Contributors

Time to Tidy the Market through Growing Its Overall Value

With the U.S. leading the world in contract signings, Europe is left playing catch up. Focusing on quality, not quantity, will produce a happier ending.

by Jemima Fitzgerald

As this month finally saw the signing of one of the industry’s biggest deals between Unilever and Accenture, we can’t help question why Europe is not producing more contract signings.

Interestingly, at the same time as Accenture signed a deal with a 200,000-employee, €-40 billion company, it also made an acquisition of Savista, a specialist in mid-market BPO. So where is the focus? Large scale, multinational organizations or mid-market? Or both?

Well, this multi-approach to the market is not uncommon within HRO today. The HRO market has long been a place of supplier convergence with unusual organizations competing for any hint of an opportunity for a vast range of reasons.

Although the market is no doubt growing, it is doing so at a much slower pace than anticipated. As such, many organizations are becoming anxious and looking to see from where else they can win new clients. Large players are moving into smaller or niche markets, and the niche players are moving up.

So are we seeing a meeting in the middle? Unfortunately not. We’re actually seeing a great deal of confusion with clients and service providers alike, with arguably innovation still being driven by client demand and not by service provider investment.

Multinational, full-scale HRO providers have investigated for years how they may be able to meet the needs of the mid-market, or at least how they can sell smaller parts of their business as a single service to get in and expand scope. Hewitt has profited from its ability to deliver benefits consulting and administration to many of the world’s top organizations and used this and subsequent acquisitions to expand further to gain market share. ACS recently acquired Intellinex LLC to expand its service offerings with, no doubt, a view to cross-sell into Intellinex accounts.

But at what cost? Both organizations recently announced losses on a number of their accounts and are struggling with profitability.

At the other end of the market you have niche providers looking to expand. ARINSO’s acquisition of Landsdowne is an example of this. But if the big players are finding it tough and have paid a heavy price for gaining capability, will this be an unwanted distraction for companies that seem to be doing well in their own space? ADP, for one, seems to have accepted this. Despite looking to expand its capability for a long time into neighboring areas, it has (for now) decided to focus on its core competency in payroll, which remains an extremely complex offering in Europe. Undeterred by ADP’s decision, we see other players such as HP looking to build a European payroll offering.

So what is going on, and why is the market trying to get in to everyone else’s pockets?

frankly, there seems to be panic in the market from both clients and service providers. As the market is not developing as quickly as many had predicted, providers with private equity backing or simply those  feeling pressure from other parts of their organizations are becoming anxious about the time it’s taking to win deals. There are plenty of deals on the table, but there are numerous players after the same part of the pie, adding to the time it takes for them to come to fruition.

So what’s our advice? First, the whole market needs to realize that this is a long road, and grasping for short-term gains will not be the answer to winning market-leader positioning. All organizations must sit back, understand why their clients buy, and what their core capabilities are. They must carefully analyze both the competition and market. If competitors are better, more cost-effective, and more likely to win deals in certain areas, then maybe that part of the market is not worth the battle.

Finally, remember it’s not about getting a bigger slice of the pie, it’s about getting a bigger pie! With a big pie, there’s room for all parties, niche players, mid-market providers, and certainly full-scale HRO!

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