HR Outsourcing Competitor Analysis, April 2006

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

April 2006

By Peter Louis & Michael Lennartz

HR Outsourcing Competitor Analysis

A snapshot of the HR outsourcing market

2© 2006 Peter Louis & Michael Lennartz. All Rights Reserved.

Contents

HR outsourcing overview

3HR outsourcing overview© 2006 Peter Louis & Michael Lennartz. All Rights Reserved.

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


Source: SHRM Human Resource Outsourcing Survey Report

Top 5 HR outsourcing drivers:

1. Reduce cost

2. Control risk

3. Access to expertise

4. Streamline HR functions

5. Specialized services

Why outsource HR


HRO market evolution

1 Real Estate outsourcing 2 Application outsourcingSource: Everest Research Institute, April 2005

Emerging rapid growth characteristics

• Hewitt acquires Exult

• Mercer acquires SynHrgy

• CSC partners with AON

• Towers-Perrin and EDS form JV (ExcellerateHRO)

• ACS acquires Mellon

HRO

HRO

Pioneers Emerging rapid growth Reaching maturity

PO FAO

Ma

rke

t va

lue

cre

ati

on

HRO

ITO

AO2

Adoption

• Last nine quarters account for approximately 50% of the 7-year-old market

• Global/mega transactions have occurred

Standards/suppliers

• Multiple standards and models exist

• Many legitimate suppliers exist, but market positions are still evolving

REO1

Evolution of HRO market

Pioneer characteristics

General Atlantic Partners, a VC, helped create:

• Exult (1999)

• Xchanging (1998)

1998 1999 2005

Current positions

Historic positions

HRO


Contents

HR market analysis

7HR market analysis© 2006 Peter Louis & Michael Lennartz. All Rights Reserved.

Global HR outsourcing market forecast comparison

83.4

113.3

22.231.2

13

24

51.7

74.5

0

20

40

60

80

100

120

2005 2009

Exp

ed

iture

(in

Bill

ion

s o

f U

.S. D

olla

rs)

Nelson Hall, Gartner, IDC & Yankee Group Global HR Outsourcing Forecasts

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

GartnerNelson Hall Yankee GroupIDC

The worldwide HRO market predicted to be between $24 billion and $113 billion by 2009


Global HR outsourcing market, by region

14.3 15.2 16.5 18 19.821.9

3.74.1

4.54.9

5.35.6

2.72.9

3.13.3

3.4

3.7

0

5

10

15

20

25

30

35

2004 2005 2006 2007 2008 2009

Exp

ed

iture

(in

Bill

ion

s o

f U

SD

Americas EMEA Asia Pacific

EMEA will reach $5.6 billion in 2009 with the Americas and APAC commanding $21.9 billion and $3.7 billion of the $31.2 billion worldmarket

Between 2004 and 2009, the worldwide market will have a CAGR of 8.5%

Gartner Global Human Resources Outsourcing Spending, by Region

8.8%

28.5

2008

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

31.226.224.122.220.7WW HRO Services

20092007200620052004Gartner ($B)


EMEA & Western Europe HR outsourcing market size

4.1

5.6

4

5.5

0

1

2

3

4

5

6

2005 2009

Exp

ed

iture

(in

Bill

ion

s o

f U

SD

)

• 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

Gartner EMEA & Western Europe

HR Outsourcing Market

Western Europe

EMEA

Source: Gartner, 2005


Western Europe market information

• Single largest market in 2005 accounting just under 50%of HRO expenditure (Gartner)

• Will maintain its lead and increase its share to 54% by 2009 (Gartner)

• HRO expenditure will reach $3b in 2009, a 11% CAGR on 2005 (Gartner)

• GDP grew by 1.8% in 2005 and is expected to grow by 1.9% in 2006 and 2.4% in 2007 (EIU)

• In 2005, market share was second at 9.2% (Gartner)

• Will maintain market position in 2009 with spending reaching $449m, a 5% CAGR on 2005 (Gartner)

• Economy grew by 1.4% in 2005 and is expected to grow by 1.9% in 2006 and 2.4% in 2007 (EIU)

• Strong union representation encouraged growth in the less contentious payroll processing (YG)

• Third largest market in 2005 at 8.8% (Gartner)

• Predicted to maintain market position in 2009 with spending reaching $420m, a 4.4% CAGR on 2005 (Gartner)

• GDP grew by only 0.9% in 2005, 1.2% forecasted for 2006 (EIU)

