The Logic in Logica’s Focus on MPHRO

Linda Merritt, HRO Research Analyst, NelsonHall

Logica has long been an HRO service provider in the U.K. and Europe. With much of its HRO revenues from payroll, it has been a bit quiet on the multi-process HRO (MPHRO) front. So I wasn’t sure that I saw the logic in Logica’s increased investment in MPHRO capabilities, especially when there are other major MPHRO players already in the economy-constrained market.

The HRO group at Logica recognized the developing opportunity for MPHRO as some buyers, especially second generation HRO users and multi-country businesses, began to want more than just transactional low-cost contracts. This created space for an HRO partner to help clients transform HR to increase business and workforce agility in responding to rapidly changing market conditions.

Logica is emphasizing its transformational HRO capabilities by:

• Assisting organizations to align their HR objectives and services with those of the wider organization and manage HR against business goals such as increased employee engagement
• Change management and ensuring that change management is both carried out up-front and carried through to a detailed sub-process level using service simulations to promote operational change as necessary
• Composing a common HR process taxonomy to be used as a common language across both outsourced processes and the retained HR processes
• Program management and its real-time PMO tools.

In terms of process design, the company is looking to use a set of standard Logica HR processes for Logica-delivered processes; for client-retained HR processes, it will provide workflow tools. Logica is also looking to encourage innovation beyond minor process improvements by establishing jointly managed innovation funds and innovation groups with its clients.

In technology terms, Logica currently supplements Oracle’s PeopleSoft HCM 9.1 and Oracle’s E-Business Suite with specialist HR applications where necessary. It may also consider SAP-based HRMS implementations downstream.

To date, the investments are starting to pay off. BPO, including HRO, was the fastest growing segment for Logica in FY 2011, up 23.8%. In the last 12 months, Logica has also been awarded several major MPHRO contracts including:

• BAE Systems:  a six year contract supporting 33,000 participants in the U.K. with a new single-tenant, hosted Oracle HR platform; payroll services; absence and attendance; employee care; and administration services in support of talent management functions including recruiting and learning
• Ahold, a Dutch headquartered supermarket retailer: a nine year contract supporting ~100,000 participants in the Netherlands, Slovakia, and the Czech Republic with a new Oracle PeopleSoft 9.1 platform; HR administration services; HR service desk; and payroll services, which will be subcontracted to ADP.

Other MPHRO contracts were awarded by a British telecom and a Swedish financial services firm, both for five years.

Logica is well underway working its five year roadmap for services development, which includes strategic new services, increasing its partnership ecosystem, and practical elements like adding more mobile apps. Logica is also a relationship-focused partner, and that trust factor, along with results realization from the new wins, will help it continue to grow in MPHRO. Logical indeed!

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Flexible Benefits and HRO Add Choice for Employees and Options for Employers

Mercer’s What’s Working Survey found that one-third of European participants are seriously considering leaving their organization. This had me immediately questioning why. Does it have something to do with the employee’s benefits package? Probably not in the U.K. since 36% of respondents stated that their benefits package was the primary reason for staying at their organization.

In fact, 30% of survey participants in the U.K. said that their employer’s benefit package was the key reason for joining the company in the first place, up 5% since 2005. Across Europe including France, Germany, Netherlands, Spain, and Italy, the average percent of employees that are content with their benefits package is 50%, representing a general decline over the last five years.

The survey shows what employees value varies by country, culture, and age. While surveyed European employees have many common interests, there is variation by country. Employees in France and Italy were the most dissatisfied over many of the employee value proposition elements studied including base pay, benefits, and development opportunities. In most cases, score varied. For example, employees in the Netherlands were less likely to intend to leave and were satisfied with their benefits, but were dissatisfied with employer assistance in retirement plans and base pay.

With pressure on all aspects of workforce costs, including benefits, what is an employer to do?  One option is to add a flexible benefits program to increase employee desired choice while still controlling costs. Program designs include one or both of the following:

• Employer paid benefit “credits” that employees can use to select the choices most important to them
• Employee paid benefits available through the employer, payable with payroll deductions and usually at better prices than available in the general market.

While flexible benefits schemes have been slow to take off, the continued adoption rate will have a positive effect on flexible benefits service providers since internal HR departments tend to lack the skills necessary to administer these benefit choices successfully. According to Mercer’s European Survey on Employee Choice in Benefits, flexible benefits programs generally meet employer objectives (63%) and are well-received by employees (71%).

Using HRO to administer the programs reduces administrative cost and complexity for employers.  The number of European organizations outsourcing their flexible benefit plan has increased. Specifically, Mercer’s survey found the following:

• 36% of employers outsourced their entire flexible benefits program, up from 28% in 2009
• 33% use a combination of in-sourcing and outsourcing for their flex program, up from 23%
• 16% manage the flex offering in-house, down from 35%.

NelsonHall’s upcoming Targeting Benefits Administration market analysis report will indicate that growth opportunities for flexible benefits are very good as organizations look for an alternative to salary increases and bonuses while meeting the needs of increasingly diverse workforces.

Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

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Moorepay and NGA get even more SaaSy in the U.K.

The one question that I always have after acquisitions is, “How does it work out over time?” Some M&As put emphasis on “synergy” (i.e., consolidation and cost recovery). Others focus on skills and footprint in new geographies. NorthgateArinso (NGA) is one of the HRO service providers that use acquisitions in new markets as one type of growth strategies. Moorepay is a payroll and employment service provider in the U.K. with over 10,000 clients and it is one of those NGA acquisitions.

Growth through accretion of revenues and clients in new geographies – along with the access to in-country knowledge to service MNC clients – is a good rationale for M&A. But does the overall vendor system become stronger? Are new capabilities leveraged across opportunity areas? I have lived the life of trying to create change, fighting against the not-invented-here syndrome in the corporate world. This is one of the more subtle reasons for using HRO—to circumvent this internal tug of war.

Now back to Moorepay and NGA. Moorepay just released its newest service on March 12th, a SaaS HR and payroll platform that it will use for the small-employer market. I asked if the underlying technology was based on SAP or Oracle. The answer is “neither”; it is based on Preceda, a proprietary NGA system stemming from the 2010 acquisition of Neller in Australia. Preceda is already in use for ~4,000 clients and 500,000 participants in Australia, Philippines, and New Zealand, and now it is expanding to the U.K. Yeah, synergy, re-use, and leverage to improve capabilities and services for the underserved small-business market halfway around the world!

HRO SaaS is a proven cost-effective alternative to fully customized systems. Its very nature lends itself to offering needed benefits to the small and midsized employers (SME). SaaS brings the illusion of customization through configuration at an affordable cost. These are important attributes, especially important for the employer with less than 500 employees.

Moorepay is fully using the benefit of configuration to launch the new service with four pricing levels from the most basic HR and payroll that gives the option to easily turn on additional services like time and attendance, recruiting, and learning modules.

HR and payroll platforms also bring self-service for employees and streamlined HR processing for managers. According to Ann Fitzpatrick, Moorepay managing director, existing and prospective SME clients are asking for the same level of services that have been in the market for years for the large-employer market.

If the launch goes well, and Moorepay turns the rising demand and its first-mover advantage in the U.K. SME market into new and profitable growth, expect to see new NGA Preceda-based SaaS HRO offerings pop up elsewhere around the world.

Linda Merritt, Research Analyst, HRO, NelsonHall

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.com with “HRO Insight” as the subject.

A Steady State in HRO for 2Q 2011

After several quarters of new HRO activity, the pace settled down a bit in the second quarter, but was still plenty interesting. Here are several samples from 2Q 2011.

Capita stands out for its volume and breadth of HRO activities. It is the largest MPHRO provider in the U.K. according to the NelsonHall MPHRO 2011 market report. Capita was awarded preferred supplier status by NHS in North Mersey, providing a potential of up to £27m by offering a mix of HR, payroll, and RPO services to 12 Mersey NHS trusts. There were also two awards for occupational health services, which it is expanding into the more holistic well-being services. An acquisition was also in the mix. Team24 was brought in to enhance medical RPO capabilities, further strengthening a market segment in which Capita is rated third in the U.K.

I like to look at the mix of new partnerships, offerings, and mergers and acquisitions to see where vendors are placing their bets on expansion and growth. Global remains hot and deal activity is there to keep hopefuls in the game of capturing new markets.

A leading example is ManpowerGroup’s strategic moves in China. It purchased REACH HR in south China, added Xi’ an Fesco with its 10k associates, and partnered with the city of Kaifeng in the Henan Province to add coverage in the west and north central area of China. To top off this spree, ManpowerGroup aligned itself with China’s Ministry of Industry & Information Technology (MIIT) for a five year plan.  It will develop a talent exchange center, enabling ManpowerGroup’s local partners to provide workforce solutions focused on manufacturing.

Remember that China is not a market you can just jump into and Manpower has been on the ground in mainland China for 17 years. It has the needed relationships and is well-positioned to benefit from the development expansions now moving into inland China.

Other APAC activity included Australia. Mercer was awarded a superannuation pensions administration contract by RBK. Also, Towers Watson is partnering with Link Group to enter the superannuation market in Australia which is not big in numbers, but each group plan can have a large number of members. Finally, Futurestep opened global service management centers in Australia and New Zealand.

Elsewhere in APAC, Genpact was selected for a five year learning content development contract by JobSkills in India; Merce r launched a flex benefits offering in Hong Kong, and is partnering with PayrollServe to offer its HR services in APAC; and ManpowerGroup acquired Web Development Company in India to strengthen IT recruiting.

With plenty of recent HRO deals in implementation and early stabilization, along with perkier volumes and special projects in existing contracts, service providers need to focus on balancing delivery performance with new acquisitions. Compared to some of the things we have experienced in HRO, a steady state is not such a bad thing!

Linda Merritt, Research Analyst, HRO, NelsonHall