RIO DE JANEIRO
Fidelity Investments' HR Services has just taken a big hit with the announcement that their flagship client, Bank of America (BofA), has decided to dump them after a lengthy review in which they compared the option of staying with them to switching to a new provider. The decision which moves payroll, timekeeping, recruiting and benefits to Hewitt (and only keeps retirement with Fidelity for the time being) prompts any observer of the HR technology and services business to wonder what is going on. After all, BofA, was Fidelity's largest and most significant client and the contract was trumpeted with loud fanfare back in 2004.
This is no accident as the project showed that Fidelity's move into outsourcing services was not matched by the required capabilities to ensure success. In particular, the choice of a technology platform has been erratic, at best. First, Fidelity, who had been using Oracle for a long time, decided to have their own technology on which they would offer outsourcing services and in 2003 they bought from IBM Paris-based software vendor HR Access. The next few years were used to implement the system for their own workforce worldwide. Hundreds of millions of dollars were spent on that effort for Fidelity only to pull the plug in 2007 and revert to Oracle for both internal needs and big clients like BofA which continued to cost them a fortune for the honor of using their logo as a major client.
Despite this setback, Fidelity continued with another project, called Global Platform, still based on HR Access but only for Europe, to start with. The secret hope being that what didn't work in the US would, as by magic, work in Europe and the miracle could then be replicated back in the US where the BofA project was still dripping ink the color of blood. In 2008, the awaited miracle didn't materialize and the Global Platform project was shelved at a cost of several dozen million dollars, to be replaced with outsourcing services from HR Access directly.
The problem is that HR Access whose DNA is HR software (or, rather, software services around implementation - a legacy of the IBM Global Services days) has limited knowledge and experience of the outsourcing business. The top managers called in to help (such as Bill Thomas, as Head of Outsourcing, from Ceridian, now with Equaterra; Ignacio Palomera, on the Product Mangement side, from Arinso) all came and left one after the other with little noticeable impact, at least of the positive variety. HR Access is still a software vendor, still European with France representing a lion's share of its revenue and (still higher) costs. Its recent multi-million-euro win to supply the French government with a customized payroll software for all its employees is actually a double edged sword: not only does it mean that heavy R&D investment will have to be made to develop a product that can't be sold to any other customer thus preventing any product capitalization, but it also draws HR Access even farther away from the outsourcing business since most of its resources will be focused on the traditional software business rather than the brave new world of outsourcing services.
In view of these developments it is safe to predict the following :
1. Unless there are some radical changes in the way the business is managed, and the technology strategy clarified, Fidelity's cash hemorrhage is going to continue until hey exit the HR Services/outsourcing business altogether. More cost effective vendors have appeared on the landscape and are stealing Fidelity's lunch.
2. HR Access, which is still an unprofitable business as it relies on a regular handout from Fidelity, will be sold back to either a private equity firm or, more likely, another HR vendor (such as SAP who lost that French government payroll deal, but are implementing an HR system for several million French government employees.) But any sale will have to be done at a loss since any new acquirer will face a serious cost control challenge. In today's globalized world and recovering economy it doesn't make sense to have expensive developers in Paris, France, building what is after all just a payroll and HR admin product for mainly the French market and smaller satelite markets.
3. HR Outsourcing is a tougher nut to crack than previously thought, and the market through 2015 will grow more slowly than the traditional on-premise licensed software or subscription-based (SaaS) model. The reason is that all vendors are still struggling with the dual challenges of how to achieve economies of scale by implementing the Holy Grail of best practices supported by truly multi-instance technology.