Predictions for next year across five HR sectors.
By Amy L. Gurchensky
Across the board, 2015 was an exciting year for humanÂ resources outsourcing (HRO) and services. Cloud-basedÂ human capital management technologies, private healthÂ insurance exchanges, robotics process automation, cloudÂ HR services, and robo-advisors all made an impact onÂ how HR drives business forward.
The year will end with overall HRO contract activityÂ up more than 11 percent year-over-year with nearlyÂ 80 percent of activity coming from private sectorÂ organizations. Mergers and acquisition activity was ledÂ by recruitment process outsourcing (RPO) and benefitsÂ administration vendors, with benefits administrationÂ suppliers also leading partnershipÂ activity to strengthenÂ capabilities.
Innovation will lead the 2016 market and we areÂ forecasting activity in many of the sectors. Here are someÂ potential predictions by HRO service lines.
Payroll is and will continue to be a staple HRO functionÂ that is often the gateway to further discussions,Â especially regarding complementary offerings like timeÂ and attendance and benefits. Payroll is also a core processÂ within multi-process HR outsourcing (MPHRO) contracts.Â In fact, demand for multi-country payroll services tendsÂ to fuel these wider HRO contract discussions.
In 2016, payroll trends will include cloud-enabledÂ payroll systems with an emphasis on expanding geographic reach and integrated platforms that includeÂ complementary offerings. ADP is continually investingÂ in product developments that extend across the broadÂ spectrum of HCM services, and momentum for CeridianâsÂ new Dayforce Managed Services offering, whichÂ combines its Dayforce platform and payroll and benefitsÂ administration services, will pick up.
Down market, traction will increase for tailored payrollÂ offerings, including NGA HRâs new U.S. payroll platform forÂ mid-sized organizations, Managed Payroll for the Cloud.
The Affordable Care Act (ACA) has kept benefitsÂ administration front and center. With the CadillacÂ tax looming in the near distance, organizations willÂ increasingly keep demand for benefits administrationÂ services high in 2016.
Private health insurance exchanges have transformedÂ the landscape. In 2015, additional providers entered theÂ space and vendor consolidation was in full effect. WhileÂ suppliers are focused on increasing scale for privateÂ exchanges moving forward, further enhancementsÂ to health and wellness (H&W) services will be made,Â especially around employee wellness services.
In terms of defined contribution (DC) administration,Â there has been great attention around increasingÂ education and ways to encourage individuals to saveÂ for retirement, which will become more tailored toÂ participants. In 2016, the market will also begin toÂ address the larger issue of launching initiatives thatÂ create a steady stream of income for individuals duringÂ retirement.
Due to the increased complexity within benefitsÂ administration, demand for total benefits outsourcingÂ (TBO) bundles will continue to decline. OrganizationsÂ will instead seek best-of-breed suppliers for definedÂ benefits administration, DC administration, and H&WÂ administration.
As the needs and issues within benefits administrationÂ become more sophisticated, many vendors will narrowÂ their portfolio of offerings to focus on a limited number ofÂ services. Therefore, 2016 will include M&A activity similarÂ to Mercerâs divesture of its DC administration business toÂ Transamerica Retirement Solutions and Ceridianâs sale ofÂ its H&W administration business to Morneau Shepell to focus exclusively on its LifeWorks EAP offering.
Given the general chaos and confusion that ACA hasÂ created in the market, companies will likely rely onÂ their existing service provider for immediate solutionsÂ to ensure compliance at this stage. As knowledgeÂ increases, organizations will eventually go out to marketÂ for competitive bids, but this will be out in the horizonÂ beyond 2016.
Interest for RPO services has remained high over theÂ last five years, fueled by the war for talent due to skillÂ shortages, which will continue to create challenges as theÂ workforce ages. RPO offerings, however, have becomeÂ more comprehensive to address congruent issues thatÂ affect an organizationâs ability to attract top talent.
In 2016, organizations will expand their attention beyondÂ the core RPO functions of sourcing, recruiting, selectionÂ and assessment, administration, and onboarding to includeÂ additional ancillary services such as employer branding.
