Magic Quadrant for Payroll BPO Services

Transcription

1 G Magic Quadrant for Payroll BPO Services Published: 23 July 2014 Analyst(s): Morgan Yeates This Magic Quadrant evaluates the capabilities of 12 key providers of payroll business processing outsourcing services located around the globe. Buyers of payroll BPO services should use it to identify and assess those providers that can best support their payroll BPO needs. Market Definition/Description Payroll business process outsourcing (BPO) services consist of administrative services and support provided by an external party for some or all of the payroll processes historically administered internally by an employer. Payroll BPO service providers offer a broad array of services, including the following, which may be offered individually or bundled: Receipt and ongoing maintenance of all payroll-related data on regular, contract and temporary employees, to be stored on the client's or the provider's system Pay calculations made according to the employer's pay policies, such as source-to-gross, gross-to-net, overtime and holiday pay calculations Payroll tax calculations, withholding and payments to taxing authorities Regulatory tax form production, print/image distribution and filings Third-party deductions and disbursements, garnishment administration, and other transactions impacting an employee's pay Payroll processing, and printed/digital checks and payroll advices Treasury services, fund disbursements, electronic fund transfers and interface to the employer's general ledger system and third-party systems Payroll audit and control procedures Data privacy and security responsibilities Reporting related to the above processes Payroll BPO offerings may also include the following related services, most of which are critical to managing the workforce and therefore must be performed by either the client or the provider:

2 Employee time and attendance tracking and related management services, software or tools, and related time-to-gross (source-to-gross) pay calculations Employee and manager self-service access, including a portal, mobile device apps and social collaboration tools Management and resolution of employee and manager payroll inquiries Reporting and other services related to multiple countries, currencies and languages Business intelligence and data analytics regarding employer payroll activity and data Payroll debit cards Payroll managed service provider (MSP) responsibilities, including those related to contract or temporary employees Payroll issues arising from merger, acquisition and divestiture events Various pre- and postimplementation consulting services, such as process re-engineering and continuous improvement initiatives, payroll planning and timetable management, outsourcing business case development, and ongoing payroll administration governance Other related payroll administration services The process steps incorporated in payroll administration may be assigned to the employer and BPO service provider in various combinations. The provider may give access to the employer's employees and managers via a portal and mobile devices. The predominant examples of payroll BPO service delivery options are: Fully outsourced (or managed) payroll services The provider takes responsibility for all payroll process steps; meets payroll-specific performance standards (such as accuracy and turnaround time); and provides the software, technological tools, staff and payroll expertise required to complete the steps, while giving the client access to the data through online tools and reports. In this option, the client may eliminate most of its internal payroll staff, as the provider's staff would perform almost all payroll functions. Also, the provider may utilize its own, the client's, or a third party's software and other technological tools for the provisioning of its services, which may be hosted on either the provider's or the client's data center and maintained by that party. Contracts are normally structured using a menu approach, having a combination of pertransaction, per-activity and flat-rate pricing. Partially outsourced payroll services The provider takes responsibility for only some payroll process steps and must meet performance standards specific to those steps; the client retains responsibility for both the remaining process steps and the integration of outsourced and insourced steps. Also, sometimes partially outsourced payroll services are utilized when some aspects of the services are mandated by legislation, as in China where government-sanctioned entities must be used to make payroll payments. Contracts are normally structured using a menu approach, having a combination of per-transaction, per-activity and flat-rate pricing. Page 2 of 37 Gartner, Inc. G

3 Business process as a service (BPaaS) payroll services The provider provides the client with access to its payroll platform and related processes (often automated) via the Internet, and the provider hosts and maintains these offerings in its data center. The provider is also responsible for at least some, if not most, of the payroll process steps and meets payroll-specific performance standards (that is, not merely standards for application availability and uptime). Services are one-to-many using shared resources and are usually priced on a transactional basis (such as per-paycheck or per-pay-period). In this Magic Quadrant, we evaluate providers that offer one or more of the above service options, that are headquartered in a variety of countries, and whose service delivery footprint varies from two countries to over 100 countries. Some BPO service providers may offer software as a service (SaaS) and/or on-premises service delivery options. A provider's position in the Magic Quadrant graphic is generally determined by Gartner's ratings regarding its ability to execute and its completeness of vision. These two broad categories are divided into a total of 15 factors including such factors as scope of delivery, quality of services, marketing and sales execution, and several others. While the 13 providers profiled here are somewhat dissimilar on the surface, Gartner's Magic Quadrant provides standardized and consistent ratings so that payroll BPO buyers can compare providers objectively and fairly. For a more detailed description of various structures of outsourcing services, see "Taxonomy of HR BPO Service Delivery Models: Select the Right Model to Meet Desired Outcomes." Gartner, Inc. G Page 3 of 37

4 Magic Quadrant Figure 1. Magic Quadrant for Payroll BPO Services Source: Gartner (July 2014) Vendor Strengths and Cautions ADP At $11.5 billion in revenue for 2013, Automatic Data Processing (ADP) is the largest and one of the oldest (since 1949) payroll service providers in the world. ADP employs 57,000 employees in 41 Page 4 of 37 Gartner, Inc. G

5 countries, including staff in eight payroll service centers. The company has a range of payroll solutions for every organization profile: ADP offers services on a bureau basis as well as on BPaaS, managed, and comprehensive outsourced bases. The company utilizes domestic solutions in 20 countries and multinational solutions in more than 80 countries; it also offers SaaS solutions. It supports some of the largest companies and government organizations in the world. Strengths Strong global operations. ADP provides payroll and HR services to more than 35 million employees in 104 countries, and it is planning to add more countries in ADP has almost 590,000 clients, of which approximately 90% are organizations with fewer than 500 employees. At the same time, ADP has demonstrated that it can manage very large clients, with some having over 140,000 employees; and it can manage very complex payroll environments for single-country and multicountry clients. Platform flexibility. ADP has payroll solutions for every organization profile: ADP GlobalView for large multinational corporations (MNCs); ADP Streamline for smaller MNCs or small employee populations outside the U.S.; ADP Vantage HCM for midmarket U.S. domestic companies; ADP Workforce Now for the small or midsize business (SMB) market; TotalSource, a professional employer organization; and Run Powered by ADP for small businesses. Additionally, the company can help a client migrate from one type of offering to another as the client's needs or size change. Broad scope of HR BPO services. In addition to payroll, ADP offers HR BPO services in the areas of time and labor management, health and welfare benefits plans, talent management, recruitment, learning and training, and tax and compliance, among others. This breadth of scope allows bundling and attractive pricing for buyers looking for more than payroll. Significant investment in technological and payroll domain innovation. ADP will invest more than $750 million in HR, payroll and technology research this year. Its mobile solutions are used by more than 2.3 million users in 23 languages. It has expanded its Innovation Lab, which focuses on payroll system user experience, and has launched ADP Analytics, which focuses on building tools for gleaning insights from employee data. ADP's Business Process Improvement initiative focuses on optimizing end-to-end operational procedures and technology to reduce payroll administration costs. Continuous investments in human capital management (HCM) research. ADP's National Employment Report and other publications offer insights into the U.S. economy based on its analysis of more than 500,000 companies. Its Global Benchmarking Study presents findings on outsourcing practices, emerging trends and innovation. ADP also conducts research in related areas, such as payroll total cost of ownership (TCO), employment and HCM trends, benefits programs and administration, workforce strategy, and automation in the payroll process. Cautions Speed of integration among offerings. ADP wisely continues the integration efforts among its GlobalView, Streamline, Vantage HCM and Workforce Now solutions to achieve more seamless Gartner, Inc. G Page 5 of 37

6 global data management and to assist in client migrations from one platform to another. However, this is not happening fast enough for some clients considering such migration, although most of them understand that ADP will indeed be working to improve this integration for several years. Additionally, ADP's various offerings overlap market segments (such as by size of company and by country), causing some confusion in the market. Internal distraction impairs client focus. As in 2012 and 2013, Magic Quadrant reference clients cite ADP for being distracted by internal issues at the expense of client focus, resulting most problematically in project management resources being stretched too thin and/or turning over. This is especially true regarding the need for local-country expertise. ADP may need to change its delivery structure to better satisfy what existing clients see as their routine delivery needs. Lack of partnership. Some clients cite ADP for being too hesitant to build a true partnership with them. ADP lacks the give-and-take between partners, is too quick to place blame instead of focusing on a solution, spends little effort sharing lessons learned and best practices among clients, and is sometimes too slow to escalate internally a recurring service delivery problem. Aon Hewitt Aon Hewitt, the HR consulting and outsourcing subsidiary of Aon, has offered global HR and payroll BPO services since Aon Hewitt's payroll BPO services include 4,000 employees in an operation that generates revenue of over $500 million annually. Aon Hewitt offers managed payroll and related services in the U.S., the U.K. and Canada utilizing PeopleSoft, SAP, Workday and other platforms. It also offers a proprietary payroll platform, HewittPay, in China (including Hong Kong and Taiwan), India, Malaysia, the Philippines and Singapore. Strengths Balanced distribution of clients and revenue across client size. Aon Hewitt processes payroll for over 450 clients and their 2 million employees, located in seven countries. The company's clients range in size from 50 employees to over 250,000 employees. Broad scope of HR BPO services. In addition to payroll, Aon Hewitt offers BPO services in the areas of talent acquisition and recruitment, pension and defined contribution retirement plans, and health and welfare plans, among other HR areas. This breadth of scope allows bundling and attractive pricing for buyers looking for more than payroll. HR consulting assistance. Since its inception, the former Hewitt Associates has been known for the breadth, depth and creativity of its HR consulting services. The company offers payroll BPO buyers comprehensive services in HR strategy, program design and implementation, administration, and compliance. Cautions Limited geographic service footprint. Although Aon Hewitt's broader HR BPO services support clients with employees in 65 countries, payroll BPO services are offered in only seven. In the growing and highly competitive market for payroll services whether on a stand-alone basis or Page 6 of 37 Gartner, Inc. G

