HR Outsourcing Competitor Analysis, April 2006

HR Outsourcing Competitor Analysis

A snapshot of the HR outsourcing market

By Peter Louis & Michael Lennartz

April 2006

© 2006 Peter Louis & Michael Lennartz. All Rights Reserved.

Contents

HR outsourcing overview

2

What is HR outsourcing

HR outsourcing (also known as HRO) is the process of
sub-contracting human resources functions to an
external supplier

Source: personneltoday.com
HR outsourcing overview 3

Why outsource HR

Top 5 HR outsourcing drivers:
1. Reduce cost
2. Control risk
3. Access to expertise
4. Streamline HR functions
5. Specialized services

Source: SHRM Human Resource Outsourcing Survey Report


HRO market evolution

Pioneer characteristics Emerging rapid growth characteristics
General Atlantic Partners, • Hewitt acquires Exult
a VC, helped create: • Mercer acquires SynHrgy
• Exult (1999) • CSC partners with AON ITO
• Xchanging (1998) • Towers-Perrin and EDS form JV
(ExcellerateHRO) AO2
Market value creation

• ACS acquires Mellon
Adoption
• Last nine quarters account for
approximately 50% of the 7-year-old
market
HRO • Global/mega transactions have occurred
Standards/suppliers
PO HRO FAO • Multiple standards and models exist
HRO • Many legitimate suppliers exist, but
REO1 HRO
market positions are still evolving
1998 1999 2005
Pioneers Emerging rapid growth Reaching maturity
Evolution of HRO market
Current positions
Historic positions
Source: Everest Research Institute, April 2005 1 Real Estate outsourcing 2 Application outsourcing


Contents

HR market analysis

6

Global HR outsourcing market forecast comparison

Nelson Hall, Gartner, IDC & Yankee Group Global HR Outsourcing Forecasts
120 113.3
Expediture (in Billions of U.S. Dollars)

100
83.4
80 74.5
The worldwide HRO market
predicted to be between $24
60 51.7
billion and $113 billion by
40
2009
31.2
22.2 24
20 13

0
2005 2009

Nelson Hall Gartner IDC Yankee Group
Nelson Hall – Forecast covers single and multi-process HRO
Gartner – Forecast covers single and multi-process HRO together with consulting services
IDC – Forecast covers ONLY multi-process HRO
Yankee Group – Forecast covers single and multi-process HRO together with consulting services

HR market analysis 7

Global HR outsourcing market, by region

Gartner Global Human Resources Outsourcing Spending, by Region
35

30 3.7
Expediture (in Billions of USD

3.4
25 3.3 5.6

2.9
3.1 5.3 EMEA will reach $5.6 billion
20 4.9
2.7 4.5 in 2009 with the Americas
4.1
15
3.7 and APAC commanding
$21.9 billion and $3.7 billion
21.9
10
16.5 18 19.8 of the $31.2 billion world
14.3 15.2
market
5

0
Between 2004 and 2009, the
2004 2005 2006 2007 2008 2009
worldwide market will have a
Americas EMEA Asia Pacific CAGR of 8.5%
Gartner ($B) 2004 2005 2006 2007 2008 2009

WW HRO 20.7 22.2 24.1 26.2 28.5 31.2
Services

Year-over- --- 7.2% 8.6% 8.7% 8.8% 9.5%
year growth


EMEA & Western Europe HR outsourcing market size

Gartner EMEA & Western Europe
HR Outsourcing Market

Expediture (in Billions of USD)
6 5.6 5.5
5
4.1 4
4

3 EMEA
2

1 Western
Europe
0
2005 2009

• Western Europe: In 2005, it comprised over 97% of EMEA and will maintain its market share through to 2009.
Gartner forecasts that the market will grow by 8.3% between 2005 and 2009 to be 5.5 billion USD

Source: Gartner, 2005


Western Europe market information

UK France
• Single largest market in 2005 accounting just under 50% • In 2005, market share was second at 9.2% (Gartner)
of HRO expenditure (Gartner) • Will maintain market position in 2009 with spending
• Will maintain its lead and increase its share to 54% by reaching $449m, a 5% CAGR on 2005 (Gartner)
2009 (Gartner) • Economy grew by 1.4% in 2005 and is expected to grow
• HRO expenditure will reach $3b in 2009, a 11% CAGR on by 1.9% in 2006 and 2.4% in 2007 (EIU)
2005 (Gartner) • Strong union representation encouraged growth in the
• GDP grew by 1.8% in 2005 and is expected to grow by less contentious payroll processing (YG)
1.9% in 2006 and 2.4% in 2007 (EIU)

