Consider the Source

SAP Acquires SuccessFactors: Forecast Calls for More Clouds

by Michele Loux and Maribeth Sivak, Senior Advisors - CHRO Services, TPI

The shift toward delivery of Human Resources (HR) applications via Software as a Service (SaaS) in the Cloud continues with SAP AG announcing its planned $3.4 billion acquisition of SuccessFactors, a talent management software provider.

The fact that SAP agreed to pay a 52% premium for SuccessFactors indicates both the urgency it felt to increase its Cloud and SaaS credibility and its lag in internal product development. SAP expects to complete the acquisition in the first quarter of next year after which SuccessFactors will remain an independent company operating under the name “SuccessFactors, an SAP company.”

What does this acquisition bring to these organizations?

In a recent call, Bill McDermott, SAP’s Co-CEO, said “the combination of SuccessFactors and SAP will create a Cloud powerhouse.” SAP plans to use its scale to boost SuccessFactors’ revenue, which was $205.9 million in 2010 with more than 3,500 customers in 168 countries.

Lars Dalgaard, CEO of SuccessFactors, said “the deal would accelerate SuccessFactors' roadmap by 10 years.”

The TPI point of view

SuccessFactors will continue to operate separately, causing no immediate impact to its talent management clients. A number of HRO providers use SAP and SuccessFactors to deliver services. We do not expect this acquisition will impact the providers’ ability to leverage SAP and SuccessFactors to deliver service to their clients, even as we anticipate these underlying systems will continue to evolve and improve.  

This acquisition is a validation of the Cloud’s bearing on Human Capital Management solutions. When it acquired SuccessFactors, SAP acquired Cloud technical expertise and infrastructure, giving it a foothold in the growing market for Cloud services. Both companies should benefit from access to an expanded customer base.

The demands on HR technology are changing rapidly with a particular push for mobile access, social collaboration and business-driven analytics. Once they sort out their future technology path, SAP and SuccessFactors together should have the products and the experience in delivering Cloud, mobile, social and analytics applications to provide innovative HR solutions in the future. Whether they can do this quickly enough to compete effectively with Workday remains to be seen.

We expect to see more Cloud acquisitions in the future. These acquisitions should spur organizations to reassess their human resource technology roadmaps.

Global Payroll Providers Creating a Track Record of Success

by Julie Fernandez, Director - CHRO Services, TPI

Part one of this series focused on recent developments in payroll administration in North America. Now we turn our attention to the global payroll market.

In 2010 and 2011, global payroll outsourcing opportunities continued to draw the attention of large, mid-size, and small clients alike. Last year, TPI released a filtering tool that evaluates a client’s global payroll needs with an articulated country-by-country strategy for rationalized outsourcing of payroll administration. We have since seen a very favorable response from global leaders in HR, procurement and shared services and are frequently engaged to help clients articulate their global payroll strategy and help build a business case for change.

Heritage payroll providers are taking the lead in multi-country payroll outsourcing, with ADP and NorthgateArinso having the broadest reach. These providers are investing significant resources in developing global payroll templates while expanding their offerings to include pre-configured templates featuring more sophisticated country-level payroll rules for countries with the payroll scale to deploy multi-client services. These global payroll platforms are generally designed for the most commonly served markets, including Western Europe, the U.S., Mexico, Brazil, and some Asia Pacific countries, including Australia, China, India, Japan, Hong Kong, Singapore and Thailand. 

HRO providers take a different approach. Rather than developing a broad global template and reusable country configurations, they are focused on leveraging clients’ custom ERP by extending their payroll modules to the largest countries where payroll scale can generate savings or efficiencies to the client. Typically only a portion of a client’s population is concentrated in geographies that can implement such global ERP payroll solutions cost effectively. As a result, HRO providers usually punt in-country payroll services to third party solutions that they may agree to manage.

In recent years, the global payroll market has seen the emergence and growth of more service providers focused on the “tail end” of global client populations – the 20% of employees who are scattered across 80% of the globe. Some refer to these providers as “payroll aggregators” because the term is a fitting description of the primary value proposition. 

