As 2017 comes to a close, it’s an ideal time to reflect on key developments and innovations within HR services, and what to expect in 2018 by HR service line. This week, I’ll discuss specifics around two aspects of talent management (recruiting and learning), and next week I’ll explore payroll and benefits administration in more detail.

Overall, the level of 2017 HR services contract activity held steady at a healthy rate. The majority of new contract activity was from mid-market organizations (defined as those with between 500 and 15k employees), while in large organizations, the focus was more on renewals.

The use of intelligent technologies, including RPA, machine learning and advanced analytics, across all HR services domains increased throughout the year, and more importantly, established a strong foundation for further developments in 2018. 

Recruiting

Finding the right talent is one thing, but knowing how long they will stay at any company is an entirely different ballgame, especially since millennials have developed a reputation for frequently changing jobs. To help organizations create more certainty around hiring needs, in the last year, vendors have begun to launch predictive analytics to determine employee turnover.

Even with predictive tools in play, there is a constant shortage of skilled labor in the market, which will keep demand for recruiting services high. In 2018, the global RPO market is forecast to grow ~11%, and the size of the MSP market will increase ~8%.

However, one of the biggest challenges organizations face is managing their talent, with HR responsible for permanent employees, and procurement overseeing contingent workers. To bridge the gap, in 2018 there will be a rise in the number of providers offering blended total talent management services similar to Alexander Mann and RTM.

Learning

For good reason, so much of the market’s attention is on the recruiting function. While acquiring the right talent is critical for any organization’s success, training and developing the workforce is crucial for its longevity.

Over the last year, many vendors have spent a good portion of time encouraging buyers to view learning BPS as more than a transactional service, and one that can impact an organization’s bottom line simply by tying training to specific performance objectives.

This new approach has gained some traction in 2017, but there is still lots of progress to make over the next year. To ensure success, 2018 deals will be small, focusing on one or two learning functions that are closely tied to a specific performance objective, enabling the supplier to demonstrate that the desired business outcome was achieved. This confidence will likely result in expanded contract scopes in 2019 and beyond.

But the success of this approach depends heavily on analytics to establish whether the training delivered accomplished the stated goal. Therefore, 2018 developments will be focused on analytics. In addition, expect to see artificial intelligence and cognitive capabilities leveraged for adaptive learning.

Stay tuned for part two of this blog series next week. 

The gig economy has been a recent trending topic. While the concept of gig workers is nothing new, the attention being paid to it is, especially since this is an area whose growth has been facilitated by the digital marketplace. Here, I take a quick look at the challenges gig workers present for HR.

Gig workers present a challenge on several fronts, especially when it comes to managing the workforce, since contingent workers are often managed separately from permanent employees. In fact, ADP research finds that only ~40% of organizations report that HR owns all talent (i.e. permanent and contingent workers). And the use of contingent workers by organizations will only increase in the future, especially within certain occupations such as IT, media, and communications.

To support this growing trend, some MSP vendors are offering blended services with RPO, essentially moving towards a total talent management model. For example, Alexander Mann Solutions provides this blended model to an energy client, supporting 500 contingent workers and 3k permanent employees per annum.

But there are other concerns with the gig economy, specifically around the financial wellness of contingent workers. Over the last five years, benefits administration vendors have been launching initiatives focused on providing educational and decision-support tools to empower participants to make good financial decisions. More recent developments focus on holistic financial wellness offerings that extend beyond planning for retirement, and incorporate assistance around student loan debt management, budgeting for college, and saving for emergencies. Unfortunately, however, contingent workers do not typically receive employer-paid benefits.

Current estimates of the size of the gig economy vary greatly ranging from ~10% to ~35% of the U.S. workforce. And it is important to note that many gig workers also have traditional full-time jobs (i.e. hybrid gig workers), which will provide them access to employer benefits, including retirement plans and health insurance, as well as annual and sick leave. But does this represent enough gig workers to the point that HR shouldn’t be concerned? Findings from a recent study by Prudential suggest not.