Germany Italy / Spain
• Third largest market in 2005 at 8.8% (Gartner) • Italy was the fifth largest market in 2005 at $282m, a 7%
• Predicted to maintain market position in 2009 with market share (Gartner)
spending reaching $420m, a 4.4% CAGR on 2005 • In 2009, it will overtake the Netherlands ($350m) into 4th
(Gartner) place and be worth $353m (Gartner)
• GDP grew by only 0.9% in 2005, 1.2% forecasted for • Italy’s economy was flat in 2005, but it is expected to
2006 (EIU) grow by 1-1.5% in 2006-07 (EIU)
• Poor economic performance strengthens HRO business • Spain’s market was $181m in 2005 but is expected to be
case. Strong union representation inhibits HRO $245m in 2009, a CAGR of 7.8% (Gartner)
opportunities (YG) • GDP grew by 3.4% in 2005 will fall to 2.7% in 2007 (EIU)
Source: Yankee Group, 2005, Gartner, 2006; Economist Intelligence Unit, 2006


Americas & North America HR outsourcing market size

Gartner Americas and North America

25
21.9
20.2
20
15.2 14.3
15
Americas
10

5
North
America
0
2005 2009

• North America: In 2005, it comprised over 94% of Americas and will slightly loose market share in 2009 at 92%
of the market. Gartner forecasts that the market will grow by 9% between 2005 and 2009 to be 20.2 billion USD


North America market information

United States
• Single largest market in 2005 accounting for 93% of HRO
expenditure (Gartner)
• Will maintain its share through to 2009 (Gartner)
• HRO expenditure will reach $18.7b in 2009, a 8.9%
CAGR on 2005 (Gartner)
• GDP grew by 3.5% in 2005 and is expected to slow to
2..8% in 2006 and 2.5% in 2007 (EIU)

Canada
• In 2005, market share was second at 7% (Gartner)
• Will maintain market position in 2009 with spending
reaching $1.4b, a 10.6% CAGR on 2005 (Gartner)
• Economy grew by 2.9% in 2005 and is expected to
average 2.7% in both 2006 and 2007 (EIU)

Source: Gartner, 2006; Economist Intelligence Unit , 2006

APAC & Japan HR outsourcing market size

Gartner Asia Pacific & Japan

4 3.7

2.9
3
2.1
2 1.6 Asia Pacific

1
Japan
0
2005 2009

• Japan: In 2005, it comprised just over 55% of Asia Pacific and will slightly gain market share in 2009 at 57% of
the market. Gartner forecasts that the market will grow by 7% between 2005 and 2009 to be 2.1 billion USD



APAC market information

Japan Australia
• Comprised 55% HRO expenditure in 2005 (Gartner) • In 2005, market share was second at 23% (Gartner)
• By 2009, will slightly increase share to 56% with HRO • Will maintain market position in 2009 with spending
expenditure reaching $2.1b (Gartner) reaching $863m, a 6.7% CAGR on 2005 (Gartner)
• GDP grew by 2.8% in 2005 and is expected to grow by • Economy grew by 2.7% in 2005 and is expected to grow
2.9% in 2006 and 2.4% in 2007 (EIU) by 3.1% in 2006 and 3.7% in 2007 (EIU)
• Lifetime employment principles limits HR BPO • Strong union representation saw HR processing deals
opportunities; companies/staff resist drastic changes to dominate market; strategic HR policy and organisational
their corporate cultures (IDC) effectiveness deals are not common (IDC)

China India
• Third largest market in 2005 at 4.1% (Gartner) • Fourth largest market in 2005 at $108m (Gartner)
• Predicted to maintain market position in 2009 with • In 2009, it will be valued at $134m, a 5.6% CAGR on 2005.
spending reaching $213m, a 15.3% CAGR on 2005 However, market share remains stable at 3.7% (Gartner)
(Gartner) • Economy grew by 7.9% in 2005 and is expected to grow
• GDP grew by 9.8% in 2005, but it s expected to grow by by 7.2% in 2006 and 6.5% in 2007 (EIU)
8.6% in 2006 and 8.2% in 2007 (EIU) • Enterprise adoption of BPO services slow (IDC)
• Management resourcing and training requirements will • Management resourcing and training requirements will
drive HRO deals (IDC) drive HRO deals (IDC)

