Learning Services Acquisition Frenzy

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 10^th, GP acquired RWD Technologies for $28m, its 8^th 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

Customer Satisfaction is People Interaction – Back to HRO Basics Part I

What creates and sustains HRO client satisfaction?

The more services are automated, the more the remaining direct person-to-person interactions assume greater importance in shaping satisfaction. Granted, technology is very important in creating competitively priced HRO services, benefiting both the client and the service provider. And yet, meeting basic services levels does not create longer term satisfaction, and effective low-cost transactions are quickly considered simply part of the expected services. Competitive prices and compelling technology-driven quality services are necessary but not sufficient. Long-term end-customer satisfaction – whether the customer is internal or external – is sustained by people interacting with people.

For example, recent research by Convergys shows that 68 percent of customers still prefer to speak with a live service representative. And what they want most is knowledgeable CSRs who address their needs on first contact and treat them as valued customers. A strong second choice is live chat with an agent, followed by use of the corporate website. And acceptance of self-service options is also gaining in popularity, with 25 percent of consumers preferring to use the Internet to contact a company, up from 18 percent per a 2004 Convergys study. And as you would expect, the younger generations are more likely to actually prefer automated, self-service channels.

The relationship with the HRO service provider is critical in achieving and sustaining the depth of customer satisfaction that builds a loyal client, which in turn results in contract extensions of scale and scope, renewals and strong client references that help win new business. For HRO customer satisfaction is segmented into key client stakeholder groups including employees and other end users of the services, and key HR and business leaders including the outsourcing governance team.

Convergys’ president and CEO, David Dougherty said, “Being able to manage the customer experience depends heavily on being able to manage the employee experience. There is a clear link between satisfied, well-equipped and well-trained employees and the ability to provide a good customer experience.”

Watson Wyatt’s August 2009 survey of U.S.-based HR leaders found that more than half (52 percent) of employers are now more concerned about retaining top performers and critical-skill employees than they were before the economic downturn.

The survey showed that the top employee engagement activity (as cited by 83 percent of respondents) was increased communications. Much less cited were expanded use of recognition programs at 27 percent and special compensation programs for high performers and/or at-risk employees at 18 percent.

Watson Wyatt agrees that effectively using communication is critical to keeping employees engaged, but it advises that companies should also be using the HR programs they would normally use, such as employee recognition, development opportunities, and targeted compensation programs, to help employees remain focused and engaged throughout the downturn and recovery.

As the increased effectiveness of self-service transactions reduces the number of live agent interactions, each interaction assumes greater importance, as does the capabilities and attitude of the agents.

While the above-cited surveys were U.S.- and Canada-based, the economic downturn reduced voluntary turnover around the world. HRO provider employee contact centers are located around the world, onshore, nearshore and offshore, creating a global workforce that varies in language, culture and employee engagement needs. One prominent India-based BPO provider recently told me their turnover is now under 10 percent. Great news, but what happens when increased opportunity arises? 

Want to build customer satisfaction? Have a full internal program of employee development and engagement to ensure live customer interactions are handled by knowledgeable, caring agents enabled to solve as many problems as possible on first contact.

Linda Merritt, Research Director, HRO, NelsonHall

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

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