World-class sourcing advisors hold the keys to the kingdom of deep-deal data. HRO today hunted down a reigning prince of this little-understood practice, Everest Group’s Michel Janssen.
In the 2001 movie "The Wedding Planner," big screen star Jennifer Lopez’s character Mary Fiore utters the immortal line, "Those who cant wed, plan." HRO has no J-Lo. Instead, it has Michel Janssen, HRO’s sourcing advisor to the stars. He has participated in more than nearly $10 billion in HRO and BPO contracts since joining Everest Group in 2001 from Gartner Group. In a very real way, Michel Janssen is HRO’s very own wedding planner.
But here is the problem. Catching up with Janssen is nearly as difficult as getting a doctor’s appointment in Manhattan for tomorrow. With his breakneck schedule, over the course of two days, I tracked Janssen around Midtown and up and down suburban New Jersey like a bow hunter trails a wild boar. Here is what I discovered. Being a sourcing star is hard work16-hour days, 125 days a year on the road, one day one city, the next day another. Worst of all, it regularly involves advising clients or consultants while scarfing a hasty dinner of a Miller Genuine Draft and barroom pretzels and olives.
The week I caught up with him was typical. We met on a Tuesday and Wednesday. By lunchtime on the second day, in addition to our interview, he had counseled nine clients and six consultants by phone and delivered four half-day buyer strategy sessions in two states. A resident of Texas (and rabid Texas Rangers baseball fan), Janssen enjoys the Lone Star state’s charms; but most of all, he seems to like Texas for its central U.S. location and many airports. "As the coach to our dozens of sourcing consultants worldwide and marriage counselor to billions in HRO contracts," Janssen says, "my presence on-site is mandatory. The coach has to move with the team. We are now working 20 deals in 15 cities. The briefings drive my schedule. I have nothing on my schedule left open between now and December."
THE MURKY AND MYSTERIOUS $203 MILLION MARKET
The popularity of BPO sourcing advisory is a recent phenomenon. It was originally, in the 1970s and 1980s, a management consulting toss-in. Strategy firms McKinsey and A.T. Kearney were the go-to guys for sourcing advice. The advisory usually took the form of a little contract extension on top of a long-term consultancy agreement. But as the IT services market took off in the late 1980s, dedicated firms such as TPI and Everest popped up. Since 1989, Everest’s competitor TPI claims to have advised on 710 BPO (mostly IT-related) transactions valued at $373 billion.
The global sourcing advisory business now involves three large players, TPI, Everest, and EquaTerra, as well as 20 or more boutique players including several outsourcing law firms that have gotten into the advisory game. Like Everest, most charge buyers fees of a few hundred thousand to a few million dollars to give matchmaking advice or to counsel HRO marriages that are on the rocks. Close to 100 percent of sourcing advisors’ clients are larger than 3,000 employees, with the vast majority having headcounts of more than 10,000. HRO Today magazine estimates that in 2005, these sourcing and legal advisors, all private companies whose financial performance secrets are well-guarded, will bill a combined $203 million to their HRO clients. Everest alone, HRO Today estimates, will represent an estimated $25 million of the total, 98 percent of which comes from buyers.
Janssen’s own career path is exemplary of how sourcing advisory has evolved with the ever-more-complex needs of HRO buyers. Following a 12-year stint at giant outsourcing provider EDS, the now 41-year-old Janssen joined IT research leader Gartner Group. At Gartner, Janssen’s job was to build a BPO sourcing advisory practice. As he explains it, he was challenged there. "Their model is research, consulting, events, and measurement, Janssen says. And building a cross-function sourcing practice that spans all those silos within Gartner is, in my experience, impossible. I was the first, but not the only one to fail at it. Many others have died trying as well."
But his Gartner disappointment had a happy ending for Janssen. "We were looking at [Everest CEO] Peter Bendor-Samuel’s company as an acquisition," he explains. "I loved the fact that everyone at Everest spoke the same outsourcing language and were going in the same direction. In my case, Gartner had limitations, and Everest didn’t. Peter has built a very entrepreneurial environment. It was perfect for me. So I switched."