*Yankee Group, 2005, Gartner, 2006; European Commission, 2006; IDC, 2005, 2006

Competitive landscape

HR expertise IT expertise

HR BPO SAP HR Focus: Software
• Arinso • BearingPoint • SAP
• ACS • Pecaso • Oracle
• ADP • • Peoplesoft / Oracle
• Hewitt • Microsoft
• AON
• Convergys
•

Benefit Consultants IT Services
• Mercer • T-Systems
• Towers Perrin • IBM/PWC
• Hewitt Associates • EDS
• AON • Accenture
• • HP
• CGEY
Professional Employer Payroll Services • SBS
Organizations • DATEV •
• Ranstad • ADP
• Manpower • Vodafone IS
• Adecco • Triaton
• Several local providers


HR BPO Competitors Evaluation: Forrester

• Accenture, ExcellerateHRO, Hewitt
Associates, and IBM lead the pack. These four
providers have very broad capability and consistent
strength across a majority of our criteria.
• ACS, Convergys, and Fidelity Employer
Services are strong performers. These three
providers have a pattern of significant strengths,
but also with some weaknesses in their HR BPO
portfolio. Among these, Convergys has a strong
value proposition for global enterprises; Fidelity
has a strongly differentiated value proposition for
benefits-oriented North American customers; and
Hewitt is unmatched for capability across the major
benefits categories.

Source: Forrester Research, Inc. Forrester Wave: HR BPO Providers, Q12006. February 2006.


HR BPO Competitors: share distribution (%) – Everest

100% = ~3.8 million
employees 99 transactions US$14.4 billion
All others2 7% 11%
16% All others2
Arinso 3% 2%Arinso
Convergys 9% 4%
6% Convergys
ExcellerateHRO 7% ExcellerateHRO (EDS)
10% 4%
(EDS) 3% 7% IBM
IBM 8% 9% 3% ADP
6% 10% ACS
ADP
12%
7% Fidelity
ACS 13%
8% Hewitt remains the
15% Accenture
Fidelity 12% 11%
market leader, but
several suppliers are
Accenture 12% 10%
competing for the
35% Hewitt number two position1.
Hewitt 20% 21%

Number of Transactions Total Contract Value
employees (TCV)

1 Based upon signed TCV of all current transactions (US$14.4 billion in TCV)
2 Others include the following in order of their market share by number of transactions – Ceridian, Mercer, Capgemini, AON, Xchanging
Sample size: 99 transactions signed by March 2005
Source: Everest Research Institute. Human Resources Outsourcing (HRO) Annual Report. April 18, 2005.
17

HR BPO Competitors: Segmented by size and number of transactions – Everest

20+ Hewitt Suppliers are
beginning to own
market segments:
ADP is quickly
15
“owning” the
smaller size
transactions
ADP Hewitt continues to
Fidelity lead the larger
Number of 10 Accenture
transaction
transactions segment
IBM ACS
Ceridian
Arinso 1ExcellerateHRO (joint venture

5 between EDS and Towers Perrin)
Mercer Convergys Note: Excludes AON and
ExHRO1 Xchanging as they only have one
transaction each. Aon is now
Capgemini approaching the market jointly with
CSC
1
Source: Everest Research Institute.
Human Resources Outsourcing (HRO)
Annual Report. April 18, 2005.
$50 Average contract size $150
US$ millions 18

HR BPO Competitors: Differing capabilities and expansion via acquisitions, partnerships –
Everest

Consulting firms leveraging strategy Suppliers will continue to
relationships HR seek partners with
e.g., Accenture strategy complementary
capabilities and scale

Unsuccessful niche
players are likely to exit

Performance mgmt
Pure play firms HR design
Regulatory and compliance
Specialist firms adding services e.g., Xchanging
(most others have
e.g., ADP, AON (via CSC been bought)
partnership) , Arinso, Ceridian,
Training and development s”
Convergys, Fidelity, Hewitt,
gine e-
Mercer/SynHrgy Recruitment and selection “en valu
Compensation ore up
f sh ing ded
Benefits Of ov ad
m
Payroll
Traditional large scale outsourcing Employee data management
capabilities
e.g., ACS/Mellon, EDS/Towers
Perrin (ExcellerateHRO), IBM
HR information systems

Source: Everest Research Institute. Human Resources Outsourcing (HRO) Annual Report. April 18, 2005. 19

