October 2011
Webinar: Benefits Administration Outsourcing Market: Mature yet Dynamic
Proprietary & Confidential. © 2011, Everest Global, Inc. 2
About Everest Group
Everest Group is an advisor to business leaders on the next generation of global services with a worldwide reputation for helping Global 1000 firms dramatically improve their performance by optimizing their back- and middle-office business services. With a fact-based approach driving outcomes, Everest Group counsels organizations with complex challenges related to the use and delivery of global services in their pursuits to balance short-term needs with long-term goals. Through its practical consulting, original research and industry resource services, Everest Group helps clients maximize value from delivery strategies, talent and sourcing models, technologies and management 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 [email protected]
Today’s Webinar is brought to you by Everest Group
Today’s Webinar
Benefits Administration Outsourcing Market: Mature yet Dynamic Synopsis: 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 Possible differentiation themes for service providers
Proprietary & Confidential. © 2011, Everest Global, Inc. 3
Introductions
Sayan Chatterjee Senior Research Analyst Everest Group [email protected]
Rajesh Ranjan Research Director Everest Group [email protected]
Proprietary & Confidential. © 2011, Everest Global, Inc. 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. 5
Everest Group provides a comprehensive coverage of the HRO market
HR strategy
Employee data management Payroll Benefits
Compensation Recruitment & selection
Learning
Employee contact center HR information systems and reporting
Global mobility Regulatory & compliance
Employee relations
Performance management
Multi-process HRO (MPHRO)
Strategy Judgment-intensive Transaction-intensive
Includes transactions that include a minimum of three HR processes.
Targets both the mid-market (between 3,000 to 15,000 employees) as well as large market (>15, 000 employees)
Single-process HRO (SPHRO)
Includes transactions that involve stand-alone single process outsourcing
Currently tracks following markets – Benefits Administration
Outsourcing (BAO) – Recruitment Process
Outsourcing (RPO) – Multi-country Payroll
Outsourcing (MCPO) – Learning Services
Outsourcing (LSO)
1 2
This webinar presents results of Everest Group’s recently released 2011 Annual Report on the Benefits Administration Outsourcing (BAO) market
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Everest Group’s BAO research is based on two key sources of proprietary information
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 sourcing
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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 capability
2
In 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
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Everest Group defines BAO as transfer of ownership of at least one core-benefits area on an ongoing basis
For 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
Benefits services
Health & Welfare (H&W) benefits Annual enrolment Data administration / record
keeping Feeds to service providers (i.e.
medical providers, and insurance companies)
Billing and financial management (account reconciliations)
COBRA eligibility and billing (U.S. only)
Contribution processing Life event processing Plan communication and education Decision-support tools Dependent verification and audits Technology support
Contact center
Vendor management
Defined benefits (DB) Setup and record keeping Calculation – estimates and final
calculations for retirements, terminations, etc.
Eligibility determination and tracking
Funding and account reconciliation
Retiree payroll Governmental reporting Plan communication and
education Plan audit assistance
Defined contribution (DC) Enrolment Plan administration Payroll deductions Record keeping Fund management Decision-support Financial education Plan communication and
education
Other services Workers compensation Disability and absence
management Hybrid pension plan
administration Stock plan administration Non-qualified plan administration Total rewards statements Consulting services and benefits
strategy
Core-benefits area Support services
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There are three outsourcing models for benefits administration
Scope of this study
Source: Everest Group (2011)
Technology outsourcing model
Comprehensive outsourcing model
Selective outsourcing model
Key characteristics
Consideration for adoption
Low High Degree of outsourcing
Resembles an ASP/Software-as-a-Service (SaaS) model as only benefits technology is outsourced
Service provider is responsible for hosting and maintaining legally compliant benefits system
Buyer retains complete ownership of the benefits process
Also referred to as “co-source” model
Benefits technology and one of the core-benefits areas (health or retirement) is transferred to the service provider
Buyer retains the ownership of the other core-benefits areas
Service provider may provide technology integration with non-outsourced benefits areas
Outsourcing of only retirement benefits, but including both DB and DC, is also referred as Total Retirement Outsourcing (TRO)
Outsourcing of both health and retirement benefits administration process and underlying technology to a service provider
Also referred as Total Benefits Outsourcing (TBO)
Buyer wants to keep complete control over the benefits process but requires access to better technology
In some specific benefits areas, buyers need expertise and support on an ongoing basis
Buyer wants to dip a toe in the outsourcing model
Buyer wants to transform the benefits function
Buyer wants to expand the value creation beyond the “selective” model
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Contents
Background and context
Market size and growth
Buyer adoption and solution characteristics
Service provider landscape
Key takeaways
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BAO is one of the largest and most mature markets among others in HRO
15-20%
25-30% 35-40%
15-20%
Third-party HRO market size US$ billion
100% = 18-20
MPHRO
BAO (SPHRO2)
Payroll (SPHRO2)
Other SPHRO markets1
5.4
Third-party BAO market penetration US$ billion
20-22
1 Includes Recruitment Process Outsourcing (RPO) and Learning Services Outsourcing (LSO) 2 Single-process HRO Source: Everest Group (2011)
2011 BAO market size
Third-party addressable BAO market potential
Proprietary & Confidential. © 2011, Everest Global, Inc. 11
The BAO market, growing at a steady rate, crossed the US$5 billion mark in 2011
1 As of April 2010 2 As of June 2011 Sample size: 1,039 BAO deals signed during 2007-June 2011 Source: Everest Group (2011)
4.8
5.4
2010 2011
BAO market size over time US$ billion
1 2
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Poll Question: How do you expect the demand for BAO to change in the next one year?