The Prudential study, Gig Workers in America: Profiles, Mindsets and Financial Wellness, found that 16% of pure gig-only workers and 25% of hybrid gig workers have assets in an employer-sponsored retirement plan compared to 52% of permanent workers. And when it comes to some voluntary benefits such as disability insurance, the stats are even worse for contingent workers.

It’s clear that employers will continue to leverage gig workers. Therefore, HR suppliers need to first recognize the issues that this class of workers creates across the HR lifecycle, from hiring to managing talent, to assistance with financial security, and then create solutions that address the blind spots and gaps in order to optimize HR.

As H1 2017 comes to a close, it’s a good time to reflect on recent key activity and where the market is headed for the rest of the year and beyond. Here, I round up what’s trending now in payroll, benefits administration, recruitment, and learning.

Payroll

The most common theme in the payroll market is global and multi-country activity. NelsonHall estimates that multi-country payroll will grow 4x the rate of single-country payroll services through 2020, accounting for nearly a quarter of the market. Supporting this prediction were several new contract awards, including Neeyamo signing a contract with a global CPG company headquartered in the U.K., with payroll delivery extending to ~60 countries across six continents; and Ramco signing a multi-million dollar HCM and global payroll contract with Panasonic Group for ~20k employees across 21 entities.

In anticipation of the multi-country trend, some regional payroll providers made acquisitions to increase their presence and expand their geographic footprint. For example, Nordic-based Zalaris acquired Sumarum AG to expand its capabilities in Germany to better serve MNCs, and its geographic expansion plans aren’t ending there. Australia-based Ascender was also on a roll, acquiring NGA HR’s Australia and New Zealand payroll business, including NGA’s proprietary Preceda and PS Enterprise platforms, as well as Japan-based Workcloud; both acquisitions help to facilitate Ascender’s 2020 strategy to be a leader in payroll in the APAC region.

Benefits Administration

In benefits administration, the focus is centered on the employee experience, including education, integration, and connectivity. A recent survey by T. Rowe Price found that plan sponsors believe they have a duty to help prepare their employees for retirement, and that ~48% have a metric to track the retirement preparedness of employees. Currently, many DC administration vendors have implemented initiatives focused on education to ensure retirement readiness, and these programs are now expanding to address other financial issues such as budgeting and student loan debt management, with targeted messaging for participants based on their situation and goals. The objective will continue to push towards total financial wellness for participants throughout their lives.

To date, initiatives around integrating health and wealth have largely focused on offering retirement plan participants access to HSAs to help individuals prepare for healthcare expenses in retirement.  Since 2010, Fidelity’s HSA administration offering has experienced double-digit growth y/y, and over an 18 month period, Fidelity added ~65 new employer HSA clients, representing ~181k participants.

Empower Retirement is the latest plan administrator to add such an offering, partnering with Optum to launch The Empower Health Savings Account, which includes:

• Access to investment advice
• Health plan selection and enrollment
• Retirement plan management
• Inclusion of wellness programs and health savings account management.

The next phase of integrating health and wealth together will likely focus on the annual enrollment process, and include helping participants view the impact of their choices so better decisions about trade-offs can be made. 

Finally, a big part of the employee experience is providing access to benefits information on mobile devices and increasing functionality on mobile devices. In H1, Businessolver joined other vendors with the launch of its mobile app, MyChoice, which allows users to:

• View their current and future benefits elections for medical, dental, vision, voluntary, and supplemental plans
• View medical savings account balances
• Upload their medical ID cards and benefit documents for dependent verification
• Receive reminders via push-alerts
• Chat with a representative to answer general benefits questions.

Recruitment

In recruitment, the focus is shifting towards total workforce services by offering blended RPO and MSP services to organizations. Traditionally, services for the contingent workforce were offered separately from RPO. In anticipation of demand for total talent management services, supplier strategies vary, from adding MSP services to reorganizing portfolios (as was the case for TrueBlue, who transitioned its MSP business from Staff Management | SMX to PeopleScout).

