HRO Today Forum Europe 2012 Demonstrates the Value of HRO

Gary Bragar, HRO Research Director, NelsonHall

I attended HRO Today Forum Europe in Dublin, Ireland from November 13^th to 15^th to present my “State of the Learning BPO Marketplace” analysis and to introduce subsequent speakers of the learning track.This conference was different than those I’ve attended in the past as several of the sessions were interactive small group discussions. The small groups allowed us to learn from each other, and created energy and enthusiasm!

Interactive sessions I attended included:

• The opening recruitment session where we identified top challenges and solutions
• A leadership development program workshop to identify top challenges and solutions.

There were ~260 registered attendees (the same as in Amsterdam two years ago), of which 87% were in attendance throughout the three days including ~50 HR practitioners. Here are some of the highlights from the forum:

Opening remarks: Elliott Clark, CEO of SharedXpertise, opened the conference by sharing some enlightening data from a recent survey, primarily Europe centric:

• Twice the percentage of providers think HRO is thriving compared to buyers
• 77% of vendors think M&A is good for HRO compared to 55% of buyers.

Opening keynote: David Andrews, CEO of AOI and founder of Xchanging, presented “Reshaping the HR Business and Lessons Learned from Across Europe.” David began by talking about the history of HR BPO and how BP was the first company to sign a major HRO contract with Exult in 1998 to obtain 40% cost savings to remain competitive. David’s concluding remarks were that the outsourcing space in the U.K. needs to be bigger since ~$18bn is spent by the U.K. government on back-office processes and only ~$700m is outsourced.

Panel discussion: “State of the Market Debate” was hosted by David Andrews and participants included Accenture, IBM, Logica, NorthgateArinso, and Xchanging. Margaret Spink, Managing Director of HR Services at Xchanging, stated SaaS will be the most important phenomenon in the industry and the mid-market will be the biggest growth area. I agreed with Margaret’s mid-market comment, but spent the next day wondering about SaaS until the Xchanging hosted breakfast when Margaret stated that HRO is not just about technology – I couldn’t agree more! Technology is an enabler and I believe more focus should be on implementation, process, utilization, effectiveness, and achievement of desired outcomes.

General session: The conference concluded with a payroll presentation led by Julie Fernandez of ISG followed by a panel that included SD Worx, Ceridian, and CloudPay. The focus of Julie’s presentation and panel were on multi-country payroll beginning with the benefits that include:

• Reduced number of payroll providers for better procurement pricing and contract terms
• Consolidated interfaces to HR
• Improved visibility and reporting of employee headcount and cost
• Reduced compliance and financial risk
• Harmonized payroll processes and improved governance.

Challenges of multi-country payroll include securing buy-in of all the countries and funding. Part of the challenge is the implication that all countries must fit one model using one provider. All three panelists use partners in countries where they are not able to provide service themselves.

Q&As from the multi-country payroll session included:

• Q: How do you get internal finance to have confidence in the provider to prevent an extra layer of checking on vendor performance?
• A: CloudPay stated that multi-country payroll reports into the client CFO and that one way to satisfy finance is for the vendor to do more self-audits and disclosure.

An interesting discussion also took place on “cloud” with the panel in agreement that the true meaning is you can do anything from anywhere for anything, but that the industry is not there yet due to the concern of knowing where data resides. The industry will, however, grow into acceptance.

In sum, it was a worthwhile conference for anyone interested in learning, networking, and meeting potential clients. I look forward to HRO Today Forum Europe 2013 in London, November 12^th to 14^th, expected to be the biggest event yet.

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HRO Can Help Stem Absence Management Cost Hits – But There’s More

A recent CyberShift survey found that one third of the 1,088 respondents cited absence management as a continuing top priority. Yet 53 percent of the survey participants stated they did not have an automated system in place for absence, leave, vacation and FMLA tracking. This is a pretty scary statistic, especially when, per CyberShift, unscheduled absenteeism can cost businesses more than $760,000 per year in direct payroll costs alone.

At the same time, forward-thinking buy-side companies over the past couple of years have awarded absence management contracts to HRO providers, and the vendors are beefing up their absence management offerings. Let’s take a look.