73%
23%
0%
Increase Remain the same Decrease
Source: Live polling conducted during the Benefits Administration Outsourcing Market: Mature yet Dynamic webinar on October 11, 2011
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On a smaller base, the H&W market is growing at a rate of almost four times that of the pension market
3.8 4.1
2010 2011
1 As of April 2010 2 As of June 2011 Sample size: 1,039 BAO deals signed during 2007-June 2011 Source: Everest Group (2011)
H&W market size over time US$ billion
Pension administration market size over time US$ billion
1 2
1.0 1.3
2010 2011 1 2
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While there are some common outsourcing drivers across both the H&W and pensions markets…
Business drivers
Improving employee engagement
Cost reduction
Pension administration H&W
Compliance
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….some drivers are unique to specific benefits areas
Business drivers
Strategic shift from DB to DC
U.S. healthcare reform 2010
Pension administration H&W
Reduced absenteeism and enhanced productivity
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Contents
Background and context
Market size and growth
Buyer adoption and solution characteristics
Service provider landscape
Key takeaways
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North America pioneered the BAO market and continues to be at the forefront. Europe is starting to witness increased activity in recent years
Overall share of active BAO deals by signing region Number of deals
93% 90%
5% 9% 2% 1%
2007-09 2010-11
100% = 722 317
North America
Rest of World Europe
Sample size: 1,039 BAO deals signed during 2007-June 2011 Source: Everest Group (2011)
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Notwithstanding interest in multi-country BAO, it is yet to turn into actual adoption
Overall share of active BAO deals by geographic scope Number of deals
Sample size: 4,852 BAO deals signed as of June 2011. 303 BAO deals signed during 2010-June 2011 Source: Everest Group (2011)
Single-country
Multi-country
4,852 303
97% 99%
3% 1%
Overall 2010-11
100% =
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Poll Question: Are you considering a multi-country BAO solution in the current or near term?
0%
41%
59%
Yes, at advanced stage of consideration
Yes, but at preliminary stage
No
Source: Live polling conducted during the Benefits Administration Outsourcing Market: Mature yet Dynamic webinar on October 11, 2011
Proprietary & Confidential. © 2011, Everest Global, Inc. 20
Offshore leverage in BAO continues to increase
Sample size: 788 BAO deals signed as of June 2011 Source: Everest Group (2011)
Inclusion of offshoring in BAO deals Number of deals
Percentage of FTEs at offshore locations Percentage
66%
34%
22%
28%
2010 2011
Offshoring component
No offshoring component
100% = 788
Proprietary & Confidential. © 2011, Everest Global, Inc. 21
The dominance of India as an offshore location represents a global sourcing concentration risk
Distribution of BAO FTEs by offshore location Percentage
91%
9%
India FTEs
FTEs in offshore locations other than India1
100% = 7435
1 Includes South East Asia and Central and South America Source: Everest Group (2011)
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Contents
Background and context
Market size and growth
Buyer adoption and solution characteristics
Service provider landscape
Key takeaways
Proprietary & Confidential. © 2011, Everest Global, Inc. 23
The BAO market comprises service providers from a variety of backgrounds
HR consulting/technology Focused benefits outsourcing
Financial services HRO/BPO services
BAO service provider landscape
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The consolidation wave in recent times has significantly impacted the service provider landscape
ILLUSTRATIVE
Key BAO service providers landscape developments
ACS acquires Mellon HR&IS
ING acquires Citistreet LLC
Watson Wyatt merges with Towers Perrin to form Towers Watson
Advent International acquires Xafinity AON announces acquisition of J.P. Morgan
Compensation and Benefit Strategies ACS acquires ExcellerateHRO Mercer acquires Innovative Process
Administration (IPA) 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 NorthgateArinso
Pre-2010 2010-2011
Source: Everest Group (2011)
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Investments by service providers are making the value proposition of BAO more compelling
Source: Everest Group (2011)
Key areas of investments
Technology advancements
Expanding delivery model
Enhanced solution scope
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Contents
Background and context
Market size and growth
Buyer adoption and solution characteristics
Service provider landscape
Key takeaways
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Key takeaways for buyers and service providers of BAO
For 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 case
For 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
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Topic Goals of the research Planned release
Q4-2011
Benefits Administration Outsourcing (BAO) – Service provider landscape and capability assessment
Provides a comprehensive analysis of the BAO service provider landscape along multiple dimensions and assesses service providers to position them in the Everest PEAK matrix
Q4-2011
This research aims to compare Total Cost of Ownership (TCO) of Business Process as a Service (BPaaS) solutions with traditional BPO using a comprehensive financial model and create a comprehensive framework to evaluate BPaaS sourcing
Making the Right Choice – How to Evaluate BPaaS Solutions?
Major forthcoming HRO research
Benefits Administration Outsourcing (BAO) service provider profile compendium
The report provides accurate, comprehensive, fact-based snapshots of 10+ leading BAO service providers. Each profile highlights service provider’s delivery capability, market strategy, key organizational developments, and delivery footprint
Q4-2011
Provides a comprehensive coverage of the 2011-12 Recruitment Process Outsourcing (RPO) market including market size and buyer adoption, emerging solutions and best practices, changing transaction characteristics and evolving service provider landscape
RPO Annual report 2012
Q4-2011
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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, [email protected] – Sayan Chatterjee, [email protected]
For background information on Everest Group, please visit:
– www.everestgrp.com – research.everestgrp.com
Thank you for attending today
Q&A
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