data from IT, F&A, or even Ceridian’s Pulse of Commerce Index be tapped for HRO?  Think about how you can go beyond the obvious and use everything in your kit bag to develop leverageable and differentiating HR and HRO insights.

Linda Merritt, Research Director, HRO, NelsonHall

Is HRO at the Table – the Investment Table?

February 10, 2011

IT spend on consulting and infrastructure increased in the fourth quarter of 2010, especially in North America and Asia Pacific.  There were even bright spots in Europe like France and Italy.  Accenture saw its strongest quarter in consulting in 2 ½ years and IBM had its strongest quarter of the last decade.  Increases in outsourcing tend to follow.  For example, at Xerox, now including ACS, BPO was up 11.1%.

The bad news is that major HRO investments often trail at the end of the outsourcing pack.  The good news is that HR and its HRO vendors can see trends coming and prepare to present the strongest business case possible for investment.

ADP was up 7% to $1,663m for Employer Services.  Its bright spot was beyond payroll services, which were up 16% and include benefits administration, MPHRO, and various point solutions.  One-time activities, or smaller add-on services, helped hold up results throughout the recession for many HRO vendors as they were smaller, less risky, and easier to fund investments, but it is hard to have significant growth through small increases in incremental spend.

Aon Hewitt’s Q4 2010 numbers were way up with revenues of $1,151m, an increase of 229%.  Stripping away the impact of the merger, organically HRO was $580m, down 2%.  The same was true at Towers Watson.  For FY Q2 2011, it came in at $791m, but in a pro forma comparison it was down 5%.  Towers Watson completed a lot of integration work in the past year and managed operating margins well at 18.7% for the quarter, but underperformed organic growth expectations.  All of the HRO service providers caught up in last years acquisition frenzy need to ensure they do not miss the current and coming window of opportunity for major HRO decisions and investments.

The business development profile for every HRO client, or hot prospect that wants to do business with you should include the timing and approval process for business case decisions.  Also know what can be done through operating expenses and local discretion.  Even the most solid HRO solution will run into trouble if the funding window is missed and all that is left are the scraps on the table.

Even with investment dollars starting to fly, pie-in-the-sky projects will still be grounded.  I really liked a term I heard in relation to an increase in consumer spend, frugal splurges.  Pragmatic investments that are well supported with facts and figures and direct ties to key business initiatives and business results will have the edge.  Don’t forget to add just a little bite of pizzazz!  Add-on modules, basic features and functions, workflow and service center capabilities are important, but a bit boring.  How will new major HRO investments be riding the tech wave of virtualization, cloud, and mobility – adding to the capabilities of an adaptable workforce of the future, ready to compete, and win today?

Linda Merritt, Research Director, HRO, NelsonHall

Q4 2010 HRO Ends on an Up Note

January 5, 2011

While we wait to see 2010’s full year HRO financial results, we can review activities in the fourth quarter.  HRO growth is occurring across most industry segments, with the public sector lagging.  The fastest growth rates are still outside of the mature economies in North America, U.K., and Europe for the global providers, although the U.S. is starting to rebound.

Benefits administration showed a nice level of new business activity, even in the mature areas.  Congratulations to Fidelity for the competitive wins of AT&T for both defined contributions and defined benefits and Office Depot for broad benefits administration services.  There were also notable benefits wins by Mercer, Aon Hewitt, Ceridian and Xafinity.  Meanwhile, we are still waiting for a major jump start in learning and multi-process HRO contracts.

The volume of new business and growth with existing clients will continue to rise in 2011, but the pricing environment will not likely ease much in 2011 as buyers remain price sensitive.  Maintaining efficiency will be critical in order to win with both clients and investors.  For example, The Right Thing recently introduced dedicated Solution Teams to manage the transition from sales and implementation into operations. Managing implementation was a costly problem for service providers and customers in multi-process HRO for years, so it is good to see the lessons learned extending to other areas of HRO.

Preparing for further growth also continues in partnerships, mergers, and acquisitions.  Aon Hewitt is expanding its benefits capabilities in Scotland via a pension services partnership with Babcock International Group.  Towers Watson is jumping back into the benefits fray with a partnership with Wage Works and the acquisition of Aliquant, a mid-range benefits service provider.

Fourth quarter good news stories continued with revenues up in most areas of HRO.  Several HR service providers reported a 4% to 6% increase in revenues including ADP Employer Services up 6%, Aon Consulting up 4%, and Mercer up 6%. RPO and staffing companies continued recovering at a rapid pace, leading the way out of the downturn just as they led the way into it.  Revenues for Manpower were up 19% and The Right Thing’s revenues were up 30%.  GP Strategies, Kelly, and Kenexa all had increased revenues in the mid-20% range.

Operating margins are remaining consistent as the HRO industry adds back employees indicating they will be able to manage growth while keeping an eye on hard-won profitability.  Investments in technology and global service delivery capabilities will now be bearing fruit and should also support margin growth.

Happy New Year – may 2011 be a great year for us all in the HRO community in every way!

