The 2022 Learning Technologies Autumn Forum (at the London ExCel, October 13) reflected the market changes and global events that have been driving the learning transformation agenda since early 2020. Remote and hybrid working demand and deepening talent and skills shortages have seen learning become a C-suite priority: organizations realize that if they cannot buy or borrow talent (via permanent or temporary hiring), they must build it through learning.

Job seekers, candidates, contractors, and employees want a fast, consumerized experience in both their private and work lives. Furthermore, if a prospective or current employer fails to provide ongoing development opportunities, employees will likely look elsewhere. Add in the current economic pressures and impact on people's well-being at work, and this makes for a highly challenging 2023.

Learning tech vendors and tech-savvy CLOs have been driving the digital learning agenda for years, and the current market challenges mean their business strategies are cut broader and deeper than before. Some core themes remain on the agenda, several of which were showcased by vendors attending the forum: next-gen platforms, upskilling/career pathing, optimized bite-sized learning, and data/analytics.

Next-gen platforms

Several vendors have made acquisitions to create next-generation platforms that will be fit-for-purpose in 2023+, taking the best features and functionality of their acquired tech. Cornerstone's 2022 acquisition of EdCast (along with previous investments) will see the best aspects of all the platforms in its portfolio come together in 2023; while LTG's platform and services portfolio, assembled over the past decade from multiple acquisitions, will continue to integrate. Both these vendors are driving enhanced learner/employee experiences.  

Huler's HulerHub personalized employee experience platform layer links to an organization's tools, documents, and systems. HulerHub provides a straightforward Netflix-style interface that is quick and easy to update without coding or design expertise. The platform is carefully designed to avoid common pitfalls. For example, pre-boarding maximizes communication, while onboarding aims to prevent digital overload. Similarly, maintaining a good work/life balance is vital while giving the freedom for growth and development.  

Sponge's Spark LMS uses facial recognition technology, which is invaluable for attendance monitoring in environments where fraudulent attendance is commonplace. The technology also highlights learners' boredom, confusion, or delight when accessing learning content.  

Upskilling/career pathing

Several vendors, such as Cornerstone and LTG, are developing skills ontologies. These enable learners to close their skills gap through AI-driven learning opportunities and map out career paths to facilitate talent mobility. Learning Pool has just acquired People-Analytix AG, an AI-based employee skills management platform. The platform includes a proprietary multilingual skills ontology with over 20,000 skills, enabling companies to identify organizational skills gaps, uncover workforce trends, and match employees to jobs, projects, and learning. The plan is to roll out an enhanced offering now that the two companies have come together.

With its established Saffbot learning chatbot (that supports learners beyond formal training as they interact with content in real-time), Saffron Interactive launched its new AI-enabled skills coach Aida at the event.   

Optimized bite-sized learning content

Learning is increasingly geared around busy lives, with bite-sized or microlearning opportunities accelerating. Several learning tech vendors operating in the education space (e.g. D2L, Frog), with deep insights into the pedagogy of learning, are emerging in the corporate arena to maximize learners' learning capacity in short bursts.

More vendors are developing their platforms with authoring tools to encourage self-created content. This option works well where organizations have company-specific information to share with their workforces that cannot be curated from a third-party provider. For example, Rise Up has fully integrated its proprietary LMS with MS Teams, enabling learning to take place in the flow of work.

However, not all organizations want to create content, preferring to use third-party providers who curate or create content for their clients. Content providers are broadening their content portfolios, making highly-relevant, timely, and engaging content. For example, Thrive provides content via its Content Club for any LMS. It has recently added content around themes such as World Mental Health Day, the cost-of-living crisis, financial well-being, and the menopause. Its catalog has a section devoted to hot topics. HowNow handpicks specialist content for its HowNowPlus offering and partners with several curated content providers.

Numerous learning techs focus on a specific learning modality (e.g. video, animation, VR/XR) geared for consumerized learning, and it was evident that appified video platforms for employee-generated content are increasing. For example, StoryTagger provides an easy-to-use app with templates for uploading work-related content in bite-size chunks, enabling learners to choose a top-level overview or dive into the details. iAM Learning uses animation for off-the-shelf and bespoke content, using story-telling to engage learners and help them retain knowledge. ARuVR (formerly VRtuoso) offers an XR Authoring System, XR Real-Time Sessions, and XR Interactive Live Streaming under one enterprise-grade platform. In-house L&D teams can add their own XR content without needing XR expertise.

Data/analytics

Sponge claims that 90% of executives say that developing employees is very important to their businesses, yet only 12% of CFOs are confident that L&D is spending the right amount of money in the right places. Evolving data maturity from being data-aware to data-driven, and building actionable insights from learning data, helps organizations to invest where they need and drive optimal business outcomes and ROI. All vendors provide learning data and reporting/analytics. Companies need to recognize the value of the resultant insights and embrace them.

Some of Sponge's standout features include detailed analytics on learners' quiz/exam behaviors: for example, seeing how much time they took to read, analyze, and answer a question or which question gave them the most difficulty. Sponge can track learner engagement by highlighting which elements or modules learners breezed through and where they struggled or lost focus.

Summary

As 2023 approaches, and with so many external challenges in play, organizations must put their workforce first and give people opportunities to grow and develop throughout their career. With the support of learning tech vendors, companies can quickly and positively impact their learners, driving workforce satisfaction, engagement, and loyalty.

Here I look at the major trends for the year ahead in two key areas of HR: recruitment and learning services.

Recruitment Trends

Talent Acquisition (TA) challenges were already complex in the pre-pandemic period, with an aging workforce population, shortage of digital talent, rapid evolution of technology, Brexit, legal changes, and more. The pandemic added another layer of complexity in 2020: the rapid shift to digital hiring/onboarding (with some sectors seeing rapid upticks in activity), non-digital skills shortages, working from home and keeping workers safe and well. While expectations for 2021 focused on digital, hybrid working with a highly-distributed workforce, the Great Resignation presented unforeseen challenges, with knock-on consequences, requiring organizations to take a different approach to the future of work.

Organizations struggle to find talent in a highly-squeezed market, as tried and trusted methodologies no longer work. More are reaching out to vendors for support as they become desperate to attract candidates while juggling increased turnover levels of existing employees. Vendors are evolving their TA solutions in line with advancing TA trends. The hot topics for 2022 will be:

A total talent/holistic approach to hiring

Organizations will act upon their 2021 intentions, as sought-after talent is no longer guaranteed from traditional full-time/permanent channels, requiring a contingent or internal mobility channel approach. So, all organizational functions must work collaboratively to proactively strategize their 2022 talent plans via a strategic workforce planning (SWP) approach, using enabling technologies to aid the process. While some urgent talent needs may require a quick fix, this reactivity is unsustainable long-term. An increased focus on internal talent mobility will reduce the risks of unnecessary employee turnover. Organizations must also plan their salary/contractor rate positioning (avoiding neglectful over-inflation of rates) to prevent future problems around pay inequities across the workforce.   

Back-to-basics recruitment

Companies are competing for talent from shrinking talent pools, as the sansdemic (decreasing working-age population) and the Great Resignation dominate the 2022 market. The most in-demand TA services will be employer branding and associated services contributing to organizations’ brands. Businesses will work hard to promote their company cultures to be future-of-work fit for their audiences, across all talent channels. Priority is on promoting diversity, equity, inclusion, and belonging (DEIB), work flexibility, safety/wellbeing, career longevity, and environmental, social, and corporate governance (ESG) issues.          

In one of the most candidate-led markets in years, tried and trusted recruitment methods are becoming less effective, yielding fewer candidates. While pandemic-induced travel restrictions impact talent mobility on the one hand, on the other, more significant opportunities exist to engage remote talent globally. So, organizations must expand their repertoire of initiatives to reach candidates: international hackathon events to find future digitally-skilled talent, leveraging previously untapped audiences (career returners or those launching second careers). Companies failing to focus on these basics will lose out on vital talent. 

Building talent by upskilling and reskilling organizations’ workers

Traditionally, the focus was on building in-demand digital skills and reskilling workers whose roles were being automated. Organizations must now expand the remit to offset the broader talent challenges associated with employee churn.

Essentially, TA and learning will work in greater unison. Corporate functions must plan how talent will be managed beyond initial recruitment/onboarding to drive ongoing employee engagement and development, to encourage longevity of service. A training course here and there or a HiPo scheme for a select few are no longer fit-for-purpose in their traditional formats. Long-term career mapping and initiatives to put newly-learned skills into immediate practice for all workers will be required, or workers will seek to progress their careers elsewhere. Core to this experience is using intelligent, AI-driven tech, feeding personalized content, enabling a self-service, pull approach to skilling, upskilling, and reskilling.        

Next-generation platforms/tools

Hiring quality candidates at speed while driving a highly-consumerized experience will remain a priority (although hiring speed success is likely impacted by talent availability). Candidates will expect a predominantly digital hiring experience to meet the needs of a workforce seeking flexibility and being less focused on having a physical workplace presence.

Employees will expect to use intelligent tech, underpinned by sophisticated RPA, AI, and ML, via a single platform interface to drive a highly tailored and personalized day-to-day work experience (feeding relevant content to them to maximize role efficiency). Hence, there is also a greater shift to a microservices/low-code/no-code architecture as a standard. The appetite for deep data and predictive/prescriptive analytics will grow, as organizations and their workers seek insights to help eke out extra competitive edge in all areas of talent. The use of digital agents and voice-enabled technology to personalize the tech experience will be a focus in 2022.

Learning Trends

In 2021, learning focused on building out the digital foundations initiated in response to the 2020 pandemic. Hence, the criticality of using the most appropriate technology and tools to drive a digital learning experience emerged. It is now generally accepted that a predominantly digital learning approach is the way forward, focused on skilling for the future of work.

Events such as the Great Resignation of 2021, inadvertently fueling the talent shortage, have turned attention to employee engagement, retention, and development to offset employee turnover. Hence, in 2022, learning will see a revitalized focus and achieve a higher priority within organizations to curb TA challenges (as part of the holistic/total talent approach to attaining the skills needed). Learning vendors continue to develop their services and technology apace to support businesses in meeting their workforce skilling needs. Hot topics for 2022 will include:

Tailored content for skilling

Learning vendors will continue to curate content (where there is an abundance of ready-made material available on generic skills) and create content (where organizations need tailored content for a product or specialty compliance reasons). Subjects such as digital skills (from basic to advanced, niche, certified skillsets) and future of work skills (remote leadership, maintaining wellbeing), commonplace since 2020, will continue apace.

With many organizations focusing on raising their corporate profiles to attract talent, there will be demand for DEIB and ESG awareness training, living the company culture when workforces are remote, and managing employee performance/career conversations. Enhancing skills training focused on the digital world of work will include digital selling (without face-to-face engagement). 

Learning tech/tools

In 2022, the technology and tools focus will deliver experiential learning, taking advantage of RPA, AI, and ML developments, driving content suited to individual learners' preferences and needs. More organizations will seek advice on replacing or augmenting their existing learning systems with LMS/LXP and other specialty platforms to ensure learning is engaging and tailored to encourage self-service/pull learning in the flow of work. Notably, Microsoft Viva will make an impact on the LXP market. Driving learner engagement will start at the candidate level via digital onboarding (supporting pre-boarding learning activities to give new employees a head start and the opportunity to reach productivity sooner).

Next-generation platforms delivering digital internships, graduate programs, academies, and certification programs will be sought to skill, upskill, and reskill a more distributed workforce, to engage and retain them long-term. The use of events platforms will also increase alongside. A mobile-first/appified and microlearning approach will dominate, enabling learning to take place in small chunks across all devices, fitting in with learners’ busy lives. For companies keen to create content internally or manage curated content, the uptake of rapid authoring tech and content library subscriptions will increase. Organizations will seek more learner-specific data/analytics to measure the success of their learning programs as the competition for skilled talent intensifies.

Next-generation modalities

The emphasis on experiential learning will drive the demand for engaging modalities, such as video, animation, gamification, serious games, and simulation. There will be re-energized demand for VR, augmented reality (AR), and the metaverse, as the technology becomes less expensive. An emerging area is haptic technology enhancing kinesthetic learning.   

Other learning services

Demand for consulting services will continue, covering digitalization of learning (including tech/tools and learning content advice), reskilling/upskilling, and driving learner engagement (as retention of talent becomes a priority to avoid unnecessary turnover). Administrative services will continue to focus on systems administration and the sourcing of third-party suppliers, as more organizations decide to outsource such tasks. 

This is the second part of a 2-part blog presenting an analysis of key trends from NelsonHall's HR Technology & Services team. Here, Nikki Edwards looks at talent management services, including recruitment and learning services.