• Poor economic performance strengthens HRO business case. Strong union representation inhibits HRO opportunities (YG)

• Italy was the fifth largest market in 2005 at $282m, a 7% market share (Gartner)

• In 2009, it will overtake the Netherlands ($350m) into 4th place and be worth $353m (Gartner)

• Italy’s economy was flat in 2005, but it is expected to grow by 1-1.5% in 2006-07 (EIU)

• Spain’s market was $181m in 2005 but is expected to be $245m in 2009, a CAGR of 7.8% (Gartner)

• 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

Germany

UK France

Italy / Spain


Americas & North America HR outsourcing market size

15.2

21.9

14.3

20.2

0

5

10

15

20

25

2005 2009

Exp

ed

iture

(in

Bill

ion

s o

f U

SD

)

• 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

Gartner Americas and North America


North America

Americas



North America market information

Source: Gartner, 2006; Economist Intelligence Unit , 2006

• 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)

United States

• 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)

Canada


APAC & Japan HR outsourcing market size

2.9

3.7

1.6

2.1

0

1

2

3

4

2005 2009

Exp

ed

iture

(in

Bill

ion

s o

f U

SD

)

• 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

Gartner Asia Pacific & Japan


Japan

Asia Pacific



APAC market information

• Comprised 55% HRO expenditure in 2005 (Gartner)

• By 2009, will slightly increase share to 56% with HRO expenditure reaching $2.1b (Gartner)

• GDP grew by 2.8% in 2005 and is expected to grow by 2.9% in 2006 and 2.4% in 2007 (EIU)

• Lifetime employment principles limits HR BPO opportunities; companies/staff resist drastic changes to their corporate cultures (IDC)

• In 2005, market share was second at 23% (Gartner)

• Will maintain market position in 2009 with spending reaching $863m, a 6.7% CAGR on 2005 (Gartner)


• Strong union representation saw HR processing deals dominate market; strategic HR policy and organisational effectiveness deals are not common (IDC)

• Third largest market in 2005 at 4.1% (Gartner)

• Predicted to maintain market position in 2009 with spending reaching $213m, a 15.3% CAGR on 2005 (Gartner)

• GDP grew by 9.8% in 2005, but it s expected to grow by 8.6% in 2006 and 8.2% in 2007 (EIU)

• Management resourcing and training requirements will drive HRO deals (IDC)

• Fourth largest market in 2005 at $108m (Gartner)

• In 2009, it will be valued at $134m, a 5.6% CAGR on 2005. However, market share remains stable at 3.7% (Gartner)


• Enterprise adoption of BPO services slow (IDC)

• Management resourcing and training requirements will drive HRO deals (IDC)

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

China

Japan Australia

India


IT Services• T-Systems• IBM/PWC• EDS • Accenture• HP• CGEY• SBS• M

Payroll Services• DATEV• ADP• Vodafone IS • Triaton• Several local providers

Professional EmployerOrganizations• Ranstad• Manpower• Adecco

HR BPO• Arinso• ACS• ADP• Hewitt• AON• Convergys• M

Software• SAP• Oracle• Peoplesoft / Oracle• Microsoft

Competitive landscape

HR expertise IT expertise

Benefit Consultants• Mercer• Towers Perrin• Hewitt Associates• AON• M

SAP HR Focus:• BearingPoint• Pecaso• M

Professional EmployerOrganizations• Ranstad• Manpower• Adecco

Benefit Consultants• Mercer• Towers Perrin• Hewitt Associates• AON• M


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

• 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.

HR BPO Competitors Evaluation: Forrester


Total Contract Value (TCV)

Transactions

99 transactions US$14.4 billion

Number of employees

100% = ~3.8 million employees

Hewitt

Accenture

Fidelity

ACS

ADPIBM

All others2

ConvergysArinso

ExcellerateHRO (EDS)

Hewitt

ExcellerateHRO (EDS)

Arinso

Convergys

Fidelity

ACS

IBM

ADP

Accenture

All others2

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, XchangingSample size: 99 transactions signed by March 2005

20% 21%

35%

12% 10%

15%12% 11%

7%

8%

10%6%12%

3%8% 9%

7%

9%

4%

7%16%

11%

13%

7%

3%10%

4%2%

6%

3%

Hewitt remains the market leader, but

several suppliers are competing for the

number two position1.