There are payroll providers whose approach and technology are specifically designed to normalize data for consolidated interfaces and coordinate with in-country third party vendors. Patersons, SafeGuard World International, Celergo and others with a regional focus will directly serve clients who seek bundled payroll outsourcing for multiple countries. Providers like these have also become important partners for HRO and SaaS providers seeking to round out services and geographic coverage. Heritage providers are working to imbed such a model within their larger global offerings — ADP with StreamLine, Ceridian with exclusive in-country providers and NorthgateArinso with its BDO and agoHRa relationships.

The global payroll outsourcing industry, as a whole, is facing a critical challenge. We must ensure that global payroll outsourcing can create a track record of success. Clients continue to need assistance in defining the scope that is “right-sized” for each country before wildly pursuing a whole world’s worth of payroll. And finally, knowledge of the market to target the appropriate providers and articulate actionable business cases will help to create an awareness of the value in strategic sourcing of payroll across the globe.

North America Payroll Market Fans Out to Offer New Solutions

by Julie Fernandez, Director - CHRO Services, TPI

The North America payroll administration outsourcing market is constantly evolving. Different types of clients require different solutions, and providers continue to refine their offerings to meet the diverse needs.

In recent years North America payroll providers have been stretching their outsourced payroll services so that what was once a specialized “service bureau,” fulfilling functions such as tax filing and check printing, is now broadened in scope to include traditional payroll processing as a basic package.

Heritage payroll providers, such as ADP, Ceridian and NorthgateArinso, offer core strength in the proprietary payroll systems they bring to clients who lack their own ERP payroll modules. Large HRO providers such as ACS, Aon Hewitt, Accenture, and IBM are more commonly considered when a client is interested in a custom ERP payroll module with some degree of outsourced support ranging from technology only to fully outsourced payroll administration.

Middle market clients and those who need HR technology are likely to consider software-as-a-service (SaaS) providers such as Workday, Ultimate, and Sapien – all of which have payroll modules for the U.S. and Canada. Service providers have actively developed their client relationships to take on more upstream payroll activities, including data management and zero-to-gross activities as well as direct contact center support for payroll inquiries. At the same time, payroll providers have sought to  broaden their scope to include payroll-touching areas like workforce administration, benefits, timekeeping, and others.

In 2010 and 2011, SaaS technology providers have generated a great deal of publicity about their global HR suites, which include North America--only payroll modules.  To date, most have partnered with third parties to add outsourced payroll services to their technology-only solutions.  Talk of partnerships for additional country payroll capabilities is rampant, but still emerging and opportunistic.    

The options are increasing in number and specificity to meet the growing market. Among all the change, one fact remains clear: few clients choose to repatriate payroll functions once they are successfully transitioned.

Check back here shortly for part two in my series of payroll-focused posts, which will focus on the approach that global payroll providers are taking to help clients succeed in multinational environments.

Recruitment Process Outsourcing Trends: Let’s Get Together

by Al Grimaldi, Director, TPI

Earlier this week, ADP announced the acquisition of The RightThing, one of the leading providers of Recruitment Process Outsourcing (RPO) services. The RightThing will continue to operate as a separate business unit, The RightThing, an ADP Company. ADP continues investing to bolster its HRO capabilities following the acquisition of Workscape last summer and VirtualEdge, a pure Applicant Tracking System (ATS), in 2006. It remains to be seen what ADP will do with VirtualEdge since The RightThing has its own proprietary ATS, RightThingRecruit^TM, that is already fully integrated into its full service offering or available on a standalone basis.

Coming on the heels of Randstad’s announcement in August that it had acquired strategic workforce solutions company SFN Group, including SFN’s RPO provider, SourceRight Solutions, this acquisition continues an ongoing consolidation trend in the RPO market. As demand for RPO services continues to increase, we are sure to see further acquisition activity to leverage regional coverage capabilities and global infrastructures. Expect to see the trend toward formal alliances continue among RPO providers in order to provide solutions to regions they would not otherwise be able to serve on their own.

Acquisitions are commonplace today, especially as providers respond to market demands for global solutions. ADP’s willingness to invest, its global footprint and its strong technology infrastructure should benefit both The RightThing and their clients. Naturally, there will be a transition period as these two companies integrate, but since The RightThing’s management team is expected to remain in place, there seems little downside to their current client base. And ADP’s clients will benefit from an expanding HRO service offering that now includes a full set of RPO services.