Recruitment Services

RPO and CWS/MSP vendors shone in 2020, as they supported their clients through their COVID-19 challenges, adding another dimension to an already-complex picture of Talent Acquisition (TA) trends. Vendors initially advised on digital tools to enable remote hiring and onboarding of talent, and broader services around working from home, keeping safe, and maintaining wellbeing.

This was immediately followed by vendor taskforces re-allocating resources to meet organizations’ urgent hiring ramp-ups (particularly in healthcare, pharmaceuticals, and food retail), while supporting clients who were scaling back or needed a different modus operandi. The year closed with recruitment vendors supporting their clients with mid- to long-term TA planning, as remote, and digital hiring and working were becoming the new business-as-usual.

Outlook

While organizations focus on essential hiring in 2021 amidst economic uncertainty, and realize they cannot single-handedly navigate the rapidly-evolving TA trends and ongoing pandemic challenges, they will reach out for third-party vendor support to help them strategize and execute plans to ensure they are hiring-fit and work-fit for the future. As vendors continue to evolve their TA solutions (services and tech/tools), they will also contribute to advancing key TA trends:

A total talent/holistic approach to hiring. NelsonHall research in 2020 showed 90% of major enterprises interviewed recognize the need to embrace a holistic approach to talent acquisition, comprising full-time/permanent, contingent, and internal talent (the latter having been somewhat neglected to date).

Organizations are considering using contingent workers (such as freelancers and gig workers) over full-time/permanent workers to avoid long-term employment costs. Vendors already offering total talent solutions are in a stronger position to support them, as they can vary the proportion of each delivery channel based on changing demands and relocate resources accordingly. With the need for worker compliance intensifying, giving organizations better visibility of data/insights concerning their internal talent is a growth area, closing the gap on this under-used talent pool.   

Building talent by upskilling and reskilling organizations’ workers. On the one hand, organizations will continue to seek talent which is in short supply (for example, digital skills, other niche STEM skills, some trades skills). Yet on the other, those organizations will face the reality of skillsets being augmented or replaced by automation, requiring affected workers to be upskilled or reskilled in new areas.

The ‘build’ element of the buy, borrow, build, and bot approach to TA has never been so important. The COVID-19 pandemic highlighted how organizations’ digital skills fell woefully short of what is required for 2021 and the need to address this (notably in areas from basic use of collaboration platforms to advanced cybersecurity). All recruitment vendors will play a role in skills development and embrace the opportunity uniquely according to their client base and their specific needs. 

Expansion of talent advisory services. With a more highly distributed and flexibly working workforce here to stay, RPO and CWS/MSP vendors will expand their portfolios to offer services around the future of work. This could encompass the evolution of employer branding/recruitment marketing services pivoted to focus on compelling EVP building – showcasing/storytelling values demonstrated by client organizations through the pandemic.

Opportunities abound in areas beyond TA, encompassing broader HR and organizational issues. Consulting will cover working with a fully-remote, globally spread workforce (covering topics such as tech/tools, employee communications, employee engagement, workforce wellbeing/safety (shielding), workplace redesign, to business continuity planning and building corporate resilience). 

Next-generation platforms/tools. In readiness for the new era of work, recruitment vendors will continue investing in data, AI-based predictive analytics (for example, the impact of automation on skills augmentation or replacement), intelligent automation (looking at workflow bottlenecks), niche human clouds, and learning tech (for reskilling/upskilling). Also, chatbots, voice-enabled tools, the use of AI for resume parsing, candidate matching, and assessments will continue apace.

Learning Services

In 2020, Learning Services vendors supported clients in digitalizing in-person training content for cloud-based peer-to-peer platform delivery in a bid to continue essential training (for employee onboarding and business compliance needs). Vendors saw increased demand for specific skills training, notably digital skills and reskilling for COVID-19-specific healthcare/pharmaceutical initiatives. Within a few months, vendors were supporting clients in choosing the most appropriate modalities for delivering learning digitally, whether via simple videos or animation, for example. Although there was some return to socially-distanced classroom training at the close of 2020, organizations recognized that digital learning solutions and updated skillset training were going to be the priority for 2021 as geographically-dispersed, remote workforces become the long-term norm.      

Outlook

Organizations will continue to have reduced training budget spend in 2021, until the economic situation improves in a COVID-19 vaccinated world. Vendors must maintain/increase support for their clients as they navigate further challenges, which may include the downsizing or removal of in-house learning teams, while ensuring their employees learn in a safe, collaborative environment, cognizant of pandemic-induced restrictions. Vendors will continue with their planned developments in services/learning tech/tools driven by existing PESTLE factors, yet also advance several learning trends:

Digital/virtual modalities for geographically-dispersed/remote workers. Priority will be on blended learning (with a significant proportion of VILT to enable most learning to take place remotely, with any return to in-person learning reserved for final skills demonstration/reinforcement), and eLearning. Learning will be in bite-sized chunks, embracing engaging modalities to drive self-service pull versus push learning. Such modalities will include video, animation, gamification, simulation, virtual reality (VR), augmented reality (AR), and alternate reality.

Curated content over created content. Learning Vendors will continue to curate content (where there is an abundance of ready-made material available), as organizations seek quick fixes to plug gaps in their content libraries. Created content will remain popular for niche/specialist content, where it is tailored for a specific organization or product, or for compliance reasons.

Learning tech/tools (including tech admin). Augmenting organizations’ existing LMS/LXPs/HCM learning modules with other platforms/tools to enhance the learning experience will expand vendors’ ecosystems. Platforms will include curated content, extended reality, EPSS, microlearning, rapid authoring, and alternate reality. Mobile learning, learner data/analytics, and learning systems admin will continue to grow in importance.   

Other services. Consulting services will expand to focus on digitalization of learning (including tech/tools advice as above), driving learner engagement, and reskilling/upskilling, based around the new organizational structures of the future. Administrative services may increasingly focus on third-party learning vendor management, for example, as procurement teams shed administrative duties, and traditional classroom support diminishes in importance. 

In Part 1 of this blog, Pete Tiliakos & Liz Rennie look at the key outsourcing trends around core HR functions, including cloud HR transformation, payroll, and benefits administration services.

Capgemini has launched a new offering in its digital HR portfolio, Digital Learning Operations (DLO). A key feature of DLO is platform flexibility, important because next-gen platforms are better at delivering just-in-time training personalized for the learner. DLO is also important because its Digital Content Factory focuses on providing content via digital modalities, which are in high demand by organizations.   

DLO is the third offering in Capgemini’s digital HR portfolio, which also includes the use of RPA (DLO currently has eight bots around learning BPaaS and vendor management). It follows Capgemini’s launch last year of Digital Employee Helpdesk (DHD) and Digital Employee Operations (DEO).

Prior to the launch of these digital HR offerings, Capgemini’s HR business was focused on providing transactional support to organizations. Its HR ambitions are focused on supporting clients in the digital transformation of their HR function and driving business outcomes beyond the efficiency play.

DLO components

The modular DLO offering has four components:

• Content design, development, and curation services via its Digital Content Factory for a variety of modalities including traditional classrooms, virtual classrooms, e-learning, web learning, blended learning, gamification, mobile learning, podcasts, videos, interactive videos, virtual reality, and augmented reality
• Learning BPaaS, including course catalog management, learner administration, learner resource management, and LMS administration
• Vendor/supply chain management, including invoice processing and payments
• Learning platforms including Microsoft’s LMS365, SumTotal’s SME and Enterprise systems, and Skillsoft’s Percipio.

Expanding on the last point, offering a variety of next-gen learning platforms is a key feature of DLO, enabling it to meet different types of organizational requirements:

• Microsoft LMS365 is aimed at organizations seeking a quick solution (implementation averages four weeks)
• SumTotal SME is targeted at companies with 0.5k to 3k employees seeking a scalable out-of-the-box LMS with pre-configured workflows
• SumTotal Enterprise is targeted at organizations with > 1.5k employees seeking a modular product, which can be customized to deliver training to the extended enterprise, including contingent workers (modules include learning, talent management, and HR)
• Skillsoft Percipio is for organizations seeking cognitive content curation, multi-device support, and personalized support by bringing more control over the content and user experience across multiple modalities.

Next-gen learning platforms are becoming increasingly important as organizations migrate to cloud-based HCM systems and realize a specialized learning platform is needed to supplement the HCM to deliver personalized and just-in-time training to the workforce (the concept of just-in-time training goes back to the early 2000s, and since then it has evolved from delivering training at the point of need to include the most effective delivery method for the individual learner).

The learning modules in HCM platforms provide the basics of an LMS. But next-gen learning platforms are dynamic and intelligent, making them suitable and ideal for the multi-generational workforce.

DLO clients, benefits & demand

Capgemini already has four large enterprise clients for DLO, including:

• An aeronautical and space manufacturer that has a presence across the U.S., Europe and Asia, looking to migrate from a 90% classroom-based training environment to a ~50% digital learning environment over the next three years  
• A North American retailer seeking to transform delivery of learning content to employees and vendors while controlling costs and increasing transparency and compliance for reporting. Capgemini implemented a cloud-based LMS in three weeks and in 22 weeks developed 36 hours of web-based content including interactive content and games. This has resulted in $2m in cost savings to date and a 40% reduction in training duration.

Benefits of DLO to early adopter clients include:

• 25% - 40% reduction in total cost of service
• 20% - 45% reduction in vendor spend
• 40% - 50% productivity savings.

Demand for DLO is strong, with bookings growth of 35% and a forecast revenue growth of ~15% over a base revenue from ad hoc learning services it has been quietly providing to some clients. 

In line with NelsonHall research on buy-side requirements, which shows a clear preference for the flexibility of modularity, demand so far for DLO is following a pattern of:

• Large enterprises: content services and vendor management services
• Small and mid-sized enterprises: learning platform and content services.

Wider market perspective

While Capgemini’s offering covers multiple learning services, there is a clear emphasis with the Digital Content Factory.  

Per NelsonHall’s 2018 Next Generation Learning BPS market analysis, delivery modalities continue to favor digital learning methods, and these will continue to increase in importance. Nearly 65% of buy-side organizations surveyed state that the use of digital modalities is very important, and ~80% say this will be the top priority by 2021. 

So, vendors with content capability skewed in favor of delivering digital training (including interactive videos, VR, and AR) will be in high demand, making the delivery of Capgemini's DLO just-in-time.

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.

This is the second of two articles on the multi-process HR BPS market. NelsonHall’s latest market analysis report on the multi-process HR BPS market recognizes two types of strategies adopted by vendors taking a modern approach to multi-process HR services: intelligent technologies and cloud-based HR services. Here, I take a quick look at both strategies.

Intelligent technologies

The intelligent technologies approach to multi-process HR services emphasizes the use of automation tools, AI, and advanced analytics to enhance multi-process HR BPS services. Services in scope within these deals tend to include workforce administration, payroll, and often administrative functions around talent management processes, as well as analytics, leveraging on-premise or hybrid technology arrangements.

The top drivers for buyers under the intelligent technologies approach include:

• Improving process controls and driving efficiency
• Streamlining HR processes through automation to reduce process duplication
• Obtaining greater transparency and visibility through advanced analytics.

The biggest inhibitors and challenges with this approach include the following:

• Often, organizations are looking to address larger transformational issues first, including moving to a cloud-based HCM platform, or at least consolidating the number of systems used
• The challenge of demonstrating how intelligent technologies will generate cost savings over the life of the contract; this includes introducing continuous technological improvements that reduce costs beyond the initial year.

To succeed, suppliers must look to continuously develop intelligent technologies, especially machine learning, for different HR processes, and be able to deploy intelligent technologies for on-premise systems (since there will be a certain proportion of organizations that will delay the adoption of cloud platforms).

Cloud-based HR services

The cloud-based approach to multi-process HR services, on the other hand, emphasizes support around broader offerings, such as HR SaaS implementation and ongoing AMS services, in addition to multi-process HR BPS services. The service scope of these deals includes workforce administration and payroll, with an increasing focus on managed benefits, and can include deployment and/or ongoing release management support. The key distinction here is that the underlying technology is 100% cloud-based, including for core HR and payroll.  

Buyers of this approach are adopting it because they are seeking a technology transformation to a more manageable model and also lack the time, skills, or expertise to operate internally in a HR cloud environment.

Impediments to adopting this approach include a desire to ride out previous technology investments, and also the impression that cloud HR software is so intuitive that organizations can operate it internally as the ‘be-all and end-all’ solution. Other issues with the cloud-based HR services approach include ensuring integration with other HR systems.  

Under this approach, it is imperative for vendors to create fast and secure data sharing capabilities with third party applications for seamless integration, with an eye on incorporating intelligent technologies, particularly chatbots, in the near future.

While many providers tend to hone capability in one of these areas, ancillary developments are often made in the other due to competing market demands for cloud HR technology adoption and improved service quality.

Click here for the first article in this two part series: State of the Multi-Process HR Services Market

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.

