Amy L. Gurchensky, HRO Research Analyst, NelsonHall
For those of you who are not aware, NelsonHall assesses the confidence in the HRO market on a quarterly basis. The report involves surveying HRO suppliers from all disciplines to get a pulse on the market.
From time to time, my colleagues and I will blog about these results. I thought I would take a step back and re-examine HRO supplier confidence levels since the report began.
As the name suggests, the supplier confidence level measures how confident HRO suppliers are in the future market with a level of 100 representing no change in confidence.
Since the report began, the index has constantly shown a healthy level, despite some fluctuations in between. The following chart graphs HRO service provider confidence levels since its inception.
2011 shows a major turning point in HRO vendor optimism, revealing a downward trend line that coincides with the Employment Situation report produced by the Bureau of Labor Statistics.
There is no need to panic though. It appears that supplier expectations are now more accurately aligned to pipeline activity, which showed a slight weakening in Q1 2012. Again, the most important thing to remember is that the indices are still at a healthy level.
Despite the headwinds from the economic recovery, business for HRO has carried on as evidenced in the following contract activity:
ADP: awarded a multi-country payroll contract by HP covering ~130,000 employees in 40 countries across Asia Pacific (excluding India), Europe, and the Americas (excluding the U.S.)
Talent2: awarded a three year RPO contract by Bankwest in Australia providing full RPO services from job requisition through onboarding including employment branding, establishing an innovation program for sourcing, and more
IBM: awarded a learning services contract by a government entity in South Africa including content development and delivery of learning
Aon Hewitt: renews and expands its multi-process HR outsourcing contract with BMO Financial Group for payroll, workforce administration, H&W administration, recruitment services, and compensation administration covering 46,000 employees in the U.S. and Canada for eight years.
There will likely be continued challenges from clients such as stalled decision-making or demands for lower pricing, and some service lines will fare better than others in this slow economy that is decelerating.
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ManpowerGroup Solutions held its first analyst event outside of the U.S. in Mexico City to focus on the fast-growing Latin America market which includes Mexico and Central America (MeCA), and South America. I must first say the hospitality extended to us by both the Latin America and U.S. ManpowerGroup teams present was the warmest I could have imagined.
The agenda included:
Introduction to ManpowerGroup MeCA
Talentism is the new capitalism: ManpowerGroup insights from the World Economic Forum
The economic landscape in Mexico and Latin America
ManpowerGroup priorities, progress, and perspectives
The RPO and MSP market in MeCA
Visit to ManpowerGroup client and ManpowerGroup office (particularly helpful to understand how jobs are advertised in Mexico)
Labor and workforce demographics in South America
ManpowerGroup brand, messaging, and target markets
The global RPO COE
Analyst perspectives on topics including: client readiness for global talent planning, client satisfaction, and ManpowerGroup strategies
With such an informative agenda, I’d be writing a small book if I tried to cover all the content, so I’ll focus on the client visit to KidZania. KidZania is a global organization with franchises in Mexico. It is opening its third office there by June, which we were able to visit. KidZania is focused on creating a live learning experience for kids that allows them to role-play adult activities including working different jobs, spending money, and even learning how to drive a miniature car after acquiring a permit. The facility is Disney-like, but better because adults are not allowed inside. ManpowerGroup also has its first job agency within KidZania, so kids can assess their skills and search for jobs available on computers.
ManpowerGroup Solutions began providing RPO services to KidZania in 2010 after the client was searching for an agile vendor that could provide a flexible workforce solution with a focus on talent. The client stated the following three primary objectives of which ManpowerGroup has exceeded its expectations:
Find the right candidates fast
Reduce time / cost of recruitment, including quickly scaling up and down to meet hiring needs
Create the right culture among kids, parents, and collaborators.