7 bundled with other HR BPO services the company must quickly work to expand this service footprint or risk stifling the new growth that it is experiencing. Limited analytics. Until recently, Aon Hewitt offered only limited analytics capabilities, with most of it consisting of basic metrics and transaction reporting and no predictive analytics. The company has been, to some degree, relying on providers of the underlying ERP platforms it supports to invest in analytics tools. Its recent partnership with Visier may resolve this deficiency. Visier's tool enables clients to integrate workforce metrics from multiple sources and then perform analytics across the dataset, with a goal of predicting how certain workforce behaviors within an organization will change over time. These tools, combined with Aon Hewitt's HR transformation consulting capabilities, could allow Aon Hewitt to leapfrog ahead of some competitors in this service. Innovation trails competitors. Aon Hewitt is behind its competitors regarding technology investments and tools. Its Viewpoint employee portal is indeed flexible enough to interface with all the ERP solutions upon which Aon Hewitt bases its services, and investment continues in myhr, UPoint and CompLink, its employee and manager interface tools. Beyond these, the company is waiting on Workday to develop mobile apps and social media tools. Ceridian Headquartered in Minneapolis, Minnesota, Ceridian is one of the oldest payroll service providers in the world, having offered services since It has $950 million in total payroll revenue and other HR-related revenue; its 4,500 employees and 12 support centers are located primarily in the U.K., the U.S. and Canada. The company offers payroll services on BPaaS, managed-payroll, and fully outsourced bases as well as on a SaaS basis. It processes payroll for 55,000 clients and their clients' 25 million employees, and in conjunction with its partners, it offers services in nearly 70 countries in 15 languages. Strengths Platform flexibility. Ceridian has payroll solutions for every organization profile. For large or global organizations, it offers Dayforce HCM a 100% cloud-based and mobile-accessed system as well as managed payroll services; it offers the HRevolution SaaS solution, as well as managed services, in the U.K. and Ireland; and it offers an SMB solution for the U.S. (Freedom) and Canada (Powerpay). Broad scope of HR BPO services. Ceridian also offers BPO services in other HR areas, including benefits administration, workforce management, talent management, payroll tax filing services, and pension autoenrollment in the U.K. and Ireland. Solutions for all sizes of clients. Ceridian serves clients that range in size from fewer than 100 employees up to as many as 200,000 employees. It targets large companies (up to 50,000 employees) that are in growth mode, have a high level of merger and acquisition activity, and/or are attempting to meet cost-cutting mandates. Roughly half of its clients have fewer than 2,500 employees, and half have more than that. Gartner, Inc. G Page 7 of 37

8 Innovation in payroll administration and access. Since 2013, Ceridian has been developing globally standard general ledger and payroll data interfaces. Its business intelligence and data analytics are embedded in its Dayforce platform and available on a real-time basis. All its mobile apps have been built specifically for mobile access, and it is pursuing business collaboration capability through social networks. A responsive partner. As they did last year, reference clients cite Ceridian's partnership approach to the relationship, ability to handle complex payroll management situations, and responsiveness when a problem needs a solution quickly. Clients additionally cite the strong capabilities of Ceridian's sales staff and its application of best practices in their payroll environment. Cautions Limited usage of the primary platform. Despite the significant levels of funding, technology and domain expertise that Ceridian is investing in Dayforce, fewer than 5% of its clients are currently on this system. Ceridian must accelerate this product's dominance within the company's existing client portfolio as much as it does with prospective buyers in order to compete successfully. Narrow service delivery footprint. As cited last year, almost 90% of Ceridian's revenue (including 80% of its payroll revenue) comes only from the U.S. and Canada an unhealthy concentration for a company that wants to compete globally and 10% comes from the U.K. and the remaining 60-plus countries. Also, its service delivery centers are only in five countries. Yet its competitors have "put down roots" and are growing organically in the very areas on which Ceridian is focusing: Latin America, Western Europe, China, Singapore and South Africa. Lack of flexibility. Reference clients want to see Ceridian provide more flexibility in defining solutions to specific client needs and prioritizing modifications. Some clients feel Ceridian may be too rigid (or perhaps too constrained by scarce resources) to allow for variances when solutioning for example, it should put small fixes ahead of larger, time-consuming fixes, or resolve multiple issues concurrently rather than linearly. Limited payroll consulting services. Ceridian is still trailing its competitors regarding payroll consulting services. Payroll BPO clients worldwide increasingly seek consulting assistance (including pre- and postsale) regarding payroll administration strategy, guidance on payroll (and HR information system [HRIS]) technology, and assistance with process redesign, and they are looking to BPO service providers for this assistance. CGI CGI, headquartered in Canada, is a $10 billion IT and business process services company with 68,000 employees worldwide. CGI has 1,600 employees in its payroll service organization, located mostly in Canada, Sweden and the U.K. The company provides services to 800 large clients, primarily out of the U.K. and Sweden, through its acquisition of the former Logica, and it services 29,000 Canadian SMB clients (each typically having fewer than 200 employees) through its Canadian resellers, National Bank and Desjardins. Its largest client has over 40,000 employees. It offers partially and fully managed payroll solutions utilizing platforms that include Oracle and SAP, Page 8 of 37 Gartner, Inc. G

9 its own proprietary systems, and a combination/best-of-breed solution; it also offers a SaaS option. It generates $200 million in payroll-related revenue and has an extensive partner network. In total, CGI serves 3.8 million client employees who are located in six countries. Forty percent of CGI's total BPO revenue is derived from public-sector clients, while 60% is derived from the financial services, manufacturing, retail and distribution verticals. Strengths Success with the traditional aggregator model. The large-client service group within CGI partners with local providers and sometimes global competitors while retaining management of the delivery components in order to present one "face" to the client. The model brings clients expanded coverage and the combined skills of CGI and its partners. Revenue from partnerassisted relationships is 35% of its total BPO revenue. Payroll domain innovation. CGI continues to make strides in creating processing improvements to reduce payroll inputs/interfaces, standardize outputs, and improve portal functionality and reporting features. It supports these improvements with its payroll support call center, which takes approximately 400,000 calls annually. Expertise in complex environments. CGI is recognized by its large clients for strength in managing complex payroll environments, especially those involving unions and complicated benefits structures. High level of performance and client satisfaction. Larger reference clients cite the company's stellar performance in meeting SLAs over a long history, high degree of professionalism, understanding of clients' business, and partnering with clients when making major changes. Cautions Unbalanced vertical focus. CGI is extremely strong in the public sector in the U.K. and Sweden, but its heavy concentration in this one vertical puts it at risk of overlooking demands from other sectors and underinvesting in them. Additionally, CGI should heavily cross-sell its other services including health and insurance administration, bank and fuel cards, and data exchange services to its large commercial clients in order to expand its vertical footprint and protect these clients, each of which generates significant revenue. Limited technological enhancements or investment. CGI's large-client group has made limited investment in mobile apps, social media and data analytics tools. This puts it at a competitive disadvantage, since this type of technology innovation is gradually becoming a requirement among BPO buyers. HP Based in the U.S., HP has 1,500 payroll BPO employees in service centers located across North America, Europe, Latin America and Asia, who serve more than 30 large multinational and singlecountry payroll clients. Another 200 employees provide payroll services in Germany to more than 700 SMB and enterprise clients in Germany and Austria. HP does not offer a proprietary payroll Gartner, Inc. G Page 9 of 37

10 platform, but instead offers BPaaS via its HR and payroll ecosystem, which includes managed payroll services utilizing a client's instance of various payroll platforms. Clients' platforms include CloudPay, Meta4, Oracle and SAP. HP's broader HR BPO ecosystem also includes such platforms as Autonomy, PeopleSoft, SuccessFactors and Workday. Strengths Strong global operations. HP's network of support centers provides services to clients' 25 million employees in 40 countries. Additionally, HP has demonstrated that it can manage very large and complex payroll environments, including one that has more than 150,000 employees. Platform flexibility. HP's ability to integrate with a broad range of platforms gives buyers the opportunity to leverage their existing ERP and HCM investments. Additionally, HP is Workday's largest HCM implementation, covering its 330,000 employees in 170 countries; the company is leveraging its internal HRIS-Workday staff to assist buyers of payroll and other HR BPO services that are considering Workday or already have their own instance of it implemented. Balanced distribution of clients and revenue across client size. HP generates approximately 25% of its revenue from its largest enterprise clients, 40% from other large clients, and the remaining 35% from SMB clients. This leaves no market segment (by its clients' size) disproportionately vulnerable to competitors in those segments. Larger scope of HR services. In addition to payroll, HP offers HR BPO services in benefits, recruitment, compensation, employee development, learning and relocation, among others. This breadth of scope allows bundling and attractive pricing for buyers looking for more than payroll. Cautions Huge internal focus. HP has begun the process of combining its internal-facing HR organization, Global Process Services, with its client-facing Business Process Services organization. This huge initiative will impact 36,000 HP employees and will eventually create tremendous longterm advantages in the form of BPO knowledge sharing (especially regarding Workday), process efficiencies and cost savings. But in the interim, BPO buyers should evaluate HP's capabilities deeply and demand commitments from HP regarding needed resources and timelines. Lack of a BPaaS offering. HP's lack of a BPaaS delivery option reflects its relatively slow speed of innovation. Compounded with the company's failure to promote its HR BPO services aggressively in the market, HP must emphasize all the more its commitment to this service and to its continued growth. Limited analytics. HP offers limited analytics capabilities, with most of it consisting of benchmarking and predictive analysis. Increasingly, sophisticated buyers expect analytics as a part of any core BPO offering; not offering it will be a service deficiency and a competitive disadvantage. Innovation behind its competitors. HP's recent investments in technology innovation are improving its standing with clients, especially its Flight Deck dashboard. However, in addition to Page 10 of 37 Gartner, Inc. G