Principal issues & operational priorities

Some of the more prominent issues and operational priorities cited by respondents included the following:

• Proactive and innovative solutions that are aligned with the needs of today’s learners, including deploying learning that is digitally enabled
• Delivering effective training for multiple generations as well as upskilling employees to offset the aging workforce
• Continuing to drive costs down
• Leveraging more enhanced analytics and metrics
• Reducing overall project time
• Leveraging automation to drive efficiencies
• Supplementing internal training with external informal training, while ensuring all training is relevant and engaging
• Globalizing learning deployment.

These issues and priorities, in turn, directly impacted the benefits organizations were seeking to obtain from outsourcing learning BPS services.

Drivers for outsourcing learning BPS

Approximately 21% of respondents were seeking better costs, and delivery in a more cost-effective manner, when going to market for a learning BPS vendor. The next highest objective organizations were striving to obtain by outsourcing was an innovative service model and innovative delivery methods.

Other reasons cited by organizations included efficiency and standardization (13%), improving technology (13%), transformation/redesign (12%), and improving quality and reliability (12%).

Top vendor selection criteria

Approximately 30% of respondents made their decision on which supplier to use based on the vendor’s knowledge and professionalism, while demonstrating that they are easy and pleasant to work with.

After expertise, respondents were equally concerned with the portfolio of learning BPS services available, as well as pricing.

Current satisfaction levels

Current buyer satisfaction levels from learning BPS reveals that there is plenty of room for improvement, and that the learner experience and learning content should be the main priority for vendors over the next few years.

Cost savings will remain a top concern, but it will also be equally important for suppliers to modernize technology and improve standardization, while driving business results for organizations.

Areas for improvement

Respondents cited many areas vendors can improve on to meet future requirements, but a frequently mentioned request was around innovation. Specifically, organizations want vendors to proactively share innovative best practices, as well as do more strategic thinking around client-specific training problems and develop appropriate solutions that resolve these problems.

Other areas cited for improvement included:

• Communication and enhancing critical thinking skills for unanticipated issues
• Reporting, both in consistency and depth of reporting
• Automation to drive resource continuity as well as a higher level of quality
• Staying responsive and not over-committing.

NelsonHall’s NEAT vendor assessments look in detail at vendors’ ability to deliver immediate benefits to their clients, as well as their ability to meet future client requirements, and assist strategic sourcing managers in assessing vendor capability while cutting the time and cost associated with their sourcing projects. To find out more, contact Guy Saunders.

My colleague, Gary Bragar, recently discussed RPA and AI initiatives in HR, including payroll, recruiting, and learning. Within learning BPS, the majority of RPA investments have been made at a basic level within learning administration, specifically around training scheduling. For example, it previously took ~40 FTEs to manage the entire scheduling process for ~1k classrooms, including identifying classrooms based on availability, identifying onsite facilitators for training days, sending notifications, etc. Through RPA, the same workload can be completed in 15 minutes.  

Vendors such as Raytheon Professional Services (RPS) and IBM, however, have used more advanced applications of RPA and AI throughout the learning lifecycle. IBM, for example, is currently expanding RPA to the design and development of learning content via its Cognitive Content Collator (C3). IBM is leveraging Watson to interpret structured and unstructured data to drastically reduce the number of man hours spent annually on tagging and chunking content and then matching it with curriculum, competence, and goals. Specifically, it takes ~50k man hours to tag, chunk, curate, and map structured courses for ~10k hours of learning content; with IBM’s C3, these activities are completed in 55 hours.

With respect to AI and cognitive, IBM has launched ‘Personalized Learning,’ which offers a consumer-grade experience for learners that provides recommendations to employees based on job role, business group, skill set, and personal learning history to encourage continuous employee development and skill growth. The experience includes ‘content channels’ that support a variety of needs and interests to facilitate simpler browsing, as well as a five-star rating system, and will include virtual job coaches that pull content for an individual to help them develop certain skills.

While interest in RPA and AI technologies by organizations is high, overall adoption rates for these technologies in learning BPS has been low for two reasons. First, RPA requires investment by organizations, which is often problematic since a company’s learning budget is typically low. In addition, RPA requires that an organization exposes its technology and data to the service vendor, which they are often hesitant to do, since learning technology relationships are often separated from service relationships.

Current adopters of RPA in learning BPS tend to be from heavily regulated industries, including financial services, healthcare/pharma/life sciences, oil and gas, and automobile manufacturing. These organizations are realizing a significant reduction in training resources, which is creating more time for value-added activities.

Over the next year, adoption rates for RPA within learning BPS will increase and still be applied mainly to learning administration services. To be successful, vendors will not only have to demonstrate the business case, expected ROI, and previous successful deployments of RPA, but will also need to have a consultative partnership in place within the client organization.

NelsonHall recently published its latest market analysis report on learning BPS, which recognizes the evolution of the learning BPS maturity model from traditional training to integrated training, and now to performance training. Here, I take a look at this latest approach to learning BPS.

Through the performance-driven approach, buyers seek one of five main objectives:

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

Over the last few years, demand for full end-to-end learning BPS contracts, including content, delivery, administration, and technology services, has remained low, and this trend has continued with respect to deals leveraging the performance training model.

While each of the five performance objectives can include all or a variety of learning functions, there are common learning functions associated with each one. That is, strategic transformation typically includes learning consulting/strategy services; revenues and competency often includes content and delivery services; compliance tends to include content services; cost reduction contains learning administration services; and learner engagement focuses on learning technology services.

NelsonHall expects most learning BPS suppliers to cater to all five training objectives, but each vendor’s strength within each objective will vary and be largely dependent on their heritage. For example, vendors that excel at reducing costs typically have a background that heavily emphasizes the use of offshoring, in addition to heavy investments in RPA.

Another significant impact of the performance training approach will be on Kirkpatrick analytics. Today, the majority of learning BPS contracts leverage Kirkpatrick level 1 learner satisfaction to obtain immediate feedback from a training session, as well as Kirkpatrick level 2 to determine how much training was retained. However, when it comes to Kirkpatrick level 3 (job impact) and level 4 (organizational impact), utilization rates are low. On the surface, the performance-centric approach will help facilitate a connection back to the business, but there will need to be methods in place to measure the effectiveness.

Although not a result of the performance training approach, learning BPS services will become more widespread globally due to digital advances, including virtual training and cloud-based learning technologies.

While the performance training approach is characterized by digital learning, the use of digital modalities will continue to penetrate the entire market and be favored within the integrated training model. Digital formats in high demand include e-learning, virtual training, games, and interactive videos.

In light of the recent increase in digital learning, it is important to note that, although it is declining, utilization of instructor-led training (ILT) in traditional classroom settings remains high, mainly because it facilitates face-to-face engagement, collaboration, networking, and recognition opportunities. With respect to ILT, the focus will be on making ILT more effective by leveraging digital modalities before, during, and after the classroom experience.

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. 

Xerox focused on the importance of ensuring the right job fit for candidates. Aside from reducing recruiting time and improving retention, ensuring the right job fit is important from a cost perspective. Data revealed that the cost of a bad hire can be ~30% of an employee’s first year salary, and to replace an employee can cost ~150% of salary.

Ideally, companies should be using assessments to determine both job fit and cultural fit. However, only 30% of organizations use cultural fit questions when assessing candidates, which is surprising, as poor cultural fit is one of the top reasons why employees leave. It is important for candidates to know about the values of their prospective employer, their views on work-life balance, and so on.

An increasing number of companies have contracted to evaluate candidates prior to onboarding using Massive Open Online Courses (MOOCs) and ~75% of organizations using MOOCS say they have had a positive impact on hiring and recruiting. However, the downside of MOOCs is that completion rates are very low. Also popular are Small Private Online Courses (SPOCs), but whether companies use MOOCs, SPOCs, or other forms of candidate evaluation, the fact remains that companies can’t afford to make wrong hiring decisions. Allowing candidates to self-opt out of the application process during assessment is an effective way of enabling hiring managers to focus their time on more suitable candidates and improve quality of hire.

RPS and K4 presented data to further support the case that organizations need to hire the right talent the first time. The global workforce is aging, and more people are retiring: the median age of the workforce increased from 39.4 years in 2000 to 42.3 years in 2012. However, at the same time, tenure has decreased from 4.6 years in 2000 to 3.5 years in 2012, with millennial tenure at only 2.3 years.

While there were ~5.6 million unfilled American jobs at year-end 2015, 41% of organizations report that the labor pool does not meet their hiring needs. So, in addition to needing to hire the right talent, it is imperative to ensure an effective onboarding process to retain talent at the start. However, 30% of organizations rate their onboarding process as ineffective, and 54% rate onboarding as only somewhat effective. But for those organizations who rate onboarding as effective, 84% say best practices include instructor-led training, shadowing, and short-form content. In summary, effective learning starts at the very beginning of the employee life cycle with pre-employment, then progresses to onboarding, knowledge capture, and knowledge transfer.

Given the skill set shortages faced by many companies, there will need to be tighter linkage between recruiting and learning to ensure that any new hire skill gaps are addressed by immediate learning plans. I will look more closely at the connection between recruiting and learning in an upcoming blog.

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.

Recent LBPO activity has been largely from Europe, a trend which began to pick up in 2014. Activity is widespread across Europe, including the U.K., Germany, Nordics, Denmark, and Benelux.  Recent wins include NIIT Ltd.’s multi-year contract to provide managed training services to Citi in EMEA, where it has a presence in 54 countries. To support growth in Europe, NIIT has opened a new delivery center in Dublin, Ireland, providing bespoke content management, training management, and delivery services. QA is also moving to a new, larger learning center in Manchester, U.K.

Europe is also the target for emerging LBPO suppliers, such as InfoPro Learning, which began expanding its focus from content development to providing end-to-end LBPO services in 2014.  Much of InfoPro Learning’s recent growth has been from contract expansions with its existing clients, but its future growth strategy includes targeting European headquartered organizations.

Elsewhere, Australia has also been a hot market, with one of the larger deals including Raytheon’s competitive win with an Australian supermarket chain. 

While the average contract length has been trending down over the last few years, primarily due to the surge in selective LBPO contracts, there has been a slight increase from an average duration of 3 years in 2014 to 3.25 years in 2015.

Multi-country LBPO contracts have also become more prevalent. In 2014, multi-country LBPO contracts accounted for ~32% of activity, which increased to ~38% in 2015. In addition to NIIT’s contract with Citi, it also signed a LBPO contract with Vestas Wind System across 25 countries, including Denmark. Other examples of multi-country LBPO contracts include Raytheon’s win with Honda Motor Europe Ltd. in the U.K., Germany, and pan-European countries, and IBM’s contract with a global aerospace company.

Selective LBPO contracts consisting of two learning processes dominate activity and vendor pipelines. In 2014, the most common bundle included learning administration and vendor management services, but in 2015 selective LBPO contracts have been more mixed, though relatively consistent across the different bundling options.

Full LBPO bundles accounted for ~15% of 2014 contract activity and ~19% of 2015 activity, including Raytheon’s competitive win with Telstra, and Xerox’s renewal with a pharmaceutical company.

While the year is not yet over, it is clear that European, multi-country and selective contracts are where the action is right now in Learning BPO.

Capita states it believes the acquisition would:

• Position Capita as a leading provider of technology-enabled BPS
• Provide a stronger platform for Xchanging to accelerate sales growth and to develop its offerings
• Enable Capita to secure £35m+ in cost synergy benefits
• Be immediately earnings accretive.

Capita has been in discussions with Xchanging since early August regarding a possible offer, upping its initial 140p offer to its final 160p proposal on September 24 - which Xchanging’s board confirmed it would be willing to recommend on September 29 should Capita make a firm offer. Capita was granted due diligence access and had until 5pm on November 2 to make an announcenent.

There is another suitor, Apollo, with whom Xchanging has been having discussions about a potential 170p offer. Will this announcement push Apollo into making a counter offer? Xchanging's share price has surged since the news of the potential talks (over 165p at the time of writing, though still below its one-year peak).

Xchanging has been contending with a range of issues, and its global portfolio lacks coherence, partly a reflection of its heritage in a few large and diverse “Enterprise partnerships”. Xchanging is currently between CEOs, Ken Lever having announced his intention in July to step down at the end of the year, and new CEO Craig Wilson not yet started.

If Capita were to complete, this would be its largest ever acquisition, dwarfing its second largest, the £157m acquisition of avocis this February (though there have been a number of £50m+ acquisitions since 2011, helping Capita expand into new markets or extend its IT capabilities).  So why is Capita so interested?  

In recent years, Xchanging has repositioned and invested to emphasize its capabilities in “technology-enabled BPS”- exactly what Capita is emphasizing with its own various BPO offerings.  Also, the private sector is increasingly important to Capita (over 60% of its current pipeline is in commercial sectors) and Xchanging would increase its presence in the Lloyds market, where Capita already has a presence for specialist services.

