Last week we all read about plans for Convergys to sell their Human Resources Management (HRM) business to NorthgateArinso. Their plans are now to focus solely on their large and more lucrative global customer management business. Just a few years ago analysts were listing Convergys as one of the top outsourcers in the HR space, brokering some of the largest HRO deals in the market with DuPont at 1.1 Billion (2005) and Johnson & Johnson valued at 1 Billion (2007). They were on the road to being the first HR outsourcer that could help an HR organization transform their delivery model with a single HRO service provider. After struggling with execution challenges, and reduced revenue plans over the last few years, they have decided this business is no longer a major opportunity for their global organization of over 75,000 employees.
NorthgateArinso on the other hand is embracing this market, and found what many would consider a great deal in acquiring Convergys’s HRM for just $100 Million US. NorthgateArinso is a well known HRO vendor in UK and Continental European space, with over 5,000 employees which will expand to 8,000 when they acquire the Convergys team. They are especially well known for their capabilities in multi-country payroll services, a cornerstone for many organization’s HR outsourcing strategies. Thus, NorthgateArinso will benefit from this acquisition by gaining a larger footprint in the U.S. market and a well known group of clients to add to their portfolio.
We can start to understand why Convergys decided to pull out of this business, and NorthgateArinso feels they can succeed in this business when we look at current data concerning HR organizations outsourcing expectations.
This is an immature market, perfect for a smaller more nimble organization
In our most recent HIHR research report (with over 720 participating organizations); we noted that of organizations with over 15,000 employees:
• 39% are doing Benefits outsourcing
• 26% are doing Payroll outsourcing
• 21% are doing Global mobility (relocation support),
All the remaining services we asked about: Employee Data Administration, Manager/Employee inquiries, Compensation, Recruiting, Learning, Performance, Absence Management, Workforce Planning, and Reporting were outsourced in minimal amounts by the survey group. Overall HR outsourcing has increased slowly over the last few years, and was impacted heavily by the economic downturn.
The market is currently about reducing internal tactical work and focusing on CORE HR executed well
Most organizations we spoke with noted that their reasons for outsourcing an HR function were either to better manage their globalization efforts or to reduce their internal HR team’s tactical work. They weren’t really looking for a transformational partner. They wanted a solid partner who could execute on core services (Payroll, Benefits, Employee Data Management) around the globe successfully.
Pricing, scope, and service level agreements have few industry standards
In our research we found that organizations expected pricing that fit the service, and some areas were traditionally priced per employee, per activity, or with flat rates. This complex pricing model can be very difficult when structured in multi-million dollar deals. Overall purchasers were more satisfied with organizations that provided 1 to 2 outsourced services, versus large multiservice deals that spanned various business units and multiple outsourced services. This trend may be changing with recent work in standardizations from the HROA group and larger firms, but it is changing slowly.
Their is a need for great system integrators or better portal developers
A big component of what many organizations are looking for from their HR outsourcing provider is the oversight and management of major HR systems. These systems include HRIS, talent management systems, and the various manager/employee self services options. Reducing the headache of platforms and systems, and increasing end-user manager/employees positive experience are a critical criteria for most outsourcers. The companies we’ve spoken with have accomplished this through layers of backend data integration or with a front end portal environment that ties everything together. Outsourcers such as IBM are focusing on a strong portal approach with standard IBM supported systems on the backend to increase efficiencies, while companies such as Hewitt and NorthgateArinso are focusing on creating a flexible multi-system enabled environment that allows the clients to use what is most appropriate for their organization and often pulls the data together in backend databases.
Pricing is not always the largest decision criteria for purchases
In this complex market it is important to remember that buyers are not solely focused on reduction of cost, although it was a big factor in our research. About 33% of our respondents said that price was their main buying driver most or all of the time, the remaining respondents said that it was only a driver some of the time or almost never. The top buying drivers behind price for all respondents, included cultural fit at 35% and subject matter expertise and experience in their industry, at about 25%.
HR outsourcers who spend time focusing on industry expertise, efficient repeatable processes, understanding cultural needs, technology that improves end-user experiences, and most importantly executing on core HR services will continue to do well in this market and meet the expectations of the current HR leaders.
Join us at our Impact 2010 Conference to hear more results from our HIHR Research, and participate in our customer experience panel on outsourcing with:
• Tom Clancy, Vice President, Educational Services, EMC
• Julie Holmes, Training Director, Reynolds, Smith & Hills
• Jenni Radtke, Senior Director, Global Learning Operations, Philips
What has your own experience been with outsourcing in either the HR, Talent, or Learning space? What advice do you wish had been given to you, before you made your final outsourcing selection? We’d love to hear more about your own experiences with outsourcing.
Stacey Harris
Principal Analyst