Absence Management Contracts

• MidlandHR was awarded 10 contracts in the last two years for its iTrent HR and payroll software, including its absence management modules, by the University of Exeter, Capel Manor College, Oxford City Council, NetworkersMSB, Pentagon Investments, Preston College, Which? (yes, this is an actual company name), Manchester Fire and Rescue, Kent County Council and Farnborough College
• Wipro implemented Oracle’s PeopleSoft Enterprise HCM 9.0 for Jammu & Kashmir Bank in India. Modules implemented include absence management and approval workflow
• NorthgateArinso won a five-year contract with Hastings College for its ResourceLink HR platform, which supports absence management
• Convergys entered into a five-year contract renewal for multi-process HRO services with a leading business services company; components of the contract include absence management and leave administration
• Hewitt was awarded several unnamed contracts that include absence management
• Raet won a 10-year contract with OSG for its online HR portal, which includes absence management

Providers’ Enhanced Absence Management Offerings

Just a couple of weeks ago, Capita acquired FirstAssist Services Holdings Ltd. to strengthen its capabilities in health and workforce management, including absence management. In January, Hewitt added participant advocacy services to its absence management offering. In August, Ceridian added Presagia’s employee leave management software to support its leave management services. And Xchanging announced an alliance with absence management specialist FirstCare through which the two parties will jointly go to market with FirstCare’s absence management and occupational health pre-employment screening services and Xchanging’s portfolio of HRO services.  

Here’s my take. Leveraging software and services for absence management tracking is a great step in the right direction when it comes to stemming costs. But equally, if not more, important is drilling down into the why’s of non-authorized and non-sick absences. This maps to blogs I’ve written over the past year that focus on rampant employee dissatisfaction. Unhappy employees are more inclined to call in sick simply because they don’t want to go to their jobs. Get to the heart of employee dissatisfaction, fix what is truly broken across the enterprise, and absenteeism will decrease. Strong leadership and performance management training is invaluable in helping determine the root of employee discontent. Corporations lacking internal training programs of this type can leverage offerings from both full-scope and pure-play learning services HRO providers.

Gary Bragar, Lead HRO Analyst, NelsonHall

NelsonHall HRO Confidence Index finds Banking, Healthcare, Pharma and Manufacturing Industries to Experience Strongest Growth

My blog last week focused on geographical HRO growth per the findings of NelsonHall’s most recent HRO Confidence Index. Today, the focus is growth by industry sector. When asked about expected changes in 2010 HRO revenues by industry sector, year-on-year relative to 2009, the HRO providers that participated in our most recent Index responded similarly to the prior quarter, with strong growth continuing to be expected in the banking (3.9 on a 1 – 5 scale), healthcare, pharmaceutical and manufacturing (all 3.8 on a 1 – 5 scale) industries.

On the opposite end of the spectrum, expectations from the state and local government sectors declined during the quarter. Addressing this drop first (always nice to end on a more upbeat note!), although a few state and local government contract renewals and new wins created some optimism in the second half of 2009, frozen decision making remains as many states struggle to pass budgets. State and local government HRO contracts are few and far between, and have an extremely long sales cycle. In today’s environment, as jobs are hard to come by and the recovery is taking longer than most of us thought or hoped, state talk of outsourcing, even without job reduction, will be hard to pass muster.

Now on to the positive. Supporting high growth in the pharmaceutical industry, RPO provider The RightThing issued a press release on June 1, 2010 stating that as hiring freezes across the U.S. begin to lift, there has been a major trend in pharmaceutical client hiring as organizations begin to rebuild their employee base. Over the last four months, The RightThing has assisted in major expansions (to the tune of 2,300 total positions) with five North American pharmaceutical companies including Boehringer Ingelheim.

And the NelsonHall contract database provides evidence of HRO’s growth in the banking and manufacturing industries. A hefty number of the most recently signed HRO contracts include Xafinity with BAE (pension administration), Kenexa with MphasiS (a 360-degree survey program), Xchanging with Insyte (multi-process HRO), Alexander Mann with Premier Foods (contingent workforce), Liberata with the U.K. Ministry of Justice (a portion of which is for payroll outsourcing), Hewitt with International Paper (multi-process HRO) and Manpower with Techcombank (RPO and staffing).

The continued growth in the banking industry is due to a number of factors. Hit exceptionally hard by the recession with downsizing in HR departments/across the board and in a current state of reorganization, banks are now trying to be more efficient and, in doing so, no longer want to assume the risk of investing in technology and HR staffs when they may be required to downsize again. And there are common roots to continued growth in the healthcare, pharma and manufacturing industries. In addition to reducing risk and becoming more efficient (obviously requisites for any private or public sector organization), it’s also about being able to quickly scale up and down. For example, if the U.S. Food and Drug Administration approves a new drug to prevent or cure a life threatening disease, manufacturers will need to rapidly hire staff to meet demand. Swift hiring of large numbers of employees, which has implications for payroll, benefits and learning, is often difficult for a company to do internally. HRO providers with much more abundant resources can more quickly deploy resources to meet this new demand.