11 the lag in its BPaaS offerings and analytics tools, its mobile apps and social media tools remain behind those of its competitors and put the company at a disadvantage. Infosys Infosys has its roots in IT services and began offering HR BPO services in It has 1,100 employees in the payroll process and technology areas. Although headquartered in India, it services payroll out of seven delivery centers around the globe, with the ability to scale to 23 additional centers where needed. The company provides payroll and related HR BPO services to 70 clients, which have 270,000 employees located in 40 countries; its largest client has 55,000 employees. Infosys generates over 5.5 million pay slips annually; it has partnerships with several payroll providers that provide in-country payroll expertise and additional services, such as tax filing and reporting and check printing and distribution. Strengths Flexibility in solutions. Infosys adopts and manages clients' current platforms and builds new capabilities wherever a client's employees are located. Its clients also utilize a variety of solutions, including Infosys' proprietary TalentEdge solution, Infosys' partners' platforms, or a hybrid model leveraging a combination of these platforms. Reference clients commend its tight coordination of its offshore resources. Well-diversified client base. Infosys' clients are distributed across many regions and client sizes (by number of employees), protecting the company from serious loss to competitors in any one area. Sixty percent of revenue is generated in Asia/Pacific, 10% in the U.S., and 30% in the rest of the world. Small clients (1,000 to 5,000 employees) generate 30% of revenue, midsize clients (5,000 to 20,000 employees) generate about 45%, and large clients (more than 20,000 employees) generate 25%. Vertical-oriented go-to-market strategy. The company's investment in vertical expertise has been a factor in winning contracts, and reference clients cite Infosys' vertical strength as a positive. An increasing number of BPO buyers are weighing vertical expertise when evaluating potential providers, and Infosys is positioned well to compete on this basis. The more predominant vertical industries that it serves are financial services, healthcare, consumer packaged goods, retail and service companies. Consulting services. Infosys offers consulting in administration process re-engineering, benchmarking and vertical-specific practices. Reference clients commend the company for recently beginning to share ideas and lessons learned from other clients. Investments in research and innovation. Infosys continues to invest in tools that payroll BPO buyers are increasingly demanding from providers: business intelligence, data, and operational analytics (including robust HR benchmarks and predictive modeling), and reporting capabilities and tools. Payroll tools that Infosys has improved or newly invested in include those for workflow management, ticket management, global reporting, and its portals for HR managers and client employees. Gartner, Inc. G Page 11 of 37

12 Cautions Challenges in product focus. As long as Infosys has a variety of solutions to maintain and support (that is, solutions involving clients' legacy systems and interfaces with partners' solutions), it will have difficulty developing a strong service strategy and increasing its market share. Currently, more than half (54%) of its revenue comes from managing clients' own platforms and only 25% from clients wholly operating on TalentEdge. Until those numbers are reversed, having a variety of solutions to support will create a drag on company resources, earnings and growth. Trailing technology investment. Infosys continues to trail its competitors in developing mobile device tools, analytics and other payroll-related capabilities. It relies on tools developed by provider partners whose platforms underlie Infosys' services PeopleSoft, SAP and others. Additionally, reference clients cite Infosys' slowness in automating (or getting internal approval to automate) process steps when opportunities arise. To gain credibility for technology development, commitment to innovation, and HR and payroll domain expertise, Infosys must develop its own tools having functionality that spans all underlying platforms. Narrow geographic footprint. Infosys serves clients directly in only seven countries, although it serves clients in 40 countries jointly with its partners. It has stated an interest in expanding into emerging markets, so it must leverage all its current relationships both with existing clients and with service delivery partners in order to do this quickly. Many of its competitors have already "put down roots" in these markets and are beginning to grow there. Lack of sales strength. Infosys has not shown the ability to cross-sell its various services effectively, leaving existing clients vulnerable to other vendors and consequently weakening their relationships. Additionally, it has no proactive SMB sales strategy; buyers in this size category should closely scrutinize Infosys to determine whether it can devote the effort and attention required for their specific needs. NGA Human Resources In 2013, NorthgateArinso Human Resources outsourcing services changed its name to NGA Human Resources. Headquartered in the U.K., NGA Human Resources has one of the broadest global service footprints of any HR BPO service provider, offering services in 145 countries. It offers payroll solutions on BPaaS, SaaS and on-premises bases (as well as a hybrid of these) using its several proprietary systems. It also offers managed services based on a client's payroll platform, and it can accommodate Oracle Fusion, PeopleSoft, SAP HCM, SuccessFactors, and Workday platforms. Its payroll BPO services generate $1.0 billion annually. It serves clients in every major vertical industry. Strengths Broad range of solutions. NGA Human Resources has payroll solutions for every organization profile: euhreka, for large-enterprise MNCs; NGA Global Payroll, for countries with smaller employee populations; Preceda, for the Australian and Southeast Asian market; ResourceLink, for midmarket clients in the U.K., Ireland and South Africa; and Moorepay, for the U.K. SMB Page 12 of 37 Gartner, Inc. G

13 market. It is also building its SMB capabilities in other regions for employers having fewer than 1,000 employees. Demonstrated ability to handle large, complex clients. NGA Human Resources has 8,500 employees located in over 30 service delivery centers, and it can provide payroll services in 25 languages and any currency. It provides payroll services to more than 6 million employees; its largest individual client has over 200,000 employees located in 70 countries. It targets very large single-country companies and MNCs located in 10 or more countries. Innovation in and integration of payroll-related systems. In addition to the range of platforms and service delivery options it offers, NGA Human Resources has invested heavily in its Payroll Exchange tool. The tool enables integration between multiple payroll systems and a variety of related administration systems, including employee benefits, corporate financial, document management and case management systems. The company continues to improve its technologies for mobile applications; end-to-end process automation and robotics; compensation administration; and analytics, as well as payroll offerings in new countries. Broad scope of HR BPO services. In addition to payroll, NGA Human Resources offers HR BPO services in workforce administration and talent management, among others. This breadth of scope allows bundling and attractive pricing for buyers looking for more than payroll. Responsiveness. Reference clients cite the company's responsiveness to changes in their business environment; its assistance in gaining control over clients' payroll administration costs globally; its special helpfulness when clients are first entering, or initially administering payroll in, new countries; and its strong sense of partnership. This has undoubtedly contributed to the company's very high retention rates. Cautions Acceleration needed in standardization and globalization. As cited last year, NGA Human Resources needs to align and integrate its multiple platforms and processes more quickly with those of its partners. Its investment in Payroll Exchange is well-focused, and it will help the company's solutions both serve as a single source of truth for reporting and data analysis and provide a single point of contact for all problem resolution. Inconsistent service delivery. As in 2013, there remains a level of disjointedness among NGA Human Resources' technical groups, as cited by reference clients, in terms of its implementation methodology. However, the company seems to have improved on its tendency to overcommit and underdeliver on time frames. Paychex Founded in 1971, Paychex is one of the world's largest payroll providers, with 12,000 employees in more than 100 U.S. locations and four locations in Germany, and having $2.3 billion in revenue. SMB companies are its target market; it has 570,000 clients half of which have fewer than five employees and it services 9.6 million employees. Clients utilize its proprietary platform to receive partially managed and fulfillment-only outsourcing services. Its recent acquisition of nettime Gartner, Inc. G Page 13 of 37