Looking in more detail at Xchanging assets that would be attractive – or at least very relevant - to Capita:

1. Xuber software suite for the non-life commercial market: the biggest investment to date (a whopping $200m+ in total investments since 2011), both in platform development and in acquisitions: in 2014, Xchanging invested £75.6m in acquiring Total Objects, whose binder software is now integrated into the Xuber suite, and Agencyport Europe,extending its software into the health insurance sector, with software for international private medical insurance and exposure modeling (acquisition was delayed), plus a further £11.7m on development of Xuber. Xchanging has found converting interest in Xuber to sales more challenging than anticipated, particularly in the U.S. Will Capita’s greater commercial clout help? It would inherit sales teams from Xuber, Total Objects and Agencyport Europe that need integrating into a single unit to cross-sell, where relevant, the portfolio. Would Capita place the Xuber business in its newest operating division “Capita Digital and Software Solutions”, or would it place it in an insurance sector division?
2. The Xchanging Claims Services BPS unit : Capita is already active with a range of specialist services in the London insurance market: this capability would neatly expand its portfolio
3. Xchanging’s business in Germany, where it provides investment account administration BPS for Fondespot Bank, will also be of interest to Capita, who is building a presence in the DACH region, via an acquisition spree in the CMS BPS market, also via an insurance BPS contract with Zurich. The complex administration services in Germany that Xchanging would bring in to Capita would fit well in its Asset Services division
4. Procurement: Xchanging has been through a significant change of direction with its procurement services in recent years, to technology-led offerings, boosted by the acquisitions of MM4 (which was U.S centric) and Spikes Cavell Analytics Ltd (SCAL, which was U.K public sector centric). These offerings may find traction in the Capita client base
5. Expanded offshore IT services capabilities: in India, Xchanging has centers in Chennai and Pune, Bangalore, and tier 3 cities such as Shimoga (Karnataka).  It also has a center in Kuala Lumpur, Malaysia, most providing IT infrastructure services to YTL Communications, and a smaller ADM unit in Singapore (where Capita also has a small presence, targeting the reinsurance sector). There is also some offshore BPO activity in India and Malaysia. Capita may rationalize some of these sites, but would certainly be interested in the expanded offshore application services and BPO delivery capabilities
6. IT services: Xchanging has some networking capabilities, with a client base in the education and health sectors, as well as Lloyds – this would fit well into the Capita IT Enterprise Services division, which has grown through a series of acquisitions in recent years

And less attractive to Capita?

• The Australian operations, where Xchanging’s New South Wales Workers’ Compensation contract was not renewed, and where its procurement business has not really gained traction.
• The U.S. business: Capita’s international efforts are currently focused on Northern Europe. It would be a major change of strategy for Capita to start targeting the U.S., and its management will be highly aware of other service providers who have tried and failed to penetrate the U.S.

But overall, Xchanging’s portfolio is particularly well suited to Capita's business and where it is looking to develop over the next few years. And the cost synergies from the head office rationalization are also a particularly good match.  

We thus believe is highly unlikely that, even if there is a higher counter offer from Apollo, the Xchanging board will change it recommendation to shareholders: Capita presents a better option longer term. Howver, a counter offer from another IT services vendor might be more attractive.

NelsonHall has just published a comprehensive Key Vendor Assessment on Capita. We have also historically included Xchanging in the KVA program.

The widespread use of mobile technologies cannot be ignored, and now the trend is for on-demand and just-in-time (JIT) learning. Microlearning is also increasing in importance: while millennials are often cited as the reason for the rise in microlearning, it is a very effective learning mechanism that has been happening informally in the workplace for years.

Vendors focused on providing learning services are shortening modules from one hour to twenty minutes, which is also sometimes broken down even further into several five minute modules, with information overload in mind and retention as the goal.

All these developments in the learning space call into question the appropriate mix of learning modes. So what will the future of blended learning look like?

Intrepid Learning Inc. (Intrepid) is betting that corporate MOOCs will be part of the future blended environment. In late 2014, Intrepid sold its learning BPO (LBPO) business to Xerox Services with the exception of its two cloud-based learning products, and subsequently relaunched itself as an independent technology company. 

Intrepid has had good success to date with its technology-focused offerings.  After launching its corporate MOOC in late 2013, Intrepid’s priority was to implement it within its existing LBPO client base. Now with a growing list of clients, including Microsoft, which has three corporate MOOCs, Intrepid is focused on making product enhancements, including adding additional language capabilities, which will be essential to Intrepid’s future success with companies in other countries who are looking to implement a localized product.

Prior to its relaunch, Intrepid’s LBPO business was primarily focused on the U.S., and while it is still targeting U.S.-based MNCs, it is also attracting the attention of companies headquartered elsewhere.

To date, Microsoft is Intrepid’s best example of providing one of its corporate MOOCs globally, with aproximately 50% of its learners located in Europe, 30% in APAC, and 20% in North America. 

Obviously corporate MOOCs won’t replace other methods of learning, but they will expand the options available for delivering learning and training. The reality is that people learn differently.  Organizations looking to increase the effectiveness of their training will create the highest probability of success by implementing a variety of methods to accommodate all types of learners.  Corporate MOOCs, gamification, simulations and virtual worlds are just some methods that can be implemented with more traditional training mechanisms to make learning more effective and increase retention, which should be the main goal of any training.

The first approach is about honing learning offerings around one specific learning function. Sometimes this is about refining one function while providing other learning services as an add-on; an example is Expertus, who has developed its ExpertusOne platform, which often includes learning administration services. Alternatively, it can be about focusing on offering just one or two learning functions. An example of the latter is Intrepid Learning who, in late 2014, sold its traditional learning BPO business to Xerox, focusing exclusively on two learning technology products it launched a year earlier: Learning Hub and Corporate MOOC.

The second approach is about building a holistic transformational learning offering where the objective is to ultimately take over an organization’s learning function or to incorporate learning services into a wider talent management suite. An example is Accenture’s talent development offering, which includes learning, recruitment, performance management, succession planning, compensation management, and workforce forecasting and analytics. However, even with an all-encompassing objective, such suppliers recognize that buyers are proceeding cautiously and purchasing selective learning functions at a time. 

One thing is clear: in the last few years, vendors have taken the time to define their core capability and set it in motion, which has also involved making acquisitions as well as divestments. For example, both GP Strategies and Capita have been particularly acquisitive. Many of GP Strategies’ acquisitions have been focused on expanding its geographic footprint in the U.K. and Europe, while Capita’s acquisition of KnowledgePool in 2013 was arguably the most significant since it essentially added a private sector learning business to its portfolio. 

Talent2, on the other hand, sold its Registered Training Organizations (RTO) business, which consisted of five RTOs offering training and assessments to businesses as well as consumers, to focus on its core learning and HR advisory services.

Regardless of the differing strategies in play, suppliers across the board share the same goal of making training targeted, effective, and readily available for their clients.

NelsonHall is currently conducting a global market analysis on learning services. Further trends from this research will follow.

NelsonHall’s most recent learning BPO (LBPO) market analysis reveals the following are top drivers for LBPO:

• Cost effectiveness and efficiency. It may not always be the number one reason why clients outsource learning, but it is one of the top drivers for ~70% of buyers. Clients are looking to provide learning services that are better and less expensive than they can provide internally and are also looking for the flexibility of having a variable cost structure
• Talent development to improve workforce capability and performance. Clients are looking to improve employee skill sets, including management and leadership skills. As companies increase their hiring and baby boomers are retiring (~10k people per day in the U.S.) clients are looking to  develop skill sets internally and ensure knowledge transfer of those leaving the workforce
• Client realization that while they need to invest in learning again, they no longer have the capability and are unwilling to reinvest internally
• Improved business results and ROI. Through investments in learning, clients are looking for improved productivity and faster speed to market
• Clients are seeking increased levels of innovation, including in technology, delivery of services and process improvements. A number of clients have changed vendors for reasons including the need for more innovation
• Need to focus on more strategic objectives. The learning organization is not a core competency of most companies and clients are looking to reduce their administrative burden to focus on top business priorities including talent management
• Consolidation and centralization of multiple learning organizations within the same company
• Development of a social and more collaborative learning strategy.

An example of a learning outsourcing contract that reflects several of these key drivers is KnowledgePool’s £3m, three-year learning services contract award by a U.K. insurance company this month. KnowledgePool will provide Managed Service Provider (MSP) services and manage all external learning for the client's 13,900 employees in the U.K. MSP services will include:

• Sourcing
• Evaluating
• Administering
• Managing

Further services provided by KnowledgePool include:

• Independent training procurement, including consistent terms and preferential rates
• Learning administration
• Technology, including people and processes for data reporting
• Advice and guidance to utilize informal and blended learning
• Learning analytics.

In addition to cost savings, maximizing its ROI, and improved learning to improve employee performance, a key objective for the insurance company is to free up its in-house learning and development team to focus on its' more value-added and strategic objectives.

What will be the leading driver for learning outsourcing going forward? In 2010, talent development was ranked number eight amongst the reasons for outsourcing learning, in 2012 it moved to number three, and in 2014 it reached the number two spot. Talent development shows every sign of becoming the No. 1 reason for outsourcing learning in 2015 and beyond.

NelsonHall has recently begun its sixth global LBPO market analysis, targeted for completion by summer 2015, and will include the very latest analysis of drivers for LBPO.

The acquisition will enhance Accenture’s digital capabilities in analytics, cloud and mobility for federal agencies. It also will add agile delivery expertise. Agilex brings in capabilities in agile software development for digital solutions. The company currently serves a number of federal departments and independent agencies, such as the VA, DoD, DHS, and Department of Commerce.  Commercial sector clients have included Amtrak.

Agilex was founded in 2007 by the late Robert La Rose (who had previously founded Advanced Technology Inc. and Integic, both of which were subsequently acquired), Jay Nussbaum (ex. Citibank and Oracle) and John Gall and quickly attracted senior talent to its leadership. The company offers services around

• Mobile applications for activities such as field inspection, emergency response management, performance dashboards, biometric identification, asset management, case management, personal productivity, etc.
• Healthcare IT - for example Agilex was involved in the deployment of the NHIN CONNECT Gateway. Also m-health - for example in May 2014 it was awarded a contract by the VA to develop and implement an enterprise web and mobile application image viewing solution
• CRM solutions.

Agilex has grown from 20 employees in 2007 to about 800 today. Nussbaum and Gall will leave when then acquisition closes, while the company’s leadership team will be integrated into AFS.

So why the acquisition? 

• AFS is already one of the largest U.S. federal systems integrators – this is about continuing to evolve its capabilities to be at the forefront of newer areas of demand; quite simply, Agilex brings in capabilities around digital technologies – and digital is clearly among the top priorities of the government sector
• And governments, not just in the U.S., are looking with much more interest in agile delivery as they move away from massive monolothic projects (for example, agile delivery has been a key element in the U.K. in the development of a new Universal Credit system for the DWP)

Accenture’s 2013 acquisition of ASM Research expanded its presence in the military healthcare market (DoD and VA) - and Accenture has worked alongside Agilex in projects at the VA. 

However, IBM is in the midst of a major adjustment of its portfolio. In line with this, the company is reporting $25bn in revenues (and 16% revenue growth) in 2014 (out of a total of $92.8bn) from its "strategic imperatives". IBM's acquisition of Softlayer, where it continues to invest strongly, appears to be delivering $3.5bn annual "as-a-service" run rate and IBM reports that its "Cloud" business had 2014 revenues of $7bn and 60% revenue growth (this includes hardware, software and services),

The revenue growth reported from IBM's other "strategic initiatives" were:

• Analytics +7% (2014 revenue approx $17Bn)
• Security +19%
• Mobile >200%.

Maintaining a high mix of software remains important to IBM but its strategy is now much more nuanced than the simplistic "software good" strategy the company sometimes appeared to adopt in earlier years, with the company rediscovering success in IT infrastructure management. Indeed IBM's acquisition of SoftLayer and its ongoing investment in Cloud infrastructure including in additional in-country SoftLayer data centers and cloud enablers such as security and its Bluemix cloud development platform is arguably having more impact on its signings than any of its investments outside Watson and analytics. In Q4, IBM's cloud infrastructure business moved way beyond the standard fare of IaaS contracts with start-ups to facilitating major infrastructure transformation contracts with values of a $1bn+ with the likes of Lufthansa and WPP.

Indeed, while the impact of SoftLayer was insufficient to lead to material growth in IBM's outsourcing revenues in Q4 2014, its impact is certain to be felt on outsourcing revenue growth  in 2015 as a result of these and additional major transformations to cloud infrastructure. Led by these deals, IBM's outsourcing signings transformed in Q4 2014, up 31% (in constant currency and adjusted for disposals). IBM now just needs its application management business, which is continuing to decline under competitive pressure, to undergo a similar transformation.

