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Speaking Engagements

Predict and Prepare sponsored by Workday 12/16

The Bill Kutik Radio Show® #171, 2/15
The Bill Kutik Radio Show® #160, 8/14
The Bill Kutik Radio Show® #145, 1/14
Workday Predict and Prepare Webinar, 12/10/2013
The Bill Kutik Radio Show® #134, 8/13
CXOTalk: Naomi Bloom, Nenshad Bardoliwalla, and Michael Krigsman, 3/15/2013
Drive Thru HR, 12/17/12
The Bill Kutik Radio Show® #110, 8/12
Webinar Sponsored by Workday: "Follow the Yellow Brick Road to Business Value," 5/3/12 Audio/Whitepaper
Webinar Sponsored by Workday: "Predict and Prepare," 12/7/11
HR Happy Hour - Episode 118 - 'Work and the Future of Work', 9/23/11
The Bill Kutik Radio Show® #87, 9/11
Keynote, Connections Ultimate Partner Forum, 3/9-12/11
"Convergence in Bloom" Webcast and accompanying white paper, sponsored by ADP, 9/21/10
The Bill Kutik Radio Show® #63, 9/10
Keynote for Workforce Management's first ever virtual HR technology conference, 6/8/10
Knowledge Infusion Webinar, 6/3/10
Webinar Sponsored by Workday: "Predict and Prepare," 12/8/09
Webinar Sponsored by Workday: "Preparing to Lead the Recovery," 11/19/09 Audio/Powerpoint
"Enterprise unplugged: Riffing on failure and performance," a Michael Krigsman podcast 11/9/09
The Bill Kutik Radio Show® #39, 10/09
Workday SOR Webinar, 8/25/09
The Bill Kutik Radio Show® #15, 10/08

Keynote, HR Tech Europe, Amsterdam, 10/25-26/12
Master Panel, HR Technology, Chicago, 10/9/012
Keynote, Workforce Magazine HR Tech Week, 6/6/12
Webcast Sponsored by Workday: "Building a Solid Business Case for HR Technology Change," 5/31/12
Keynote, Saba Global Summit, Miami, 3/19-22/12
Workday Rising, Las Vegas, 10/24-27/11
HR Technology, Las Vegas 10/3-5/11
HR Florida, Orlando 8/29-31/11
Boussias Communications HR Effectiveness Forum, Athens, Greece 6/16-17/11
HR Demo Show, Las Vegas 5/24-26/11
Workday Rising, 10/11/10
HRO Summit, 10/22/09
HR Technology, Keynote and Panel, 10/2/09

Adventures of Bloom & Wallace

a work in progress

M&A Observations: NorthgateArinso Acquires Convergys’ HRO Business

There’s been a lot of commentary on this deal, so well may you ask what more there is to say.  But just like with the Workday 10 release on which I just posted, I think there are several aspects of the NorthgateArinso/Convergys HRO deal that deserve further attention.  Against a backdrop of why Convergys HRO failed and what that failure means for this deal, I think there are four topics worthy of  further discussion:

  1. the upside and challenges for NorthgateArinso;
  2. the implications for the HR outsourcing competitive landscape;
  3. the implications for current and prospective HR outsourcing customers and for the HR leaders of these firms,; and
  4. the impact this should have on our thinking about M&A/investments/liquidity events/etc. across the HRM software and services industry. 

A tall order for one blog post, but it’s an important subject since nearly all HR organizations outsource some to many of their HRM (including payroll and benefits administration) processes — with more to come, in my opinion.

Why Convergys HRO Failed

Before we can talk about this particular deal and its broader implications in these four areas, it’s important to understand why Convergys needed to sell it’s HRO assets.  Convergys’ HRO business had been for sale for quite a while even as they worked very hard to improve their financials, improve scale and repeatability, renegotiate no-win contracts, etc.  I’ve said that Convergys was doomed in the HRO business because of three, easily observed from the outside looking in but very difficult to correct strategic errors. 

First, I believe that Convergys got into HRO, at least in part, because they were thinking that it was an obvious extension of their call center business and expertise at a time when shared services initiatives in very large HR organizations put a high premium on efficient, phone-based customer care.  Perhaps they thought that HRO was more like the call center business than it is, just as others who jumped into HRO, and are no more, thought HRO was just like ITO or a simple expansion of benefits administration.  These and several other misguided underestimations of just how hard it is to do the heavy lifting of HR data administration, payroll, employee and manager self service, etc have taken their toll:  ACS has disappeared into Xerox, Exult disappeared into Hewitt and almost took Hewitt down before they refocused on benefits administration, and Fidelity has just disappeared from this business altogether except for some benefits administration and their forte in 401K administration.  Our industry has paid a huge price for this underestimation, except for the small number of investors/executives who made out like bandits.  In my opinion, call-based customer service in HRM is too costly (despite labor arbitrage), too error-prone, too buried in bad accents, and too hard to manage to have been anything other than a stopgap on the road to intelligent self .  And Convergys was too slow to implement truly intelligent self service as a full (nearly full?) replacement for not only their call centers but many other essentially manual HRM processes.  There’s a lesson here for everyone in the HR outsourcing business, and that’s the importance of moving as quickly as possible to intelligent self service.  Younger workers demand it; others may need encouragement to get with the program.  But no outsourcer can prosper if they’re being eaten alive by call center-based services and manual processes.