At Everest, Janssen quickly realized that HRO was the fastest-growing BPO market, and that there was very little data on the enterprise-level deals that had suddenly come into fashion. So he began to track those details. His first HR market analysis, in 2001, counted 28 transactions. Shockingly, the report revealed secret deal details for the first time, including scope, duration, and pricing. Today this research is done through the Everest Research Institute and is widely regarded as HROs equivalent of the Nielsen Ratings, which rank TV and radio shows by number of viewers.
Janssen points out the irony of the word-of- mouth momentum that built his HRO research’s brand. "Despite the fact that we revealed providers closest-held secrets, showed real market share, and specifically helped buyers negotiate with suppliers," he says, "it was the suppliers who spread the word about the research. It demonstrated that the market was real and that buyer risk was low. Then as now, the research is the most important single factor in de-risking the HRO decision for buyers. Buyers biggest fear is knowing whether the providers sales pitch is real."
While his research has now become an industry staple, Janssen recalls that in the beginning market conditions were hostile. "The buyers were very uncertain. There was lots of C-suite skepticism about HRO. I remember one incident in particular, when Bill Kutik [HR Technology Conference Chairman and Human Resource Executives Technology Editor] stood before a large HR conference audience and said that HRO had not ‘crossed the chasm’ enough to become a real market. Now that HRO is bigger than HR technology, I ask Bill how many deals it takes to ‘cross the chasm’ and whether the HR technology market has fallen into the chasm."
While Janssen happily embraces the wedding planner label, what he does seems more like marriage counseling. On the front end, he advises buyers and sellers to assess whether they are truly ready for a long-term relationship. For "about 35 percent of clients," Janssen admits, "we recommend they don’t get married. They’ll pay the fee, and well tell them there’s not enough value, or their organization is unprepared for the change." It is only after the buyer assesses and indicates their readiness that Janssen can go into wedding planner mode. "There is a lot of change management work that needs to happen in order to get a buyer ready," he notes. "It’s like moving in with your new spouse after living alone. You’ve got to first clean out a lot of closets."
The next step in the classic sourcing methodology is to scope the project, which means deciding which HR functions are "in-scope" (to be outsourced), and which are to be kept in-house. Then Everest will recommend three to four providers who fit the bill. To stay up-to-date on the provider community, Janssen will take 200 supplier briefings each year. "I see a lot of hyped-up PowerPoints," he says. "My favorite slide is the ‘aspirational’ capabilities chart showing that one provider can cover all industry vertical segments and all horizontal domains. That’s when I call bull—-. Maybe IBM or Accenture can cover 60 percent of the landscape, but the typical offshore provider can do maybe 10 percent."
Once a supplier list has been recommended, Janssen strives to make the suppliers look good. "Because we advocated them, we don’t want their presentations to fail. I coach the suppliers, but I won’t do unnatural acts for them. For example, if there’s a personality conflict on the presentation team like an East Coast in-your-face personality on a laid-back West Coast deal for example, I coach the supplier."
During the selection process, Everest will express its preferences; but in the end, the decision is the client’s. Once the deal is done and the implementation is underway, Everest’s job is largely complete. But Janssen insists on following the deals through, even though his consulting fees stop. He tracks not only good data points, but also because he fears that a recommended supplier might botch the job. "If the supplier performs poorly, then there’s nothing I can do. That means I failed, or the client didn’t take our advice. Sometimes, however, the CFO will pick the guy we recommended against–the guy he likes playing golf with."
But in HRO, as in real life, divorces happen. "We’re marriage counselors for those who didn’t use a wedding planner at first, or if something changed to the buyer’s business," he notes. "Most buyers and suppliers are not looking to get divorced, and just want to reconcile their differences." The most common disputes, he observes, are supplier-sold deals that went bad. "When we investigate these deals, we often discover that suppliers said, ‘Well worry about service levels after we sign the contract.’ That’s risky as hell. Imagine, that’s like getting married without talking about whether you want kids. Nobody discussed the organizational strategy." Other common problems, he notes, revolve around offshore operations and who gets to keep the value of those assets in the future and around huge changes in the size of the workforce.
HRO’S GENE POOLS
When Janssen the wedding planner looks at the HRO market, he sees a genetic map, a genealogy, a family tree. One branch–including ExcellerateHRO, IBM, ACS, and Accenture–has the outsourcing gene, an ITdominated long-term-contract, deal orientation. The other branch is the HR domain or future-focused group, which includes Hewitt, Fidelity, Aon, Ceridian, ARINSO, ADP, and Convergys. The second group has deep knowledge of HR and a better chance of understanding the needs of the HR person.