2014 was a busy year for HRO with ~60 partnerships, mergers and acquisitions combined. We now take a look at what to expect in 2015 and beyond for each HRO service line, including service offerings, market developments, and growth.

MPHRO driven by continued shift to cloud-based platforms

• The Multi-Process HRO (MPHRO) market will grow with a mid-single digit CAAGR through 2018
• In terms of revenue, North America will be the largest region, and LATAM will grow the fastest
• Offerings will continue to be structured around a core model, including payroll and HR administration; benefits and recruitment services will continue to be the most popular add-ons
• Workday use will increase in MPHRO contracts; other cloud-based platforms such as Employee Central will penetrate as well. Momentum among existing MPRHO clients for cloud-based platforms will pick-up significantly by 2017
• Partnership activity will far exceed acquisitions, with partnerships primarily focused on cloud-based platforms and analytics (in 2014 ~3/4 of all HRO contracts were platform-based, of which the majority were cloud-based)
• The proportion of mid-market clients will outnumber large market activity by 2016 (in 2014 the mid-market represented 45% of the market, up from 35% in 2012)
• Demand for end-to-end MPHRO deals will be almost non-existent, as buyers continue to seek specialists for some of their services (e.g. learning) and reduce risk by not having one vendor provide all HRO services.

Benefits Administration exchange offerings will be key

• The benefits administration market will grow at an upper single digit CAAGR through 2018, with the majority of activity coming from the private sector
• The U.S. market will be driven by a need to control costs and be compliant with legislation; the U.K. market will be driven by auto-enrolment legislation
• Within Health & Welfare (H&W) services, private health insurance exchanges, reimbursement account admin, and leave of absence offerings will grow the fastest through 2018
• The main emphasis for vendors will be to develop or enhance exchange offerings (e.g. launching an exchange geared towards the mid-market, adding extended lines of coverage); other efforts will focus on enhancing existing Employer Shared Responsibility offerings
• Technology updates will continue to focus around expanding portals with additional features, and improving the user experience, in an effort to further engage participants
• Multi-country benefits admin activity will take one of two approaches: leveraging existing benefits brokerage and consulting relationships, or focusing exclusively on a technology platform.

Learning key to attraction, development and retention of talent

• The Learning BPO (LBPO) market will grow at mid-high single digit CAAGR through 2018, with Government being the largest sector with growth led by Healthcare
• Selective LBPO contracts will continue to outpace full LBPO, led by content development, including the conversion of instructor-led training (ILT) to e-learning
• Client learning spend will accelerate for job skill training and professional development for purposes of attraction, development and retention of talent
• Vendors will continue to strengthen and integrate their talent management service and technology offerings with learning, both organically and via M&As and partnerships
• Clients will seek the help of LBPO providers to select and implement social learning platforms. Vendors who can help clients monitor and measure their effectiveness will have a competitive advantage
• Vendors will explore adding Corporate Massive Open Online Courses (MOOC) capability as clients seek to further reduce costs and reach a wider net of learners
• E-learning will continue to exceed ILT, though ILT remains important, including for hands-on learning and role-playing, e.g. performance management.

Payroll outsourcing driven by multi-country and platform integration

• The payroll market will show solid mid-single digit global growth. Primary growth is driven by demand for multi-country services and for integrated HCM/payroll cloud integration and/or interfaces
• There will be increasing uptake of employee access to payroll information via mobile, particularly in the U.S. Half of clients globally have self-service, and access pay statements online
• Payroll consolidation will continue to support geographical expansions
• Payroll services will develop by greater focus on technology and automation, including integrating with HR-cloud offerings and using platform-based outsourcing
• Retail, manufacturing, and financial services will continue to be the largest purchasers of payroll services
• Cost and compliance will remain fundamentally important requirements of payroll outsourcing.

RPO and MSP (Contingent Workforce Outsourcing) the fastest growing HRO services

• RPO and MSP are the fastest growing HRO services, expected to continue with mid-teen CAAGR through 2019, in a market driven by increased demand for talent
• Vendor consolidation and partnerships will continue to expand into new geographies to meet demand for global RPO / MSP services
• In the candidate-centric market, services will develop to support greater capability in analytics, improved visibility of labor market supply data, and workforce planning processes to address growing talent shortages. Candidate engagement and a streamlined process will remain a fundamental focus
• Technologies to support mobile marketing and video interviewing will be increasingly popular
• Vendors will continue to invest in onboarding services that go beyond the initial hire to support year 1 retention, and are expected to play a larger role in recommending employee progression and career advice for candidates to support retention
• Contingent workforce management services will grow in Statement of Work (SOW) programs and direct sourcing services to ~28% by 2018
• Requirements for diversity sourcing will be reinvigorated following the new legislation in the U.S. on veteran hiring
• Blended RPO / MSP services will increase in adoption, driven by a focus on developing optimal workforce strategies and bringing greater value to engagements through single governance and reporting and broader analytical insights on the total workforce.

We look forward to an exciting year!

Amy Gurchensky, Liz Rennie, Gary Bragar

Intrepid Learning Solutions brings in capabilities that include:

• Consulting services, including development of learning strategies, measuring their effectiveness and benchmarking 
• Course curriculum design and development, for a variety of programs including IT training, leadership development and products and services education
• Instructors, trainers and facilitators to provide classroom instruction
• Administration, including logistics to ensure timeliness and effectiveness of instruction.

Though the acquisition does not include Intrepid’s cloud-based learning technology, which will continue under the Intrepid Learning brand after closing, clients will have access to it via the establishment of a strategic partnership between Xerox and Intrepid Learning Inc. The technology is Intrepid Agile, which includes the Learning Hub. The Hub hosts curricula that can be used during training sessions and leveraged on‐the‐job for ongoing action planning, assessment and performance support. It also includes Intrepid Agile corporate MOOC (massive open online courses) for corporations which NelsonHall expects to be a key growth service offering.

Via the partnership alliance, clients will have access to Xerox’s e-learning, consulting, administration and classroom training programs and the aforementioned Intrepid Learning, Inc. technology. Intrepid Learning, Inc. will have access to Xerox's LBPO services for clients looking for more than technology only.

Intrepid Learning's core learning BPO (LBPO) service offerings span delivery, content design and development and administration and technical support. Intrepid Learning provides learning delivery across all delivery modes, with around two thirds instructor‐led classroom training (ILT) and one third e‐learning modes, of which is a mixture of web-based training and virtual instructor-led training (VLT). 

A recent focus has been helping its clients improve engagement and retention of talent with the provision of:

• Leadership courses
• Onboarding programs
• Sales enablement courses and programs
• Performance management.

Intrepid Learning brings to Xerox a number of referenceable brand name clients. It has historically focused on North America, and had been looking to expand globally, including into Europe, where Xerox generates more than a quarter of its LBPO revenues.

Intrepid Learning will complement and strengthen Xerox's service offerings, also its target markets, in particular the manufacturing sector. And Intrepid Learning's 260 employees transferring to Xerox, which will continue to operate from their Seattle and Mukilteo, Washington locations, will have expanded career opportunities working for a larger company (Xerox Learning Services has >900 employees globally).

Xerox is one of the top five LBPO providers in the U.S. Intrepid Learning Solutions is in the top ten. This acquisition will further strengthen Xerox's presence in the U.S.

While learning M&A activity was high in H1 2013, this year, M&A activity in H1 2014 was strongest in the benefits administration market, and it’s occurring in both the U.S. and U.K. as vendors strengthen their DC contribution capability.  In the U.K., JLT acquired Ensign Pensions Administration for £9.9m and Aon Hewitt acquired Lorica Employee Benefits.  In the U.S., Great-West has been busy merging its DC administration business with Putnam’s following the reorganization by its parent company, and then acquiring JP Morgan RPS business to further expand its DC administration business.  Elsewhere, Mercer enhanced its exchange services through the acquisition of Transition Assist. 

That primary theme of benefits administration M&A activity on DC administration is further evidenced by Vanguard’s announcement that it is exiting the DB administration business to focus its efforts on DC administration.

There has also been a high level of M&A activity in the RPO market this year.  Seaton and WilsonHCG each made an acquisition to expand their geographic footprint, HRX and CPH respectively, while Alexander Mann and TrueBlue each acquired a company to expand or enhance their service capabilities, Talent Collective (for talent acquisition services) and SeatonCorp (to develop RPO and MSP capabilities) respectively.

Finally within payroll, there were two acquisitions.  Historically, payroll acquisitions are rare, but almost always focus on strengthening or adding capabilities in a new country / region.  In H1, TMF acquired Tass Axia to strengthen its payroll presence in Indonesia, and Visma acquired Adga to strengthen its payroll presence in Sweden.

The level of M&A activity in H1 2014 contrasts strongly with that of last year. Acquisition activity for learning services, was the strongest area of activity back in H1 2013 with Xerox and GP Strategies both making two acquisitions: LearnSomething and Formation by Xerox and Prospero and Lorien Engineering Solutions by GP. This year, learning acquisitions have slowed with just one acquisition by GP, Effective-People and Effective Learning Companies, and the objective of this acquisition is to strengthen GP’s HCM technology capability beyond learning to include recruiting, onboarding, compensation, succession planning, and HR analytics. 

The Shifting Gears: Automotive Technician Training Program, is a multi-year partnership between Raytheon, GM and the U.S. Army. The training, conducted by Raytheon Professional Services (RPS), is a customized 12 weeks program with an on-base technician training curriculum that includes classroom, online and hands-on technical training. The program commences in August at Fort Hood in Texas.

After graduation veterans receive career counseling, job placement recommendations and employment assistance from Army centers and then have access to available GM technician jobs.

In addition to the Shifting Gears program, eligible veterans are provided free access to web-based training programs via GM's Service Technical College.

Raytheon Professional Services has been providing training to GM globally for over 15 years and also helped to establish the GM Service Technical College. Earlier this year RPS partnered with the Universal Technical Institute to launch the First GM technician career training program. RPS created the partnership to develop a pipeline of talent to meet demand at GM for the hiring of its auto service technicians.

This is an important initiative and a win-win for all parties involved, most importantly for returning U.S. military. It is a good example of how innovation and creativity can be used in outsourcing, in this case, via partnering, to help meet client business needs, while helping those who need to find jobs. Per the U.S. Bureau of Labor Statistics, the 2013 unemployment rate for veterans who served on active duty in the U.S. Armed Forces was 9.0%. This compares with an overall 6.2% U.S. unemployment rate announced August 1, 2014.

EBIT margin was 13.0%, down both sequentially (-7 bps) and y/y (-157 bps). And adjusted operating margin (the metric Genpact prefers to comment on its performance as regards profitability) of 15.6% was also down both sequentially (- 76 bps) and y/y (-108 bps).

In Q2 the number of clients contributing $25m or more increased from 12 to 14, so there is some progress in making more money from its clients but we have yet to see the results from Genpact’s transformational plan announced in February this year (see our blog “Genpact: Slow Progress on Transformation Strategy in 2013 - Unveils Next Phase of Plan: http://research.nelson-hall.com/blog/?avpage-views=blog&type=post&post_id=139#sthash.u2IRYAcO.dpuf). This plan includes expanding/enriching the sales force (the intention is to invest at least 6% of revenues in sales and marketing) and increasing domain expertise with SME hires, and increasing industry specific capabilities through acquisitions.

With 37 new sales hires so far this year, client coverage has increased by 10%. The investment in client facing teams is presumably not just about generating new logos but also to improve the protection of existing business, with F&A BPO in particular being an increasingly competitive market (for example, Genpact recently lost most of the Honeywell renewal to Capgemini).

Expenditure on SG&A, at 25.4%, was at its highest for four years. Taking out S&M costs, G&A spend remains very high at over 19% of revenue – there was no mention of improving efficiency in G&A.

Management highlights three transformational deals this year, one of which an F&A win in the insurance sector. Revenue growth this quarter in the BFSI sectors which are key to Genpact (they account for 41% of total revenues) was the lowest it has been for years, at 3.8% y/y, though generally BFSI has been resilient this quarter. We note that no reason has been given by management for Genpact’s slow growth in BFSI this sector. Looking ahead, CEO N. V. Tyagarajan referred to ongoing discussions about setting up a potential BPO utility in the capital markets sector in H2, presumably through a client acquisition. Elsewhere, Genpact saw the strongest y/y revenue growth in its manufacturing sector business since 2012. at 14.5% y/y.

Genpact remains in the early stages of its transformational journey, with Tyagarajan again referring to 2014 as a "pivotal" year.

We have yet to see the benefits flowing through to the topline of a refreshed and expanded sales force, with early wins tending to be smaller project-based engagements. Management continues to guide on accelerated revenue growth in 2015 with margin improvements lagging slightly, presumably in 2016, once new large deals are past initial ramp-up stages.

