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HRO: 2015 Highlights & the Shape of Things to Come

As the year winds down, it’s a good time to reflect on the significant activities in the HRO market in 2015 and consider the likely shape of things to come in 2016.

Overall, HRO contract activity is up ~11% y/y in 2015.  Renewals and contract extensions account for 25% of that activity, vendor changes ~20%, and new deals 55%. Regional and global multi-country contracts continued to grow in most HRO towers, especially payroll, which is also a strong driver for multi-country MPHRO contracts. 

Although trending down slightly in the last three years, mid-market activity remains high globally. Contracts included:

  • Xerox awarded a Total Retirement Outsourcing (TRO) services contract for 1.2k employees by Tennants Consolidated in the U.K.
  • Zalaris awarded a MPHRO contract for 1k employees by Borregaard in Norway, including HR admin, payroll, travel expense, time and attendance, and personnel document archiving solution
  • Raet awarded a payroll contract for 6.7k employees by Philadelphia Zorg in the Netherlands.

Public sector activity is up nearly 5% y/y and accounts for ~20% of contracts, including:

  • Voya Financial and City and County of Honolulu: DC administration
  • Equiniti and Her Majesty’s Passport Office: payroll and time and attendance
  • TIAA-CREF and Lane County, Oregon: DC administration.

M&A activity continues to increase y/y with ~27 deals to date, up from 25 acquisitions in 2014. By service line, M&A activity within benefits administration remained high, while acquisitions within RPO have become increasingly aggressive y/y. The majority of the RPO M&As have been focused on expanding or strengthening existing RPO services, especially to add recruitment consulting capabilities such as Capita acquiring ThirtyThree, WilsonHCG acquiring Sumner Grace, and ReThink Group acquiring Consort Group. To a lesser degree, RPO vendors are also keen to expand their geographic footprint, with the emphasis on the U.S., U.K., and Canada.

New offerings launched recently that will gain momentum in 2016 include cloud-based HR services, including HR technology consulting/strategy, HR SaaS implementation services, and post-deployment support, which may or may not include HR BPO services. The biggest focus for most organizations has been on developing a cloud-based HR technology strategy, though some vendors such as Aon Hewitt who launched its offering about two years ago are further along the continuum, providing post-deployment application management support on Workday exclusively to many clients.

Much of this HRO activity from 2015 will shape the deals and future direction vendors will pursue in 2016. Other 2015 developments that will continue to evolve in 2016 include private health insurance exchanges and the use of robotics process automation within HR.

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