Vendors will continue to expand their RPO portfoliosÂ to include other related offerings like career transitionÂ services. This will essentially round out the recursiveÂ process for an individual from candidate to employee toÂ candidate.
Conversations on the broader talent managementÂ process will continue. Take-up rates for integrated endto-end offerings from the same vendor (packagingÂ workforce planning, recruiting, learning, performanceÂ management) will remain low in 2016. OrganizationsÂ will instead cluster certain talent management processesÂ together from the same RPO specialist.
Keep an eye on workforce planning, which will take aÂ more prominent position over the next 12 months withinÂ RPO. This will drive an increased demand for analyticsÂ and labor market data.
Learning BPO (LBPO)
While LBPO is often viewed as a discretionary HR process,Â the need for training programs become a focus whenÂ organizations are looking to engage, develop, and retainÂ existing talent.
The overall LBPO market is estimated to grow nearly 6.2Â percent in 2016 to nearly $4 billion, driven primarily byÂ the need to implement a centralized, standardized, andÂ automated training process that can support a dispersedÂ and diverse global workforce.
Multi-country LBPO contracts will account for betweenÂ 40 and 45 percent of activity in 2016, focusing largely onÂ regional activity within Europe. Selective LBPO bundlesÂ that include two learning processes will dominate nextÂ year, with full, end-to-end LBPO bundles accounting forÂ between 15 and 20 percent of contracts. Top verticalsÂ for LBPO include energy and utilities as well as financialÂ services.
Microlearning, just-in-time learning, mlearning, andÂ social learning have already transformed the trainingÂ landscape. Over the next year, these approaches willÂ continue to be utilized in a blended fashion with otherÂ modes of delivery, including gamification and corporateÂ MOOCs. This will make training more effective and helpÂ accommodate all types of learners.
Multi-Process HR Outsourcing (MPHRO)
As predicted last year, cloud-based MPHRO activity gained some serious traction in 2015. Aon Hewitt aloneÂ has migrated nearly 50 percent of its traditional HR BPOÂ client base from an on-premise HR system to a cloudbasedÂ platform, focused on Workday. Aon Hewitt is alsoÂ hedging its bets in Europe with the Workday platformÂ through its acquisition of Kloud earlier this year. In fact,Â Aon Hewitt is not alone with its investments in Workday.Â In September, IBM announced its intent to acquireÂ Meteorix LLC, a Workday service partner providingÂ consulting, implementation, and post-productionÂ services.
In the wider MPHRO market, most organizations continueÂ to operate on legacy systems to ride out previousÂ technology investments. However, demand for HRÂ consulting services for advice on what cloud-based HRÂ system to select and when migration should occur hasÂ increased rapidly and will continue to be a dominantÂ theme in 2016.
Other activity in the next year will be the result ofÂ expanded offerings around HR cloud services, includingÂ SaaS implementation services and post-deploymentÂ support including release management, which may orÂ may not include HR BPO services.
In terms of a prevailing cloud-based HCM platform,Â Workday and SAP SuccessFactors are neck in neck,Â with Workday favored more by U.S. headquarteredÂ organizations and SuccessFactors preferred elsewhere.Â Over the next year, the market will continue to mainlyÂ rely on both of these cloud technologies as well asÂ Oracle Fusion, with nearly 45 percent of MPHROÂ service providers focused on providing a flexible cloudÂ approach. Approximately 25 percent of MPHRO vendorsÂ have focused their offerings around the WorkdayÂ platform exclusively, nearly 20 percent of suppliersÂ have constructed their MPHRO services around SAPÂ SuccessFactors, and the remaining 10 percent are usingÂ proprietary cloud-based technologies.
With vendor priorities and roadmaps in place for 2016,Â innovation and advancements within each HRO serviceÂ line will come to fruition throughout the next 12 months.Â As organizations continue to evolve their existing servicesÂ with suppliers to capitalize on these developments andÂ outsource new HR services, the prospects for the overallÂ HRO market are very favorable.