So far in 2014 we have seen an IP enhancing acquisition and a vertical focused partnership. Expect to see more niche acquisitions such as Pharmalink, as Genpact continues its shift to promoting industry-specific BPO services with IP application and analytics.

Jessica Soler and Rachael Stormonth

Benefits Administration:

Benefits administration was a hotbed of activity in H1!  Contracts were awarded across various service lines in the U.S. as well as in the U.K. There was a solid stream of pensions and retirement administration contracts including TRO activity.  In addition, demand for benefits administration SaaS was quite strong.  Examples of deal announcements include:

• JLT won the DB and DC administration contract by Santander UK covering 100k employees
• Fidelity won the DC administration contract for FirstEnergy for 21k employees
• WageWorks expanded its contract with Lowe’s and is providing spending account administration and COBRA administration
• Towers Watson renewed its retiree exchange contract with Eastman Chemical Company
• Capita expanded its contract with Wood Group in the U.K. to include occupational health services.

RPO:

The level of RPO activity continues to be strong.  Like benefits administration, deals flowed steadily from the U.S. and U.K.  Contract examples in H1 include:

• FutureStep and TalkTalk: 2-year deal in the U.K. including internal and external recruitment as well as contractor and permanent roles
• Hudson and United Biscuits: 3-year multi-country contract covering end-to-end recruitment processes including specialist role recruitment and executive search
• Alexander Mann and Statoil: initially focused on Norway, the contract will extend to the U.K., Canada, North America, and South America to recruit ~5k hires per year.

Payroll:

Payroll continued its steady deal flow worldwide with wins across the mid and large market sectors.  Examples include:

• SafeGuard World and easyJet in the U.K. for 8k employees
• Aditro and Fennia in Finland for 1.5k employees
• MidlandHR and Hope Construction Materials in the U.K. for 800 employees.

Learning:

After a long hiatus, activity for learning services really ramped up in H1. Over the last few years, demand for learning services seemed to come mostly from the public sector.  H1 showed a healthy level of learning activity in both public and private sectors.  

MPHRO:

MPHRO activity was also abundant in H1, where the activity was centered around HR administration and payroll services.  Activity consisted of new contracts like Zalaris and Statoil for statutory leave and reconciliation of HR accounts (for Norway), travel & expense services (worldwide), and HR reporting.  Other activity included vendor changes such as NGA HR and BMS.  Also notable is the volume of mid-market MPHRO deals.

The level of M&A activity was in line with H2 2013.  Much of this was in the benefits and RPO areas, which is where we are seeing outsourcing activity.

Based on interviews with LBPO clients across North America, Europe and Asia Pacific, below is a summation of potential benefits, their immediate importance, client satisfaction, the delta of the aforementioned, and future importance:

Based on the above data, in terms of current importance, vendors are meeting and exceeding client expectations except for measuring learning effectiveness & analytics. Measuring learning effectiveness and analytics increases in future importance for a delta of -15% from current levels of satisfaction & should be a top priority of vendors.

Areas where vendors are doing well and should continue strong emphasis include:

• Linking learning to talent management, which needs to continue as an area of focus as future importance increases 9%
• Employee self-service, which increases in importance 10% for a delta of -7% from current satisfaction levels
• Cost savings, though strong in satisfaction, continues to be a high priority.

The LBPO tool is available to NelsonHall clients at http://research.nelson-hall.com/sourcing-expertise/hr-outsourcing/ and is also available for a limited period free-of-charge to strategic sourcing managers. The tool covers a number of learning business situations including organizations seeking talent development, learning process transformation, cost reduction and multi-country learning.

Twenty-one LBPO vendors are included in NEAT for NelsonHall’s “speed-to-source” initiative.  The NEAT tool sits at the front-end of the vendor screening process and consists of a two-axis model: assessing vendors against their “ability to deliver immediate benefit” to buy-side organizations and their “ability to meet client future requirements”.

The NEAT analyses themselves are based on a combination of vendor and client interviews. The vendors are scored against a wide range of criteria, establishing a number of scenarios, each with different weightings to represent a different business situation or client business need.

To add further value in speeding up the sourcing process clients are able to input their own weightings and tailor the tool to their requirements. So they might say:  “This set of weightings for this business need looks about right to me but I want to place more emphasis here". With this interactive tool, they can tailor the weightings to meet their own specific sourcing requirements.

1. Reaction; evaluation about how the participants felt about their learning experience including course feedback forms and comments from participants including through communities
2. Learning; evaluation of the increase in knowledge after the participants learning experience including pre-post course test scoring and feedback in performance reviews and appraisals
3. Behavior; evaluation of applied learning through observation of on-the-job behavior including from customer feedback and peer review
4. Business results; evaluation of effect on the business including financial results and customer satisfaction

Utilization of Kirkpatrick analytics to measure business results is important for several reasons, including:

• Being able to demonstrate the value of learning programs and to receive future budget allocation
• Reducing wastage of ineffective learning
• Improving content design to enhance the employee learning experience

Learning services providers continue to show the most mature analytics processes of all HR services.

• For a multinational consumer goods company, Accenture helped increase sales via development of a training campaign to address slow sales growth, market share and brand penetration in China. The campaign resulted in a ~$50m increase in sales
• For a U.S. headquartered aerospace and defense provider with 80k employees globally, Raytheon Professional Services, using 6 sigma training, increased sales per employee from $175k to nearly $250k, +43%

Some business metrics are about reducing costs, rather than increasing sales:

• For a German bank needing to reduce 3rd party vendor costs by 15% and enable key personnel to focus on higher value activities, IBM improved rate cards, renegotiated contract terms and performed vendor rationalization; resulting in a 23% savings
• For a metals and mining client’s IT learning group, Talent2 developed standard templates, updated and validated ~2,000 core materials to be common, resulting in 19% less “how to” calls to the helpdesk.

Vendors continue to make investments in analytics:

• Aon Hewitt and Xerox partnering with Knowledge Advisors to enhance their analytics offering and help clients improve learning effectiveness and business impact
• GP Strategies acquired the Effective-People and Effective-Learning companies in Denmark

There are numerous examples of improved results, but there is still a long way to go. Beyond Kirkpatrick level 1, deployment and utilization by clients of levels 2-4 decline each phase. All vendors offer levels 1-4 but there is variation. Some offer levels 1-3 at no additional charge, with level 4 contracted separately or on a project basis. Others offer 1-4 at no additional charge.

• Xerox finds most companies will do level 1, some will use level 2 and fewer use levels 3 and 4 due to cost and time to measure on the job behavior and business results
• Similarly, Talent2 finds utilization rates by clients at around Level 1: 100%, Level 2: 80%, Level 3: 15%, Level 4 <10%

NelsonHall believes that utilization seen by Talent2 and Xerox are consistent across LBPO, with Level 2 Learning closer to ~50%.
   
Per NelsonHall’s Q4 2013 Learning BPO market analysis, analytics capability is among the key vendor selection criteria. A major challenge for vendors is not just providing analytics as part of the service but getting clients to take the extra step and measure business impact. Clients need to take ownership and make the investment to measure impact to the business, which in addition to job skills and employee development, is the purpose of training employees!

GP Strategies is also supporting some of its U.S. headquartered clients in their global expansion. One example is Cigna Healthcare, which has been a Learning BPO client for six years. Cigna began its contract in the U.S. and expanded to countries including Korea, China and the Philippines. As for future global expansion, prospects include an existing $10m p.a. revenue U.S. client that is considering expansion into Canada and Europe.

In the past six months GP Strategies has established 14 new legal entities in countries in EMEA, Asia and Latin America. Its latest legal entity was established in April in the Philippines. In particular, GP Strategies is seeking to grow in Asia Pacific. Upon GP Strategies acquisition of Blessing White in October 2012, in 2013 the company began selling leadership training into its client-base, delivered via Blessing White.

It appears that GP Strategies is now moving on from the phase of driving international expansion by inorganic growth. CEO Scott Greenberg recently stated further acquisition activity has been put on the back burner for a while while it focuses on deployment of new clients.

Consistent with NelsonHall’s research findings, clients are looking for vendors with global learning capability for reasons that include cost reduction, compliance, increased efficiency and consistency.

Expect GP Strategies to achieve organic revenue growth in Q2 2014 between 12% and the low teens.

When IBM acquired Kenexa for $1.3bn in December 2012 (with Kenexa integrated into IBM’s Software Group and operationally aligned to IBM GPS), much was written at the time of how this would strengthen IBM's Smarter Workforce strategic initiative by creating an integrated software platform across human capital management, analytics and social technologies. 

Though Kenexa certainly strengthens IBM’s technology offering, as I wrote at the time Kenexa has also strengthened IBM’s talent management services capabilities around consulting, RPO, and advisory services around employee engagement and leadership development.

Per the theme of the conference, in order to have an energized workforce you need to have an engaged workforce, which stems from an organization’s leadership. As evidenced by several client examples, Kenexa has strenghened IBM's ability to improve employee engagement. 

The Kenexa conference featured a session of how Kenexa helped seven clients get smarter about their workforces of which six described improving employee engagement:

• Giant Eagle, leveraged assessments to improve recruiting for ~11-12k hires per year by reducing the workload of reviewing 250k candidate applications per year. Kenexa assessments for cultural fit screened out 30% of the applications.  Results included a 12% decrease in time to fill in the first 6 months, with a 25% decrease after 12 months. There was also a 10 point increase in hiring manager satisfaction
• Pizza Hut wanted to improve the ability of its leaders to engage teams and develop managers. Kenexa helped by:
  • Studying the client’s best leaders to find out what they do every day to get results
  • Identifying key traits that predict candidate success
  • Connecting people with competency models and right positions
  • Building a framework for selection, development and performance and then assessing  and measuring potential
• The Hartford, used Kenexa surveys. Employee engagement results went up 8% in 1 year, with talent development increasing 14% with an 88% response rate
• Monsanto, uses Kenexa organizational survey and engagement survey tools. Kenexa also helped to identify attributes of top leaders and select the right leaders
• Eat’n Park, has used Kenexa to do employee engagement surveys since 2006. Now includes engagement in its incentive plan and has moved the survey to the Fall to coincide with the compensation cycle
• Burlington Stores, uses Kenexa to conduct engagement surveys and Kenexa is in the process of providing recommendations for improvement
• Caterpillar, has used Kenexa for engagement surveys since 2001. Last year implemented its first global engagement survey to include demographic data for its 70k participants, which uncovered previously unknown barriers to engagement. An employee opinion survey was then launched which was a leading indicator of business results and profit.

There were several RPO sessions where clients described their outsourcing journey with Kenexa. Kenexa was a significant boost to IBM’s standalone RPO business. Though IBM has been providing standalone RPO to GM for several years, up until Kenexa, RPO was primarily provided with IBM’s MPHRO services. Kenexa brought in some large global RPO clients including Eli Lilly, Baker Hughes and Ford. Per NelsonHall’s January 2014 RPO market analysis, in terms of revenue, Kenexa, an IBM company, is the largest RPO provider in Latin America and in the top 5 in North America, Asia Pacific and EMEA (excluding the U.K.). For 2014 Kenexa IBM has a strong RPO pipeline including a couple of large global prospects. To enable growth investments are being made including in employer branding.  

General Conference

Havas Worldwide, talked about the implications of workers no longer staying with the same company for life. Lessons include:

• Culture wins, i.e. how you feel at work
• Command and control is obsolete, have to trust people
• Be flexible, one size does not fit all
• Move people around and across the organization, cross pollenate talent
• Don’t be stingy with rewards and recognition, the #1 reason people leave jobs
• Support a healthy work-life balance
• Boost career trajectories, not just on the job training but career development, e.g. send to conferences. Interesting employees become interested employees
• Being the best at one thing is no longer enough
• Hire for passion
• Reward failure (a successful try)
• Build a growth culture
• Stay curious – if think you have it all figured out you are doomed, need to keep employees learning and they will come to you with new ideas, etc.

AMC, which serves 200m guests per year, is in an industry where turnover rates of 200% are common.  A key lesson about recruitment was, to quote Red Auerbach “if you hire the wrong person for the job, all the fancy management techniques in the world won’t help you”. After it deployed a Kenexa screening tool, turnover reduced from 200% within a few years to 90%, with guest satisfaction improving by 25%, which correlated directly to employee productivity and profitability. Kenexa also identified common key talent in the client’s top general managers. Where GMs were in the highly recommended engagement survey rating, unit level cash flows were up 18%, and concession productivity $20 per hour per employee higher than other locations, equating to $300k per location on an annual basis.

Scott Adams, creator of Dilbert offered a few pearls of wisdom, including having complementary skills improves your odds (e.g. he is not the best artist or writer or comedian but has combined complementary skills), and having a positive attitude widens your field of perception.

Summary

During the past year IBM has seen an increase in the number of requests from clients to help improve their culture, including engagement and leadership development. As evidenced by its clients at the conference, Kenexa has complemented and strengthened IBM’s talent management capability.