What’s next? Likely even more consolidation within the RPO industry and possibly more ADP acquisitions to further diversify beyond their payroll roots.

New Co-CEO Arrangement at Aon Hewitt Worth Keeping an Eye On

By Carla Frederick, Director, TPI

Last week Aon Hewitt announced that Russ Fradin, who led Hewitt since 2006 and is currently the Chairman and CEO of Aon Hewitt, will be leaving to become CEO of SunGard.

Kristi Savacool, Aon Hewitt’s current chief executive officer of Benefits Administration, and Baljit Dail, Aon Hewitt’s chief executive officer of Consulting, were appointed co-CEOs of Aon Hewitt and will report to Greg Case, President and CEO of AON. Jim Konieczny, current chief executive officer of Aon Hewitt’s HR BPO, will remain in that role and will report directly to Savacool. These changes are effective immediately.

In a call with other Aon Hewitt leaders, Savacool and Dail stressed that the effect of their co-leadership would be “greater integration between the Outsourcing and the Consulting businesses,” resulting in better solutions and service delivery for Aon Hewitt clients around the world.

Other important points:

• It is business as usual at Aon Hewitt. Other than changes in leadership roles, very little else is changing. The business and investment strategy remains the same, and the delivery teams remain focused on their clients.

• Bringing the HRO and the Total Benefits Outsourcing businesses under Savacool will further promote the integration of Aon Hewitt’s outsourcing services without diminishing Jim Konieczny’s responsibilities.

• There is continued commitment to the growth and development of the HRO BPO business.

• The leadership structure in Benefits and Consulting will remain unchanged; all leaders will take on more responsibilities, creating the capacity needed by Savacool and Dail to take on their new roles.

• The focus on integration between the Outsourcing and Consulting businesses is being touted as a continuation of the broader integration of the former Aon and Hewitt organizations.

While this can be viewed as a positive change, it will be important to see how the integration is truly realized by clients. While the pair expressed that good succession planning prepared them for Fradin’s departure, most senior leaders in the Aon Hewitt Outsourcing and Consulting businesses will be adding responsibilities to their realm — all this during a time when the Aon and Hewitt integration is still under way.

Client satisfaction can be greatly improved with integrated consulting and outsourcing services by one provider. Others have tried to build out such synergies in the past, with varying success. These factors make the new co-CEO arrangement worth keeping an eye on.

Readers, what do you think of this turn of events?

Why Global Payroll is the “Buzz” in Outsourcing

by Julie Fernandez, Director, TPI

The demand for outsourced payroll administration has remained quite steady even during recent years plagued by a global economy in crisis. Payroll is perhaps the least glamorous of all the human resource functions; however, it has remained abuzz with activity, including a growing interest in global payroll strategy.

Here are the TPI Top 5 ways that both clients and service providers are contributing to the growing interest in global payroll strategy:

1. Expanding payroll services. Payroll providers have contributed to these trends by evolving their service offerings beyond traditional gross-to-net processing to fully managed payroll services that include source-to-gross, data management, timekeeping and related HR outsourcing services. Broad payroll scope becomes particularly attractive where there is sufficient scale to warrant replacing the client’s in-house administrative effort and driving cost efficiencies.

2. Building out "global" templates. To leverage payroll operations across countries, payroll providers are building out their systems with payroll templates for additional countries. By focusing efforts on systems functionality to centralize interfaces, manage touch points and consolidate reporting, service providers have captured the interest of global clients seeking to simplify, automate, and ensure appropriate oversight.

3. Creating third-party networks for in-country delivery. Where there is insufficient scale to build out systems, service providers are establishing broad networks of in-country payroll providers to "cover the globe." This strategy is prevalent where clients have a great number of countries with small employee populations. Managing a broad geography with an aggregated payroll model balances the centralized coordination and control required by global clients with the localized payroll requirements and legislative nuances from country to country.

