Want to hike your HR organization�s performance? ISG CEO Michael Connors wants to sell you domain expertise and the most timely data to help you achieve your goals.
In the global outsourcing marketplace, buyers and providers are the ones behind the wheel and driving it forward. But to lead the industry down a smoother path, sourcing advisors and consultants lend their domain expertise to help pave the way.
It’s a philosophy that Michael Connors fully embraces. And as CEO of Stamford, CT-based Information Services Group (ISG), which last year acquired global sourcing firm TPI, he sees sourcing advisors’ role not only as paver of roads but also an octane-producing, turbo charger that holds the key to putting HR organizations on the road to high performance. How? It’s all in the data.
“We spend a lot of time talking with clients and service providers, asking what are they getting and what are the gaps we can fill in for them. They (buyers) love the data from TPI, and they want it to be ongoing. They want more research,” he recently told HRO Today at ISG’s headquarters.
Connors, a former senior vice president of HR at American Express and former chief HR officer for D&B who later played a major role in orchestrating the sale of ACNielsen in 2001 to media giant VNU, is a strong believer in the value of data, and he is convinced that HR organizations can vastly improve efficiencies and become more strategic when equipped with the appropriate information. Moreover, when that data is supported by the domain expertise of seasoned sourcing advisors, HR leaders are empowered to become business partners to the organization, allowing line managers to appropriately plan growth initiatives without being encumbered by human capital limitations. So regardless of whether the right strategy is to outsource, insource, or a combination of those, HR is assured that its decision is backed by data.
“Companies are looking to the experts, whether in one or more processes, and someone who can help them in the right place with the right processes,”
he added.
For HRO buyers, sourcing advisors are increasingly becoming an important resource for implementing best practices in their outsourcing engagement, regardless if the deal is a renewal or a new signing. That’s because contracts are often complex, global, and require pricing expertise. HR buyers have told HRO Today that they look to the advisory community for data and benchmarking services to ensure that they operate reasonably well among their peers. Additionally, they see the sourcing community as having a wealth of knowledge when it comes to ensuring that they pay the prevailing market rate for outsourced services. Connors said he wants his firm to be able to roll out more value-added offerings that will enable HR and other buyers to better assess their
sourcing strategy.
ISG’s Game Plan
During his tenure at ACNielsen and then VNU, Connors developed a keen eye for clients’ need for data. After all, Nielsen is one of the leading global market intelligence firms, and just about anyone with a television set is familiar with Nielsen Ratings. At VNU, Connors was also CEO of its Media Measurement & Information Group, which included Nielsen Media Research and VNU’s media information, entertainment, software, and Internet businesses. During that stint, he grew increasingly aware of the value of industry data to corporate leaders, especially as companies looked to adopt best practices in an effort to reduce costs while improving services. That insight led Connors to help found ISG, whose corporate goal is to build an advisory and data research business through acquisition and organic growth.
Its sole purchase so far has been TPI, which the publicly traded ISG acquired for $280 million last year. With a global staff of 350 located mostly in North America, followed by a sizable presence in EMEA and then Asia, TPI receives most of its advisory revenues through sourcing implementations including outsourcing, captive offshore, and insourced programs (51 percent); 27 percent of revenues are through service management and governance; and assessments and service delivery and sourcing strategies account for 24 percent of revenues. It caters to clients in the HR, F&A, IT, procurement, and other back-office segments.
Indeed, TPI is seen as an important source of data in the business process outsourcing and IT outsourcing industry. It publishes the well-known TPI quarterly index, which tracks the growth of the industry.
According to Connors, what attracted the company to TPI was its growth potential. In announcing its preliminary 2007 results, the company’s proforma operating income and EBITDA rose 18 and 16 percent, respectively. Similarly, TPI’s international operating revenues rose 20 percent during the year, with the number of clients advised up 12 percent to 268. Connors said he believes the company can grow revenues and EBITDA margins by 50 percent by 2010 through building new revenue streams and increasing efficiencies.
This organic growth will be bolstered by ISG’s acquisition strategy, which Connors said would involve consolidating the sourcing advisory space through three acquisition avenues: firms that specialize in specific industries, those offering a strategic and operational fit, and companies that specialize in generating data. Signs of consolidation are already emerging; in addition to TPI’s sale last year, sourcing advisory firm EquaTerra recently acquired U.K.-based Morgan Chambers.
Attracting HR Clients
To reach his goals, Connors will need to drive home to HR and other buyers the value that timely data and domain expertise can add to their organizations. As a former HR executive, he said the profession has evolved over the years, but it hasn’t changed as quickly as some HR leaders would like. (He blames this in part on the lack of deep-dive data available to HR, even though many companies have been able to procure competitive data for their lines of business.) For HR to truly become strategic, access to critical information will be key, he added.
“It’s time for the chief HR officer to take it to the next level. The markets have all changed,” he said. “Five years ago, it [corporate focus] was on costs, costs, and costs. Today, yes, they want cost reduction, but the second area of concern is knowledge and capabilities and people management. It’s a combination of cost and capabilities.”
Connors said this shift in focus is clearly reflected in buying trends, which despite reports of a deceleration in growth remain on the positive side. He pointed out that the average contract value in the BPO segment is on the rise even though the average contract length is shortening. Furthermore, in HRO, while the number of enterprise deals has all but dried up, a few point-solution segments such as recruitment process outsourcing (RPO) and learning outsourcing continue to post robust growth, compensating for the loss in end-to-end deals.
What this means for HR is that outsourcing has become just one of the tools it is using to maximize resources. By outsourcing some HR services while retaining others, organizations are clearly saying that selective sourcing strategies make the most sense to them. Moreover, employing a blend of best-in-breed vendors sometimes produces the best results for them, Connors pointed out, and more of TPI’s consulting work is around organizational assessment for buyer clients.
But in this dance, it actually takes three to tango, and providers are an essential part of the mix. However, sourcing advisory firms such as TPI are prohibited from working for vendors. After all, you can’t serve two masters, and the advisors’ loyalty belongs to the HRO buyer. But that also means they are limited in what they can share with the vendor community, although there have been more efforts such as the HRO Association’s standards work, which involves vendor and advisor participation. Still, wouldn’t the industry benefit if advisors could share more of their learning with service providers? It’s a question that Connors has grappled with.
“You can’t be on both sides of the market,” Connors lamented, but he also questioned whether advisors can enter into a greater collaborative role with providers as well.
Can the sourcing advisory community consult for both buyers and providers? Connors said if ISG ever expands its business to also cater to vendors, it may have to set up a separate division to avoid a conflict of interest. After all, there are many consulting practices that are part of a vendor company, including household names such as IBM, Accenture, and Towers Perrin (which owns a stake in ExcellerateHRO). And ISG may eventually join their ranks with offerings for all the key players in the HRO market.
For now, the company continues to experience strong demand for TPI’s expertise, and if Connors’ plan to roll out more integrated data and consultative services can markedly benefit HR back offices, ISG might not have to work so hard to grow new business—it might just be able to go on cruise control.