14 solutions expands its time and attendance service, which is a critical companion offering to payroll. In addition to payroll services, Paychex offers benefits administration, workforce administration, talent management, time and attendance, application management, and other HR-related BPO services, as well as 401(k) retirement, insurance, tax preparation and filing services. Strengths Clear focus on target market. Paychex targets U.S. SMBs ranging from only one employee up to more than 1,000 employees. Its marketing messages especially differentiate its systems' ease of comprehension and use; product information and displays; payroll and tax educational resources; and access to support online. Ease of implementation and use. Paychex offers an easy purchase process (point and click), easy delivery (over the Internet), simple service delivery models (SaaS and on-premises), and live sales or product support (through the Internet or over the phone) by an assigned payroll specialist. Effective sales channels. Paychex has made excellent use of its website as a sales channel; its field sales organization with sales teams focused on high-potential market segments; and a network of marketing channels that includes accountants, banks, national associations and franchise organizations, and search engine marketing. Investment in innovation. Paychex continuously invests in technological innovation that simplifies payroll administration. Its new Paychex Next Generation suite of products better aligns its technologies internally; the company has demonstrated significant innovation in mobile phone and tablet apps; and it has developed multiple products to address challenges created by U.S. healthcare reform challenges especially burdensome to the SMB market. To this end, Paychex also sponsors a private healthcare exchange for employers that may need it. Cautions Limited market focus. Ninety-nine percent of Paychex's clients have fewer than 1,000 employees. While the U.S. SMB market is large, strong and fruitful for Paychex, competitors such as ADP and NGA Human Resources are increasing their focus on this market. Further, future economic downturns in the U.S. will certainly curtail SMB growth, impacting Paychex similarly. Limited service delivery footprint. Paychex has only recently begun building service capabilities outside the U.S. and Germany. In 2013, it launched a joint venture with Semco Partners in Brazil to target the SMB market, and it doubled its German presence with the acquisition of Lohndata. But unless it accelerates expansion to new markets and countries (for example, Canada and the U.K.), it will retain the "small company only" and "U.S. only" perceptions the market has of it. Limited service offerings. Although Paychex has a limited number of clients with more than 1,000 employees, some of these are quite large, having up to 16,000 employees. If the company decides to expand these services, it should offer a fully managed option, since large clients' payroll administration needs are generally more complicated, and these clients generally expect more service from providers in the form of increased responsibility and accountability. Page 14 of 37 Gartner, Inc. G

15 SD Worx Founded in 1945, Belgium-based SD Worx has 2,100 employees located in the Benelux countries, France and Germany. It offers a complete range of payroll services SaaS, managed and comprehensive payroll services. In addition to offering services on its proprietary payroll platform, it offers and implements HR administration and payroll solutions on ERP technologies, including Microsoft Dynamics AX, Oracle PeopleSoft and SAP; it also finalized a partnership with Workday this year based on a certified interface. SD Worx utilizes its own HR Webworx and also Cornerstone OnDemand for talent management services, and it utilizes Peoplexs for recruitment services. It is actively moving its solutions from on-premises to the cloud, and from customized to more standardized solutions. The company's payroll service revenue was $350 million in 2013; 11% of this revenue was generated through the Payroll Services Alliance, a partnership of six independent European payroll companies (organized by SD Worx) having mutually exclusive service territories. Strengths Strong European provider. SD Worx provides service, directly or through partnerships, to 48,000 clients and the clients' 1.4 million employees across 28 European countries. While most of the clients have fewer than 1,000 employees, large clients can have up to 35,000 employees across several countries. The company offers extensive experience in the retail, automotive, banking, public-sector and healthcare verticals. Broad scope of HR BPO services: In addition to payroll, SD Worx offers HR BPO services in talent and development, compensation and benefits, recruitment and selection, and HR processes and systems. This breadth of scope allows bundling and attractive pricing for buyers looking for more than payroll. Extraordinary focus on client satisfaction. SD Worx has a long history of using client satisfaction surveys. Not simply scoring overall client satisfaction, the company has taken other steps to institutionalize client satisfaction practices, including visiting every client responding to the survey to request more input; developing vertical-specific platforms for transport and construction clients; having its Executive Committee members visit clients; and extending service center business hours. Innovation, analytics and thought leadership. SD Worx has developed its "Digital HR" approach to HR and payroll offerings to address the increasing use of technology in the workplace. It invests significantly in reporting and analytics tools, giving clients strategic and administrative insights into employee demographics, labor costs, and staffing, on a country-specific basis. Its new HR Performance Dashboard allows HR leaders to analyze data to determine the impact of HR policies on employees. Additionally, its HR Benchmark Survey of Belgian employers, its occasional white papers, and the New World of Work Coalition that it founded to include eight major Belgian employers are all examples of its commitment to thought leadership in the HR domain. TCO assistance for buyers. For selected prospects, SD Worx assists in a TCO study to determine the cost and quality of a client's current payroll processes, help evaluate outsourcing as an alternative, make its own research findings available in the process, and examine various Gartner, Inc. G Page 15 of 37

16 delivery options. It usually does not charge for this service unless the buyer makes a decision not to outsource. Cautions Unbalanced distribution of clients by size. SD Worx's largest (by number of employees) clients constitute only 9% of its client base, but this fraction accounts for more than 50% of the company's revenue. To protect its revenue sources and build its reputation for sophistication, innovation, and successful management of complex environments, the company must focus on acquiring additional large clients quickly. Limited sales strategy. As cited in 2013, SD Worx's sales strategy outside of Belgium does not include a vertical focus, with the exception of the retail vertical. HR BPO buyers prefer verticalfocused providers and offerings, even including providers having weaknesses in their offerings. Targeting clients without a vertical element will thwart sales efforts to some degree and could result in loss of market share. Inconsistent implementations. Reference clients cite weaknesses in SD Worx's implementation performance for example, related to attempts to implement too many countries concurrently, or having an unclear understanding of some of clients' policies and definitions. Sopra Sopra, considered a leader in IT, software and outsourcing in Europe, earns $136 million in revenue annually in payroll- and HR-related services. Sopra bought HR Access in 2012 and combined its existing HR administration services, based on Sopra's proprietary Pleiades platform, with those of HR Access, based on its proprietary HR Access platform, creating its HR Solutions group. Today the company has 1,000 employees in 11 offices; they provide service to 900 clients and the clients' 12 million employees, located across 54 countries around the world. Its clients are mostly larger companies headquartered in Europe, some with 20,000 employees, located in multiple countries. Strengths Integration synergies. Sopra appears to be integrating HR Access' offerings and services successfully. The two companies' overlapping HR BPO offerings seem to have become the focus for beginning and continuing their integration path all without losing existing clients. These synergies will help the combined company grow faster than each would separately. Global and vertical offerings. Sopra and HR Access have complementary HR BPO offerings, not only in payroll, but also in benefits, workforce planning and other HR services; vertical strengths in all major verticals, especially healthcare, banking/financial services/insurance, services, media and manufacturing; targeted company size (midsize to large companies); and market concentration in France/Western Europe, the Middle East and Africa that is combined with its global reach. Solid reputation across Europe. Sopra and HR Access separately have built solid reputations over time for client satisfaction by targeting large, complex organizations in the public and private sectors and meeting clients' broad integration needs successfully. They have a Page 16 of 37 Gartner, Inc. G

17 comprehensive, disciplined approach to initiating partner relationships. Their reputation and partner network create a foundation upon which to expand into other regions and continents. Platform flexibility. Sopra HR Solutions has a range of flexible service delivery options, including fully managed, partially outsourced and on-premises solutions. Its platforms allow for multitenancy, flexibility in services, integration of third parties, consolidated reporting, optimal cost per client, and simpler governance. Investment in mobile technology and analytics. Sopra HR Solutions touts the "superconnectivity" of its mobile tools, which allows for quickly adding new automation and integration functionalities, better responsiveness from managers, and decreased error rates when using the tools. Additionally, Sopra HR Solutions has extensive analytics capabilities, which contain 70 standard indicators, cover 80% of social management indicators that HR leadership requires, and allow for integration of external data. Cautions Uncertain integration of IBM acquisition. In July 2014, Sopra completed its acquisition of IBM's HR Access Service Line group, acquiring 220 employees who are expert in HR Access services and payroll clients having a total of 60,000 employees. While this transaction makes sense from Sopra's strategic perspective in order to grow HR Access' market share, existing IBM HR Access Service Line clients have expressed concerns about continuity in services, account teams, and other service delivery elements. Sopra HR Solutions must address these concerns proactively to avoid any drag on service or competitive weakness they may create. Limited geographic service footprint. Sopra's services and corresponding strengths lie primarily in Western Europe and are specifically targeted for large companies headquartered in France. While its network of partners provides for global coverage, large buyers headquartered outside France or seeking payroll services outside Western Europe should investigate the company's expansion plans, depth of staff, and expertise to compare with those of other providers. Absence of cloud from the platform. Sopra does not offer a BPaaS version of its platforms. This is probably the result of its client mix that is, having some large clients whose technology demands do not require cloud-based services, and having small clients (especially headquartered outside France) that generally do not need (or want to pay for) cloud solutions. The absence of BPaaS will soon cause if it is not already causing Sopra to lose some business in head-to-head competition. Symphony Human Resource Solutions Symphony Human Resource Solutions (Symphony), offered by Symphony BPO (itself a subsidiary of Symphony House) was founded in 2000 and is headquartered in Malaysia. It has 375 employees providing payroll and other HR services. Symphony offers only a managed payroll option; with this, it services 28 clients having almost 100,000 employees located in 21 countries. A majority of its clients are MNCs headquartered in Malaysia with 1,000 to 2,000 employees each; in addition to Asia/Pacific, it has clients in several Middle Eastern countries. Its services are offered through its proprietary PeopleSoft-based SymBPO HR/payroll system; the company also utilizes the call center Gartner, Inc. G Page 17 of 37

