nelsonhall’s neat report identifies nga's payroll leadership (overall)

© NelsonHall 2013 1 Licensed for distribution November 2013

NEAT EVALUATION FOR NORTHGATEARINSO:

Payroll BPO Market Segment: Overall This document presents NorthgateArinso with the NelsonHall NEAT vendor evaluation for Payroll BPO (Overall market segment). It contains the NEAT graph of vendor performance, the latest market analysis summary for Payroll BPO, and a summary vendor analysis of NorthgateArinso in Payroll BPO. An explanation of the NEAT methodology is included at the end of the document.

NEAT Evaluation for NGA: Payroll BPO (Overall)


Payroll BPO: Market Summary

Challenges & Success Factors

Proven capability still tops vendor selection criterion but due to buyer needs to reduce cost, pricing has become vital, followed by:

Strength of technology

Multi-country delivery capability

Quality of service

Relationship

Key vendor challenges are:

Continued client cost

Reduction and provision of multi-country payroll

Payroll critical success factors include providing evidence of success which will help alleviate change management concerns, thereby reducing outsourcing fears and expediting the slowdown in outsourcing decisions. Payroll critical success factors must include cost savings for the mid-market and multi-country payroll for the large market clients.

Outlook

Payroll outsourcing growth is estimated to be 3.8% CAAGR from 2013 - 2017

Growth is solid across all regions, but highest in Latin America followed by Asia Pacific and EMEA. Compliance becomes increasingly important to reduce risk by ensuring adherence to ever-changing tax laws and regulations, for both domestic and multi-country payroll

Full payroll BPO, which represented ~15% of the total payroll outsourcing market in 2009, rose to ~19% in 2012, and is expected to be ~20% by 2014 as buyers seek the full benefits of BPO, while also continuing to seek the benefits of SaaS only, particularly for SMB organizations

Multi-country payroll continues double-digit growth as MNC's look to standardize and consolidate onto one global platform with one vendor for consistency of process, technology and service for increased efficiency

Partnering grows to 2/3 of vendors by 2014 for delivery in countries they do not operate

The mid-market which represents ~46% of the total payroll outsourcing market today

continues high growth due to demand for platform-based payroll estimated to be ~50% of the total market by 2015 as providers continue to launch new offerings to take advantage of this growth opportunity.



Market Size & Growth

The payroll outsourcing market, though mature, was able to grow 3.4% in 2012 despite sluggish economy and low job growth. Global payroll outsourcing expected to reach $16.2bn by 2017. Currently, the estimated market size is $13,490m, with North America at $9.612m and EMEA at $3.150m

North America, including U.S. which comprises 94% of North America, continues to dominate market size, with Latin America and Asia pacific seeing the highest growth. Higher growth in Europe in 2013-2017, due to demand for multi-country payroll buyers look to consolidate multiple payroll systems and ensure compliance with local country laws.

Payroll outsourcing continues to be most mature in the U.S., followed by the U.K., and Continental Europe, driven by demand for reduced cost and multi-country coverage.

Payroll outsourcing activity led by manufacturing, financial services, public sector and retail and consumer services sectors with strongest increases in demand coming from financial services and retail/consumer services.

Buy-Side Dynamics

Cost reduction is by far the predominant driver why clients continue to outsource payroll followed by standardization by single vendor and consolidation to a single platform.

Cost remains top driver for mid-market and national clients while demand for multi-country payroll replaces cost as the top driver for MNC's.

Cost savings and multi-national payroll coverage are top benefits obtained by clients from outsourcing payroll. While resistance to change and fear of loss of control continue to be the main inhibitors to payroll outsourcing, with lack of business case and the possible need for client redundancies of concern.



Vendor Analysis Summary for NorthgateArinso

Overview

NorthgateArinso offers three different levels of payroll outsourcing services. As defined by NorthgateArinso these services range from payroll processing to comprehensive HRO.

