Administering benefits on a world-wide basis
Is global benefit administration possible?
Global benefits administration has historically been focused on single process transactional services specific to one country or geography (e.g., Europe, the Middle East and Africa (EMEA), AsiaPac) with the United States being the single largest geographic marketplace. Companies have developed transaction service solutions primarily for savings and pension administration since those programs are most analogous around the globe. And, while health & welfare program administration is expected to be one of the fastest growing segments of the benefits administration marketplace, that growth is concentrated to the US given the vast diversity of programs and prevalence of government sponsored health related benefits across the globe.
According to data in the October, 2010 Nelson Hall report entitled Targeting Benefits Administration, North America and specifically the US, is the dominate force in the outsourcing market with the rest of the world a great distance back with that dominance.
The solution providers have been narrowly focused by domain (savings, pension, health & welfare, leaves) or location with very few Global Total Benefit Administration (“GTBA”) solutions available. Multinational companies have looked for GTBA solutions for over a decade. Yet, despite the long-awaited administration nirvana, the market has been slow to develop solutions that allow companies with global operations to efficiently manage their delivery of employee benefits in an integrated way. In the gap, employers have been forced to use patchwork approaches that are becoming less acceptable in light of mounting pressures to control cost and manage risk while maintaining scalable and flexible delivery solutions that meet the ever-changing needs of the workforce and the business.
The patchwork quilt of solutions that employers are using spans internal benefit operations and/or shared services (including on-shore or off-shore) to date enabled by ERP or point solutions to total outsourcing and many combinations in between. And while certain aspects of the delivery solutions have evolved, such as the emergence of SaaS, there has been a shocking lack of disruptive innovation.
The increasing costs of benefits continue to gain the attention of employers, financial markets, and regulators. In fact, according to a recent study, six of the top thirteen benefits-related challenges identified by a large cross-section of employers are related to the costs of benefits. The other key benefit related top-of-mind issues for employers include talent attraction and retention and aligning benefit programs with the strategy of the business. More telling, however, is the increasing focus on the benefit service delivery model as inefficient, fragmented, and with high levels of administratively complexity resulting from global benefit programs.
Simultaneous to the evolving needs of employers, the benefit administrative solutions marketplace is going through a transformation. The maturation of the savings and pension administration solutions has resulted in commoditized services and shrinking margins. Given the difficulty to differentiate, solution providers have found it necessary to continue to invest in new products and services. These market conditions have resulted in companies exiting the market and numerous mergers amongst solution providers in every market segment (ERP, SaaS, Point Solutions, Outsourcers). As a result, what had been a buyers’ market over the past decade has swiftly shifted to a sellers’ market with increasing costs and less flexible solutions.
While improving margins for solution providers may result in the short-run, the clear view for the long-term is that GTBA solutions are the next growth opportunity for solutions providers and demand from employers is increasing. The prevailing perspective, however, is that solution providers must build GTBA solutions differently than traditional local market solutions. Global solutions are less likely to be one-size-fits-all solutions and will require coopetition (cooperation amongst competitors) to occur in many areas to create a hub and spoke model.