As 2013 comes to a close, it’s time to recap on what happened in HR BPO this year.
It has been a good year for HRO with overall contract activity up ~37% on 2012. But, it was a year of two halves: H1 activity was down 16% y/y, but the market really picked up in H2, when announced contract activity nearly doubled as benefits administration vendors announced health exchange contract signings. Even without health exchange contracts, 2013 activity was up 7%.
Consistent with previous years, most activity, ~76%, was focused around new contract awards, trending up from 67% in 2012. The big difference in 2013 was that vendor changes accounted for more than renewal activity at 14%.
The mid-market continues to be an area of growth within HRO. In 2012, mid-market contract signings just edged out large market signings. 2013 shows tremendous growth in the mid-market, accounting for ~70% of the activity.
HRO activity usually tends to be dominated by the private sector, typically accounting for more than 75% of contract signings. 2013 was no exception to this general trend. The biggest change, however, within public sector activity in 2013 was in the distribution by HRO service line. In 2013, public sector activity was dominated by benefits administration. In 2012 public sector HRO contracts were spread across all the service lines with learning BPO and RPO ahead of benefits admin, MPHRO, and payroll.
2013 HRO service line updates:
Benefits administration is the only HRO service line throughout 2013 that had increased contract activity relative to 2012. Nevertheless, each HRO service line revealed some interesting trends.
Payroll: The payroll market is one of the largest and most mature HRO service lines, and it will continue to grow with a low single-digit CAAGR through 2017. Approximately 80% of the payroll contract activity in 2013 was from the mid-market (organizations with 500 – 15,000 employees).
Aside from contract activity, much of the focus in payroll was around expanding globally, particularly within Latin America and Asia Pacific. Examples in Latin America include:
- ADP acquiring Payroll S.A., which expanded its LATAM payroll capabilities to Chile, Argentina, and Peru
- CloudPay opening an office in Sao Paulo and expanding its payroll capability in Brazil by partnering with Apdata
- Safeguard World International opening a larger office in Mexico to support its growth.
RPO: NelsonHall expects RPO to continue to be the fastest growing HRO service line, with a mid-teen double digit CAAGR through 2017. RPO is a relatively young offering, and much of the contract activity is new. In 2013, multi-country activity accounted for ~25% of all RPO contracts with Manpower involved in some of the largest deals in terms of the number of countries included in scope. One deal covered 37 countries across multiple continents and the other covered 17 countries in Europe.
One of the biggest announcements in RPO this year was the merger of Pinstripe and Ochre House to provide global RPO. Although the merger wasn’t too surprising – they have been partnering since 2009 – it is big news as the combined companies now have RPO capabilities in 43 countries including the Middle East and North Africa.
Benefits administration: This area has been the main source of contract activity in H2 2013, particularly exchanges. H&W services accounted for just over half of announced benefits admin contract signings, followed closely by pension and retirement administration (i.e., DB and DC administration) contracts.
- Approximately half of H&W contract activity in 2013 was for exchanges. The leading vendors with corporate exchanges are Aon Hewitt (~600k participants), Xerox (~400k participants), and Mercer (~240k participants)
- Within the pension and retirement administration market, DC admin contracts continue to make strides globally, accounting for ~65% of contracts in 2013; the remaining 35% DB admin contracts were mostly in the U.K.
Outside of reimbursement account administration and exchanges, partnerships and M&A activity within benefits administration was fairly distributed among the other service lines.
WageWorks started 2013 by acquiring Benefit Concepts to strengthen its reimbursement account and COBRA administration capabilities. Later in the year, Towers Watson and Ceridian both established partnerships with WageWorks:
- Towers Watson for health account administration including HRAs and HSAs for its private health insurance exchange
- Ceridian transitioning its existing ~18,000 reimbursement account admin clients to WageWorks who will then provide administration for FSAs, HRAs, HSAs, commuter benefits accounts; Ceridian is also transitioning its cafeteria plan / premium only plan business to WageWorks.
2013 saw partnership and M&A activity around health exchanges as well. Partnership activity was focused on retiree exchanges:
- Fidelity partnered with Extend Health, a Towers Watson company to provide retiree health care services
- Aon Hewitt partnered with National Council on Aging to provide seniors with access to find affordable health care and prescription drug coverage through Aon Hewitt Navigators.
On the private exchange side, Guardian partnered with Liazon in July to offer a private benefits exchange, and in November, Towers Watson announced its acquisition of Liazon, adding Liazon’s private benefits exchange for active employees to its exchange portfolio.
MPHRO: The MPHRO market has been relatively quiet the last few years and 2013 was no exception. The market is growing, slowly but surely. New MPHRO contracts awards in 2013 came from many different regions including the Nordics and the Middle East. Single-country MPHRO contracts outpaced multi-country ones as did mid-market deals versus large market ones.
The use of Workday is also increasing in MPHRO deals, namely by Aon Hewitt after its acquisition of OmniPoint Workday Solutions in late 2012.
Other news by MPHRO providers included NorthgateArinso rebranding as NGA Human Resources to emphasize a customer-focused approach as well as the company’s positioning as a technology-based HR service provider. In fact, NGA Human Resources has shifted toward a more flexible platform approach that includes supporting third-party platforms as well as implementing its own platforms or euHReka.
Learning services: This area has been the slowest HR BPO service line to recover from the recession. But organizations are investing in learning again, and 2013 saw the highest growth in learning services since 2007 due to the need for job skill training and talent development. Most learning contract activity in recent years has been in the public sector, but private sector activity at last picked up, and not just in one geography either. Contract examples include:
- General Motors in Korea, awarded to Raytheon
- OMV in Austria, awarded to Xerox
- HSBC, a multi-year global contract awarded to GP Strategies.
Selective learning BPO contracts outnumber full learning BPO contracts, though there has been a resurgence in full learning BPO contracts since mid-2012.
2013 also saw several acquisitions in the learning BPO space including KnowledgePool by Capita (to enhance its managed learning services) and LearnSomething by Xerox (to strengthen its custom e-learning services and consumer education to the food, drug, and healthcare industries). GP Strategies also had a very busy year with partnerships and M&A activity for its learning offering, acquiring Lorien Engineering Solutions to expand its capabilities in the U.K. and Poland and Prospero Learning Solutions to strengthen its content development capability in Canada.