Pre-acquisition, turnover rates at Kenexa were historically low at around 8% and they have decreased post acquisition, providing further evidence of walking the talk.

Looking at signings:

• Full year 2013 signings were up 20%, with BPO and ITO renewal rate at 92%, above the target range of 85% to 90% and 7 points higher than 2012. And new business signings was up 9% in BPO and up and up 23% in Document Outsourcing (DO)
• In Q4 2013, overall signings TCV was flat y/y with fewer renewal opportunities in the quarter, though renewal rate was a strong 92% and new business signings were up 5%. For BPO, TCV of signings in the quarter was up 20% y/y, with strong growth in healthcare payor, healthcare provider, F&A, and Europe (the latter presumably driven by recent M&A activity in Europe). However, TCV of DO and ITO signings were down. In its ITO business, Xerox is focusing on executing on some large deals and improving margin.

Revenue growth in Services (DO up 4%, ITO up 2%, BPO down 3% in Q4) has decelerated, as expected. BPO revenues had a 1.5% impact from the student loan contract run-off. And Xerox has not had the benefit of acquisitive growth, which has traditionally contributed 2%-3% of Services revenue growth (under the former ACS model).

But Xerox continues to be challenged in its attempts to improve Services operating margin, once again lower than planned. As late as November 2013 (half way through Q4), in its investor conference, Xerox was guiding on achieving full year 2013 segment margin of 9.8% to 10% for Services … in fact, it achieved 9.76%, just getting into the bottom end of this. And it missed guidance for Q4: segment margin was 9.6%, below the targeted 10%.

Management acknowledges “although (margin decline was) driven by known issues, this is an area where we need to make more structural progress”.  So what were the contributory factors for the 160 bps y/y decline? The following factors have been given as major factors contributing to the y/y decline in Q4:

• The student loan run-off, which had a 60 bps impact on segment margin – but this was not an unforeseen event!
• Unforeseen extra expenses on healthcare platform contracts (MMIS, also healthcare exchanges), where Xerox allocated additional resources to projects. Given the newness and complexity of building a Healthcare exchange, and the challenge of doing so within a tight time constraint, one cannot fault Xerox for taking action to avoid the type of debacle seen in the federal exchange project. Having to do so also on MMIS projects indicates longer standing execution issues
• Slower than expected ramp ups in wireless customer care, leading to volume pressures. It is not clear whether this is delayed or lost work.

This is the third quarter of sequential margin decline, and in a year when Xerox said it was increasing its focus on improving profitability of Services. Services segment margin has now declined every year since 2010. Xerox is now guiding on a margin improvement of 50 basis points in 2014, with this improvement becoming evident in H2 “as near-term margin pressure dissipates and the impact of our margin improvement actions accelerate” Q1 2014 margin is expected to be flat y/y, at around 9.3%.

In the November investor conference, Xerox outlined a five plank strategy for Xerox Services. Some of the initiatives to improve margin – for example further offshoring – are initiatives that the former ACS was talking about even before its acquisition by Xerox.

Xerox needs to demonstrate in 2014 that it is getting a firmer grip on improving profitability of Services, ideally with no more unexpected expenses.

Acquisition spend in 2013 was substantially below the plan of $300m to $500m for the year. The $60m Invoco acquisition closed in January. In 2014, Xerox expects to spend up to $500m in acquisitions (including Invoco). A focus of recent acquisitions has been expanding its customer management services BPO capabilities in Europe: will we see in 2014 acquisition activity that brings in IP in other areas of its portfolio?

• Multi-process HR BPO services.
• Payroll Services
• Benefits Administration
• Recruitment Process Outsourcing
• Learning BPO.

The new Managed Services Program (MSP) demonstrates NelsonHall’s commitment to the HR field and in combination with the other HR programs, will provide the most comprehensive HR analysis on the market. Growth in the Recruitment Process Outsourcing is the highest of all the service lines. The scarcity of key talent and the increasingly global nature of employment markets has seen a market develop to even serve director and interim management positions. NelsonHall’s MSP program will evaluate:

• What is the market size and projected growth for the global MSP market by geography?
• What are the top drivers for adoption of MSP?
• What are the benefits currently achieved by users of MSP?
• What factors are inhibiting user adoption of MSP?
• Who are the leading MSP vendors globally and by geography?
• What combination of services is typically provided within MSP contracts and what new services are being added?
• What is the current pattern of delivery location used for MSP services and how is this changing?
• What services are delivered from onshore and which from offshore?
• What are the challenges and success factors within MSP?

The NEAT (NelsonHall Vendor Evaluation and Assessment) tool will be applied to the MSP service line. NEAT is part of NelsonHall’s “speed-to-source” initiative.  It sits at the front-end of the vendor screening process and consists of a two-axis model: assessing vendors against their “ability to deliver immediate benefit” to buy-side organizations and their “ability to meet client future requirements”.

The NEAT analyses themselves are based on a combination of vendor and client interviews. The vendors are scored against a wide range of criteria, establishing a number of scenarios, each with different weightings to represent a different business situation or client business need.

To add further value in speeding up the sourcing process clients are able to input their own weightings and tailor the tool to their requirements. So they might say:  “This set of weightings for this business need looks about right to me but I want to place more emphasis here". With this interactive tool, they can tailor the weightings to meet their own specific sourcing requirements.

If you would like to participate in or join the MSP program, please contact Guy Saunders. 

The Learning business process outsourcing BPO tool is available to NelsonHall clients at http://research.nelson-hall.com/sourcing-expertise/hr-outsourcing/ and is also available for a limited period free-of-charge to strategic sourcing managers.

The tool covers a number of learning business situations including organizations seeking talent development, learning process transformation, cost reduction and multi-country learning.

Suppliers of Learning business process outsourcing covered by this NelsonHall Vendor Evaluation and Assessment Tool (NEAT) include Accenture Learning Services, Aon Hewitt, Aptara, Capita, Expertus, Genpact, GP Strategies, HCL, IBM Global Services, Infosys, Intrepid Learning Solutions, Neeyamo, NIIT, NGA Human Resources, QA, Raytheon Professional Services, Seertech Solutions, Talent2, Tech Mahindra, TrainingFolks, and Xerox Learning Services.

The NEAT (NelsonHall Vendor Evaluation and Assessment) tool for Learning BPO is part of NelsonHall’s “speed-to-source” initiative.  The NEAT tool sits at the front-end of the vendor screening process and consists of a two-axis model: assessing vendors against their “ability to deliver immediate benefit” to buy-side organizations and their “ability to meet client future requirements”.

The NEAT analyses themselves are based on a combination of vendor and client interviews. The vendors are scored against a wide range of criteria, establishing a number of scenarios, each with different weightings to represent a different business situation or client business need.

To add further value in speeding up the sourcing process clients are able to input their own weightings and tailor the tool to their requirements. So they might say:  “This set of weightings for this business need looks about right to me but I want to place more emphasis here". With this interactive tool, they can tailor the weightings to meet their own specific sourcing requirements.

Effective-People and Effective-Learning offer HCM technology for:

• Recruiting
• Onboarding
• Compensation
• Succession planning
• HR analytics.

The acquisition includes capabilities around sales and support of the SuccessFactors BizX platform. The companies are partners with SuccessFactors and SumTotal.

GP Strategies continues to make acquisitions to strengthen its service offerings and global capability. This is GP Strategies fourteenth acquisition in the last four and a half years, and its 23rd since 2006. Combined with organic growth, including its large multi-year global learning BPO (LBPO) services contract with HSBC, NelsonHall estimates that since 2009, GP Strategies has more than doubled its LBPO revenues. Once fully implemented and deployed across HSBC affiliates globally, GP Strategies anticipates that HSBC will be its largest client.

Learning is an integrated and integral component of talent management. According to NelsonHall's Q4 2013 LBPO market analysis, vendors continue to strengthen and integrate their talent management service and technology offerings. SaaS talent management continues to accelerate across all HRO service lines, including combined with LBPO. Client learning spend will continue to accelerate for job skill training and professional development for purposes of attraction, development and retention of talent.

The acquisition is expected to close by the end of March 2014.

Expect GP Strategies to continue acquisitions to expand its global capability and its HCM services.

If we look at where the growth is coming from:

• The more established ADM services (where Infosys took its eye of the ball in FY 13) contributed an estimated $173m in additional revenue, or 35.4% of the y/y growth of $490m. (Infosys achieved $53m growth in its ADM businesses). Enterprise solutions contributed over 19% of the growth. Assurance services and IT infrastructure services both continue to enjoy very strong growth and between them contributed over 27% of the y/y growth. IT infrastructure services and BPO both crossed the $400m revenue mark this quarter. The only service line not delivering double digit topline growth is the software business (TCS BanCs), for which the market is soft
• By vertical, the y/y growth is dominated by BFSI, which contributed an impressive $200m (nearly 45 of overall growth) in incremental revenues this quarter: full FY 2014 revenues are likely to approach $5.8bn. TCS is confident of sustaining ongoing growth in this vertical. In two other verticals, the difference between TCS and Infosys is marked:
  • Telecoms: Infosys continues to experience negative growth (down 10% in Q3 FY 14) and says its client budgets for next year are down. In contrast, TCS saw accelerated revenue growth this quarter (17.8% estimated, or $50m)
  • Life sciences & healthcare, which Infosys indicated a few years back was a new target market but now considers is soft.  TCS, in contrast, is enjoying over 30% growth, again with $50m in additional revenues.

These data points, are, of course, simplifications, but they do expose significant gaps between the two.

Among the regions, y/y revenue growth, unsurprisingly, continues to be dominated by North America (an estimated $232m in additional revenue. But Continental Europe contributed an impressive $122m in additional revenue. If anyone is in any doubt about its penetration of Continental Europe, TCS is likely to achieve over $1.5bn in revenue in the region this FY, with the U.K. delivering around $2.3bn. It is a major player in EMEA, and by far the largest IOSP.

Looking ahead, TCS is very bullish about prospects for FY 2015. CEO N Chandra commented on expecting FY 2015 to be a "much stronger" year than FY 2014. With 16.5% topline growth in FY 2014 nine months year-to-date, that indicates very aggressive targets for next fiscal. Should we expect some acquisition activity for IP-based capabilities, to boost efforts to drive non-linear growth?

This is the third quarter of improved topline growth. Management has raised revenue guidance for full FY 2014 to growth of 11.5-12% (up from prior guidance of 9-10%, and double the level of growth achieved in FY 2013). This would mean Infosys is getting back to Indian IT services market growth rates (NASSCOM predicted 12-14% for FY 2014).

So where has the growth come from this quarter? It is the last quarter of acquisitive growth from Lodestone (acquired Oct 2012) contributing 41% of the y/y growth (55% last quarter).  Infosys’ traditional areas of ADM (which underperformed for much of FY 2013) contributed a healthy 28% of the overall growth. This indicates the effectiveness of the recent drive at Infosys to go back to basics; its BITS businesses overall contributed 55% of the overall growth this quarter. Management commentary on client budgets emphasized their ongoing focus on initiatives cost optimization, is where Infosys BITS service lines play.

In terms of service lines, BFS and Manufacturing continue to be the growth engines. But Telecoms continues to be a major drag (down an estimated 9.6% y/y): it has declined from contributing 12.9% of revenue in FY 2011 to 7.9% this quarter.

The revised FY 2014 revenue guidance implies anticipated y/y growth in Q4 of between 8 and 9.9%, thus H2 overall will deliver slower growth than was achieved in H1. Accenture also saw a slowdown in its quarter ended November 30: the indications from these two bellwethers are of slower revenue growth in Q4 CY 2013: we shall know more next week when more results are published.

The operating margin of 25.0% is up 322 bps sequentially (up 150 bps excluding the one-time visa provision last quarter). Infosys has been stripping out costs by offshoring both billable (where relevant, depending on service type) and non-billable roles (notably in marketing: sales & marketing expense is 5.0% of revenue, down from 5.8% last quarter, with management referring to increased investment in sales). Narayanan Murthy commented on ensuring that “all jobs that can be done in lower cost locations are done in lower cost locations”. Increased pricing also contribute to the sequential margin improvement. Nevertheless, this is the sixth consecutive quarter when operating margin is down y/y.

Another factor contributing to the sequential improvement in margin is the 1.1% q/q decline in headcount (the last time this happened was four and a half years ago, in the June 2009 quarter), or 1,823 employees.

Infosys has been looking to get utilization up to its 78% to 82% target range, but it has again declined sequentially to 76.9% (from 77.5% last quarter).

Attrition continues to increase, to 18.1%; this may be part of the drive to weed out underperformers, but is also possibly indicates a trend in employee morale, in spite of the wage hikes from July 2013. There has been a string of departures of senior execs in the last six months (since the return of N.R. Narayana Murthy) and this is likely to have caused some short-term disruption.