4. Achieving global HR information systems (HRIS). Clients are increasingly advancing their core HR technology strategies to deploy a single global instance HRIS for employee data management. While data elements for outlying countries may be minimal, there is a strong desire to ensure that the global HRIS is used as the primary source for employee data and is enforced with greater interfaces and feeds to payroll, time, and other HR point solutions. Consolidation of payroll systems and vendors makes it easier and more cost effective to provide automated employee data from the central "source" HRIS.

5. Growing into sophisticated sourcing. Client sourcing organizations have become more sophisticated with each significant procurement experience. Having successfully sourced first- generation HR and payroll relationships, clients have a greater appetite to pursue service contracts leveraged across business units and across countries. Although client governance may still be developing, their plans increasingly consider needs at local, regional and global levels.

While there is no such thing as a "global payroll" system or provider in today’s market, there is plenty of opportunity for multinational companies to formulate a global payroll strategy. Visions of single providers or systems are replaced with a global framework that is designed to identify optimal payroll delivery models and the service providers with fitting capabilities in country and in region. More and more global companies are starting with a planned global payroll strategy and governance.

Contact Julie Fernandez, Director, TPI CHRO practice, for suggestions on how to get started.

Ways That Recruitment Process Outsourcing is Changing in Scope and Complexity

by Hary Bottka, Director - CHRO Services, TPI

Despite the prolonged global recession, recruitment process outsourcing (RPO) continues to be a successful area for outsourcing. TPI has seen renewed demand for RPO services as companies wrestle with the volatile recruitment market and the need for a more global workforce while also supplementing their recruiting organizations.

In the past year we have worked with a number of clients (buyers) on larger, more complex RPO engagements. Those engaging in larger RPO request for proposal (RFP) projects are doing substantially more planning, with emphasis on clear and specific goals to ensure that the final outcome is successful.

HR specialists involved in complex, global RFP projects should expect to encounter these TPI Top 5 aspects of today’s service provider evaluation and selection process:

1. Increased complexity of requirements. With multi-national and global RFP delivery requirements vastly different at each company, combined with varying delivery strengths of RPO providers by region, the considerations for selecting a delivery model are exponentially more difficult. Buyers should expect more disparity in the RFP scope and requirements across countries and a less definite point of view on the final delivery model expected.

2. Larger client teams. To select a service provider or set of providers to deliver on a global scope requires input from all impacted client stakeholders, including local recruitment teams, hiring managers, business leaders, and the human resources department. This makes gaining consensus on the delivery model much harder and typically lengthens the service provider selection process.

3. Less definition of the final outcome. Dissimilar recruitment delivery models by country and divergent cultural acceptance of outsourcing as a solution can impact the final definition of scope and requirements. As various client stakeholders learn more about the global RPO market and form opinions, there is usually an impact on the scope of the final outcome compared to the original RFP.

4. New fee models. Global organizations handle budgets and allocation of costs based on the direction of their corporate entities. This has an impact on how the fees are structured in an RFP. Many RFPs now require transparent pricing models versus traditional cost-per-hire or management fee models. Pricing may need to be developed across service provider partners or exclude fee scope based on each bidder’s global delivery capability.

5. Scope variations. Global projects typically contain small or low-volume markets in scope, which are difficult to fit into a standardized RPO delivery model. This has an impact on the governance model and typically requires an ad-hoc solution such as in-country, third-party or internal resources to administer. If entering into a global project, account for these one-off countries or markets to ensure it does not adversely impact the cost or delivery model.

Achieving success in a global RPO selection process requires patience and the flexibility to respond to ever-more-complex needs. Accordingly, the approach to selecting the right service provider partner has become more intricate and critical. TPI’s HR outsourcing experts can share with you real-world case studies to help you discover and evaluate the best RPO opportunities for your company.

To learn more, e-mail Hary Bottka, Director - CHRO Services, TPI, or phone him at +1 770 719 2405.