Level 1: Processing services: NorthgateArinso provides the system support including the system, application, software and maintenance

Level 2: Managed services: In addition to system support NorthgateArinso provides payroll administration in terms of payroll validation and payroll management services

Level 3: Comprehensive outsourcing: In addition to the above services NorthgateArinso provides data input, employee contact and time management.

NorthgateArinso has ~9,000 total employee's including ~2,000 payroll SME's globally, with additional personnel supporting payroll from other functions including from product development, consulting, systems development, integration and testing.

Prior to the acquisition of Convergys, NorthgateArinso was operating from nine HR service centers and Convergys had ten. The company’s consolidated these service centers, eliminating Katowice, Poland and Budapest, Hungary, while adding a center in Kuala Lumpur, Malaysia. Centers were eliminated to reduce costs while Malaysia was added to support growth of off-shoring and provide language capability that includes: English, Japanese, Bahasa, Thai, Mandarin, Tagalog, Hindi, Tamil, Simplified Chinese, Korean, Cantonese, and Spanish. In September 2012 an office in Tokyo, Japan was added to expand NorthgateArinso's Asian capabilities.

Originally more of a mid-market provider in the U.K., NorthgateArinso targets organizations of different sizes, from under 500 employees to multi-national large clients such as AstraZeneca which has 65,000 employees in 100 countries. Outside of the U.K. NGA focuses on the enterprise market segment, with employee sizes of 5,000 and above. The breakdown of NorthgateArinso's clients by size is:

Small market of <500 employees: 10%

Mid-market of 500-15,000 employees: 50%

Large market of >15,000 employees: 40%

NorthgateArinso is seeing increased growth coming from the mid-market and from trans-Atlantic contracts covering both U.S. and European operations.

NorthgateArinso is trying to expand its footprint in the U.S. where in 2012 new leadership appointments were made.

With its payroll service offering, chemical manufacturing, pharma and finance have been strong sectors, due in part to their international presence and need to scale. Pharma and energy, in oil and gas have shown increased interest.



Financials

Fiscal year (FY) 2012 (the year ended April 30, 2012) revenues for NorthgateArinso were £550m, ($850m). NorthgateArinso does not report its revenues by service line, but NelsonHall estimates calendar year (CY) 2012 payroll revenues to be £168m (~$265m) with payroll revenues by country and region as below. Payroll BPO is 66% of total payroll services.

Europe 45%, with U.K. accounting for 64%

North America 36%

Rest of World 19%, with APAC 70% and Latin America 30%

By NelsonHall rankings, NorthgateArinso is the fourth largest payroll vendor globally, the third largest in Europe and the largest in the U.K.

Strengths

Global delivery and multi-country capability, operating in 35 countries, delivering payroll services in 111 countries and tracking legal compliance in 130 countries

Ability to win sizeable mid and large market clients, including multi-nationals, for both single service and MPHRO contracts

Ability of NorthgateArinso's SAP based euHReka platform to provide multi-country payroll services and euHReka OnDemand to provide talent management as a SaaS solution with or without payroll BPO. ResourceLink Aurora can provide HR and payroll services on the same platform and clients have their choice to access it via OnDemand, OnPremise or Zero-footprint.

Challenges

Creating awareness of recently signed contracts that have not yet been announced, including multi-country clients

In addition to competition from large MPHRO providers, payroll specialists including CloudPay and Safeguard World International have been winning a high number of multi-country payroll contracts

Competition from major payroll providers that can also offer RPO provided with payroll.

Strategic Direction

NorthgateArinso is defining itself as an HR business-platform-as-a-service (BPaaS) business enabled by technology, process, and domain expertise. NorthgateArinso continues to standardize its services and processes including users on a shared process on SaaS or Cloud



ERP. NorthgateArinso is also developing an internal system called ScopeHR, which will standardize and automate the production of all key BPO/BPaaS information and documents to make solution selection more efficient.

Workday will continue to be a key partner as a channel for multi-country payroll where clients already include U.S. based financial, publishing and retail organizations.