Linda Merritt, Research Director, HRO, NelsonHall

HRO’s Summer Gets Hotter – Aon to Acquire Hewitt

July 13, 2010

July is one of hottest months of the year in many areas, and it just got hotter as the trend to bulk up in benefits continues with Aon Corporation to acquire Hewitt Associates for $4.9 billion.

The combination of Aon Consulting and Hewitt will be renamed Aon Hewitt. Russ Fradin, Hewitt’s current head, will serve as chairman and CEO of the new unit, and will report directly to Aon’s CEO, Greg Case. The transaction is expected to close in November after achieving the required approvals.

Once closed, the new Aon Hewitt will become the largest human capital consulting and benefits outsourcing services provider, moving ahead of Towers Watson and Mercer. The new mega-player will start out with a combined $4.3 billion in revenues, 29,000 associates and offices in 120 countries worldwide.

The acquisition will almost triple the size of the company’s Aon Consulting unit, which generated $1.3 billion in revenues in fiscal year 2009 compared to Hewitt’s $3.0 billion. The blended revenue mix, using 2009 data, is 49 percent consulting services, 40 percent benefits outsourcing, and 11 percent from HRO. Separately, consulting revenues were about the same for both companies, at about $1 billion. Eighty-five percent of Aon’s revenue comes from consulting, with the balance from benefits outsourcing. At Hewitt, consulting contributes 33 percent of revenues, with 51 percent coming from benefits outsourcing and 16 percent from multi-process HRO.

Other than multi-process HRO, both companies have similar offering line-ups in human capital health, retirement, investment, compensation and benefits consulting and benefits outsourcing. Hewitt’s focus has been large corporate clients, and Aon Consulting has a large base of middle market clients, which will help reduce overlap. Both also offer talent management services, with Aon more focused on its U.S. practice and Hewitt on providing global services.

Hewitt continues to offer multi-process HRO, and is currently supporting approximately 700,000 participants with $480 million in revenues. After stemming several years of outsourcing unit losses after its acquisition of Exult, Hewitt has returned to acquiring new business, winning both renewals and several new contracts to date in 2010. Hopefully Aon, which offers RPO services but had stopped competing for multi-process HRO deals, will support Hewitt’s current intention to remain a major player in the comprehensive HRO market. We want employers looking to outsource multiple processes to a primary vendor to have a prime set of robust choices.

Due to the major changes and uncertainties in the U.S. market due to the Health Care Reform Act, there will be heightened opportunities for consulting, outsourcing and brokerage of employee insurance plans. Also, understanding and rationalizing employee benefits, compensation and talent management are growth areas for multi-country companies as addressing economic pressures will remain a top priority for the near future.

Ultimately, the point of mergers and acquisitions is growth, and the longer term value of the Aon Hewitt deal is in the global scale and scope of the combined entity and the opportunity to cross sell into each other’s base.

Aon Hewitt will be well-positioned to compete in the middle and large markets around the world for a full range of human capital services from consulting to outsourcing, investments and insurance. HRO’s summer just got hotter, and the summer is far from over!

Linda Merritt, Research Director, HRO, NelsonHall

Health Care Reform – Who’s Got Your (HRO) Back?

March 23, 2010

There are HRO service providers that can do a wonderful job in a stable environment, efficient and effective. But who can do the job in an uncertain financial and regulatory environment? Which vendor partner/s has your back in times of change?

Today I watched as President Obama signed the historic health care reform bill. If you’re an employer, are you prepared for what the recently changed regulations will do to your business and how they will impact your employees? Are you comfortable that all of your employee and delivery systems are ready for compliance – across internal and, potentially, multiple third-party vendor systems?

As recently as February, Mercer found that seventy-one percent of U.S. employers have done nothing to prepare in advance. This is reasonable since no one was assured what new regulations, if any, would be passed. But prepared or not, some elements will go into effect in 2010, and every impacted employer and their HRO partners are going to need to scramble. 

At the end of the day, compliance is an employer’s responsibility, and wholesale benefit policy and plan reviews require big “C” consulting. However, an experienced HRO vendor partner with top-notch subject matter expertise can advise on changes that are required to keep your information and systems in compliance. And a primary multi-process provider can help work across the often myriad of systems, programs and interfaces that will need to be updated.

 I just took a quick scan of some of the HRO service provider websites. As you would expect, major benefits administration vendors like Hewitt, Mercer and Towers Watson have been long active on the topic; research, web info, bulletins, podcasts and webcasts. And today, Hewitt is hosting one of its bi-weekly healthcare reform webcasts, and Mercer is hosting one on the recent changes to mental health parity and addiction equity regulations.

ACS, via its consulting arm Buck Consulting, has prominent health care reform information available. ADP also has an easy to find section with weekly updates, and is already listing when some health care reform regulations are going into effect over the next few years. And Aon has a website area with weekly briefings and access to health care reform information.

If you are a current HRO client of benefits health and welfare administration, payroll, employee self services, or recruiting – who has kept you informed along the way? Who has called you today?

Linda Merritt, Research Director, HRO, NelsonHall