IQcatalyst

Cost savings lessen in their importance to HRO buyers

A growing majority of Human Resources Outsourcing (HRO) buyers are willing to forego cost savings in order to gain access to the latest technologies and business process functions, according to a recent study. The authors describe this trend as a transition from "lift-shift" to "transfer-transform" outsoucing models. The HRO buyer study also found transactions have rapidly shifted from highly customized solution contracts to more configured, or "off the shelf", solutions leveraging suppliers' economies of scale.

Five years ago, HRO buyers were focused on cost savings, but today the study claims a different kind of buyer is willing to accept less than 10% or even zero cost savings because they want access to the best technologies and other value creation functions.

Companies are straying further away from the ‘lift-shift’ outsourcing model characterized by the supplier taking over the buyer’s existing staff, processes, and technologies that are used as the platform for providing outsourcing services. Instead, buyers want to take advantage of supplier-provided processes and technologies that are already in place and ready to be implemented. As such, buyers are more frequently accepting multi-client solutions that offer more competitive pricing options.

According to the study, suppliers are creating and offering value-based solutions, such as talent management, that can help companies create and deliver strategic initiatives but will need to improve overall delivery quality, and develop and implement standardized metrics, to truly satisfy buyers.

Suppliers must focus their efforts on developing people and process capabilities and offer competitive pricing with innovative solutions and up-to-date technologies. Furthermore, suppliers must also collaborate with buyers to develop more standardized and measurable service metrics to counter our survey finding that almost a third of buyers report a decline in quality. We believe the suppliers’ efforts to improve quality, the continued transition of buyers adopting the transfer-transform model, and the continued maturity of HRO processes and delivery models will improve quality-related issues.

Other study findings include:

• Process Scope: The majority of buyers (54%) have outsourced 10-12 HR processes out of a maximum of 12 processes.
• Process maturity: Transaction-intensive and support HR processes are outsourced more frequently than judgment-intensive processes. Emerging maturity in areas of compensation, recruiting, training and global mobility are gaining traction to join mature processes such as payroll, benefits, employee data management, HRIT and contact center.
• Technology: Half of the transactions employed a hybrid technology model (a mix of ERP, proprietary and best-of-breed applications.) Almost all of the transactions surveyed had HR technology in scope, with 61% reporting a significant change to HR technology post-outsourcing.
• Targeted cost reductions: All buyers surveyed achieved their targeted cost reductions with average staff reductions of 54 percent.
• Offshoring: Nearly half of the transactions had no offshore component; 44% of transactions had 1-5 processes with offshore components, led by HRIT, employee data management and training.
• Pricing: Fixed price modeling was used most often, and price points have declined significantly since 2004. Buyers with contracts coming up for renewal in the next few years can expect to receive price improvements over their original contracts.

The study also includes a deep-dive analysis of HR training. Highlights include:

• Twenty two percent of buyers did not outsource training; 45% outsourced 1-5 training processes with 22% utilizing an offshore delivery model
• Eighty six percent of transactions utilized best-of-breed training applications
• Inclusion of judgment-intensive training sub-processes has significantly increased in recent years
• FTE reductions averaged 61%, most of which were administrative support positions

Source(s): Everest Research Institute

Companies are not using compensation effectively

While most human resource professionals agreed compensation was very important to achieving certain business goals, a new survey found companies are not using compensation effectively to achieve these goals.

A recent survey found respondents considered compensation "very important" to business goals including retaining key employees (66%), attracting high-quality employees (56%), and aligning individual performance with corporate objectives (49%).

However, few respondents said their companies were using compensation "very effectively" to achieve these goals - 21% for retaining key employees, 17% for attracting high-quality employees and 15% for aligning individual and corporate performance.

According to the survey, impediments keeping their organizations from using compensation more effectively cited by respondents included lack of budget, the focus of compensation managers on tactics versus strategy, HR processes that are not integrated with each other, and inadequate tools.

The survey found the specific compensation practice most used by respondents' organizations was communicating total rewards statements to employees (56%). The least-used practice was aggressive pay-for-performance measures (29%).