As part of a reshuffle at the top, B. G. Srinivas and Pravin Rao have been appointed as Presidents, with B. G. Srinivas focusing on global markets and Pravin Rao focusing on global delivery and service innovation, on top of their existing portfolios. These are clearly the two front runners for the next CEO after S D Shibulal retires in May next year, unless Infosys elects to go for an external hire. One indication of the level of rethinking that is going on at Infosys is that just a couple of months ago it significantly expanded its Executive Council. That same Council is being disbanded from April 1 with the two new Presidents being given responsibility to put in place “appropriate governance sectors for their respective areas”. Historically, Infosys was a company where any major changes tended to focus on its long-term vision and were planned in detail beforehand; today it appears to be focusing on shorter term imperatives.

Infosys continues to enjoy a very strong balance sheet, ending the quarter with $4,236m in cash, up from $4,130m in the prior quarter.

Looking ahead, management shared its outlook for FY 2015 client IT spending; the tone was cautious, referring to “a mixed bag” across segments.

So what should we expect from Infosys in FY 2015? The company is clearly making progress on getting back to basics with its BITS offerings and it continues to enjoy the boost from the Lodestone operation; next quarter will indicate whether Lodestone is helping drive organic growth in its consulting business. It is still too early to tell whether the newer PPS offerings, on which Infosys places so much store, will pick up steam this year and begin to approach, even outstrip overall company growth. PPS businesses currently contribute 5.3% of company revenue, down from 7.1% back in FY 2012. PPS is key to Infosys' long-term vision, but two years on it is hardly a success story. Indian media is speculating on setting up a separate subsidiary for PPS; we would expect to see some inorganic growth in the next year. Meanwhile, there are several new key roles still to be appointed including a global Head of Sales. Infosys is looking in a better shape now than it was three quarters ago but it going through an unsettling period.

NelsonHall will be publishing an updated comprehensive Key Vendor Assessment of Infosys within the next few days. For details, contact [email protected]

MPHRO

• We predict the Global MPHRO market will grow at mid-single digits CAAGR through 2017
• The Shared Service Transformation segment will continue to grow mainly as a result of contract expansions and renewals with existing clients, but the Multi-Country Standardization and Core Business Focus segments have the highest growth rate 
• MPHRO offerings will continue to be structured around a core model with recruitment services as the most popular add-on as companies focus on adding back talent; in the near-medium term, demand will increase for learning, performance and compensation administration
• Increased partnership activity, primarily for technology, with acquisitions focused on strengthening existing standalone HRO offerings (typically by vendors with $400m+ in HRO revenues)
• Higher levels of multi-shoring from offshore vendors as clients demand onshore and nearshore support; Philippines and China will grow as preferred offshore locations
• Workday use will increase as MPHRO providers such as Aon Hewitt market this platform as part of its offering
• Proportion of mid-market clients will continue to grow making up the greater share of new contracts and MPHRO pipelines

Benefits

• The global benefits administration market will grow at mid-high single digits CAAGR through 2017
• Demand for DB and DC core services will primarily consist of second generation contracts and beyond; H&W administration as well as additional H&W services, specifically health insurance exchanges and health and wellness services, will grow as a result to control costs and comply with changing legislation
• Vendors will increase headcount and add chat services from onshore centers to enhance delivery strategies
• Multi-country benefits admin activity by MNCs will continue to grow moderately with providers that can leverage existing benefits brokerage and consultant relationships

Learning

• Learning BPO (LBPO) market will grow at mid-high single digit CAAGR through 2017, led by the Government sector
• Selective LBPO contracts continue to outpace full LBPO, led by content development, including the conversion of ILT to e-learning. However, full LBPO continues its resurgence as clients re-invest in learning but do not want to rebuild their internal learning organizations and instead seek greater value by outsourcing a larger share of their learning if not in its entirety
• Client learning spend accelerates for job skill training and professional development for purposes of attraction, development and retention of talent
• Vendors continue to strengthen and integrate their talent management service and technology offerings. SaaS talent management continues to accelerate combined with LBPO and across all HRO service lines
• Clients budget for social learning and seek LBPO vendors for collaborative technology. Within two years, clients will also seek help to monitor and measure the effectiveness of their social learning programs
• ILT continues to remain important but e-learning delivery continues to exceed ILT, including increased usage of VLT for geographically dispersed workforces and m-learning to access content for self-paced e-learning on smartphones and tablets

Payroll

• Solid mid-single digit global growth, led by Latin America and Asia Pacific
• Compliance is increasingly important to reduce risk by ensuring adherence to ever-changing tax laws and regulations, for both domestic and multi-country payroll
• Multi-country payroll continues double-digit growth as MNCs look to standardize and consolidate onto one global platform with one vendor for consistency of process, technology and service for increased efficiency
• Mid-market outsourcing continues high growth due to demand for platform-based payroll
• Pricing is per payslip or per employee per month and is expected to decrease due to pricing pressures from payroll buyers
• Where MPHRO services are provided, payroll will continue to be the initial footprint

RPO

• RPO will continue to be the fastest growing HRO service, with mid-teen CAAGR through 2017
• Vendor consolidation and partnerships continue to expand into new geographies to meet demand for global RPO
• Talent shortages deepen resulting in increased employer branding and talent pool development. Vendors increasingly help their clients with a more robust on-boarding process that includes new hire and employee engagement, employee surveys, and retention strategies. More vendors perform internal hiring of employees for their customers and also play a larger role in recommending progression of employees
• Blended RPO and MSP, including temporary hiring, increases to develop optimal workforce strategies
• For deeper insight, please see NelsonHall’s Targeting RPO market analysis published soon

Pindar has become the third CEO of a major U.K. outsourcing company to resign this year. The other two, Nick Buckles of G4S and Chris Hyman of Serco, both left behind companies that are being investigated for fraud by the British Government. No such allegations have been directed at Capita.

The company has done extremely well under the leadership of Pindar. In the past ten years alone:

• Its revenue has more than doubled (from £1,081m full year in 2003 to £1,891m in H1 2013 alone)
• The share price has increased by > +316% over the last 10 years, compared with the FTSE (>+52%).

Pindar leaves the company in good shape, with:

• £2.9bn of major new contract wins so far this year
• An anticipated organic topline growth of 8%
• An operating margin that is expected to stay steady at 12.5% to 13.5% for the foreseeable future.

Today's announcement coincides with the news that Capita has resolved the problem of its under-performing personal insurance BPO businesses. It is selling Lancaster Insurance Services, Sureterm Direct, BDML Connect and Delta Underwriting to Markerstudy Group for an undisclosed price. The four businesses (685 personnel based across three locations) are expected to generate ~£47m in revenue and make a combined operating loss of £15m in 2013. Capita is also closing its SIP administration business based in Salisbury.

Business rationalization and expansion will be a tougher nut to crack. Organic growth cannot deliver the overall growth required to grow revenues and margin at acceptable rates. Xerox will need to acquire, but any large acquisition program will incur failed acquisitions. Xerox intends to keep the damage down by acquiring businesses at low prices, which is likely to cause it to miss big wins, but avoid big losses.

Finally, culling businesses (such as the student loan processing business, which is shrinking fast and reducing margins because overhead has not shrunk as fast as revenue) will be necessary for Xerox services to focus on its winning businesses. It is not clear anyone would want to buy the student loan processing business, making a cull impossible, and downsizing the only option. Xerox will need to focus on segments of its financial services BPO business that can be grown rapidly to offset the shrink in the student loan part of the financial services business. Other sunset businesses will have to be handled the same way if there are no bidders.

Xerox will succeed at bring its services operational performance up to its operational expectations, but it will take 3 years to accomplish.

Last week, Raytheon hosted a symposium in London which considered how companies benefit from tapping into the social internet age to maximize learning value across employees and customers, and examples were provided with case studies. Whether you are still experimenting with or actually embarking on delivering a mobile strategy, the discussions and findings at Raytheon’s symposium were thought-provoking.  Here are some highlights.  .

Setting up for success

Jane Massy, CEO of Abdi, claimed that Asian companies are showing the biggest uptake in deciding what to measure before undertaking a training program. She shared a few upfront steps before building a training plan to ensure its success.

1. Determine if governance is in place to ensure that training investments will support business growth
2. Clarify goals to confirm which business outcomes should be impacted
3. Segment and understand the learners to define what “unacceptable” looks like
4. Test the learner’s appetite for training to gauge whether the approach should be modified.

Finally, be sure to leverage survey and social tools to support training engagement.

Use benchmarking to support the business change

Laura Overton, MD of Towards Maturity, provided some statistics from the company’s 2013 Mobile Learning at Work report including one that around 70% of companies are planning to implement mobile learning in the next two years. Other statistics from the report were that top learning organizations are:

• Seven times more likely to agree (than non top learning organizations) that L&D staff have skills to exploit technology for business advantage
• Twenty-eight times more likely to encourage staff to share and solve problems
• Thirty-four times more likely to support a learner community and help learners communicate with each other
• Forty-six times more likely to train trainers to use technology to extend learning beyond the classroom.

She presented a case study of the British Army. It revealed 80% of soldiers use smartphones but only 30% of Army training staff do so. This statistic was used to overcome stakeholder resistance to m-learning.  45% of workers found mobile learning essential or very useful, for instance, for tips on what to do in a situation such as evacuating a building in a fire. From the study, Laura presented that 28% of workers already used their own devices to do their job better, whether or not the training department supported this. Mobile learning needs to support formal learning but should not be seen as a replacement.

Raytheon Introduction, Paul Swinscoe

Raytheon has a deep history in training, from flight simulations and helping NASA train astronauts for the Apollo landings in the 1960s and is now exploiting e-learning to support companies like Axalta.

Case Study: Axalta presented by Mick Monaghan

Axalta needed to train employees and also customers to help support the launch of a product. The success of the product launch depended on Axalta’s ability to engage effectively with a large customer user community and enable a large number to be trained quickly. The online training means the customer does not need to send engineers on training courses and they can pace their own training.

Axalta’s business challenge was that it had 42 customer training centers used for training on applying their paints. Customers were demanding cost reductions, participation levels were down, skills and knowledge of their products were eroding, and customers were asking for on-site help. Axalta delivered an e-learning program for product training which used graphics. As a result, the training effort to complete the course reduced from three days to two and customers are more receptive to training.  In Germany, 240 participants enrolled, a total saving of £180k. Other benefits include higher customer satisfaction from paints being applied correctly and fewer product complaints. Axalta now consider e-learning a “must-have”.

In the break we discovered that some companies who had invested in iPads had issues with using them for training as they do not have flash player. Huddle was being purchased by one company with whom I talked.

Talat Riaz, Raytheon on Training Mediums

Talat discussed the pros and cons of different training mediums including virtual classrooms, 3D graphics and QR codes.

• Virtual classrooms are incredibly effective. However, consider how to support these and extend the learning with social forums and mobile learning
• 3D graphics are extremely useful for training about complex technical structures that need pulling apart into components
• QR codes can help with the knitting of the virtual and physical world, particularly for point in time information where data and processes often change. Having the right data at the right time.

Jonny Gifford, Advisor from CIPD, and The “desire line”

People are always making paths where they desire to go – like a shortcut across a park. If we put fences up to try to change the path, we will not succeed. So why not let employees who are trying to do the best for your company explore and experiment? The path will over time be formed that fits your culture and company. From this, corporate communications will have a vehicle which captures the spirit of your company. Once desire lines are understood they can be enhanced and promoted.

Steve Land, Director, Motiv8 Training

Steve Lang reminded us how people learn and how the brain works. We all look for that sense of achievement. He reminded us that the best trainers are strong motivators. He scared us with memories of overhead projectors then highlighted how we have so much more to leverage from today’s technology to inspire and motivate trainees.

Overall, the event demonstrated how Raytheon is helping improve the effectiveness of learning delivery through the use of technology and e-learning.  It also demonstrated how e-learning and m-learning can't work in isolation: additional delivery methods and engagement channels such as virtual learning and learning communities need to complement the standard learning program to achieve successful learning outcomes.

The restructuring of NPS division last year, to focus more on services, combined with a number of contracts starting in 2012 helped improve NPS revenue. Contracts that started in 2012 include:

• The Blue Badge Improvement Scheme
• Athena - the managed service for data sharing by Essex Police and six other forces

NPS is also more agressively marketing its housing software internationally, reporting expansion in New Zealand, Australia and Canada, though no growth data was provided.

NPS' £170m contract with C2k to provide an Education Cloud for all schools in Northern Ireland was a major win for the company. Other contributors to the division's revenue improvements include managed services contracts with mid-market customers in the UK, including Christian Aid, Almac, Doosan, Wolseley, AAH Pharmaceuticals and the Driver and Vehicle Agency in Northern Ireland.