BPO HR Competitors: 3 categories, 3 different strategies – Everest

Overall HRO delivery capability

II I I. Leaders
Maintain market share by:
Enhancing delivery capabilities
Building on existing relationships
Hewitt
Differentiating offerings by
“bundling” products
Accenture
ACS II. Major contenders
IBM Gain market share by:
Fidelity Competing on price
ADP ExHRO Maintaining/enhancing delivery capability
a
Convergys Building new relationships
Ceridian
Arinso
III Acquiring complementary niche players

Capgemini III. Niche players
Xchanging Maintain/enhance delivery
Aon capabilities in growing segments
Mercer Face a threat from leaders due to “bundling”
of products
Seek complementary suppliers to
compete with leaders

Current market share Source: Everest Research Institute. Human Resources Outsourcing (HRO) Annual Report. April 18, 2005.
(Total Contract Value)

HR BPO Competitors: Assessment of capabilities1 – Everest (page 1 of 2)

Geographic High
Technology
delivery
Supplier Scale Scope capability Overall Comments
footprint Medium

Ten HRO transactions; 467,800 employees served2
Accenture
Three global and two regional transactions

Eight HRO transactions; 475,000 employees served2
ACS
Four global and two regional transactions

ADP Twelve HRO transactions; 240,000 employees served
One global and one regional transaction

AON One HRO transaction; 70,000 employees served2
No global transactions, one regional transaction

Six HRO transactions; 133,000 employees served
ARINSO One global and one regional transaction

Two HRO transactions; 17,500 employees served
Capgemini No global or regional transaction

Seven smaller-sized HRO transactions; 56,400 employees served
Ceridian One global and two regional transactions

1 Supplier execution capabilities are not included in current assessment, and will be included as part of future work
2 Does not include internal employees served: Accenture 49,700; ACS 47,000; AON 22,000


HR BPO Competitors: Assessment of capabilities1 – Everest (page 2 of 2)

Geographic High
Technology
delivery Comment
Supplier Scale Scope capability Overall Medium
footprint

Convergys Four HRO transactions; 330,000 employees served
One global transaction

ExcellerateHRO Three HRO transactions; 380,800 employees served
(EDS) One regional and two global transactions

Eleven HRO transactions; 439,000 employees served2
Fidelity Three global transactions

Twenty-one HRO transactions; 773,500 employees served
Hewitt Six global and three regional transactions

Nine HRO transactions; 293,000 employees served2
IBM Two global and two regional transactions

Three HRO transactions; 82,000 employees served
Mercer No global or regional transaction

One HRO transaction; 45,000 employees served
Xchanging One regional transaction

1 Supplier execution capabilities are not included in current assessment, and will be included as part of future work
2 Does not include internal employees served: Accenture 49,700; ACS 47,000; AON 22,000


HR BPO Competitor Analysis – Yankee Group

Yankee Group 2005
HR BPO BrandMonitor® Survey Results
• IBM, ADP and Hewitt ranked as the leading
providers when it comes to favored status or
vendors that make the short list for consideration as
the HR BPO service provider.
• Accenture, ACS and Hewitt ranked highest in
terms of scope and flexibility of service offerings.
• ExcellerateHRO, AON and Convergys were selected
as the leading providers when it comes to satisfaction
and recommendation of an HR BPO service provider.

Source: Yankee Group. Yankee Group Survey Helps Enterprises Navigate the HR BPO Decision-Making Process. December 2005.


HR BPO Competitor Analysis - Gartner

Key Trends:

Top HR BPO Vendors, Worldwide Rank
• “HR BPO continues to be a mainstay of horizontal BPO activity, and will
enjoy healthy growth on a solid base of revenue in the future. This market
ADP 1
demand has anticipated the consolidation of vendors since 2003. Demand
ACS 2 will likely continue as a bidding war breaks out for providers with deep
geographic and domain capabilities.”
Hewitt Associates 3
• “Although the majority of deals remain in discrete niche areas for HR
Ceridian 4 outsourcing, such as payroll and benefits administration, providers such as
Hewitt Associates, Accenture, Aon, ACS, Ariso, IBM and Convergys are
Paychex 5 selling comprehensive BPO contracts for HR, driving high contract value and
Accenture 6 market opportunity. The market adoption trend is toward more discrete deals
evolving incrementally into comprehensive ones, with the resulting evolution
Fidelity 7 of the HR BPO landscape toward greater vendor consolidation.”
• “Requirements for comprehensive HRO and vendor consolidation will put the
ExcellerateHRO (EDS & Towers Perrin) 8
HR BPO market in the hands of fewer providers. Niche providers will
Convergys 9 continue to emerge, however as the small and midsize business (SMB)
sector grows, and as more HR transactions are delivered from offshore
(Ranked by estimated revenue, 2004) locations.”