Aon and Hewitt: The HR Consolidation Wave Continues

By Rosemary Collins, Partner and Managing Director, HR Services

Consolidation in the HR consulting and outsourcing industry continues as two more firms are joining forces. Yesterday, Aon Corporation and Hewitt Associates announced they have entered into a definitive agreement under which Hewitt will combine operations with Aon Consulting to form Aon Hewitt, a human capital consulting and outsourcing organization. The agreement is expected to close in the October/November timeframe with a deal value of $4.9 billion ($2.5 billion in cash and 64 million shares of Aon stock). Russ Fradin, current Chairman and CEO of Hewitt Associates, will be the Chairman and CEO of Aon Hewitt.

So what does this merger bring to these organizations and to the market?

• The recent merger of Towers and Watson Wyatt, which formed the largest HCM consulting firm in the world, presented a challenge to both Aon and Hewitt. Their new organization will be on par with the size and scope of Towers Watson and will help them retain their ability to compete in the market. Additionally, Aon’s presence in over 120 countries worldwide, particularly in some of the major emerging markets, provides the broader global footprint Hewitt has lacked.

• From an HR Outsourcing (HRO) perspective, the market has questioned whether Hewitt was big enough to sustain the level of investment required to compete in the broad-scope market over the long haul. The combined cash flow of Aon and Hewitt will put the new organization in a stronger position to invest in the business and reap the benefits of Hewitt’s successful re-emergence in the HRO market this past year.

• Hewitt’s dominance in the large-market total benefit outsourcing space combined with Aon’s significant mid-market client base will give the combined company capabilities across the full spectrum of the benefits outsourcing market.

• Many are speculating on the potential impact of healthcare reform on the health benefits market. Having access to a healthcare brokerage service within the firm will position Aon Hewitt well for an expansion of benefits administration services down-market as well as potential reform-driven plan design changes.

• Aon seems bullish on this merger, agreeing to pay a 41% premium over Hewitt’s share price the day before the announcement. However, the market reacted less optimistically, pushing Aon’s share price down 7.1% on a modestly up day. With the merger still 3-4 months away, we will have to wait and see how investors ultimately view this tie-up.

What does TPI see as the challenges clients of these two firms should bear in mind?

• Distractions – Any merger brings a level of distraction as the senior leadership of the merging organizations works to integrate the two firms both from an infrastructure and a staffing perspective. Clients should insist on frequent updates from their Account Management teams as well as from the top management of Aon Hewitt.

• Technology – While at this time Aon and Hewitt say they plan to keep all of their existing technology platforms, we would expect to see the retirement of some, especially in benefits outsourcing, where both firms have existing large- and mid-market offerings. It is unrealistic to expect the new organization will achieve its annual cost savings targets, which they project to be $355 million beginning in 2013, without some platform integration.

• Culture – Hewitt is known for having a unique, positive culture, although that perception has changed quite a bit over the last decade as the firm has grown and struggled financially. Still, the integration of two very different cultures will be a challenge for Aon Hewitt.

Although this merger came as a surprise, it makes very good business sense. It positions the new organization to maintain a leadership position in HCM consulting globally and it brings the cash flow necessary to make the investments that leadership in the HRO market requires. When considered alongside the acquisition of ACS by Xerox and the purchase of Convergys’ HRO business by NorthgateArinso, as well as the frequency of renewals of existing HRO contracts, the merger of Aon Consulting and Hewitt Associates signals that the HR outsourcing market is continuing to bounce back from the challenges of 2008.

TPI looks forward to welcoming Aon Hewitt to the marketplace.

ACS and ExcellerateHRO: Implications for the Benefits Outsourcing Market

By Tony Herron, Partner, CHRO Services

 

On May 25, ACS (a Xerox Company) announced its intention to acquire ExcellerateHRO from HP. The acquisition is expected to be completed by July 1.

 

ExcellerateHRO has been for sale since early 2009. The uncertainty surrounding its future made it difficult to acquire new clients, and retaining current clients at contract renewal has also been challenging. In addition, the potential sale caused uncertainty regarding the future for existing staff. In spite of the circumstances, ExcellerateHRO has won a number of brand-name clients during this time on the strength of its refurbished technology platform, including Bayer, Fluor, Kraft, Heinz and Rite Aid.

At the same time, ACS has been one of the most dominant players in the benefits outsourcing market over the past year, winning competitive bidding processes with ArvinMeritor, Catholic Health Partners, Dana, Ford, Stanford University, State Street, and other well-known employers. It won these clients through innovation, market-changing approaches to pricing services, flexibility in its approach to service delivery and an enhanced technology platform.

