Emerging offshore providers, having won the hearts of clients through the IT outsourcing business, now look to expand their offerings in HRO by affording more customized services.
by Jeff Croyle
Until fairly recently, the largest and most complicated HRO engagements were awarded to well-known Tier 1 HRO providers. Recently, though, three India-heritage service providers secured major contracts in 2007 and 2008.
No longer considered solely as low-cost providers, India-heritage companies now offer viable, cutting-edge HR solutions for global clients. The rise of these firms as HRO providers is fairly recent compared with how long they have been catering to Western clients. Tata Consultancy Services (TCS), Wipro, and Infosys are among the elite India-heritage IT firms that have expanded into the HRO space during the past four years. Each has signed a significant contract in the past 18 months that demonstrates a different approach to the marketplace. Although these firms share many similarities with their history and background in the ITO space, they each follow a different strategy that enabled their first large HRO wins.
India-heritage providers share several common themes in building their HRO practices. All three firms generally use a “penetrate and radiate” strategy to expand into new markets. These providers are willing to invest the time, money, and resources to pursue additional business from longstanding ITO and BPO clients.
TCS, Wipro, and Infosys have demonstrated a willingness to take a more flexible approach to working with prospective clients than some of the more established HRO providers. For example, TCS has entered into recent arrangements with a layered implementation offering, taking on smaller pieces of work and/or fewer processes to initiate the HRO relationship. Although each of these service providers has built full-scale offerings, they have also been willing to tackle smaller payroll, workforce administration (WFA), or regional projects to prove their worthiness to clients in hopes of winning additional work from them. So, while Tier 1 HRO providers have been focused on standardizing their service offerings, India-heritage providers have actively sought out “one-off” opportunities.
The India-heritage providers are also diversifying their delivery work beyond India. The 2008 terror attacks in Mumbai underscored the importance of geographic diversity in a business continuity plan. For example, TCS now has service centers performing HR work in China, Hungary, Uruguay, and the U.S.; Infosys has established an Australian center; and Wipro has opened HR service centers in Brazil, Poland, the U.K., and the U.S.
These offshore firms have also evolved from their early “lift-and-shift” focus to the more transformational approach typically demanded by today’s buyers. Increasingly, they invest in developing standardized processes, scalable platform technologies, and best-of-breed approaches to refining and delivering services.
As they seek to expand their capabilities, it is likely that we may see growth through acquisition—achieved by obtaining service centers with existing skill sets to fill delivery gaps or by the acquisition of other providers. TCS’ recent $512 million purchase of Citigroup’s captive BPO unit in India is a case in point. In fact, the opening of service centers outside of India has already been accomplished to a certain degree by the acquisition of existing client service centers along with their requisite skill sets. There is no reason to believe this growth strategy will not continue. Here are some recent large HRO wins:
TCS and Nielsen. This contract is part of a huge multi-service, multi-tower engagement (over $1 billion in total contract value) where ITO plays a critical role. It includes an overhaul of Nielsen’s HR ERP system to upgrade SAP. Delivery for the initial Nielsen HR work of payroll and WFA will be handled in Hungary and India.
Wipro, Credit Suisse, and a large retailer. Wipro will reengineer and manage the service center operations for these two clients. Rebadging employees and transforming the work is the first order of business. The retail client is moving every HR process possible to Wipro; Credit Suisse is also taking advantage of cost savings and has asked Wipro to help standardize some processes in EMEA. Wipro’s initial success was followed by a contract with AmBev, one of Latin America’s largest brewers.
Infosys and a large Australian financial services firm. This deal features an expansion of services to a long-time ITO client starting with WFA and eventual end-to-end HRO services. This expansion has flown largely under the radar, however it fits with the proven Infosys strategy of providing incremental services to long-term clients.
In today’s market, where the service offerings from the top tier providers are becoming more standardized and homogenous, the India-heritage providers appear to be bringing a new level of energy and enthusiasm to the market along with a willingness to take some risks. The players are changing, and the informed buyer will want to know how it’s affecting the HRO marketplace.
Jeff Croyle (pictured) is a partner in TPI’s CHRO Services Group. He can be reached at 845-323-0039 or at email@example.com. Albert Grimaldi is a
director in the group. He can be reached at 678-596-6547 or at firstname.lastname@example.org. The authors wish to acknowledge Martha E. Jones for her contributions to this article.