Positive growth in 2014 is likely to continue in 2015 finds analyst firm NelsonHall.
By Amy Gurchensky
If the past is any indicator of the future, then the HR outsourcing market will have a productive upcoming year. 2014 contract activity was up nearly 11 percent year-over- year, with renewals and contract expansions accounting for a quarter of the activity. Mid-market activity remained high and public sector contracts increased year-over-year. This can be seen in several HR outsourcing service lines.
Globally, payroll is the most stable HR outsourcing tower. Year-over-year growth for this industry has remained in the low single digits and growth in 2015 will be no different.
Vendors will focus on expanding their geographic footprint. For example, in 2014, ADP acquired Perkura GmbH in Germany and announced that it will expand its presence
in Spain. This should yield advancements in these countries in 2015 as a result of these 2014 initiatives. Indian payroll providers will also look to build capability in Europe in the near future.
Demand for multi-country payroll services will continue, and there will be growth for managed payroll services.
Approximately two years ago, the United States benefits administration market began to experience a transformation driven by healthcare reform. Up to this time, the core benefits administration processes were very well settled. The change that began in 2012 will continue to develop over the next few years, ultimately transforming the benefits administration landscape.
In the last year, private health insurance exchange contract activity rose substantially as the market shifted from first movers to early entrants. Private exchange activity in 2015 will increase further from adoption by a variety of organizations from different industry sectors. Restaurants, retail, and hospitality companies will lead the pack, but professional service organizations, manufacturers, and hi-tech and electronic companies will also make headway in the New Year.
Traditional health and wellness administration contracts will also yield positive activity in 2015, as organizations look to make their workforces healthier to increase productivity and decrease absenteeism.
First-generation defined contribution administration contracts will continue to grow with interest from small and mid-sized companies, as well as large employers. The focus in 2015 will be on increasing education and engagement to promote retirement readiness. Expect new offerings— similar to Xerox’s SavIncent—that ties financial incentives into an employee’s 401(k) account based on that individual’s participation in financial wellness activities.
Despite its maturity, the benefits administration market will arguably be the HR outsourcing tower undergoing the most structural change in 2015.
For the last several years, the RPO market has grown at a very healthy rate, and is expected to nearly double by 2018. Since the recession, organizations have been keen at using specialists to fill talent voids, and talent shortages continue to be a problem in many countries, especially in the U.S. where the baby boomer generation is retiring from the workforce.
With strong demand, RPO offerings are evolving to manage talent issues and respond to changes in technology. Accordingly, analytics will be a main focus for RPO providers in 2015, as will blended MSP/RPO services. The use of social media recruiting, already leveraged by many organizations, will continue to expand.
As we have seen in recent years, multi-country RPO contracts will continue. In fact, such contracts will account for an estimated 35 percent of all RPO contracts in the near future. Many RPO vendors have made acquisitions in 2014 to support geographical expansion including the following:
• SevenStep acquiring BlueGlue to expand operations in the U.K.;
• U.S.-based WilsonHCG merging with U.K.-based CPH; and
• Seaton acquiring HRX to build its presence in Australia and New Zealand prior to Seaton’s acquisition by TrueBlue.
These acquisitions are an important part of future multi- country RPO growth—and a trend for 2015.
Relative to 2013, learning BPO contract activity picked up quite a bit in 2014. Much of the focus was on business diversification as evidenced by many new offerings and partnerships. Examples include:
• GP Strategies partnering with SafetySkills to provide safety, environmental, and HR courses;
• QA launching a Gateway Program for STEM graduates in the U.K. to improve employability; and
helicopter underwater escape training for oil and gas exploration scenarios.
One indication that 2015 will be a good year for learning BPO is the acquisition of Intrepid Learning Solutions by Xerox.
In the last several years, acquisitions within the learning market have been thin and focused on enhancing a particular learning BPO process or expanding to a specific country. Xerox is one of the top learning BPO service providers in the U.S. and Intrepid ranks in the top 10, therefore the combined entity will be a strong force in the future with its expanded learning capability once integration is complete.
The overall learning BPO market will grow in the mid-single digits in 2015 with the U.S. leading in activity.
Multi-Process HR Outsourcing
The multi-process HR outsourcing market has undergone continuous changes over the last 10 years, and is now focused on combining cloud-based platforms with HR outsourcing services. Aon Hewitt, a leader in this new approach, is joined by the likes of NGA HR, HP, Accenture, and IBM who have all made some traction in 2014 with their offerings. This progress will pick up more in 2015 now that these offerings are clearly defined and a referenceable client base has been established. Main prospects for this offering include both large market clients who are looking to update prior technology investments as well as mid-market organizations with more than 8,000 employees.
To date, there has been a big emphasis on Workday—its popularity is widespread, leading many vendors to establish a Workday consulting and/or implementation offering. For example, CSC has set up a consulting practice to enable clients to transition to Workday, and is deploying Workday internally to nearly 70,000 employees globally. Mercer also became a Workday Advisory Services partner and then within the same month, acquired Jeitosa Group International to add Workday implementation services. This trend will continue in 2015, as it has become critical for service providers to develop integration capabilities with HCM vendors since cloud-based platforms are in high demand in a variety of forms including SaaS only, single-service HRO deals, and multi-process HR outsourcing contracts.
Overall, the state of the HR outsourcing market continues its upward trajectory into 2015, and will produce another exciting year of output.
Amy L. Gurchensky is an HRO research analyst for NelsonHall.