Benefits Administration Outsourcing Market in 2011: Mature yet Dynamic

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The global BAO market witnessed significant growth and development in 2011, partially due to internal requirements and market regulations such as the U.S. healthcare reform. In this webinar, Everest Group experts will discuss the current state of the market and emerging themes, challenges faced by both buyers and service providers, an overview of the service provider landscape, and possible differentiation themes for service providers.

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Benefits Administration Outsourcing Market in 2011: Mature yet Dynamic

  1. 1. Webinar: Benefits AdministrationOutsourcing Market: Mature yet DynamicOctober 2011
  2. 2. Today’s Webinar is brought to you by Everest GroupToday’s WebinarBenefits Administration Outsourcing Market: Mature yet DynamicSynopsis:The global BAO market witnessed significant growth and development in 2011, partially due to internal requirementsand market regulations such as the U.S. healthcare reform. In this webinar, Everest Group experts will discuss: The current state of the market and emerging themes Challenges faced by both buyers and service providers An overview of the service provider landscape Possible differentiation themes for service providersAbout Everest GroupEverest Group is an advisor to business leaders on the next generation of global services with a worldwide reputationfor helping Global 1000 firms dramatically improve their performance by optimizing their back- and middle-officebusiness services. With a fact-based approach driving outcomes, Everest Group counsels organizations withcomplex challenges related to the use and delivery of global services in their pursuits to balance short-term needswith long-term goals. Through its practical consulting, original research and industry resource services, EverestGroup helps clients maximize value from delivery strategies, talent and sourcing models, technologies andmanagement approaches. Established in 1991, Everest Group serves users of global services, providers of services,country organizations and private equity firms, in six continents across all industry categories. For more information,please visit www.everestgrp.com and research.everestgrp.com.For more information, contact Mark Williamson at mark.williamson@everestgrp.com Proprietary & Confidential. © 2011, Everest Global, Inc. 2
  3. 3. Introductions Rajesh Ranjan Research Director Everest Group rajesh.ranjan@everestgrp.com Sayan Chatterjee Senior Research Analyst Everest Group sayan.chatterjee@everestgrp.com Proprietary & Confidential. © 2011, Everest Global, Inc. 3
  4. 4. Contents Background and context Market size and growth Buyer adoption and solution characteristics Service provider landscape Key takeaways Proprietary & Confidential. © 2011, Everest Global, Inc. 4
  5. 5. Everest Group provides a comprehensive coverageof the HRO market Strategy Judgment-intensive Transaction-intensive1 Multi-process HRO 2 Single-process HRO (MPHRO) (SPHRO) Includes transactions  Includes transactions that HR that include a minimum involve stand-alone single strategy of three HR processes. process outsourcing Targets both the mid- Employee relations  Currently tracks following market (between 3,000 Regulatory & compliance markets to 15,000 employees) Global mobility – Benefits Administration as well as large market Performance management Outsourcing (BAO) (>15, 000 employees) Learning – Recruitment Process Recruitment & selection Outsourcing (RPO) Compensation – Multi-country Payroll Benefits Outsourcing (MCPO) Payroll – Learning Services Employee data management Outsourcing (LSO) HR information systems and reporting Employee contact centerThis webinar presents results of Everest Group’s recently released 2011 Annual Report on the Benefits AdministrationOutsourcing (BAO) market Proprietary & Confidential. © 2011, Everest Global, Inc. 5
  6. 6. Everest Group’s BAO research is based on two keysources of proprietary information1  Proprietary Everest Group’s database of 1,000+ BAO deals (updated annually)  The database tracks the following elements of each BAO deal: – Buyer details: Including industry, size, and signing region – Deal details: Including TCV, ACV, term, start date, total participants managed, and primary pricing structure – Scope: Including buyer’s geography and process coverage – Technology ownership and maintenance – Global sourcing2  Proprietary Everest Group’s database of operational capability of 10+ BAO service providers (updated annually)  The database tracks the following capability elements for each service provider: – Major BAO clients and recent wins – Overall revenues, total, and BAO employees – Recent