We believe the combination of ACS and ExcellerateHRO will be a powerful force in the benefits outsourcing market and could represent a game-changing event in the mega-market. However, aside from offering some additional relocation clients and resources, we don’t think the acquisition does much to bolster ACS’ HR outsourcing (HRO) business.

The advantages of this acquisition include:

· Confirming that Xerox is committed to the benefits outsourcing and HRO markets

· Expanding ACS’ footprint in Canada and Europe and better positioning it to offer a global benefits administration solution

· Increasing ACS’ scale in all areas – implementation resources, administration expertise, clients, technology, etc.

· Making ACS a more formidable competitor in all market segments, especially the large- and mega-market

· Providing ACS a market-leading DB and H&W co-sourcing capability

· Stabilizing the ExcellerateHRO client and employee base

The only real downside to the acquisition is it takes a top-tier DB and H&W administration firm out of an already small service provider market.

Want to discuss further? Call me at 574-257-7825 or drop me a line at tony.herron@tpi.net.

Considerations to Address Before Divesting Your Offshore Captive Service

by Sanjay Tripathy, Director, TPI

Although many of the same issues that apply to mergers, acquisitions and divestitures apply to the divestment of offshore captive service operations, certain considerations are amplified because of the integrated nature of captive operations with their parent companies.

Here are the TPI Top 5 considerations to take into account when considering divesting an offshore captive service operation:

1. Revisit the overall operations strategy and sourcing considerations, including financial. In most cases, offshore captive operations have been in place for many years and deliver a variety of services, including finance and accounting, human resources, customer relationship management, applications development and maintenance, IT infrastructure, plus more knowledge-based services like analytics, engineering services, research and development, facilities management and other judgment- and expertise-based functions.

Organizations should take a step back and revisit and redesign the overall global operations strategy and future state services delivery model in light of divestment of captive operations. This should include a detailed financial analysis of the various strategic options and related business cases to support the strategy, including strategic service providers who may buy the captive operations and provide ongoing services as a service provider. Furthermore, legal, investment banking, tax and human resource factors - in conjunction with local laws and operational considerations - must be taken into account while executing the strategy.

2. Create a portfolio approach to services delivery of the multiple in-scope functions. Business process, IT and knowledge-based service offerings by third-party global service providers has matured from cost, quality, location and language standpoints to a capability level that may enable most transactional and operational knowledge-based services to be provided by a few strategic providers. Organizations should take a “portfolio” approach to what services need to be delivered internally versus those that may be sourced externally and then create a roadmap for the next five to seven years.

3. Select your strategic services provider wisely. Selecting the right strategic service provider(s) is essential for delivery of future-state operations that meet your organization’s cost, quality and transformation objectives. Be sure to focus on creating the optimal requirements framework with robust statements of work, corresponding service levels and master services agreements for a managed service environment.

There are three parts to this process: 1) the valuation and contractual divestment of captive operations; 2) the buildup of a requirements framework that governs the delivery of services; and 3) the transition and service delivery considerations for the future.

4. How will you govern the operations in the future? Much like shared services in large organizations, most captives are governed internally through a wholly owned subsidiary with close operational links to internal customers. Future-state operations with strategic service providers will necessitate a robust global governance framework to manage the four key governance pillars of performance management, relationship management, financial management and contract management.

5. Actively manage transition and the end-user experience. Active management of transition to the strategic service provider(s) - including retention of key personnel from the captive operations - is key to ensuring continuity with the parent organization’s internal customers. You must also manage the operational risk introduced by sweeping changes wherein services are being bought in a managed services framework as compared to full-time equivalents (in most cases). Putting in place a robust “voice of the customer” feedback mechanism can minimize the difficulties associated with change and lead to a seamless transition.

TPI’s seasoned strategy and assessment experts can help you achieve your global sourcing goals through objective advice, knowledge of your industry and experience with arrangements from simple to complex.

E-mail Sanjay Tripathy, Director, TPI, or phone him at +1 919 809 4477 to learn more.