18 capabilities of its parent, Symphony House, to service clients' employees. Symphony obtains tax and legislative compliance expertise through the Country Extension Expertise partnership of independent tax and legal experts. It has $70 million in annual revenue (a Gartner estimate that fluctuates with the Malaysian ringgit exchange rate, last updated in 2012) from its payroll services. In March of this year, Aegis, a global outsourcing and technology services company, acquired Symphony BPO from Symphony House. Strengths Strong reputation. Symphony enjoys a strong, solid reputation for payroll BPO services provided in Malaysia, India, Japan and 16 other Asia/Pacific countries. Part of this reputation is due to Symphony's having resisted partnering with other providers or competitors, and therefore having greater control over its service offering and quality. Focus on client satisfaction. Symphony commits to hold biweekly performance and quality reviews and quarterly business reviews, without exception. It additionally has continuous improvement programs in place at every level of service delivery responsibility in the company. Strong vertical representation. Symphony's go-to-market strategy is vertical-oriented. The company's strengths lie in services for the technology, telecommunications, financial and automotive verticals. It is looking to increase its vertical breadth into pharmaceuticals, retail and others. Cautions Slow service expansion. Symphony's geographical growth is opportunistic, accomplished as its clients expand into new countries. Buyers looking to this provider for service in a country new to Symphony must be prepared for Symphony to "learn as it goes" to some extent. It remains to be seen whether the acquisition of Symphony BPO by Aegis will result in increased funding for investment in growth, research and technology. Weak sales efforts. Symphony has no sales force it has grown through word of mouth and organically with existing clients. The company's reputation is strong, but it cannot expect to grow quickly, challenge payroll BPO market leaders or retain current market share if it does not proactively take its message to prospective buyers through a sales force. Insufficient technology investment. Symphony has developed little in the way of mobile apps. Granted, Asia/Pacific regional issues regarding data privacy, union restrictions and company mobile phone policies result in some dampening of demand for these tools. But not getting ahead of this curve in the region will hinder Symphony competitively, especially considering that Asia/Pacific is one of the most "connected" areas of the world. Talent2 Founded in 2003 and headquartered in Australia, Talent2 is a leading payroll service provider in Asia/Pacific and the Middle East. Talent2 serves 2,900 clients and the clients' 800,000 employees. The company has 750 payroll service employees located in 19 countries, including 13 delivery centers, and it provides services in 31 languages. Its typical clients are MNCs having from 3,000 to Page 18 of 37 Gartner, Inc. G

19 20,000 employees (although clients range in size up to 120,000 employees). The company offers BPaaS and fully managed payroll delivery options, as well as a SaaS option, using its proprietary Alesco, PeoplePay and PCA (for Japan) systems. Talent2 is also a strategic partner with Ceridian. Allegis Group a $10-billion global talent management company previously owned 50% of the company in a joint venture with MBI; Allegis recently completed its option to buy the remaining 50%. As a result, Talent2 joins Allegis' larger portfolio of human capital management brands and may as a consequence have access to funds for research and expansion. Strengths Strong Asia/Pacific presence. Talent2's market focus is on the Asia/Pacific region, where it has a dominant presence. Its service delivery centers are all in Oceania and Southeast Asia two of the fastest-growing regions in the world for HR BPO services, as well as for BPO services in other domains, such as finance and customer management. Ability to tackle large, complicated clients. Talent2 pursues MNCs with large, multiplatform and multilegacy environments that need simplification throughout the payroll environment. Its MNC clients have employees in an average of four to five countries. Talent2 has demonstrated its capabilities with clients needing major data cleanup efforts, process re-engineering, automation, and an increase in service quality. Broad scope of HR BPO services. In addition to payroll, Talent2 offers HR BPO services in the areas of HR strategy, talent management, workforce analysis, performance management and learning, among other HR areas. This breadth of scope allows bundling and attractive pricing for buyers looking for more than payroll. Extensive compliance services. Talent2 serves countries having extremely complicated payroll tax and regulatory compliance requirements. It offers comprehensive compliance services that incorporate internal and external service delivery resources, such as statutory agencies, legislative and regulatory reviews, global consulting companies, and legal and tax publications. Broad consulting services. Talent2's HR Advisory practice assists clients with critical payroll and HR management issues, including systems effectiveness, workforce effectiveness, and learning and development. Fully 15% of the company's overall revenue comes from these consulting and advisory services. Cautions Regional service footprint. Although Talent2 has a strong reputation built upon its regional footprint, it does not have operations in North America or Europe the world's largest payroll BPO markets. With Allegis Group taking complete ownership, new funding may be available to allow Talent2 to expand its service footprint quickly outside Asia/Pacific. Technology investment. Talent2 is behind its competitors in developing sophisticated mobile tools and apps and analytics capabilities. Payroll and HR BPO buyers are beginning to see mobile apps as "table stakes" and as a source of differentiation among competing providers, and they usually lean toward the more technologically advanced provider. However, Talent2 Gartner, Inc. G Page 19 of 37

20 recently moved its entire payroll service platform to an infrastructure service provider, optimizing the platform's operation and reducing the company's risk. Hopefully this action will present opportunities for investment in mobile and other technology. Xerox Services Xerox Services, the business service arm of Xerox, has offered payroll BPO services since Its payroll BPO services generate $80 million of revenue annually, out of total HR service revenue of $1.1 billion. It processes payroll for 270 clients and their 650,000 employees. Xerox Services does not offer a proprietary payroll platform but instead offers a BPaaS option via its Employee Engagement Centers that is based on a managed service model utilizing a client's instance of other platforms. Clients' platforms include ADP (a strategic partner), NGA Human Resources, Oracle PeopleSoft, SAP, UltiPro, Workday and others, as well as SuccessFactors (talent management), Cornerstone OnDemand (training), and Kronos (time and labor management). Strengths Strong global operations. Xerox Services payroll BPO services have resources that include over 400 employees located in nine countries and four payroll support centers (out of a total of 26 support centers for broader HR services). Additionally, Xerox Services has demonstrated that it can manage very large and complex payroll environments, having clients in size of over 50,000 employees. Broad geographic service footprint. Xerox Services' clients have employees in 38 countries. The company's clients are headquartered mostly in the U.S. (65%), but it has strong representation in Europe (30%) and a growing representation in Asia/Pacific (5%). Other current geographies of strong focus are Brazil and China. Balanced distribution of clients and revenue across client size. Xerox Services generates 50% of its payroll BPO revenue from its largest enterprise clients (those having 20,000 or more employees), 30% from other large clients (those having 5,000 to 20,000 employees), and the remaining 20% from smaller clients (those having fewer than 5,000 employees). Innovation and consulting investment. Known for its innovation, Xerox Services invests significantly in business service research, including sponsoring an HR Services Innovation Council. It is also expanding its consulting services to meet a growing need from its BPO clients; its consulting services generate more than $300 million in revenue and include HR transformation and employee engagement assistance to clients. Broad scope of HR BPO services. In addition to payroll, Xerox Services offers other HR BPO services in talent management, benefits, recruitment, learning, relocation, compensation and mobility, among others. This breadth of scope allows bundling and attractive pricing for buyers looking for more than payroll. Cautions Limited vertical expertise and sales focus. While Xerox Services goes to market by vertical, its focus is primarily on the financial services, high tech, higher education, retail, transportation and Page 20 of 37 Gartner, Inc. G

21 travel services verticals. Clients outside these verticals should delve deeply into the company's experience with their particular vertical's needs. Focus on custom-designed platforms. Over 80% of Xerox Services' payroll BPO revenue is generated from the management of clients' custom-designed platforms. While almost all new deals are BPaaS- or SaaS-based, having this high of a percentage of legacy custom design business will draw people, technology and research investment away from new BPaaS deals until the legacy business is reduced either by conversion to newer technology or loss to competitors. Additionally, clients claim the company has been slow to implement standardized processes a natural outcome of having to assign resources to multiple custom-designed systems, having varying process requirements. Limited analytics. Xerox Services offers limited analytics capability, with most of it consisting of trend analysis. Increasingly, sophisticated buyers expect analytics as a part of any core BPO offering; not offering it will be a service deficiency and a competitive disadvantage. Vendors Added and Dropped We review and adjust our inclusion criteria for Magic Quadrants and MarketScopes as markets change. As a result of these adjustments, the mix of vendors in any Magic Quadrant or MarketScope may change over time. A vendor's appearance in a Magic Quadrant or MarketScope one year and not the next does not necessarily indicate that we have changed our opinion of that vendor. It may be a reflection of a change in the market and, therefore, changed evaluation criteria, or of a change of focus by that vendor. Added Aon Hewitt, Aon's outsourcing subsidiary, was added this year. In 2013, Aon Hewitt first began offering stand-alone payroll services based on the Workday HCM platform. NorthgateArinso Human Resources outsourcing service changed its name to NGA Human Resources. Sopra acquired HR Access in 2012 and retained that company's name within its corporate portfolio of services and offerings. In this document, we refer to the combined entity as Sopra. Xerox Services, Xerox's business services and outsourcing subsidiary, was added this year. Dropped No companies were dropped from last year's report. Gartner, Inc. G Page 21 of 37