Recruitment continues to be an area for strong growth, as evidenced by delivery expansions in H1, including:

• Allegis Global Solutions opening a recruitment services delivery center in central Birmingham, U.K.
• Alexander Mann Solutions opening an expanded global client service center in Shanghai
• Pontoon opening a new office in Bangalore
• Korn Ferry Futurestep opening a European talent delivery center in Manchester, U.K.

Learning

Not only is there increasing pressure to making training programs more effective, many corporate L&D departments are facing mounting pressure to demonstrate the impact of training on the bottom line. Many vendors have responded by organizing learning BPS offerings around specific performance improvement objectives, including:

• Strategic transformation
• Revenue and competency
• Compliance
• Cost reduction
• Learner engagement.

Learning developments will consequently be made depending on a vendor’s core performance objective focus. For example, with respect to the learner engagement objective, Raytheon Professional Services has built a number of electronic performance support systems (EPSS) for clients to improve performance and productivity by coaching employees through tasks.

Following several years of growth, the HR outsourcing market continues to ride the crest of the wave, and is gearing up for a prosperous 2017 following investments across all service lines. We will shortly be publishing an in-depth blog on HRO predictions for 2017, but first I take a quick look at what happened in 2016 to lay the foundations for things to come, specifically in payroll services, benefits administration, RPO, learning services, and cloud-based HR.

Payroll Services: HCM Integration & Multi-Country Expansion

Highlights in the payroll market in 2016 included an emphasis on integrating payroll systems with HCM software, which is especially important when it comes to multi-country payroll, an area targeted for huge growth over the next three years. In anticipation of multi-country demand, vendors have continued to expand their payroll capabilities, with ADP’s payroll services now extending to ~111 countries, and NGA HR launching a payroll offering across 33 LATAM countries.

Other 2016 milestones reached in payroll services include Paychex exceeding 1m worksite employees serviced across its payroll and PEO offerings, and OneSource Virtual (OSV) exceeding 500 clients, while maintaining a client satisfaction rating of 98%.

Benefits Administration: Private Exchange Momentum

Private exchanges continued to gain momentum over the last year. Fidelity investments expanded its PIX, focused on SMBs, beyond Massachusetts and New York to Colorado and California, and Morneau Shepell launched a retiree PIX in Canada, adding 3M Canada as its first client. Vendor priorities have been focused on integrating voluntary benefits into the exchanges as well as within traditional H&W administration offerings.

Private exchanges are growing at 6% CAAGR through 2020, and Willis Towers Watson, with ~20% market share, is gearing up to capitalize on the growth in 2017 after recently expanding its delivery center in Arizona, to which it will continue to add headcount over the next year.  

With respect to DC administration, Fidelity enjoyed another successful year, adding $65bn in new DC plan sales across ~1.3k employer clients in H1 alone. In addition, as of mid-year, Fidelity already had another $14bn in commitments for 2017.

Benefits administration acquisitions really heated up in H2, with Mercer making some key purchases, including Pillar Administration in Australia (which now makes it the largest superannuation provider in the country) and Thomsons Online Benefits, adding its global cloud-based benefits technology platform, Darwin.

RPO: M&A Hotspot

There were ~25 HRO acquisitions in 2016, ~40% of which were focused on RPO. Many of the acquisitions focused on expanding or strengthening geographic capabilities, especially for Randstad who acquired Penna in the U.K., Obiettivo in Italy, Careo Group in Japan, and BMC in the Netherlands.  

And, while the U.S. and the U.K. markets are the most active for RPO, emerging markets in APAC and LATAM have high growth potential over the next few years.  

Learning Services: Shift to Performance Targeting

The most significant change in the learning services market is the shift away from a transactional approach that pushes a catalog of service offerings towards an approach that leads with targeting performance objectives. On the backend, automation and analytics are key components of the performance-centric approach.  