Source(s): Authoria, PlanSponsor.com

Hartford awards HRO contract to Fidelity

Fidelity has won a seven-year comprehensive human resource outsourcing (HRO) contract from The Hartford Financial Services Group, a US-based financial service and insurance company. The financial terms of the contract were not disclosed.

Fidelity has already been administering various benefit programs Hartford for its 45,000 employees and retirees. In addition to these services, the company will provide benefits reporting, and data and carrier assistance to the group.

Under the terms of the new contract, Fidelity will administer the HR operations, payroll, workforce, and talent management functions of Hartford. The company using its Total HR AdvantageSM portfolio of services will provide full support for Hartford’s critical HR functions spanning from recruitment to retirement. The Hartford's HR programs are likely to be migrated to Fidelity's servicing platform by 1Q 2008.

Fidelity will provide support for the entire talent management cycle, such as staffing, performance, talent planning, and compensation management. The company will provide a variety of workforce administration services including payroll administration services, and technology for time and attendance and HR administration. It will also provide call center services to Hartford.

Source(s): Fidelity

Harvey Nash group acquires SilkRoad

Harvey Nash Group PLC has agreed to buy software company SilkRoad Systems Ltd and its unit, SilkRoad Systems (Vietnam) Ltd for $2.03m in a move to expand its offshore software development capability in Asia. The recruitment and outsourcing services company said it will pay $1.8m on completion comprising $1.4m in cash, of which $0.426mwill be retained for six months following completion, and 226,646 Harvey Nash shares.

An additional payment of up to $0.232m will be made over the three years ending June 30 2010 subject to certain profit targets being achieved, it added.

Source(s): Harvey Nash Group

The Reserves Network acquires Staffing Resources

The Reserves Network has acquired Staffing Resources of Chicago, a provider of commercial and professional temporary workers. Staffing Resources has four offices in the Chicago area in Addison, Bridgeview, Joliet and Matteson. Reserves Network in September acquired Duro Staffing in Illinois with offices in LaSalle, Morris and Streator. It has 40 branches in the Midwest and South.

Source(s): Staffing Industry

Dice Holdings IPO

Job board operator Dice Holdings Inc. expects to raise $200.4m in its initial public offering of 16.7m shares, according to a filing with the U.S. Securities and Exchange Commission. The company will sell 6.7m shares anticipated to be priced at $11 to $13 in the IPO.

A group of stockholders, including private equity firm General Atlantic LLC and investment firm Quadrangle Group LLC, will sell the remaining 10m shares. Proceeds would be used to repay $32m in outstanding debt and for working capital and general corporate purposes. It would trade on the New York Stock Exchange under the symbol DHX. Dice had revenue of $83.7m in 2006 and net income of $6.8m, and reported a loss to common shareholders of $4.4 million. In addition to its flagship information technology job board, Dice operates online job boards for finance, accounting and U.S. government security cleared jobs.

Source(s): Staffing Industry

Employee ownership on the rise

According to a recent report there were 9,000 ESOPs in the early 1990s, with that number falling to 7,700 plans in 2000 and climbing again to 9,225 plans in 2005.

The number of firms that are majority-owned by their ESOP is now estimated to be about 2,500, and roughly a thousand firms are believed to be 100% ESOP-owned. Today, about 10m employees participate in an ESOP, or about one of every 11 workers in the private sector, the article said.

While some argue that ESOPs are a method of sharing the capitalism, many companies implement the plans because of a belief that it encourages worker productivity and helps the business's bottom line. A 2006 survey found 91% of 426 responding companies said creating their ESOP was a good business decision that helped the company. Almost three-quarters also reported that their company stock outperformed three major stock indexes in 2005. A previous survey found that 82% of respondents said their ESOP improved worker motivation and productivity.

In 2002, testimony before the U.S. House Subcommittee on Employer-Employee Relations, Douglas Kruse of Rutgers University told congressional members that "25 years of research shows that employee ownership often leads to higher-performing workplaces and better compensation and worklives for employees."

In a 2003 working paper, research showed that “employee ownership firms tend to match or exceed the performance of other similar firms on average.” The authors also suggested that average productivity could be as much as 5% higher at employee-owned firms.

According to the article, a current project is aimed at looking more in depth at the problems with ESOPs, including the phenomenon called “shirking” (not all employees carry their weight equally) and the financial problem of lack of diversity of investments for those employees in an ESOP.