Outlook

Though NorthgateArinso has not won any recent multi-country contracts, given the company's global capability and experience, including provision of payroll services to AstraZeneca in 100 countries across four continents, NelsonHall believes NorthgateArinso will win multinational contracts again in 2013 as the demand for multi-country payroll has increased.

NorthgateArinso will also continue to grow in the SMB market, including with agoHRa, for companies with up to 500 employees per country.



NEAT Evaluations for Payroll BPO

NelsonHall’s (vendor) Evaluation & Assessment Tool (NEAT) is a method by which strategic sourcing managers can evaluate outsourcing vendors and is part of NelsonHall's Speed-to-Source initiative. The NEAT tool sits at the front-end of the vendor screening process and consists of a two-axis model: assessing vendors against their ‘ability to deliver immediate benefit’ to buy-side organizations and their ‘ability to meet client future requirements’. The latter axis is a pragmatic assessment of the vendor's ability to take clients on an innovation journey over the lifetime of their next contract.

The ‘ability to deliver immediate benefit’ for the Payroll BPO NEAT assessment is based on the criteria shown in Exhibit 1, typically reflecting the current maturity of the vendor’s offerings, delivery capability, benefits achievement on behalf of clients, and customer presence.

The ‘ability to meet client future requirements’ assessment is based on the criteria shown in Exhibit 2, and provides a measure of the extent to which the supplier is well-positioned to support the customer journey over the life of a contract. This includes criteria such as the level of partnership established with clients, the mechanisms in place to drive innovation, the level of investment in the service, and the financial stability of the vendor.

The vendors covered in NelsonHall NEAT projects are typically the leaders in their fields. However, within this context, the categorization of vendors within NelsonHall NEAT projects is as follows:

Leaders: vendors that exhibit both a high ability relative to their peers to deliver immediate benefit and a high capability relative to their peers to meet client future requirements

High Achievers: vendors that exhibit a high ability relative to their peers to deliver immediate benefit but have scope to enhance their ability to meet client future requirements

Innovators: vendors that exhibit a high capability relative to their peers to meet client future requirements but have scope to enhance their ability to deliver immediate benefit

Major Players: other significant vendors for this service type.

The scoring of the vendors is based on a combination of analyst assessment, principally around measurements of the ability to deliver immediate benefit; and feedback from interviewing of vendor clients, principally in support of measurements of levels of partnership and ability to meet future client requirements.



Exhibit 1: Ability to Deliver Immediate Benefits: Assessment Citeria

Assessment Category Assessment Criteria

Payroll BPO Offerings

Range of payroll processes covered Multi-country reporting service

Payroll BPO Delivery Capability

Delivery capability in support of U.S. payroll Delivery capability in support of U.K. payroll Delivery capability in support of Continental European payroll Delivery capability in support of APAC payroll Delivery capability in support of LATAM payroll Application of payroll benchmarking and roadmap Maturity of multi-channel deployment Application of payroll platform technology Application of other enabling technologies Application of analytics Willingness to take over client payroll operations

Customer Presence in Payroll BPO

Scale of large company presence (more than 15K employees) Scale of mid company presence (500 -15K employees) Scale of small company presence (less than 500 employees) Scale of payroll presence in U.S. Scale of payroll presence in U.K. Scale of payroll presence in Continental Europe Scale of payroll presence in Rest of World

Payroll Benefits Achievement

Level of cost savings achieved Ability to deliver on-going and one-off process improvement Proportion of policies priced on an outcome basis Perception of T&Cs and value for money

Level of cost savings achieved

Support for new country entry Proven support for M&A activity



Exhibit 2: ‘Ability to meet client future requirements’: Assessment criteria

Assessment Category Assessment Criteria

Ability to meet client future requirements

Perceived suitability to meet future client needs

Mechanisms in place to deliver client innovation

Partnership approach

Achievement of delivery innovation Perceived impact of benchmark & roadmap methodology

Payroll BPO Market momentum Rating according to NelsonHall 'Ones-to-Watch' Financial Performance Index

nelsonhall’s neat report identifies nga's payroll leadership (overall)

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