Trending themes by learning function include the following:

• Content: content curation services
• Delivery: digital modalities
• Administration: RPA
• Technology: cloud-based Learning Management Systems.

Cloud-based HR Services: Focus on Rapid Deployment

The cloud-based HR services market, including cloud consulting, implementation, AMS support, and HR BPaaS, took 2016 by storm. Key priorities were focused on launching guided implementation tools for rapid deployments, for example:

• NGA HR launched NGA FastTrack to rapidly deploy SAP SuccessFactors
• Ceridian launched Dayforce Activate, which shortens the implementation lifecycle to provide clients with a faster ROI
• Neeyamo launched Rapid Deployment for SAP SuccessFactors, which allows go-live to be achieved in 21 days
• Aon Hewitt launched a rapid deployment offering for mid-market organizations (1.5k-7k employees) who are migrating to Workday from a payroll service bureau provider, activating Workday core HR, U.S. absence, U.S. benefits, and U.S. payroll, including payroll settlement, check print, garnishment admin, and tax filing services in ~5 months.

Other initiatives were focused on ramping up delivery capabilities, with Zalaris opening a COE for SAP SuccessFactors in the Nordics, OSV opening a center in Ireland to provide support around Workday, and Neeyamo launching a SuccessFactors Employee Central service center.

All cloud-based platform providers, including SAP SuccessFactors, Workday, Oracle, ADP, Ceridian, and Ultimate have robust pipelines and roadmaps for continued innovation, making this one of the key areas to follow in 2017.

As earnings are released, it’s a good time to reflect on HR outsourcing trends by key service line. Here’s a brief round-up of market activity across payroll, RPO, and learning services in H1 2016.

Payroll

Payroll activity has been bustling in Europe YTD, with a strong emphasis on ramping up capabilities. SD Worx made two acquisitions to accelerate its growth across Europe, including Ceridian U.K. and Ireland, and Fidelis HR in Germany. Already the largest payroll provider in Benelux, SD Worx strengthens its footprint across EMEA through these acquisitions.

Continuing its expansion, Workday launched payroll in France.  At the same time, Workday partners providing cloud-based HR services such as OneSource Virtual (OSV) and NGA HR have been expanding delivery capabilities in Europe as follows:

• NGA HR opened a new center in Bristol, England, that will also be an innovation hub for cloud HR, payroll, analytics, and HR BPaaS
• OSV launched the next phase of its European service center in Derry, Ireland, which currently has ~100 employees.

For leading payroll outsourcing providers, multi-country capability is a critical success factor, and most vendors continue to expand their footprint globally, e.g. ADP recently added payroll support for Angola, Azerbaijan, Guam, Mozambique, Puerto Rico, Tanzania, and Zambia.

For more insights into the payroll market, NelsonHall will be publishing its Next Generation Payroll Services market analysis in August.

RPO

The RPO market continues its evolution. NelsonHall estimates that ~43% of all RPO contracts include multiple countries in scope. Therefore, many vendors have been focused on expanding their geographic presence. Examples include:

• Randstad in Japan and Italy via its acquisitions of Careo Group and Obiettivo Lavoro respectively
• Cielo in Asia Pacific by expanding its delivery support in Singapore
• Adecco Group in the U.K. by acquiring Penna’s career and talent solutions business
• Alexander Mann Solutions by opening a second delivery center in Poland.

Learning

Contract activity for learning BPO (LBPO) was up significantly relative to H1 2015 across various verticals, including manufacturing, with wins focused on the automotive sector including:

• Raytheon Professional Services won a three year contract with BMW in Northern Europe for delivery, administration and management, deployment, and local adaptation services
• GP Strategies winning an automotive training contract with a Korean OEM as well as an operations training contract with a European Luxury OEM.

Also noteworthy was HSBC’s two-year extension with GP Strategies; HSBC is GP Strategies’ largest LBPO client.

Stay tuned for more highlights and trends from H1 2016 specific to benefits administration. 

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.