However, using data from the Shared Capitalism project in a paper for the annual conference of the Labor and Employment Relations Association the authors noted that “while far from adequate from the standpoint of financing retirement, the median pension wealth of ESOP participants is over four times higher than the median household pension wealth, and that company stock ownership in ESOPs, while highly concentrated, is considerably less concentrated than stock ownership.”

Source(s): National Center for Employee Ownership (NCEO), Employee Ownership Foundation, Federal Reserve, National Bureau of Economic Research (NBER)

Compensation and Benefits tops for employees

According to a recent survey report, Compensation/pay and benefits were ranked as "very important" by 59% of survey respondents. The survey results were based on responses from 713 HR professionals from a random sample of SHRM members, and telephone interviews with 604 employees randomly selected from an outside survey research organization's Web-enabled employee panel.Specific benefits that ranked as most important among employees surveyed were health care benefits (60%), paid time off (55%), and retirement benefits (56%).

Other top contributors to employee job satisfaction were job security (53%), flexibility to balance work/life issues (52%), and communication between employees and senior management (51%), the data showed.

Benefits and compensation/pay have been rated by employees as the top two aspects most important to job satisfaction for the past four years of surveys. It should come as no surprise that employees remain concerned about their compensation. With the rising costs of health care premiums and prescription drugs, employees know they need to put more of their money toward covering health care and retirement.

The survey found differences in what employees of different genders, ages, and at different-sized employers valued for job satisfaction. While male employees ranked health care/medical benefits as the top aspect for job satisfaction, female employees ranked feeling safe in the work environment as number one. In 2006, compensation/pay topped the list for both males and females.

Employees from large staff-sized organizations valued health care/medical benefits the most for job satisfaction, employees at medium staff-sized organizations selected compensation/pay as the top factor, and employees from small organizations chose feeling safe in the work environment.

For both the 35 and younger age group and the 36 to 55 age group, compensation/pay was indicated as the most important job satisfaction factor by employees. Employees age 56 and older ranked feeling safe in the work environment as their top factor.

As in other survey years, SHRM found that HR Professionals had different views of what is important for employees for job satisfaction. The top five factors as ranked by HR Professionals surveyed were relationship with immediate supervisor; compensation/pay; management recognition of employee job performance; benefits; and communication between employees and senior management.

Source(s): SHRM

Ceridian forms LMS alliance with GeoLearning

Ceridian has formed an alliance with GeoLearning, Inc., a provider of managed learning services and hosted learning and performance technology. GeoLearning’s solutions are delviered as a software as a service (SaaS) model meaning the GeoMaestro platform is delivered entirely over the Internet.

Source(s): Ceridian

Major changes in HRO

As the first-generation of these contracts begin to reach their expiration periods, buyers are becoming increasingly savvy. As existing contracts are renegotiated and recompeted, the market for HRO has become more competitive. The study authors project healthy revenue growth in this market from $11b worldwide in 2006 to $19b in 2011.

Some key findings from the briefing include:

• As standalone HR outsourcing grows in the forecast period at a compound annual growth rate (CAGR) of 8.3%, comprehensive BPO, combining multiple HR functional towers, is growing at a CAGR of 14% for the same period
• Buyers are increasingly combining HR functions with others, including finance and accounting, creating 'multi-tower' deals
• After a steady decline, HRO pricing is on the rise and HRO provider profitability is increasing
• Large, global HRO deals are on the decline. Only two to four are projected in 2007
• Demand is outstripping supply. HRO providers are capacity-constrained
• New providers are still entering the market

Comprehensive HRO contract durations are tailing off after several years of growth and are now averaging seven years. This may reflect greater adoption by mid-market firms that are new to the market and who are accustomed to shorter engagements.

As HRO moves beyond single-function deals, buyers are finding it more important to take a strategic view of their objectives and desired outcomes. Advisors are seeing increases activity in the HRO market, but the buyer landscape has certainly changed as more organizations understand the reality of HRO. It is a complex undertaking that requires careful planning, clear communication of strategy and purpose, and significant effort to design an outsourcing governance organization that can manage all of these moving parts. There are benefits to be had, but not without effort.

Source(s): IDC, and EquaTerra