22 Inclusion and Exclusion Criteria Quantitative Criteria To be included in this research, a payroll BPO service provider must meet all the criteria below: Offer payroll BPO services on a stand-alone basis that is, a payroll BPO service provider's services are offered and can be purchased without a buyer having to contract for any other HR BPO service (such as benefits administration or time and attendance services). However, the provider may additionally offer payroll services bundled with other services. Have at least $75 million in payroll BPO service annual revenue in Have at least 10 signed payroll-only BPO service clients, at least five of which are referenceable. Provide payroll BPO services outside its home country that is, provide services to at least one company headquartered outside the provider's home country, or provide services to employees located outside its home country. Qualitative Criteria There were no qualitative criteria for being included in this report. Evaluation Criteria Ability to Execute Gartner evaluates payroll BPO service providers' processes, systems, methods and procedures that enable them to be competitive, efficient and effective and to positively impact revenue, client retention and general market reputation. Ultimately, providers are judged on their ability and success in capitalizing on their vision. The following seven criteria are used to determine a provider's ability to execute: Service Offering: The core services the provider uses to compete in and serve the defined market. This includes current service capabilities, software and related tools, feature sets, skills, service quality, and so forth, whether offered natively or through partnerships. Overall Financial Viability: The provider's overall financial health, practical success and strategic focus. It includes the likelihood the provider will continue offering the service and investing in it. Viability also includes assessment of the provider at the organization as well as business unit level, if appropriate. Sales Execution/Pricing: The provider's capabilities in all presales and sales pursuit activities and the structure that supports them. This includes deal management, pursuit team composition, pricing Page 22 of 37 Gartner, Inc. G

23 and negotiation, presales support, and the overall effectiveness of the sales channels used by the provider. Market Responsiveness and Track Record: The provider's ability to respond, change direction, be flexible and achieve competitive success as opportunities develop, competitors act, customer needs evolve and market dynamics change. This criterion also considers the provider's history of responsiveness. Marketing Execution: The clarity and efficacy of the provider's programs designed to deliver its marketing messages in ways that will influence the market, promote and differentiate its brand, articulate the value it delivers, and establish a positive identification with its service and brand in buyers' minds. This mind share can be driven by a combination of publicity, promotional, thought leadership, word-of-mouth and sales activities. Customer Experience: Relationships, resources and programs that enable customers to be successful with the service offered. Specifically, this includes the ways customers receive technical or account support. This can also include the existence and quality of ancillary tools, customer support programs, availability of user groups, SLAs, and so forth Operations: The ability of the organization to meet its goals and commitments. Factors include the quality of the organizational structure, including skills, experience, programs, systems and other vehicles that enable the organization to operate effectively and efficiently on an ongoing basis. Table 1. Ability to Execute Evaluation Criteria Evaluation Criteria Product/Service Overall Viability (Financial, Strategic, Business Unit, and Organization) Sales Execution/Pricing Market Responsiveness and Track Record Marketing Execution Customer Experience Operations Weighting Standard High Standard Standard Low Standard Standard Source: Gartner (July 2014) Completeness of Vision Gartner evaluates payroll BPO service providers' ability to articulate their perspectives on current and future market direction, customer needs and competitive forces. Ultimately, providers are rated Gartner, Inc. G Page 23 of 37

24 on their understanding of how market forces can be exploited to create opportunity for the provider. The following eight criteria are used to determine a provider's completeness of vision: Market Understanding: The provider's ability to understand buyers' needs and translate these needs into successful BPO services and relationships. Providers having the highest degree of vision listen to and understand buyers' needs and help buyers refine those needs with their added vision. Marketing Strategy: A clear set of messages consistently communicated throughout the organization and externally through a variety of marketing channels, such as a website, advertising, customer programs and positioning statements. The messages must differentiate the provider's services and articulate the value it delivers. Sales Strategy: A strategy that uses the provider's network of direct and indirect sales resources to extend the reach of its services to its existing customer base and potential new markets. Offering Strategy: The degree to which a provider's approach to the development and delivery of its offerings maps to the market's current and future requirements. This strategy must emphasize differentiation, value, functionality, methodology, tools and feature set. Business Model: The soundness and logic of a provider's underlying business proposition for the development and delivery of its offerings. Vertical/Industry Strategy: The provider's strategy for directing its resources and skills to tailor existing offerings (or develop new ones) to meet the specific needs of market segments, such as verticals or small employers. Innovation: A provider's commitment of resources, expertise or capital to innovation initiatives for purposes of benefiting its clients, leading the market's direction, or defending its market share against competitive actions. Geographic Strategy: The provider's strategy for directing its resources and skills to tailor existing offerings (or develop new ones) to meet the specific needs of geographies outside its home country or native geography. This strategy may include meeting needs either directly or through partners, channels and subsidiaries, as appropriate for that geography. Page 24 of 37 Gartner, Inc. G

25 Table 2. Completeness of Vision Evaluation Criteria Evaluation Criteria Market Understanding Marketing Strategy Sales Strategy Offering (Product) Strategy Business Model Vertical/Industry Strategy Innovation Geographic Strategy Weighting High High Standard High Standard Low High Standard Source: Gartner (July 2014) Quadrant Descriptions Leaders Leaders are providers that are performing very well today by having a clear vision of market direction and by actively building capabilities and competencies to sustain their leadership position. The payroll BPO service providers in this quadrant have superior market understanding and marketing and sales strategies that address market needs. Leaders have continuous research and innovation in technology and payroll administration, have strong financial viability, and have customers who testify to a very positive relationship. Challengers Challengers execute reasonably well today, but they have yet to capitalize on their vision. Challengers need to increase their attention to sales and marketing strategies, demonstrate their commitment to innovation and research and produce results, expand their geographic service footprint, and focus on vertical expertise to improve future alignment to the needs of existing clients and new prospects and to influence the market's direction. Visionaries Visionaries have a clear vision of the market's direction and may be preparing for that, especially with innovative technology solutions. But they must improve their responsiveness to market trends, deliver excellent service consistently, and make certain their clients are fanatics about their service. Gartner, Inc. G Page 25 of 37

26 (Note: No providers evaluated in this Magic Quadrant were considered to be Visionaries; this may be attributed to the fact that payroll services are fundamentally transactional in nature, and providers' performance is heavily evaluated on transactional metrics. Consequently, payroll BPO service providers have not historically focused to any great extent on forward-looking, visionary strategies or services to the detriment of their administrative performance.) Niche Players Niche Players typically concentrate their services and strategy on particular market segments, such as single-country or single-region segments, public-sector or commercial vertical segments, or segments by client size. Regarding the payroll BPO service providers in this quadrant, strengthening their geographic service footprint and also their delivery strategy are bigger evaluation considerations than in the past. Also, improved financial viability, investment in innovation and research, and improving service execution will improve their position. Context Gartner defines payroll BPO as the outsourcing of at least one core payroll administration function, if not all payroll functions, to a third party. This report analyzes payroll BPO service providers that meet Gartner's criteria of: Having a stand-alone payroll BPO offering (that is, the outsourced payroll service is not required to be bundled with any other major HR BPO service). Having at least $75 million in annual revenue from their payroll-only services (variances in this criterion may occur due to fluctuations in exchange rates with the U.S. dollar). Having clients headquartered in at least one country outside their own. These criteria paint the profile of a provider that is focused and strong in its offerings and its geographic and vertical-specific areas of service. Some providers have fewer service options than others (for example, they offer only fully managed payroll services), and some have a narrow geographic service footprint (for example, they serve clients headquartered in only two countries). The number and breadth of their offerings and locations, among other factors, contributed to their ratings in this report. (See the Inclusion and Exclusion Criteria section in this report for a detailed description of all criteria.) Gartner's deep analysis of the 13 providers' competitive positioning is indicated by their placement in the Magic Quadrant graphic, made according to the criteria described above and strengths and cautions we detailed for each. The ratings were developed through a combination of: Primary and secondary research Briefings with the providers Reference checks with providers' clients Input from the Gartner BPO research community Page 26 of 37 Gartner, Inc. G

27 Interactions with Gartner clients through inquiry regarding the providers Business and financial press reports BPO market developments A buyer's selection of a payroll BPO service provider begins with a detailed identification of the buyer's own needs, followed by an education about and a comparison of various providers' services and strengths, and leading finally to the selection of the provider that can best meet the buyer's needs and a successful contract negotiation. Gartner's payroll BPO service Magic Quadrant graphic is a useful starting point from which to identify and evaluate the group of providers meeting Gartner's criteria. Note: Placement of a provider in the Leaders quadrant is not a representation by Gartner that the provider has the best fit with a buyer's needs. Market Overview Payroll BPO Services Continue to Grow Worldwide Payroll outsourcing is growing steadily worldwide, and it is forecast to continue to do so for the next several years. Gartner forecasts the total HR BPO market to grow at 5.8% in 2014 and to grow at a compound annual growth rate (CAGR) of an identical 5.8% through In Western Europe, where the outsourcing business model has existed for years, Gartner estimates at least 50% of large companies already outsource payroll. In Asia/Pacific, the payroll outsourcing trend started later than in North America and Western Europe, but in some countries (such as China, India, Indonesia and Malaysia), it is growing more quickly. In North America, which has 54% of the global HR BPO market, Gartner estimates that only approximately 35% of large companies outsource payroll leaving much room for future growth. Other geographies (such as Latin America and the Middle East) show tepid or erratic growth patterns, due mostly to currency fluctuations. Further, both the traditional (that is, heavily labor-based) and BPaaS (that is, cloud-based) payroll BPO service delivery models are growing, both in emerging and mature business markets. Gartner attributes this growth to a variety of causes, in order of their impact in 2014: Continuous cost-cutting. Companies worldwide continue to see payroll outsourcing as a way to reduce larger HR functional costs significantly and quickly, improve the overall quality of their payroll administration, and enhance service levels to employees and managers. Within a typical company's total HR functional cost, payroll administration while not the costliest single function is sufficiently large to warrant an assessment if it is not currently outsourced. Gartner, Inc. G Page 27 of 37