Second, SAP is just not a great platform for HRO unless, like NorthgateArinso with euHReka, you wrap it with multi-tenancy, add enormous and cost-effective configuration experience and tools, and provide a much improved self service capability.  We can understand that Convergys was going after a class of customer, e.g. Dupont and Johnson & Johnson, which would probably have rejected outright any attempts to impose a more streamlined/standardized approach to their use of SAP, but it’s hard to understand how Convergys expected to profit from such clients even once they were implemented fully, especially given the next strategic error.  But I should also note here that I don’t think the outcome would have been any different if Convergys had chosen PeopleSoft or Oracle’s EBS HCM for their platform without having any particular expertise or IP based on them.  None of these products were built to support the economies of scale necessary in both implementing and operating an HRM BPO business without the BPO provider being able to surround the ERP/HRMS with a lot of IP, discipline, and proprietary technology.  And it takes years of disciplined implementation experience to build up those assets.

Third, whatever profit there was to be made in these deals, whatever IP there was to gain, went substantially to Deloitte.  Without any of the needed ERP/HRMS implementation KSAOCs, let alone the transformational/change management ones (real or perceived), Convergys partnered for all of that work with Deloitte.  I thought this was a bad idea from the start — and said so.  Deloitte made a ton of up-front money and built further experience and reuseable IP, while Convergys got stuck with the heavy lifting of operations, of the day-to-day delivery of whatever Deloitte had implemented.  And Deloitte had no more incentive (well, perhaps a little more) than most traditional time and material SIs doing ERP implementations to steer customers aggressively toward standardization where there’s no business case for anything but.  Meaning no disrespect to Deloitte, but there’s a smart, fast way to implement SAP and then there’s the approach still in use by some of the traditional, so-called transformational SIs.  HRM BPO absolutely requires the smart, fast implementation no matter how great or appropriate the underlying platform.

I’m sure there were many other reasons why, in spite of yeoman efforts by the Convergys HRO team to turn their business into a winner, they just couldn’t get to the needed margins, let alone do so under the glare of public company financial scrutiny.   But one of the great advantages NorthgateArinso has right now — and that many other HCM software and services firms have or are pursuing — is the ability to work out the long term foundations of a successful business without the demands of being a public company.

What Does This Deal Mean For NorthgateArinso?

Of course this deal puts NorthgateArinso squarely on the HRM BPO map in the US, much more so than they’ve been before.  It certainly gives them some marquee clients and additional and quite substantial global delivery/operational assets.  It will also give them a body of new SAP implementation work, as well as some PeopleSoft support work, to feed their very capable implementation teams.   There may even be situations in which a Convergys client or two will be interested in euHReka’s enhanced user experience, but that would require those clients to redo their implementations to be much more standardized or live with a euHReka overlay on top of their Deloitte-style SAP implementation.  Will all of this combine to put NorthgateArinso onto the very short list of providers that qualify for the even shorter list (VERY short list) of end-to-end, Fortune 100+ deals in the pipeline?  Will this persuade the sourcing advisors to say NorthgateArinso in the same breath as IBM for these types of deals?  There’s been a lot of positive press on the upside of this deal, but I don’t think it’s all upside.

The first challenge is that Convergys’ customers are pretty wildly different than NorthgateArinso’s, not only as to size and globalness but also as to expectations when dealing with service providers.  Second, without transformational consulting capabilities, NorthgateArinso is going to be tripping over that cast of characters prowling the halls at the likes of Dupont and Johnson & Johnson, advising them on everything from leadership development to total compensation plan design.  Those folks will not be tempering their advise based upon the cost/complexity of implementing it but rather on the value proposition for doing it.  Third, those changes are going to go thud, ka-ching when they run into each SAP implementation on which these customers are running, and those same customers will now be blaming NorthgateArinso for the cost and elapsed time to make these types of changes.  Fourth, the broader issue is how will NorthgateArinso accommodate cost-effectively the needs of these customers for frequent, complex changes in their business practices and plans when each of them is running, separately, in an individually configured instance of SAP.  Yes, Convergys worked very hard to ensure as much standardization as they could in these implementations, but I don’t believe for a minute that they got as far in this direction as NorthgateArinso is used to going with euHReka for their “native” HRM BPO clients.  Fifth, and then there is the noise level/demand on NorthgateArinso’s executives of some Florida politicians making hay out of the sole source renewal of Convergys’ HRO deal with the state of Florida (a deal that was never appreciated for its many good points) just before all of this work fell into the “foreign” hands of NorthgateArinso.  The Florida nonsense alone could be very distracting.  Add up all these challenges, and they may amount to nothing more than the ongoing distraction of NorthgateArinso’s management by a few big name clients when they’re trying to build a scalable business around a standardized platform and processes.  But it remains to be seen whether distraction or disciplined focus will characterize the Convergys part of NorthgateArinso’s business a year from now.

