A look at who is buying multi-process gives insight into its future.
By Amy L. Gurchensky
There are many ways to analyze buyers of multi-process HR outsourcing (MPHRO) services. Simple methods include looking at client size, countries included, and contract activity by industry. More complex approaches include viewing revenue distributions by geographic region, how often MPHRO is part of a wider multi-tower BPO contract, and specific market segments as defined in NelsonHall’s recent Targeting Multi-Process HR Outsourcing market analysis.
At first glance, the simple methods appear to be straightforward, but how one defines the mid-market can skew the data, so I often slice the data. The following chart shows the proportion of contract activity by client size.
Client Size Proportion of Contract Activity
>100K employees 10.6%
50K-99K employees 11.8%
40K-49K employees 8.8%
30K-39K employees 8.2%
20K-29K employees 17.7%
10K-19K employees 15.8%
5K-9K employees 13.6%
<5K employees 13.5%
The emergence of SaaS and cloud-based HR platforms has finally opened MPHRO to the mid-market. Many service providers are already offering the new systems that can be combined with BPO, including ADP, Ceridian, CGI, NorthgateArinso, and most of the India-based providers such as Infosys, TCS, and Wipro.
Footprint can be revealing so we compare the distribution of single-country MPHRO contracts versus multi-country contracts. Many of the initial MPHRO contracts covered multiple countries. For example, Accenture’s contract with BT spans across nearly 38 countries and Aon Hewitt’s contract with Marriott covers nearly 69 countries. However, that isn’t the case today. Nearly 60 percent of all current MPHRO contracts focus on a single country.
In terms of activity by industry, it appears that all verticals have a piece of the pie with manufacturing, financial services, and business/professional services together comprising nearly 43 percent of the market. The majority of MPHRO activity is with private sector organizations, but public sector activity accounts for about 7 percent of the market.
Getting More Complex
The other approaches of analyzing MPHRO buyers are more complicated because they require looking beyond the face of the contract and into the finer details and nuances to find interesting trends.
As you may have guessed, many MPHRO buyers are based at the headquarters in either the U.S. or the U.K., influencing these areas to account for the highest revenues. However, in the last two years MPHRO has caught on in many of the emerging economies in Asia Pacific and Latin America. IBM has established itself as the Latin America market leader with wins from Algar Group in Brazil and CEMEX, which is headquartered in Mexico.
Multi-tower BPO or ITO deals including MPHRO remain relatively rare. Approximately 6 percent of existing MPHRO contracts include another BPO or ITO component. Examples of such contracts include:
• IBM and CEMEX MPHRO contract includes employee data management, payroll, HRIS/HRIT SAP support, F&A, IT infrastructure, and application development and maintenance support.
• Genpact and Nissan MPHRO contract includes payroll, benefits, staffing, and training, F&A, procurement, and customer service.
Up until now these methods primarily involved looking at the characteristics of the buyer organization or the contract itself. The final approach considers the reasons why the buyer utilized MPHRO services.
NelsonHall’s Targeting Multi-Process HR Outsourcing market analysis report groups buyers into four main market segments:
• Multi-country standardization: for clients seeking consistent information and processes regionally or globally
• Client-specific shared service transformation: for clients seeking to make HR more effective by transforming existing services to best practice
• Core business focus: for clients experiencing high growth and a need to focus on go-to-market
• Technology-led HR service enhancement: for clients with legacy HR systems and processes.
The shared service transformation segment is the largest group, making up nearly 40 percent of the market. The fastest growing segments, however, are the multi-country standardization and core business focus groups with a compounded average annual growth rate of 6.1 percent and 5.9 percent respectively through 2017.
Something else of note is a pattern of prevailing buying habits. MPHRO contracts have evolved. Original deals tended to include all HRO services. In the last two years, nearly 40 percent of contracts included at least three different HRO service lines with the remainder focused on a “core bundle.” The most popular grouping of services includes payroll, benefits, either recruitment or learning, and at least one workforce development service (e.g., performance management, compensation management, succession planning).
The underlying theme throughout nearly all MPHRO contracts is that the core services are included, namely HR/workforce administration, payroll, and employee care. This core bundle has remained relatively unchanged in the last two years. Benefits and recruitment services have the highest attachment rates in all MPHRO contracts with each appearing in nearly 45 percent of all contracts. In the last two years, recruitment services alone have dominated as the number one add-on service appearing in nearly 50 percent of MPHRO contracts.
The overarching take-away is that MPHRO continues to evolve and grow, and is now affordable for organizations of all sizes. There are vendors and service choices providing even more options for buyers to find the right HRO supplier for their needs.
Amy L. Gurchensky is a research analyst in HRO for NelsonHall.