Source: Gartner, Inc. Market Focus: BPO Competitive Landscape, Worldwide, 2005. January 2006

HR BPO Competitor Analysis - NelsonHall

Estimated Global HR BPO Market Shares: 2004
Estimated 2004 Global HR BPO Market Share
Vendor Revenues ($M) (%)
ADP Employer Services 3,300 15.5
Fidelity Employer Services 1,980 9.3
Hewitt (inc Exult) 1,405 6.6 Global HR BPO includes:
Paychex 1,030 4.8
Administaff 970 4.6 Single HR process point services (e.g.
Mercer HR 940 4.4
Payroll administration, Benefits
administration, etc ) Figures exclude
Ceridian 690 3.2
temporary staffing services.
gevityHR 585 2.7
EDS 435 2.0
Accenture 300 1.4
Aon Consulting 300 1.4
Mellon HR 290 1.4
Convergys 225 1.1
Capita 220 1.0
ACS 165 0.8
LogicaCMG 160 0.8
Atos Origin 130 0.6
CGI 125 0.6
IBM Global Services 120 0.6
Total (Top 21 vendors, not all listed) 13,540 63.6
Source: NelsonHall. Global BPO Market Forecasts: 2005-2009. April 2005.

HR BPO Competitor Analysis - NelsonHall

Multi-process HRO global market led by Hewitt with an estimated 17% market share.

Estimated 2005 Global HR BPO
Multi-process HR BPO Vendor Revenues ($M) Market Share (%) Multi-process HR
Hewitt 600 17 BPO is the
provision of
Accenture HR Services 240 7 multiple HR
processes to larger
ACS 220 6 organizations,
typically involving
Convergys 220 6 staff transferring to
the vendor
Fidelity (FESCo) 170 5 organization
ADP 115 3
IBM 100 3
ExcellerateHRO 80 2
Aon 74 2
Ceridian 47 1
Arinso 43 1
Xchanging 35 1
Mercer HR Services 30 1
Total 1,974 55%
Source: NelsonHall. Targeting Multi-Process HR BPO. December 2005. 26

Multi-process HR BPO Competitor Analysis - NelsonHall

Vendors must build service
delivery models to
accommodate a diverse mix
of global, country and buyer
specific processes,
strengthening their own
capabilities across
increasing service range
and buyer expectation

Source: NelsonHall. Targeting Multi-Process HR BPO. December 2005.


Multi-process HR BPO Competitor Analysis - NelsonHall

while developing
appropriate multishore,
multi-client delivery model.

Source: NelsonHall. Targeting Multi-Process HR BPO. December 2005.


General HRO Trends over the coming years

• HR offerings will have to be global • The supplier market will continue its
- “As outsourcing buyers become more global, so consolidation
must suppliers” - Market exits and big suppliers to buy niche players
- “The more commonality you have, the better off to expand their offerings
you are” • Retiring baby boomers will create more HRO
• Buyers will combine HR with other BPO opportunities
processes: Multi-Tower - “Companies are looking at HRO providers to move
- Buyers will combining HR with learning, finance up the value chain and add services like
and accounting or procurement. succession planning.”

• The scope of HRO deals will expand • A worry: Will demand outstrip supply?
- Seasoned HR buyers will expand their outsourcing - “The market could absorb that volume, but some
to include resourcing, advisory services, and exit suppliers couldn't do the transactions well”
management, for example • Suppliers are working on their offerings to
• 2006 will be the year of execution integrate self-service technologies on the Web
- 68 HRO deals signed since the start of 2004 with transactions.
- “We will have to watch the capacity of suppliers to - “This is the next generation of HR transaction
execute well on this volume of work” engines”

Source: Everest Research Institute


Disclaimer

The information presented has been prepared using
sources believed by the authors to be reliable and
accurate. However, the authors makes no warranty or
assumes any legal liability or responsibility for the
accuracy or completeness of any information
presented. Moreover, the authors accepts no
responsibility for the decisions made by readers.

Disclaimer 30

HR Outsourcing Competitor Analysis, April 2006

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