I’ll revisit the Latin America market in a future blog, but for now I will say that although Mexico had one of its biggest recessions in 2008 – 2009, it has made a quick recovery, and is expected to create ~1.2m jobs this year. Mexico is about more than just outsourcing for labor arbitrage; it is about outsourcing for job skills where more than 100,000 engineers and technicians graduate every year from science and technology programs. Just last month, for example, Volkswagen’s Audi luxury-car unit announced that it will open its first North American factory in Mexico.
ManpowerGroup has more than 2,000 clients in MeCA and is present in 10 countries in South America. RPO is provided to both Mexican headquartered clients and U.S. MNCs with hiring needs in Mexico.
Gary Bragar, HRO Research Director, NelsonHall
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Offshoring is once again under the harsh glare of the polarized political spotlight in a presidential election year. As my NelsonHall HRO colleague Gary Bragar commented in his blog, President Obama is increasing focus on job creation including encouraging employers to insource jobs back to the U.S. This may cast a shadow of negative publicity on outsourcing that includes offshoring, but I predict the issue poses only minimal direct threat to HRO. In fact, I see increased opportunity for savvy HRO service leaders.
In listening to the President’s remarks and reading the insourcing and investment fact sheet issued by the White House, it is clear that manufacturing jobs are the primary target.
The U.S. lost millions of manufacturing jobs and in some cases almost entire industries, as companies pursued ways to remain competitive with lower-priced global competitors. Lower wages and benefits were a key part of the equation, but there were other factors including regulations, taxation policies, and the low cost of transportation in what was still a bountiful world of low-cost oil.
Offshoring dynamics are changing, especially for manufacturing. The time delay inherent in moving products around the world now creates challenges in meeting the rapidly changing market preferences and shortened product lifecycles of a connected world. With increased competition for limited energy supplies from the emerging economies, the cost of transportation has become a significant factor. Add in moderately decreasing wage gaps and we can see why companies will be able to insource some jobs. Others will be able to create more jobs in the U.S., much like Honda, Toyota, and Mercedes Benz have been doing for years.
HRO as an industry is already a blend of onshore, nearshore, and offshore technologies and workforces. A mix of right-shoring talent and technology helps vendors meet client needs for cost, service, and value. With time and transportation being minor factors in HRO or other BPO, talent remains a primary driver.
Access to pools of affordable skilled talent is an increasingly important element in the growth of all businesses, whether small or large, local or multinational. Who has access to comprehensive data on workforces around the world including costs, turnover, and availability? Who can see trends emerging on skilled labor capabilities and capacity shortages? Who has direct experience in building and maintaining global workforces both for clients and for themselves? HRO service providers!
Think about it, in our HRO community are the likes of Accenture and IBM, growing globalists like ADP and NorthgateArinso, modern tech heavyweights like Infosys and TCS, global research and analysis specialists like Aon Hewitt and Mercer, and RPO leaders such as Alexander Mann, Hays, and Manpower, we even have learning leaders that can handle rocket science like Raytheon RPS.
We need to have a large enough vision for what we can become as an HRO community. There is so much already that we can leverage. Be confident in our value and let our light shine bright!
Linda Merritt, Research Analyst, HRO, NelsonHall
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In the USA Today last week, there was a feature with President Obama giving a talk to the business community, where he gave recognition to them for keeping jobs in the U.S.
The President said the economy has changed, and the transformation has been painful for many American workers who used to work in factories where they thought they would retire from, but those factories relocated overseas where the cost of labor has been cheaper. The President recognized that we live in a global economy and other countries want to develop their companies internationally and will therefore want to employ workers all over the world. But right now, the U.S. is in a unique moment in time where it has the opportunity to bring jobs back as the U.S. has people available and ready to work now. The President wants companies to invest in America, and he is set to introduce a tax proposal that would reward companies who bring jobs back to America and eliminate tax breaks for companies that are moving jobs overseas. The President has set a goal of doubling the export of goods and services by 2014.