28 Globalization and standardization. Large companies especially those having multicountry operations see outsourcing payroll as a way to place all global payroll operations on a common platform and/or to consolidate all outsourced payroll services with fewer providers or even a single provider. Large or complex companies also desire to standardize disparate processes used across multiple countries and strategic business units (SBUs), enable consistent and comprehensive data collection and analysis, and manage a provider (or providers) to a consistent set of performance criteria across SBUs and countries. Offering evolution and innovation. Payroll BPO service providers continue to evolve and innovate their offerings, growing revenue from both established clients and prospective ones. BPaaS offerings, mobile device capabilities, the use of mobile apps and social media, consulting services, and data analytics are the differentiators attracting payroll BPO buyers. Leaders among BPO providers are continuously re-examining their offerings' scope, delivery models and pricing in order to leverage technology, increase staff productivity, lower cost, and differentiate their services. Tax and legislative compliance. Tax compliance is driving many companies to evaluate payroll outsourcing, with compliance bundled with it, for the first time. Tax compliance becomes more complicated and demanding every year, and for some companies, the demand reaches a tipping point where they are ready to transfer payroll administration responsibility, risk, and related tax and legislative compliance to a third party. Payroll BPO adoption is accelerated in countries when that point is reached (such as in France and Spain and much more quickly in countries in Southeast Asia). Emerging markets. The emerging business markets of India and China have produced environments in which domestic companies have become consumers of BPO services rather than only providers of these services, as these countries have traditionally been viewed. Also, Mexico, Brazil, Latin America in general and the Emerging Asia/Pacific regional market show similar signs of growing payroll outsourcing adoption by native companies. Portfolio expansion and service bundling. In addition to payroll, providers are investing in other HR service areas and bundling them with payroll to offer consolidated administration at advantageous pricing. These other HR services include outsourcing for recruitment, learning, time and attendance, background screening, benefits administration, and contingent labor management. By offering services both individually and bundled, providers give buyers increased access, transparency, cost benefits and control across a gamut of HR services. When bundled, the individual services are sometimes offered on a streamlined basis (that is, with less functionality) in order to lower buyers' entry prices; as a result, bundled service packages are opening new markets for companies where price is more of a consideration than in enterprise companies, and growing rapidly in them. Targeting the SMB market. In North America especially, continuous advancements in underlying technology and infrastructure have increased the feasibility and decreased the price of offering payroll BPO services to the SMB market (generally, companies with 2,500 employees to as few as 10 employees). Many providers evaluated for this report have developed new payroll offerings specifically for these smaller companies and placed new marketing and sales emphases on the market. Page 28 of 37 Gartner, Inc. G

29 In addition to the providers meeting the inclusion criteria and profiled in this Magic Quadrant, several payroll providers did not meet the criteria. This was because their payroll services required bundling with other HR outsourcing services or their annual payroll BPO service revenue was less than $75 million. Many of these providers offer the same breadth of payroll services mentioned above as well as serve the needs specific to many geographies and vertical industries, the SMB market, and multinational/global enterprises. Examples of payroll BPO service providers not evaluated in this document include: Accenture Capita Genpact IBM Intuit MidlandHR Raet SafeGuard World Tata Consultancy Services (TCS) Wipro Inclusion in this Magic Quadrant does not represent an endorsement by Gartner of the provider or its services, and exclusion from the report does not represent a negative view by Gartner of the provider or its services. Buyer Trends in Payroll BPO Services Payroll BPO service providers recognize that, to maintain pace with buyers' demands, they must compete aggressively by enhancing existing offerings, developing or acquiring new offerings, enlarging their geographic service delivery footprint, entering new markets, and undertaking other strategies (for example, pursuing vertical markets). Further, providers know that buyers won't be attracted to offerings that don't continuously evolve and mature, and worse, buyers will eventually consider such static offerings to be commodities. In the following sections, Gartner has articulated major demands and trends among payroll BPO buyers that providers must understand to remain at the forefront of competition and that buyers themselves will want to stay abreast of. Globalization of Services and Processes Multinational companies are seeking to consolidate back-office functions, reduce general and administrative (G&A) costs, and globalize and standardize processes. This includes those for payroll and HR, as well as for finance, customer management, procurement and supply chain processes. Additionally, large enterprises are making acquisitions, and for this reason they, too, are focused on reducing G&A costs for noncore functions. In many cases, G&A cost reduction anticipates further Gartner, Inc. G Page 29 of 37

30 acquisitions, so the company's goal becomes not only reducing costs but also introducing consistent processes throughout functional areas so as to ease the incorporation of newly acquired companies and their employees. As a result, all leading payroll BPO service providers (indeed, all BPO service providers) are responding to these trends of globalization, an acquisitive market, and buyers' desire for G&A cost reduction in two primary ways: expanding their global service delivery presence, and bringing global standardization to HR processes. Global service delivery. The size of a provider's global service delivery footprint matters when selling BPO services to MNCs, and payroll BPO service providers with the largest delivery presence will have the advantage. Buyer demand is highest for a single provider to manage payroll services globally and second-highest for regional providers to do this. Advancing technology is shrinking the effort, distance and cycle times associated with service delivery provided on a global basis, and hence the demand by MNC buyers for service to be delivered from within their region while still strong continues to wane. Regardless of how a provider's service delivery footprint grows organically or by partnering market share will be gained by offering coordinated service worldwide. It is making less and less difference to buyers whether a provider utilizes its own proprietary software platform and service delivery centers, or utilizes strategic partners, service delivery networks or one-off local/ regional providers to deliver service so long as the provider can ensure it has proven accountability across all targeted countries and brings a coordinated approach to delivering the service. As demand for outsourcing grows in emerging regions and countries, some clients will want to work with a provider to build delivery centers in locations new to the provider; other providers will want to build onshore centers to meet particular buyers' demands. Regardless of the service delivery approach, service to MNCs will be won based on the flexibility of a provider to expand its capabilities jointly with a client. Standardized processes. Buyers are demanding assistance in standardizing payroll processes throughout their enterprise, whether that is within a single country or multiple countries, globally, or across SBUs. Providers must bring standardized regional/global processes, consulting and tools to equip the client for standardized administration, reporting and management. Payroll providers already bring a wealth of these processes and tools to the relationship due to the payroll function's maturity in developed countries; however, a majority of MNCs have not yet tackled this problem, and their demands for assistance are starting to swell. BPaaS and Process-Enhancing Technology and Services BPaaS offerings for both large and small companies. As part of increasing buyer demand for standardized processes, leading payroll BPO service providers have developed BPaaS versions of their services. BPaaS incarnations of payroll outsourcing services are marked by enhanced service options that automate judgment and decision making; reduce human intervention, or eliminate it altogether; reduce the need for client-specific staff at the provider; and decrease cycle time and associated staff at the client. Because they reduce a provider's overall staffing, they directly reduce its delivery costs in some cases significantly resulting in more favorable pricing for all sizes of buyers. Page 30 of 37 Gartner, Inc. G

31 BPaaS offerings, in most cases, have been developed for large and complex BPO clients; they are not developed (at least initially) to appeal in particular to buyers in the SMB market. But over the course of just the past 24 months, most payroll BPO service providers that historically pursued prospects whose size was considered mega (20,000 or more employees) or large (from 2,500 employees or 5,000 employees up to 20,000 employees) have begun offering services to a gradually shrinking target size down to as few as 500, 50 or even 10 employees. Due to this new focus, several regional payroll BPO service providers pursue the SMB market (for example, Paychex), and most global payroll BPO service providers likewise have developed an SMB offering (see "Predicts 2013: The Future of Business Consulting and Business Process Outsourcing Revealed"). Process-enhancing tools and services. The maturation of BPO offerings in general continues in the form of the development of new services and tools that go beyond the capabilities of the core payroll offering ones that improve service, reduce administration effort and reduce prices. Gartner refers to these improvements as process-enhancing technology and services (PETS) tools that offer business process enhancements and additional functionalities that increase a core BPO service's effectiveness or efficiency. Examples include electronic invoicing services, maternity tracking/reporting services, scanning technologies, call-routing technologies and retirement modeling applets. The expansion of cloud technology and, in particular, mobile device usage, has accelerated PETS to the point of being competitive differentiators among providers (see "The Impact of BPaaS on HR Outsourcing"). Buyers expect their provider to introduce automation into the outsourcing process that is, not just to automate in order to reduce its staff but to eliminate it. This expectation for automation is coincident with the desire of some buyers to bring more outsourcing activity onshore or nearshore. Consistent with payroll being the most mature outsourced HR function is buyers' "post-offshoring" mindset: The more a process is automated, the less need there is for low-cost staff, and hence the less need to offshore the activity solely for the purposes of accessing lower-cost staff. Buyers should look for a high level of sophisticated automated processes and a coincident low staff-client ratio when assessing providers. Finally, most clients interviewed for this report took as a given almost all the payroll administration metrics typically included in contract SLAs when evaluating providers. Instead of assessing a provider strictly by the provider's potential for the achievement of metrics, they selected a provider that would go beyond meeting their fundamental payroll administration needs and also through the use of PETS and other innovation would enlarge the scope of their services, ultimately reducing the workload for the client's payroll staff and improving the overall payroll experience for employees. Demand for Analytics, Ideation and Reporting Second to technology enhancements in its ability to differentiate payroll providers is the provision of analytics services and similar service innovations. Some providers are making unprecedented and ongoing investments in analytical tools and services that will help them quickly grow market share. Buyers, and especially MNCs, are increasingly using a provider's analytics capability as a selection Gartner, Inc. G Page 31 of 37

