Last year, we asked if HR Outsourcing could be on the verge of an upturn with our article, “Will HR Outsourcing ride the Third Wave?”
According to estimates by industry analysts, Everest Group, the multi-process HR Outsourcing market is worth about US$3.3 billion globally. We expect respectable single digit growth over 2011 and 2012.
The positive benefits and business case for HR Outsourcing is still there for organisations who currently have a need for:
- - Standardised HR services
- - Reduced HR Cost to Serve to its employees
- - Access to new innovative workplace tools and technology
There have not been many mega-deals, but plenty of smaller contracts in the multi-process HRO Market. However, single process outsourcing including Recruitment Process Outsourcing (RPO) is the fastest growing segment in HRO, as HRO Insights highlight in their article "RPO, A Bright Future on the Path to Business Impact"
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In summary, we have had:
- - Two large European deals
- - Two in South America
- - Two contract renewals
We have also seen some longer contracts including a 15 year contract, showing some confidence in the HRO market. IBM appears to be leading the way with 3 new contracts with Unilever in South America, Air Canada and Algar. IBM has also make a very good acquisition of Kenexa which should enhance their RPO and HRO offerings.
Two of these contracts were renewals with the incumbents here. We advise organisations with current HRO contracts and 2 or 3 years from renewal to see this as an opportunity to review all options. The market and conditions are very different to those when they originally signed the contract.
Renewal is always good for business, particularly with such long contracts. In our article the “HR Outsourcing – The challenge of picking winners” we mentioned that you need to look at the market longer-term. Who is more likely to be in the HRO business in 13 years time IBM, HP, Ceridian, Infosys, ADP ? Take your pick…
Hewlett Packard stride back into the market with a large European deal. To our knowledge, there has been no new large multi process HR Outsourcing contracts for Northgate Arinso, Ceridian, Accenture, Xerox/ACS, or the emerging Indian providers such as HCL, Wipro or Infosys. With contracts running up to 15 years and an industry in the throes of consolidation, it is important to check the vendors’ long-term appetite for HRO.
We plan to publish more HRO Vendor Profiles and HRO Market analysis over the coming months. Get in touch with us if you have any particular questions and make sure you don’t miss out by signing up for our articles direct to your inbox.
Here, we dip into our “Glass Bead HR Outsourcing Database” to give the HR Transformer Blog view of the six most important HR Outsourcing contracts of the last 2 years.
1 – Hewlett Packard step back into the HRO market with a 15 year contract with UniCredit
UniCredit is an Italian based global service company. With strong roots in 22 European countries and an overall international network present in approximately 50 markets, 9,500 branches and 158,000 employees.
The 15 year contract was signed in May 2012, with about 98,000 employees mainly in Italy & Austria. The scope of the contract includes payroll, time and attendance, workforce administration, learning and development administration, mobility, and ex-pat services. The service will be delivered using a Joint Venture (JV), dedicated company called ES Shared Service Center SpA.
This is a large European contract and gets HP right back into the HRO market after no major deals for the last 4 years. It is significant because of the sheer scale of nearly 100k employees. HP beat IBM, the incumbent, demonstrating that organisations are willing to test the market rather than ‘stick with the devil you know’.
2 – BAE Systems changed their HR flight path with Logica, but, then changed their mind and stayed with Xchanging
BAE Systems is a global company engaged in the development, delivery and support of advanced defence, security and aerospace systems for air, land and sea. BAE are pioneers in the HRO market with an early contract with Xchanging at the beginning of this century. The Logica contract was signed in February 2012, and would have been based in the UK over 6 years and involved the design of a new system on Oracle’s Peoplesoft HCM and E-Business Suite Payroll. However, BAE, changed their HR flight path again, and have now confirmed that the deal will no longer go ahead.
“Following the acquisition of Logica by CGI Group Inc. on 20 August, BAE Systems has exercised its contractual right to terminate the contract for HR outsourcing services," the company said in a statement.
"We are now reviewing our HR business process outsourcing activity and have agreed a 12 month extension to the current HR Services contract with Xchanging HR Services (XHRS)," it added.
Unilever has more than 171,000 employees globally, and incidentally is the biggest producer of ice-cream on the planet. This 5 year deal was signed in April 2011, and includes 27,000 employees in Latin America.
Back, in 2006, Unilever outsourced HR services to Accenture in 100 countries, however this did not include South America. The word by the 'HR ice-cream van' was that Accenture found this HRO contract with Unilever almost too big to digest, and left the organisation with some indigestion, too much ice-cream is not good for you….
What this contract does show is the maturity of HR Outsourcing pioneers such as Unilever who are willing to use multiple service providers globally. This mitigates the risk of having one global provider, enables some internal competition and keeps the HRO vendors on their toes. For others, this also helps to open up a more competitive HRO market. For large organisations like Unilever, and many Public Sector buyers, splitting up the scope was their only viable option as their ambitions are greater than the vendors’ ability to execute globally.
4 – Aon Hewitt are re-United with BMO Financials
This is a contract renewal for 8 years, signed in June 2012. A pat on the back for Aon Hewitt, who continue with BMO Financials, with 46,000 employees in North America. The scope includes payroll, workforce administration, health and welfare administration, recruitment services, and compensation administration amongst others.
5 – Air Canada board with IBM for an 8 year contract
IBM signed an 8 year contract with Air Canada in September 2011, dislodging Aon Hewitt. Air Canada, based in Montreal, have about 26,000 employees in North America.
The scope includes HR contact centre, employee data management, employee travel support, payroll, benefits administration, leave management, recruiting services (with select support from manpower), and software application support for the HR systems used to provide the services.
Why is IBM continuing its MPHRO winning streak?
According to Kevin Howlett, Air Canada’s senior Vice President of employee relations, “IBM’s core strengths as a market leader in innovation played an important role in our decision-making process.” It also helped that the client felt IBM also had the strongest service offerings, a commitment to transformation, and the proven ability to ensure delivery performance and lower cost.”
6 – IBM sign 13 year deal with Algar Group in Brazil
Another contract for IBM signed in March 2012, with the Algar group. Brazilian holding company Algar is comprised of four business units: IT and telecoms, agribusiness, tourism, and services. This is a 13-year multi-tower award from Algar Group in Brazil that covers HR, F&A, and procurement supply chain management. The contract covers seven of Algar’s business segments and 13,000 employees.
The scope for HRO includes call centre, personnel management, benefits administration, payroll, training, and performance management.
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