BAO-related developments (investments and partnerships) – BAO clients split by geography, industry, scope, and buyer size – BAO delivery locations and level of offshoring – BAO service suite – Service level agreements – Benefits-related technology capabilityIn addition to these databases: Everest Group conducts executive-level interviews with leading BAO service providers and buyers of BAO services Everest Group continuously monitors and tracks market developments Confidentiality: Everest Group takes its confidentiality pledge very seriously. Any information we collect, that is contract specific, will be presented back to the industry only in an aggregated fashion Proprietary & Confidential. © 2011, Everest Global, Inc. 6
  7. 7. Everest Group defines BAO as transfer of ownership ofat least one core-benefits area on an ongoing basis Core-benefits area Support services Benefits servicesHealth & Welfare (H&W) benefits Defined benefits (DB) Defined contribution (DC) Other services Annual enrolment  Setup and record keeping  Enrolment  Workers compensation Data administration / record  Calculation – estimates and final  Plan administration  Disability and absence keeping calculations for retirements,  Payroll deductions management Feeds to service providers (i.e. terminations, etc.  Record keeping  Hybrid pension plan medical providers, and insurance  Eligibility determination and  Fund management administration companies) tracking  Decision-support  Stock plan administration Billing and financial management  Funding and account  Financial education  Non-qualified plan administration (account reconciliations) reconciliation  Plan communication and  Total rewards statements COBRA eligibility and billing (U.S.  Retiree payroll education  Consulting services and benefits only)  Governmental reporting strategy Contribution processing  Plan communication and Life event processing education Plan communication and education  Plan audit assistance Decision-support tools Dependent verification and audits Technology support Contact center Vendor managementFor this study, we include BAO deals in which: At least one of the following core-benefits areas is included – H&W, DB, and DC Deal length is at least two years The buyer employee size is 3,000 or more Proprietary & Confidential. © 2011, Everest Global, Inc. 7
  8. 8. There are three outsourcing models for benefitsadministration Scope of this study Low Degree of outsourcing High Technology Selective Comprehensive outsourcing model outsourcing model outsourcing model  Resembles an ASP/Software-  Outsourcing of bothKey  Benefits technology and one of as-a-Service (SaaS) model as health and retirementcharacteristics the core-benefits areas (health or only benefits technology is benefits administration retirement) is transferred to the outsourced process and underlying service provider  Service provider is responsible technology to a service  Buyer retains the ownership of for hosting and maintaining provider the other core-benefits areas legally compliant benefits  Also referred as Total  Service provider may provide system Benefits Outsourcing technology integration with non-  Buyer retains complete (TBO) outsourced benefits areas ownership of the benefits  Outsourcing of only retirement process benefits, but including both DB  Also referred to as “co-source” and DC, is also referred as Total model Retirement Outsourcing (TRO)  Buyer wants to keep complete  In some specific benefits areas,  Buyer wants to transformConsideration control over the benefits buyers need expertise and the benefits functionfor adoption process but requires access to support on an ongoing basis  Buyer wants to expand better technology  Buyer wants to dip a toe in the the value creation beyond outsourcing model the “selective” modelSource: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 8
  9. 9. Contents Background and context Market size and growth Buyer adoption and solution characteristics Service provider landscape Key takeaways Proprietary & Confidential. © 2011, Everest Global, Inc. 9
  10. 10. BAO is one of the largest and most mature marketsamong others in HROThird-party HRO market size Third-party BAO market penetrationUS$ billion US$ billion 20-22 100% = 18-20 Other SPHRO markets1 MPHRO 15-20% 15-20% 5.4 Payroll 35-40% 25-30% (SPHRO2) BAO (SPHRO2) 2011 BAO Third-party market size addressable BAO market potential 1 Includes Recruitment Process Outsourcing (RPO) and Learning Services Outsourcing (LSO) 2 Single-process HROSource: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 10
  11. 11. The BAO market, growing at a steady rate, crossedthe US$5 billion mark in 2011 BAO market size over time US$ billion 5.4 4.8 20101 2011 2 1 As of April 2010 2 As of June 2011Sample size: 1,039 BAO deals signed during 2007-June 2011 Source: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 11