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall

HRO Providers – Are You Sweating Yet?

You may be sweating because it is deep in the dog days of summer, hot humid and hazy. Or perhaps you are sweating and fretting wondering when the recession will end. Instead, as an HRO service provider, you should be sweating to ensure you are ready to hit the ground running as the recession truly begins to end.

At the Federal Reserve’s annual retreat last week, Chairman Ben Bernanke, said, “The prospects for a return to growth in the near term appear good.” And according to the August 21 New York Times, Bernanke and European and Asian central bankers were all expressing increased optimism. At the same time, Bernanke repeated his warning that economic recovery was likely to be slow and arduous, and that unemployment would remain high for another year.

Okay, so no one expects a no-sweat recovery, but we are seeing signs that the recession is ending and the recovery is soon to begin. The question is, are you ready? Really, really ready?

Did you invest wisely?

ACS is doubling down in a big way, having already invested more than $28 million in strengthening its Total Benefits Outsourcing offerings.  Infosys and Genpact are among the Indian entrants into the multi-process HRO space that are building their own platforms for technology and service delivery.

Have you managed your footprint?

Some have partnered to strengthen their geographic footprint, or fill a gap in their services portfolio.

•  Xchanging, a major U.K.-based HRO provider, is partnering with U.K’s RPO vendor Alexander Mann Solutions (AMS), to enter new markets with complementary services.

•  AMS is also the partner of choice for The RightThing, an American RPO provider looking to expand international coverage for its multi-national clients.

How confident are you in your plans for new growth?

I have spoken to one vendor who is specifically targeting the small and mid-market, and another who is looking for the single service entry point, with plans to expand to multi-process over time.

Is your vision and value proposition crystal clear?

Being all things to all people turned into a Mid-Summer’s nightmare for many early entrants in the large market enterprise play space. We have all seen the changes in direction for Hewitt, Fidelity and most recently ExcellerateHRO, to focus on areas in which they have the greatest strengths.  

Those providers which have positioned themselves for changed buyer expectations in the new competitive post-downturn environment, and those that can show a cost-effective plan for HR buyers to get back on the path of strategic HR transformation will benefit from the their sweat equity as the frozen corporate decision-making begins to thaw. Are you sweating yet?

Linda Merritt, Research Director, HRO, NelsonHall

Managing Your Footprint – Welcome to the New Summer Time HRO Dance

Many HR outsourcing providers today are looking for ways to carefully manage their service footprint.  Under economic pressure, and with limited tolerance for capital investments, they are seeking cost-effective and risk-managed ways to leverage their service strengths and geographic coverage. As a result, we are seeing a new round of provider dance partners making selective divestitures, partnerships and acquisitions.

The Back Step: In a few cases, providers are back-stepping from some services and countries to focus on core strengths and growth geographies.

•  For example, in Europe, Randstad continues to sell parts of its salary administration and payroll services in the Netherlands while planning to carry on delivering these services in other countries where it has better growth prospects.

Two to Tango: In more cases we are seeing partnerships and alliances to leverage complementary service delivery strengths with an overall expanded geographic footprint.

•  In May, General Physics and Baker Communications entered into an agreement to increase their partnering in offering global corporate training and learning services.

•  Alexander Mann Solutions (AMS) has been leading the alliance dance this summer. It and Xchanging just announced their strategic alliance to deliver end-to-end HR services. And just two week ago, AMS and The RightThing announced their partnership to cover and expand multinational RPO services.

Take the Lead: Swinging across the dance floor from alliances and strategic partnerships and moving on to joint ventures can culminate in acquisitions.

•  Hewitt Associates has acquired the remaining interest in BodeHewitt AG & Co KG – a German pensions and benefits specialist – from its joint venture partner Bayerische Hypo- und Vereinsbank AG (HVB), with the business becoming Hewitt’s German Retirement and Financial Management (RFM) consulting practice.

•  Trinet just completed its acquisition of Gevity, further expanding its PEO geographic footprint and ability cover both the small business and midmarket.

Thank Your Partner: A good turn around the dance floor can lead to more business opportunity.

•  Adding to its dance card, Alexander Mann Solutions has signed a five year agreement to use new HRO partner Xchanging’s procurement outsourcing services.

The HR service provider partnering activity we are seeing looks like positive strategic moves for providers and buyers alike. But actually making partnerships of any nature work requires a lot of nurturing over a long period of time. We’ll see which of the summer time dance partnerships lead to long-term relationships.

Linda Merritt, Research Director, HRO, NelsonHall