HR Outsourcing Competitor Analysis, April 2006

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The HR outsourcing market and an analysis of the principal market suppliers

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HR Outsourcing Competitor Analysis, April 2006

  1. 1. 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.
  2. 2. Contents HR outsourcing overview 2 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  3. 3. 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 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  4. 4. 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 HR outsourcing overview 4 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  5. 5. 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 HR outsourcing overview 5 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  6. 6. Contents HR market analysis 6 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  7. 7. 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 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  8. 8. 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 HR market analysis 8 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  9. 9. 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 HR market analysis 9 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  10. 10. 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 HR market analysis 10 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  11. 11. Americas & North America HR outsourcing market size Gartner Americas and North America HR Outsourcing Market Expediture (in Billions of USD) 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 Source: Gartner, 2005 HR market analysis 11 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  12. 12. 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 HR market analysis 12 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  13. 13. APAC & Japan HR outsourcing market size Gartner Asia Pacific & Japan HR Outsourcing Market Expediture (in Billions of USD) 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 Source: Gartner, 2005 HR market analysis 13 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  14. 14. 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 HR market analysis 14 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  15. 15. 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 market analysis 15 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  16. 16. 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 market analysis 16 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  17. 17. 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 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  18. 18. 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 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  19. 19. 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 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  20. 20. 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 market analysis 20 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  21. 21. 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 Source: Everest Research Institute. Human Resources Outsourcing (HRO) Annual Report. April 18, 2005. HR market analysis 21 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  22. 22. 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 Source: Everest Research Institute. Human Resources Outsourcing (HRO) Annual Report. April 18, 2005. HR market analysis 22 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  23. 23. 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 market analysis 23 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  24. 24. 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 market analysis 24 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  25. 25. HR BPO Competitor Analysis - NelsonHall Estimated Global HR BPO Market Shares: 2004 Estimated 2004 Global HR BPO Market Share Vendor Revenues ($M) (%) ADP Employer Services 3,300 15.5 Fidelity Employer Services 1,980 9.3 Hewitt (inc Exult) 1,405 6.6 Global HR BPO includes: Paychex 1,030 4.8 Administaff 970 4.6 Single HR process point services (e.g. Mercer HR 940 4.4 Payroll administration, Benefits administration, etc ) Figures exclude Ceridian 690 3.2 temporary staffing services. gevityHR 585 2.7 EDS 435 2.0 Accenture 300 1.4 Aon Consulting 300 1.4 Mellon HR 290 1.4 Convergys 225 1.1 Capita 220 1.0 ACS 165 0.8 LogicaCMG 160 0.8 Atos Origin 130 0.6 CGI 125 0.6 IBM Global Services 120 0.6 Total (Top 21 vendors, not all listed) 13,540 63.6 Source: NelsonHall. Global BPO Market Forecasts: 2005-2009. April 2005. HR market analysis 25 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  26. 26. HR BPO Competitor Analysis - NelsonHall Multi-process HRO global market led by Hewitt with an estimated 17% market share. Estimated 2005 Global HR BPO Multi-process HR BPO Vendor Revenues ($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 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  27. 27. 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. HR market analysis 27 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  28. 28. Multi-process HR BPO Competitor Analysis - NelsonHall while developing appropriate multishore, multi-client delivery model. Source: NelsonHall. Targeting Multi-Process HR BPO. December 2005. HR market analysis 28 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  29. 29. 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 HR market analysis 29 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  30. 30. 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 © 2006 Peter Louis & Michael Lennartz. All Rights Reserved.
  31. 31. 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.

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