32 criterion, because those tools equip buyers to make informed decisions about their HR operation on an ongoing, global basis. Analytics. The more sophisticated payroll BPO buyers at the largest companies want analytical data and associated tools to equip them to make more-informed decisions about payroll and overall strategy for their compensation and broader HR programs. Providers are developing tools that can mine, analyze and report on the client's employee/payroll data; their tools incorporate the ability to aggregate comparative data from larger data universes such as comparisons by industry, geography and company size cut from among the provider's complete client base that will provide a client with benchmarks and trends with which to compare. Clients not only value this type of data, but they wonder why providers, which have so much data on such a huge database of employees and payroll activity, have not already offered this enhancement. Offering an analytics package is the most valued differentiator a payroll BPO service provider can offer, and some buyers are not hesitant to specify the types of analytics they want. Gartner found that clients named demographic reports, pattern/trend data, predictive analysis and longitudinal reports as being the analyses of most value to them. Proactive ideation. As they did last year, reference clients interviewed for this report bemoaned providers' lack of proactive ideation around payroll best practices or other improvements for them to consider. Even experienced payroll administration leaders desire to hear about and learn from their provider's experience with other clients, whether those experiences included: Successful, cost-saving payroll administration practices to implement Mistakes to avoid Alternative administration practices General trends in administration Future improvement opportunities (especially in anticipation of an upcoming renewal of services with the provider, where fee changes may be involved) Lessons learned from competitors' experience All of these ideas are valuable inputs that could improve administration and educate buyers. Clients should evaluate their provider based on (among other factors) whether it has a pattern of bringing new ideas to the relationship, holding brainstorming sessions to generate new ideas, or offering other idea-generating activities. Flexible reporting. In addition to analytics, clients want more flexible reporting tools and capabilities. Basic activity reports are retrospective and mostly serve the provider's need to prove it is meeting SLAs. Instead, clients want deep-diving tools that let them make queries into their own data and into the provider's administration activity history, and that give them the capability to produce reports at different levels (such as for the HR business partner, HR leader, SBU leader, and C-level officer). Gartner found that enhanced reporting capabilities Page 32 of 37 Gartner, Inc. G

33 especially when combined with analytics capabilities are an important differentiating criterion when buyers select a provider. Tax Compliance and Coordination Payroll BPO buyers seem indifferent regarding whether a provider's tax compliance services are provided through the provider's in-house resources or through payroll or tax expert partners in the countries where they provide service. They primarily want to make certain the provider has access to expertise and that pertinent compliance processes are managed closely and accurately by the provider (that is, not by the client). Further, payroll BPO buyers are seeking to consolidate tax and legal compliance under either a single compliance provider or compliance MSP. Just as buyers have benefited from consolidating and globalizing payroll services under a single payroll provider/msp, saving themselves effort, time and cost, they likewise seek to garner the same benefits by consolidating payroll compliance services. While most payroll BPO service providers offer compliance services at least in each country in which they provide services, not all have advanced to the point of coordinating those services across borders or on a worldwide basis. Bifurcated Buyers' Market Payroll BPO buyers fall into two types: unsophisticated, usually first-time payroll BPO buyers (or first-time buyers of any type of BPO); and sophisticated, usually experienced buyers, confident in their provider analysis and decision-making skills. Payroll BPO service providers are becoming more adept at understanding the differences in payroll needs, buying criteria and decision-making processes between first-time and experienced buyers and approaching them differently. First-time buyers especially must understand that these major buyer trends are both responses to and drivers of providers' offering enhancements, and demand the broadest and most sophisticated services offered, regardless of the extent of their own experience. Deeper Due Diligence First-time payroll BPO buyers "don't know what they don't know" when selecting a provider, and they need more education, training and upfront (even pre-rfp) assistance. This assistance helps them identify their needs more quickly, so they could not only select the best provider quickly but also begin planning implementation concurrent with the provider selection. Both first-time and experienced buyers listed the areas in which they desired more education and assistance from a provider. They include: Demonstrating experience in the buyer's vertical industry Assisting in developing a business case for outsourcing Accurately predicting the implementation effort needed for migrating to a new system and new processes Gartner, Inc. G Page 33 of 37

34 Determining the number, organization and responsibilities of retained staff Knowing what type of change management effort may be required and the resources required to undertake it Buyers understand clearly their responsibility to investigate potential providers; however, they are increasingly asking providers to uncover potential problems that the buyers themselves may have missed. While third-party sourcing advisors can assist with some of these items, many of these issues are best resolved jointly with the provider. Gartner Recommended Reading Some documents may not be available as part of your current Gartner subscription. "Magic Quadrants and MarketScopes: How Gartner Evaluates Vendors Within a Market" "Magic Quadrant for Payroll BPO Services" "Evaluate Payroll Efficiencies and the Business Case for BPO With a Maturity Model" "Taxonomy of HR BPO Service Delivery Models: Select the Right Model to Meet Desired Outcomes" "Market Trends: Human Resources Business Process Outsourcing, Worldwide, 2013" "The Impact of BPaaS on HR Outsourcing" "How Gartner Evaluates Vendors and Markets in Magic Quadrants and MarketScopes" "Best Practices in HR BPO Metrics, Governance and Contracts" Evaluation Criteria Definitions Ability to Execute Product/Service: Core goods and services offered by the vendor for the defined market. This includes current product/service capabilities, quality, feature sets, skills and so on, whether offered natively or through OEM agreements/partnerships as defined in the market definition and detailed in the subcriteria. Overall Viability: Viability includes an assessment of the overall organization's financial health, the financial and practical success of the business unit, and the likelihood that the individual business unit will continue investing in the product, will continue offering the product and will advance the state of the art within the organization's portfolio of products. Page 34 of 37 Gartner, Inc. G

35 Sales Execution/Pricing: The vendor's capabilities in all presales activities and the structure that supports them. This includes deal management, pricing and negotiation, presales support, and the overall effectiveness of the sales channel. Market Responsiveness/Record: Ability to respond, change direction, be flexible and achieve competitive success as opportunities develop, competitors act, customer needs evolve and market dynamics change. This criterion also considers the vendor's history of responsiveness. Marketing Execution: The clarity, quality, creativity and efficacy of programs designed to deliver the organization's message to influence the market, promote the brand and business, increase awareness of the products, and establish a positive identification with the product/brand and organization in the minds of buyers. This "mind share" can be driven by a combination of publicity, promotional initiatives, thought leadership, word of mouth and sales activities. Customer Experience: Relationships, products and services/programs that enable clients to be successful with the products evaluated. Specifically, this includes the ways customers receive technical support or account support. This can also include ancillary tools, customer support programs (and the quality thereof), availability of user groups, service-level agreements and so on. Operations: The ability of the organization to meet its goals and commitments. Factors include the quality of the organizational structure, including skills, experiences, programs, systems and other vehicles that enable the organization to operate effectively and efficiently on an ongoing basis. Completeness of Vision Market Understanding: Ability of the vendor to understand buyers' wants and needs and to translate those into products and services. Vendors that show the highest degree of vision listen to and understand buyers' wants and needs, and can shape or enhance those with their added vision. Marketing Strategy: A clear, differentiated set of messages consistently communicated throughout the organization and externalized through the website, advertising, customer programs and positioning statements. Sales Strategy: The strategy for selling products that uses the appropriate network of direct and indirect sales, marketing, service, and communication affiliates that extend the scope and depth of market reach, skills, expertise, technologies, services and the customer base. Offering (Product) Strategy: The vendor's approach to product development and delivery that emphasizes differentiation, functionality, methodology and feature sets as they map to current and future requirements. Gartner, Inc. G Page 35 of 37

36 Business Model: The soundness and logic of the vendor's underlying business proposition. Vertical/Industry Strategy: The vendor's strategy to direct resources, skills and offerings to meet the specific needs of individual market segments, including vertical markets. Innovation: Direct, related, complementary and synergistic layouts of resources, expertise or capital for investment, consolidation, defensive or pre-emptive purposes. Geographic Strategy: The vendor's strategy to direct resources, skills and offerings to meet the specific needs of geographies outside the "home" or native geography, either directly or through partners, channels and subsidiaries as appropriate for that geography and market. Page 36 of 37 Gartner, Inc. G

37 GARTNER HEADQUARTERS Corporate Headquarters 56 Top Gallant Road Stamford, CT USA Regional Headquarters AUSTRALIA BRAZIL JAPAN UNITED KINGDOM For a complete list of worldwide locations, visit Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates. This publication may not be reproduced or distributed in any form without Gartner s prior written permission. If you are authorized to access this publication, your use of it is subject to the Usage Guidelines for Gartner Services posted on gartner.com. The information contained in this publication has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information and shall have no liability for errors, omissions or inadequacies in such information. This publication consists of the opinions of Gartner s research organization and should not be construed as statements of fact. The opinions expressed herein are subject to change without notice. Although Gartner research may include a discussion of related legal issues, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner is a public company, and its shareholders may include firms and funds that have financial interests in entities covered in Gartner research. Gartner s Board of Directors may include senior managers of these firms or funds. Gartner research is produced independently by its research organization without input or influence from these firms, funds or their managers. For further information on the independence and integrity of Gartner research, see Guiding Principles on Independence and Objectivity. Gartner, Inc. G Page 37 of 37