Within the HR gene group, Janssen observes, buyers often mistakenly assume the sourcing process is an auction process for transaction services. His job, as he sees it, is to allow providers to compete on solutions, not on price. He uses the example of a deal in which two of the recommended providers are ADP and Hewitt. "We walk people into both stores and feel the difference. We tour the stores. ADP is more economical, like Wal-Mart. Hewitt is more like Neiman- Marcus. I think the store tour is as important as the actual technical solution or price."
About the two branches, Janssen says, "I think the outsourcing gene has a slight edge to win because it takes longer to build a global brand and capability than it does to acquire the HR gene. IBM and Accenture are world brands. EDS is a world brand that acquired HR genes from Towers Perrin, and it has Steve Bohannon who can talk both outsourcing and HR. IBM and ACS bought HR genes from PWC [via acquiring Mellons HRO business, which was formerly a PWC outsourcing unit]." The wild cards, according to Janssen, are SAP and Oracle, the tech guys. "My guess," Janssen muses, "is that the one who will understand the changing environment and adapts quickly will have a significant advantage to influence this dynamic market. Right now, SAP is winning. In a smart move, they even hired one of our guys recently to help them figure it out."
As the HRO market heads north of $60 billion in 2006, and his influence continues to grow, Janssen notes that while he used to do all the research himself, now he has the Institute’s team, including 20 analysts, many graduates from the Indian Institute of Technology, doing it for him in Gurgaon, India. And he acknowledges that while he had the HRO market largely to himself in 2002, now he has new competition from, among others, EquaTerra, whose model focuses on ongoing deal management rather than the transaction. "I make marriages that work on their own," Janssen says, "not marriages that require a live-in mother-in-law."
He also explains that while his services are for larger companies, the sub-5,000 employee HRO market is heating up. "Now there are three competitors–ADP, Ceridian, and Fidelity. Soon there will be more, and there are tens of thousands of customers who lack best HR practices and need tons of help," he says. "Mid-market customers are more forgiving than the Fortune 1000. But no mid-market provider has yet introduced the power of offshore economics. Whoever does that well will really rock the house."
As our interview ends, the normally reserved Janssen cracks a smile. "I admit that being a wedding planner is a lot of fun," he laughs, tossing copies of his most recent research report into his laptop case. "I’m right in the middle of the action. I know what is going to happen before it happens. I even know it before you do."
MICHEL JANSSEN’S FAVORITE SEVEN SAMURAI HRO PRODUCTIVITY METRICS
While measuring HRO effectiveness is critical to buyers, Janssen strikes a sour note when the topic of metrics comes up. I’m very disappointed with today’s most popular metrics, he says, because they commoditize HRO services. They emphasize the transactional rather than the true hr value drivers. As a result, within three years, at the current pace, there will be virtually no differentiation between the transaction processing services or pricing of any of the major players. He is hopeful, though, that second-generation HRO services and related metrics, which include more workforce productivity enhancement tools on top of cost-reducing transaction services, will allow buyers to buy based on business objectives rather than price. Here are Janssen’s seven samurai HRO metrics. The first three are today’s most-quoted transaction-based measures. The last four are what Janssen calls future differentiator metrics, that allow buyers to use HRO services which more closely address specific hr business objectives such as higher employee retention, increased productivity, more effective compensation, or better recruitment efficiency.
TODAY’S METRICS (MOST DEALS)
*Call center effectiveness–time to respond, call wait times, call center volume
*System availability–down time/up time
*Transactional activity–cost-per-transaction, self-service transaction volume
FUTURE DIFFERENTIATOR METRICS
*Absenteeism–missed days listed by reason
*Workforce productivity–comparative revenues and expenses by hours worked
*Employee-related risk mitigation–reducing employee legal, regulatory, or compliance actions
*Recruiting, hiring, and retention effectiveness–"This one moves the stock price," Janssen claims. "The recent Hewitt study conclusively shows that high-performance employees go to and stay with the best companies, and organizations need to track and retain those people to stay competitive."