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

HR BPO Competitors: share distribution (%) – Everest


Number of transactions

Average contract size US$ millions

FidelityAccenture

Hewitt

15

5

1

10

20+

$50 $150

Capgemini

Convergys Mercer

IBM ACS

ExHRO1

ArinsoCeridian

ADP

1ExcellerateHRO (joint venturebetween EDS and Towers Perrin)

Note: Excludes AON and Xchanging as they only have onetransaction each. Aon is nowapproaching the market jointly withCSC

Suppliers arebeginning to ownmarket segments:

� ADP is quickly “owning” the smaller size transactions

� Hewitt continues to lead the larger transaction segment


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


Specialist firms adding services

e.g., ADP, AON (via CSC partnership) , Arinso, Ceridian,

Convergys, Fidelity, Hewitt, Mercer/SynHrgy

Consulting firms leveraging strategy relationships

e.g., Accenture

Traditional large scale outsourcing capabilities

e.g., ACS/Mellon, EDS/Towers Perrin (ExcellerateHRO), IBM

Offshore “e

ngines”

moving up va

lue-

added

Pure play firms

e.g., Xchanging (most others have

been bought)

� Suppliers will continue to seek partners with complementary capabilities and scale

� Unsuccessful niche players are likely to exit

HR

strategy

Training and development

Performance mgmtHR design

Regulatory and compliance

Payroll

Benefits

Compensation

Recruitment and selection

Employee data management

HR information systems


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


Overall HRO delivery capability

Current market share (Total Contract Value)

a

IBM ACSAccenture

Convergys

Capgemini

Aon

ADP

Xchanging

CeridianArinso

Mercer

Fidelity

II

III

I

Hewitt

ExHRO

I. Leaders

II. Major contenders

Maintain market share by: � Enhancing delivery capabilities� Building on existing relationships� Differentiating offerings by

“bundling” products

� Maintain/enhance delivery capabilities in growing segments

� Face a threat from leaders due to “bundling”of products

� Seek complementary suppliers to compete with leaders

III. Niche players

Gain market share by:� Competing on price� Maintaining/enhancing delivery capability� Building new relationships� Acquiring complementary niche players


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


1 Supplier execution capabilities are not included in current assessment, and will be included as part of future work2 Does not include internal employees served: Accenture 49,700; ACS 47,000; AON 22,000


Overall Comments

Geographic

delivery

footprint

Ceridian

ADP

ACS

Accenture

Technology capability

Capgemini

ARINSO

AON

ScopeScaleSupplier

High

Medium

� Ten HRO transactions; 467,800 employees served2

� Three global and two regional transactions

� Eight HRO transactions; 475,000 employees served2

� Four global and two regional transactions

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

� One HRO transaction; 70,000 employees served2

� No global transactions, one regional transaction

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

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

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

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


Overall Comment

Geographic

delivery

footprint

Xchanging

Fidelity

ExcellerateHRO

(EDS)

Convergys

Technology capability

Mercer

IBM

Hewitt

ScopeScaleSupplier Medium

� Eleven HRO transactions; 439,000 employees served2

� Three global transactions

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

� Nine HRO transactions; 293,000 employees served2

� Two global and two regional transactions

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

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

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

� Three HRO transactions; 380,800 employees served� One regional and two global transactions

High

1 Supplier execution capabilities are not included in current assessment, and will be included as part of future work2 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)


HR BPO Competitor Analysis – Yankee Group

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

Yankee Group 2005 HR BPO BrandMonitor® Survey Results

• IBM, ADP and Hewitt ranked as the leadingproviders when it comes to favored status orvendors that make the short list for consideration as the HR BPO service provider.

• Accenture, ACS and Hewitt ranked highest interms 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.


HR BPO Competitor Analysis - Gartner

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

(Ranked by estimated revenue, 2004)

9Convergys

8ExcellerateHRO (EDS & Towers Perrin)

7Fidelity

6Accenture

5Paychex

4Ceridian

3Hewitt Associates

2ACS

1ADP

RankTop HR BPO Vendors, Worldwide

Key Trends:

• “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 demand has anticipated the consolidation of vendors since 2003. Demand will likely continue as a bidding war breaks out for providers with deep geographic and domain capabilities.”

• “Although the majority of deals remain in discrete niche areas for HR outsourcing, such as payroll and benefits administration, providers such as Hewitt Associates, Accenture, Aon, ACS, Ariso, IBM and Convergys are selling comprehensive BPO contracts for HR, driving high contract value and market opportunity. The market adoption trend is toward more discrete deals evolving incrementally into comprehensive ones, with the resulting evolution of the HR BPO landscape toward greater vendor consolidation.”

