In HRO, just like TV, movies, Broadway and PC software, sequels and second acts are often bigger than the original. And since HRO Today thinks that market tendencies have the same patterns as entertainment and technology trends, we have picked up HRO’s three, soon-to-come second acts that promise to be bigger than their first-run versions.
Living as we do in northern New Jersey, just across the Hudson from Times Square and the Great White Way, we are Broadway-show junkies. But lately, it seems that all the new shows are retreads of old shows. Time-honored classics Cabaret, A Chorus Line, and Hello Dolly all have recently rolled out newfangled productions that promise to be bigger than their first-runs.
In movies, the trend toward big sequels is as inevitable as sunrise. We even hear that Sylvester Stallone is producing another Rocky movie. In personal computing, Microsoft made Bill Gates the world’s richest man by both being second-to-market (why be a pioneer…aren’t pioneers the guys with arrows in their back?) and by re-issuing old stuff with new features.
Hey, Windows is in its millionth version, and we now hear radio ads for Internet Explorer 7 or 8 or 9 (we cannot remember which). No wonder Microsoft is called the Redmond Rerun Factory (for those of you who live in a snow cave, Microsoft’s HQ is Redmond, Washington, across the lake from Seattle).
The rerun phenomenon proves two things: First, great new ideas are hard to come by. And second, they can continue to pay off for a long time.
Well, the HRO industry has also discovered the power of the second act. We have noticed 3 of them in the past couple months that promise to grab big headlines and market share.
• Second Act Sighting No. 1. From a profitability standpoint, second-generation, Tier 2 HRO firms are the companies to watch. They make their Tier 1 HRO sisters look positively anemic. And you do not have to look too far for good examples of second-generation, Tier 2 HRO firms who are out-performing enterprise-level, Tier 1 firms.
Just south of us in Pennsylvania, Kenexa has been rocking the house. This recruitment technology and service juggernaut has played the sequel card brilliantly. This month, Kenexa bought BrassRing for $117 million and promises to re-invent the pioneering HR services firm. The analysts predict Kenexa will end 2007 with operating income of $38 million on revenues of $176 million and generate an impressive $1.18 per share, even after acquisition costs.
Then look at St. Louis-based TALX. Analysts have this multi-line HRO pumping out $1.27 per share in earnings. Compare that with the Tier 1 firms, whose earnings news would disappoint anyone who is looking for sequel-type profits.
• Second Act Sighting No. 2. Beware the second coming of Fidelity in HRO. The Boston-based mutual fund megalith has had a checkered history in HRO. In the past decade, it has invested pretty close to $1 billion learning how to succeed, mostly in its ill-fated HR Logic experiment. Its enterprise-level HRO efforts debuted in earnest when it won the IBM account. Then when IBM acquired PwC Consulting and went into HRO competition with Fidelity and acquired the Procter & Gamble account, we all started scratching our heads. But that’s when Fidelity decided to get serious. It turned off its sales engine, invested untold millions in rebuilding its own HRIS, and re-launched its own G2 setup. Watch for this G2 giant to re-emerge and profit.
• Second Act Sighting No. 3. Watch for the newly integrated, second-act HRO-FAO mega-provider, led by IBM, Accenture and more than one other well-capitalized FAO player. When former Exult President Kevin Campbell re-joined Accenture (he was a partner when Accenture was called Andersen Consulting) to head up its BPO unit, he quickly appointed long-time HRO colleague and former college basketball star Mike Salvino to head the FAO unit. Look for Accenture to acquire accounts that run the gamut from HRO to FAO. And look for IBM to do the same with its HRO unit and its FAO unit, ably run by Donniel Schulman. You could also see an FAO provider such as WNS, which has a market capitalization of over $1 billion, or the now-private FAO giant Genpact acquire a large HRO account and do both FAO and HRO for the client. Stay tuned.