NelsonHall’s recently published global BPS market forecast reveals that the overall HR services market will grow at 5.8% in 2018. Here I look at how each of the key HRS sub-service lines have performed in H1 2018. In order of number of contracts announced (highest to lowest), this covers Benefits Administration, Multi-Process HRS, Learning, Payroll, and Recruitment. I also provide a brief analysis of HCM software contract activity in H1.

Benefits Administration

Defined Contribution (DC) benefits contracts make up the majority of benefits contracts announced. Employer DC plans such as 401k are increasingly important as many companies have eliminated their Defined Benefit (DB) pension plans. DC plans have become the way employees save for retirement and are now more important than ever as a means of attracting employees. H1 2018 contracts include:

• Prudential Retirement: a 3-year DC administration contract renewal by State of Hawaii to manage the State’s 457(b) plan, which has ~28k members and ~$2.4bn in assets. Prudential was also awarded a DC administration contract by IberiaBank to be the provider for its 401(k) and non-qualified deferred compensation plans which has ~2.8k participants, and ~$135m in assets
• TIAA was awarded a DC administration contract by Nichols College to be the sole recordkeeper of the school’s 403(b) plan, which has ~$35m in assets
• VOYA Financial won a DC administration contract renewal by Kansas Board of Regents (KBOR) to provide a 403(b) plan to all employees of KBOR and the State Universities; the plan has ~8k participants and ~$770m in assets. Voya was also awarded a DC administration contract renewal by the State of Oregon to continue administering the state’s 457 plan, which has ~$2.1bn in assets and ~31k participants. The contract is for three years, with an option for eight additional years, effective January 2018.

Multi-Process HR Services (MPHRS)

Though MPHRS contracts and revenue are in decline, being replaced by cloud-based HR services contracts, they are still important to buyers seeking the benefits of having one vendor, one contract, and one governance structure for the provision of multiple services. MPHRS contracts still make sense where vendors have specialist capability and proven results for each of the services in-scope. On average, MPHRS contracts today include three service lines. H1 2018 contracts include:

• IBM: a 7-year MPHRS contract by a financial services organization headquartered in Europe to provide the following services to ~53k employees in ~42 countries:
  • RPO: candidate sourcing, management and selection, and employment brand execution (~7-8k hires per annum)
  • Learning services: design and development and learning administration
  • Compensation and benefits administration
  • HR administration, including employee data management and contact center services
• Zalaris’ cloud MPHRS contracts include:
  • Expansion with Circle K to Ireland. Zalaris will now support an additional 2.2k employees in Ireland from its office in Dublin, providing transactional BPO support including: HR, Payroll, travel and expense processing
  • By Aker BP in Norway. Services include: Payroll, Time, Absence, Travel expenses.

Learning

The majority of buy-side organizations currently seek learning services to improve standardization and efficiency of the training function. The government sector accounts for the largest proportion of learning BPS revenues due to high contract values. In the private sector, manufacturing leads the way, followed by high tech and financial services. H1 2018 contracts include:

• Capita’s 12-year, £400m contract to run the Defence Fire and Rescue Services on behalf of the MoD. Capita will deliver improvements in the equipment and training available to military and civilian firefighter personnel. Capita already provides specialist operational fire and rescue training courses as part of its £200m, 10-year contract awarded in 2013 to run the Fire Service College
• SAIC’s contract to provide training and development services for the U.S. Army Mission and Installation Contracting Command-Fort Eustis. The contract, which has 33 awardees, has a ceiling value of $554m
• NIIT Ltd. Won a 5-year learning BPS contract with Pitney Bowes, including the following managed training services: learning consulting, demand management, design and development, learning delivery, learning administration, technology support and Vendor management.

Payroll

The mid-market (500-15k employees) is the largest segment of the payroll market with 47% market share, and is fastest growing at 6.2% CAAGR, primarily due to the demand for increased control of payroll operations and implementation of cloud software solutions. The sweet spot in terms of client size for several vendors is ~4k-5k employees, as evidenced by these H1 2018 contracts:

• SD Worx won a payroll services contract with cosmetics retailer Lush to support Lush's ~4.5k employees across 102 U.K. stores, its manufacturing site in Germany (~300 employees), and its support and digital teams
• Ramco was awarded a Fortune top 5 company contract for HCM and managed payroll services to support 4.5k employees across 21 cities.

Recruitment

RPO is the fastest growing HR service line. Growth is coming from large, mid-size, and SMB markets, with smaller size companies seeking the same benefits as their larger counterparts. Buyers are seeking vendor expertise for candidate attraction, cost savings, scalability, access to tools and technology, and improving quality of hire. Multi-country contracts make up ~31% of all RPO contracts, made up of: contracts with two or more countries in a single region (16%), multiregional contracts (7%), and global RPO contracts (8%).

An example of a multi-region contract win in H1 2018 is IBM’s 5-year RPO contract with a large global pharma company headquartered in North America. Services include RPO, IBM Talent Insights, Watson Recruitment, Employment Branding and Design Thinking. Services will be provided in the U.S., Canada and LATAM in support of hiring ~4,000 professionals per year, up through Associate Director Level.

HCM software contracts

HCM technology growth is split equally across all segment sizes, led marginally by the mid-market seeking HR technology to support growth and compete for top talent. Cloud HR services typically include advisory and/or implementation services at the onset.

More than doubling the number of HR services contracts are HCM software contracts, led by Success Factors, Ramco, Infor, Kronos, and Ultimate Software. Other vendors announcing HCM contracts in H1 2018 included ADP, Cornerstone OnDemand, SD Worx, and Ceridian. The top HCM modules purchased are core HR and payroll.

Vendors announcing HCM implementation contracts include Zalaris and Neeyamo. For a comprehensive look at modules purchased, including the top talent modules, please see NelsonHall’s recently published Next Generation HCM Technology Market Analysis by my colleague Pete Tiliakos.

What can we expect in H2 2018?

In terms of announced contracts, I believe we will see the same pattern continue. However, expect revenue growth to be led by RPO and HCM technology, followed by payroll, learning, benefits, and MPHRS.