• “Requirements for comprehensive HRO and vendor consolidation will put the HR BPO market in the hands of fewer providers. Niche providers will continue to emerge, however as the small and midsize business (SMB) sector grows, and as more HR transactions are delivered from offshore locations.”


HR BPO Competitor Analysis - NelsonHall

Source: NelsonHall. Global BPO Market Forecasts: 2005-2009. April 2005.

Global HR BPO includes:

Single HR process point services (e.g. Payroll administration, Benefits administration, etcL) Figures exclude temporary staffing services.

Estimated Global HR BPO Market Shares: 2004

63.613,540Total (Top 21 vendors, not all listed)

0.6120IBM Global Services

0.6125CGI

0.6130Atos Origin

0.8160LogicaCMG

0.8165ACS

1.0220Capita

1.1225Convergys

1.4290Mellon HR

1.4300Aon Consulting

1.4300Accenture

2.0435EDS

2.7585gevityHR

3.2690Ceridian

4.4940Mercer HR

4.6970Administaff

4.81,030Paychex

6.61,405Hewitt (inc Exult)

9.31,980Fidelity Employer Services

15.53,300ADP Employer Services

Market Share (%)

Estimated 2004 Global HR BPO Revenues ($M)Vendor


HR BPO Competitor Analysis - NelsonHall

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

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

55%1,974Total

130Mercer HR Services

135Xchanging

143Arinso

147Ceridian

274Aon

280ExcellerateHRO

3100IBM

3115ADP

5170Fidelity (FESCo)

6220Convergys

6220ACS

7240Accenture HR Services

17600Hewitt

Market Share (%)Estimated 2005 Global HR BPO

Revenues ($M)Multi-process HR BPO Vendor Multi-process HR BPO is the provision of multiple HR processes to larger organizations, typically involving staff transferring to the vendor organization


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 expectationM


Multi-process HR BPO Competitor Analysis - NelsonHall

Mwhile developing appropriate multishore, multi-client delivery model.



General HRO Trends over the coming years

• HR offerings will have to be global

- “As outsourcing buyers become more global, so must suppliers”

- “The more commonality you have, the better off you are”

• Buyers will combine HR with other BPO processes: Multi-Tower

- Buyers will combining HR with learning, finance and accounting or procurement.

• The scope of HRO deals will expand

- Seasoned HR buyers will expand their outsourcing to include resourcing, advisory services, and exit management, for example

• 2006 will be the year of execution

- � 68 HRO deals signed since the start of 2004

- “We will have to watch the capacity of suppliers to execute well on this volume of work”

• The supplier market will continue its consolidation

- Market exits and big suppliers to buy niche players to expand their offerings

• Retiring baby boomers will create more HRO opportunities

- “Companies are looking at HRO providers to move up the value chain and add services like succession planning.”

• A worry: Will demand outstrip supply?

- “The market could absorb that volume, but some suppliers couldn't do the transactions well”

• Suppliers are working on their offerings to integrate self-service technologies on the Web with transactions.

- “This is the next generation of HR transaction engines”

Source: Everest Research Institute

• HR offerings will have to be global

- “As outsourcing buyers become more global, so must suppliers”

- “The more commonality you have, the better off you are”

• Buyers will combine HR with other BPO processes: Multi-Tower

- Buyers will combining HR with learning, finance and accounting or procurement.

• The scope of HRO deals will expand

- Seasoned HR buyers will expand their outsourcing to include resourcing, advisory services, and exit management, for example

• 2006 will be the year of execution

- � 68 HRO deals signed since the start of 2004

- “We will have to watch the capacity of suppliers to execute well on this volume of work”

• The supplier market will continue its consolidation

- Market exits and big suppliers to buy niche players to expand their offerings

• Retiring baby boomers will create more HRO opportunities

- “Companies are looking at HRO providers to move up the value chain and add services like succession planning.”

• A worry: Will demand outstrip supply?

- “The market could absorb that volume, but some suppliers couldn't do the transactions well”

• Suppliers are working on their offerings to integrate self-service technologies on the Web with transactions.

- “This is the next generation of HR transaction engines”

30Disclaimer© 2006 Peter Louis & Michael Lennartz. All Rights Reserved.

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.

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

April 2006

By Peter Louis & Michael Lennartz

HR Outsourcing Competitor Analysis

A snapshot of the HR outsourcing market

Documents

HR Outsourcing Competitor Analysis, April 2006