What Does This Deal Mean For NGA’s Competitors/The Competitive Landscape?

Naming names, I think this gives NorthgateArinso a considerable leg up among the likes of IBM, Accenture, Xerox/ACS and the wannabe Indian firms (none of whom have made much North American headway in truly integrated, multi-process HRM BPO for the highest end of the market), but they should be VERY careful what they wish for.  Some to many of those folks may sign up for global payroll and/or benefits with a willingness to standardize processes and even business rules where there’s no competitive advantage to differentiation — assuming you’ve got the consulting chops to get them there organizationally.  But will those same folks sign up for a very standardized, SAP-based platform when so many of them already have their own ERP licenses?  And even if NorthgateArinso chooses not to compete for more Convergys-like customers, they’re still going to complicate the sales cycles of these competitors for a certain range of pursuits. 

And what about ADP’s GlobalView and Patersons when it comes to global payroll?  I think this deal gives NorthgateArinso a considerable leg up in competing with both of these firms, but they and ADP are still trapped in the underlying cost of service of their SAP foundations except where they escape the trap for small populations by using other payroll platforms and integrating (some might say aggregating) on the back end.  Patersons may be able to do all of this at lower cost but clearly without the street cred/name recognition of an ADP and without the much broader service offering and global resources of a NorthgateArinso.

 What Does This Deal Mean For HR Leaders/HR Outsourcing Customers/Prospects?

If what you really want in a provider is someone to run your mess for less or do some slightly classier sounding version of lift and shift, forget NorthgateArinso.  Their future for larger, global deals is their euHReka platform — at least I hope it is.  Taking on more of the deal types that nearly drowned Convergys may sound glamorous, but there’s just no way to service them cost-effectively, and buyers aren’t willing to pay the true cost of customized, one-off platforms.  HRM BPO is a multi-tenant, highly automated, platform-based business where it’s successful, and NorthgateArinso means to continue its success.  For complex middle market or larger global enterprises, NorthgateArinso has a lot to offer you if you’re willing to move off of whatever conglomeration of stuff you’re running now and onto their euHReka platform.  But although NorthgateArinso can add new functionality into euHReka — and does — which isn’t in their delivered SAP platform, euHReka customers are tied to SAP’s aging underpinnings for the foreseeable.  That wouldn’t be as much of a concern to me if SAP’s own next gen product strategy were more clear or if newer platforms weren’t gaining momentum.   I may be the only person who thinks so, but I expect Workday to emerge as a BPO platform, Patersons to deliver increased amounts of HRM, and even the highest of the high end customers to wake up to what matters in HRM — and it isn’t having wacky workflows, arcane business rules, or impediments to full self service.

What Does This Deal Mean For M&A/Investments/Liquidity Events In Our Industry?

With all the private equity ownership of HRM software and services companies (e.g. StepStone’s announced MBO funded by HgCapital of their talent management software business), sooner or later we’re going to see these owners prepare for their liquidity events.  We can hope that all this money, including KKR’s investment in NorthgateArinso, is very patient, but these folks are usually invested for returns rather than because they have a passion for improving the practice of human resource management.  So I’ll be keeping a weather eye on the level of ongoing euHReka innovation, on the extent to which NorthgateArinso adds the type of consulting chops that are going to be needed to work with larger/more complex clients, and on the other important area of essential investment in their global HRO business.  Ongoing investment means future benefit to their customers and a long term commitment by KKR. 


As I tweeted on 3/7/10 right after this deal was announced, I like this deal because it:

  1. puts NorthgateArinso into high end HRO;
  2. gives NorthgateArinso a much faster ramp into North American HRO;
  3. provides NorthgateArinso with a new set of customers for ongoing SAP work;
  4. gives Convergys HRO customers a future upgrade path as their SAP platforms age (and, I should have tweeted, a life after Convergys);
  5. gives NorthgateArinso more possible euHReka work immediately for those customers which would prefer this to native SAP self service; and
  6. gives Convergys customers a very committed and capable new provider.

All in, this is a good deal not only for NorthgateArinso but also for our industry.  Well done!

Update/Correction 4/6/2010:

In the discussion above about why Convergys HRO failed, why it needed to be acquired, my third point was that there were fundamental flaws in how Convergys shared responsibilities for the implementation of these mega-clients with Deloitte.  It may well be that (1) I ascribed to Deloitte a larger role in the software-intensive aspects of the ERP implementation work than they in fact had, with their actual role being more about process redesign and change management than about ERP implementation or overall program management;  (2) the actual implementation work was more directly managed/orchestrated by Convergys and staffed with an array of subcontracted “arms and legs,” some portion of which were from Deloitte; and (3) while Deloitte did make a profit on their work, that work was done on a more fixed price basis with any created IP belonging to Convergys.  It has also been pointed out that Deloitte is currently the audit firm for KKR, the private equity firm that owns NorthgateArinso (and now owns Convergys IPO), which subsumes the question of Deloitte’s having any further involvement with this business.

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