  12. 12. Poll Question: How do you expect the demand forBAO to change in the next one year? 73% 23% 0% Increase Remain the same DecreaseSource: Live polling conducted during the Benefits Administration Outsourcing Market: Mature yet Dynamic webinar on October 11, 2011 Proprietary & Confidential. © 2011, Everest Global, Inc. 12
  13. 13. On a smaller base, the H&W market is growing at arate of almost four times that of the pension marketH&W market size over time Pension administration market size over timeUS$ billion US$ billion 4.1 3.8 1.3 1.0 20101 2011 2 20101 2011 2 1 As of April 2010 2 As of June 2011Sample size: 1,039 BAO deals signed during 2007-June 2011 Source: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 13
  14. 14. While there are some common outsourcing driversacross both the H&W and pensions markets…Business drivers H&W Pension administrationCost reduction  Compliance  Improvingemployeeengagement   Proprietary & Confidential. © 2011, Everest Global, Inc. 14
  15. 15. ….some drivers are unique to specific benefitsareasBusiness drivers H&W Pension administrationU.S. healthcarereform 2010  Reducedabsenteeism andenhanced  productivityStrategic shiftfrom DB to DC   Proprietary & Confidential. © 2011, Everest Global, Inc. 15
  16. 16. Contents Background and context Market size and growth Buyer adoption and solution characteristics Service provider landscape Key takeaways Proprietary & Confidential. © 2011, Everest Global, Inc. 16
  17. 17. North America pioneered the BAO market andcontinues to be at the forefront. Europe is startingto witness increased activity in recent years Overall share of active BAO deals by signing region Number of deals 100% = 722 317 Rest of World 2% 1% 5% 9% Europe North America 93% 90% 2007-09 2010-11Sample size: 1,039 BAO deals signed during 2007-June 2011 Source: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 17
  18. 18. Notwithstanding interest in multi-country BAO, it isyet to turn into actual adoption Overall share of active BAO deals by geographic scope Number of deals 100% = 4,852 303 Multi-country 3% 1% Single-country 97% 99% Overall 2010-11Sample size: 4,852 BAO deals signed as of June 2011. 303 BAO deals signed during 2010-June 2011 Source: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 18
  19. 19. Poll Question: Are you considering a multi-countryBAO solution in the current or near term? 59% 41% 0% Yes, at advanced stage Yes, but at preliminary No of consideration stageSource: Live polling conducted during the Benefits Administration Outsourcing Market: Mature yet Dynamic webinar on October 11, 2011 Proprietary & Confidential. © 2011, Everest Global, Inc. 19
  20. 20. Offshore leverage in BAO continues to increaseInclusion of offshoring in BAO deals Percentage of FTEs at offshore locationsNumber of deals Percentage 28% 100% = 788 22% No offshoring component 34% 66% Offshoring component 2010 2011Sample size: 788 BAO deals signed as of June 2011 Source: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 20
  21. 21. The dominance of India as an offshore locationrepresents a global sourcing concentration risk Distribution of BAO FTEs by offshore location Percentage 100% = 7435 FTEs in offshore locations other than India1 9% 91% India FTEs 1 Includes South East Asia and Central and South America Source: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 21
  22. 22. Contents Background and context Market size and growth Buyer adoption and solution characteristics Service provider landscape Key takeaways Proprietary & Confidential. © 2011, Everest Global, Inc. 22
  23. 23. The BAO market comprises service providers froma variety of backgrounds HR consulting/technology Focused benefits outsourcing BAO service provider landscape HRO/BPO services Financial services Proprietary & Confidential. © 2011, Everest Global, Inc. 23
  24. 24. The consolidation wave in recent times has significantlyimpacted the service provider landscape ILLUSTRATIVEKey BAO service providers landscape developments Pre-2010 2010-2011 ACS acquires Mellon  Advent International acquires Xafinity HR&IS  AON announces acquisition of J.P. Morgan ING acquires Citistreet Compensation and Benefit Strategies LLC  ACS acquires ExcellerateHRO Watson Wyatt merges  Mercer acquires Innovative Process with Towers Perrin to Administration (IPA) form Towers Watson  ADP acquires Workscape  Aon and Hewitt announce their merger to become Aon Hewitt  Towers Watson acquires Aliquant  Wageworks acquires FBMC’s tax favored and benefits continuation administrative services division  Capita announced acquisition of trade and assets of the pensions administration and software business of NorthgateArinsoSource: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 24