So the big question is, will this scheme work and what does it mean to offshoring HRO? As one data point, let’s look at the percentage of HRO contract value by location according to NelsonHall’s latest quarterly HRO Confidence Index released in December 2011:
72% Onshore
16% Nearshore
12% Offshore (the 12% is consistent with April 2010 when tracking of this data point began).
Although some American companies have brought back previously offshored jobs, I believe it will come down to a combination of cost and service. First, pending what the actual tax breaks are that the President will be able to provide, CFOs will evaluate the outsourcing cost savings vs. the tax benefits of bringing jobs back. If HRO service provider jobs are brought back, vendor clients are not going to want to pay more. If the tax breaks don’t cover the labor cost savings, will vendors be willing to eat the extra cost? I don’t think so. Much will also depend on the current level of client satisfaction with outsourced services.
Depending on job type, it is easier said than done. As an example, let’s take moving outsourced call center jobs back to the U.S. Part of the reason call centers are offshored are due to multi-lingual call center support, including for MNCs, that can be provided from HR service centers such as in Manila. Then there is offshoring of non-client facing jobs, often referred to as back-office administration. For example, sourcing of jobs can be done when U.S. offices are closed overnight and candidates can be delivered next morning.
In sum, once the specific tax breaks are known, CFOs will commence cost savings analysis, followed by vendor and client discussions on where and how to best provide HRO services.
Gary Bragar, HRO Research Director, NelsonHall
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According to a report from the Centers for Disease Control and Prevention (CDC), more than 1 out of 20 Americans were clinically depressed in 2005-2006. Since that period, economic conditions worldwide have worsened, the unemployment level has reached all-time highs, and foreclosure rates have skyrocketed. Frankly, I’m a little bit frightened to check an updated statistic on depression.
You might be thinking that those individuals who have managed to maintain their jobs at this time would be grateful. But, the truth of the matter is that the glass is quite often viewed as half empty. There are many reasons why employees suffer from mental health issues. However, instead of just identifying the source of the problem, employers should focus on offering a solution that is known to improve mental health and therefore lead to increased productivity.
That solution is Employee Assistance Programs (EAPs). In 2011, Morneau Shepell conducted a study on EAPs that had two interesting findings for HRO buyers and suppliers:
Decreased productivity and absence costs employers ~$20,000 per year per employee
EAP intervention resulted in a 34% reduction in costs related to lost productivity.
With HR departments outsourcing processes such as payroll to focus on more strategic activities while obtaining best-in-class practices, EAPs as an activity has long been a prime candidate for outsourcing as well. After all, many EAP issues are sensitive in nature and employees may hesitate to seek help if there’s a chance that their confidentiality could be breached.
Two HRO providers that include an EAP offering are Ceridian and Morneau Shepell. While both companies conduct business in North America, Ceridian’s primary market is the U.S., while Morneau Shepell’s is Canada. These two providers are dominating their respective target markets due to a lack of competition from other HRO service providers, not to mention having extensive EAP offerings.
For example, Morneau Shepell already offers an EAP app and most recently launched online access for its EAP clients through its workhealthlife.com website, which allows clients to:
Confidentially request help on issues including health, family, work, financial, relationship, and legal support
Learn more about suggested EAP support services
Select the service and how it will be delivered.
Ceridian, on the other hand, provides services beyond common EAP offerings including aging parent counseling.
Outside North America, U.K. providers have also recognized the importance of wellness programs: Capita with its occupational health services offering and Vebnet with its health and well-being programs.
As an alternative to launching a full EAP offering, some HRO providers have implemented services to address hot topics including saving for retirement. Examples include:
Mercer’s self-service and decision support tools including its RetireTalk and Financial Engines Income+
Aon Hewitt’s recently launched advisory service for its defined contribution clients.
However, the secret to a productive workforce is offering services that address work, life, and health issues. While saving enough for retirement is one possible source of the problem, there are many others that can be addressed with a full EAP offering.
Amy L. Gurchensky, 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.
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