  25. 25. Investments by service providers are making thevalue proposition of BAO more compelling Technology advancements Key areas of Enhanced solution investments scope Expanding delivery modelSource: Everest Group (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 25
  26. 26. Contents Background and context Market size and growth Buyer adoption and solution characteristics Service provider landscape Key takeaways Proprietary & Confidential. © 2011, Everest Global, Inc. 26
  27. 27. Key takeaways for buyers and service providers ofBAOFor buyers Second generation buyers should evaluate the various service providers in the market afresh, rather than going in for auto renewal Select a service provider which brings domain knowledge to navigate the complexities arising out of reform and legislative changes Need to look at the total cost of ownership when creating the business caseFor service providers Creating differentiation to stay ahead of competitors is key Provide a more integrated benefits outsourcing solution Need to reduce global-sourcing-concentration risk Proprietary & Confidential. © 2011, Everest Global, Inc. 27
  28. 28. Major forthcoming HRO researchTopic Goals of the research Planned releaseBenefits Administration Provides a comprehensive analysis of the BAO service provider Q4-2011Outsourcing (BAO) – landscape along multiple dimensions and assesses service providersService provider to position them in the Everest PEAK matrixlandscape and capabilityassessmentBenefits Administration The report provides accurate, comprehensive, fact-based snapshots Q4-2011Outsourcing (BAO) of 10+ leading BAO service providers. Each profile highlights serviceservice provider profile provider’s delivery capability, market strategy, key organizationalcompendium developments, and delivery footprintMaking the Right Choice – This research aims to compare Total Cost of Ownership (TCO) ofHow to Evaluate BPaaS Business Process as a Service (BPaaS) solutions with traditional Q4-2011Solutions? BPO using a comprehensive financial model and create a comprehensive framework to evaluate BPaaS sourcingRPO Annual report 2012 Provides a comprehensive coverage of the 2011-12 Recruitment Q4-2011 Process Outsourcing (RPO) market including market size and buyer adoption, emerging solutions and best practices, changing transaction characteristics and evolving service provider landscape Proprietary & Confidential. © 2011, Everest Global, Inc. 28
  29. 29. Q&A Attendees will receive an email enabling them to download today’s webinar presentation as well as access a recorded audio version For advice or research on Benefits Administration Outsourcing, please contact: – Rajesh Ranjan, rajesh.ranjan@everestgrp.com – Sayan Chatterjee, sayan.chatterjee@everestgrp.com For background information on Everest Group, please visit: – www.everestgrp.com – research.everestgrp.com Thank you for attending todayTo ask a question during the Q&A session Click the question mark (Q&A) button located on the floating tool bar in the bottom right of your screen. This will open the Q&A Panel Be sure to keep the default set to “send to a Panelist” Then, type your question in the rectangular field at the bottom of the Q&A box and click the send button to submit Proprietary & Confidential. © 2011, Everest Global, Inc. 29
  30. 30. Related Content Related Research Benefits Administration Outsourcing (BAO) Annual Report 2011: The BAO Market - Mature yet Dynamic Blog | New Fuel for the old Benefits Administration Outsourcing Engine HRO Annual Report 2011 - The Revival of Multi-process HRO Market Global Sourcing In BAO - Looking Beyond the Obvious Upcoming WebinarsHow Accurate is YOUR Financial Planning? Thursday, October 13, 9:00 a.m. CDT RegisterIs the Arbitrage of Your Offshore Locations Sustainable? Tuesday, October 18, 9:00 a.m. CDT RegisterITO, Cloud and Next Generation Outsourcing – How Do You Get There? Thursday, October 20, 11:00 a.m. CDT Register Proprietary & Confidential. © 2011, Everest Global, Inc. 30
  31. 31. Everest Group leads clients from insight to actionContact us for more information about our consulting, research, and industry resources. Dallas (Corporate Headquarters) Canada info@everestgrp.com canada@everestgrp.com +1-214-451-3000 +1-416-865-2033 +1-214-451-3110 New York India/Middle East info@everestgrp.com india@everestgrp.com +1-646-805-4000 +91-124-496-1000 +91-124-496-1100 United Kingdom Netherlands & Continental Europe unitedkingdom@everestgrp.com benelux@everestgrp.com +44- 207-887-1483 0 +31-20-301-2138 www.everestgrp.com | research.everestgrp.com | www.sherpasinblueshirts.com Proprietary & Confidential. © 2011, Everest Global, Inc. 31

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