NGA sharpens focus on HR and Payroll services, sells UK&I software division

NGA Human Resources (NGA HR) is breaking ties with its UK software division, after years building up an international HR software and services business with both regional and global focus.

NGA sold its ANZ operations (both software and services) earlier this year to Ascender and is now completing the move away from a local market focus, with its latest decision to spin off its $170m+ revenue UK & Ireland software business, to private equity firm Bain Capital. NGA will continue to provide HR and payroll services in UK and Ireland and believes that this divestiture will not impact its global enterprise clients for HR and payroll services.

It leaves NGA HR a c$400m business now solely focused on HR and payroll services for multinationals and large domestic customers. “Writing-off legacy” is one of the eight ideals of HfS’ As-a-Service Economy and this move signifies NGA’s journey to become a provider of as-a-service HR and payroll solutions. It should provide NGA more freedom to exploit next-gen value creation levers such as robotic automation, artificial intelligence, and smart analytics.

The divestiture to Bain includes NGA’s successful UK mid-market HR product ResourceLink and its underperforming SMB HR product MoorePay, and by our estimates involves the transfer of around 1,000 employees. Excluded from the deal are NGA’s large enterprise payroll and HR accounts in the UK and Ireland, where it operates large-scale outsourcing deals for companies like Aer Lingus.

CEO Adel-al Saleh will also leave NGA after six years, to take on a new role as CEO of German infrastructure player T-systems. Al Saleh has done an excellent job in his time at NGA, helping restructure the business, further build out its platforms and partnerships, invest in digital and automation, and return it to modest underlying growth. He will be replaced by NGA HR’s enterprise president Andy Monshaw.

This divestiture will simplify the ownership, structure, and focus of NGA HR going forwards.

Growth potential in the UK mid-and SMB sectors.

NGA’s UK president Jonathan Legdon, will remain in charge of the spun-out UK&I business, and rename it once the deal is complete. This is a sensible move to reflect the UK arm’s new life as an independent PE-backed HR software company operating the core MoorePay and ResourceLink products. Legdon sees the move to Bain being a real positive for the business, not about cost-cutting, but with a renewed emphasis on investment.

It’s very early days, but we think there should be significant growth potential in the UK mid and small market sectors. MoorePay, in particular, has been underfed in recent years, and this has been reflected in its FY16 performance, with revenues down 4% YoY to £20m ($15m). Nonetheless, ResourceLink is growing well, in double digits, due to its leading position in the UK mid-market for companies over 500 employees.

The wider UK SMB HR space (<500 employees) has become a hotbed of activity, with an influx of startups and nimble specialists entering the fray in recent years, like fast-growing HR SaaS player Fairsail (which was recently bought by Sage). As a large and diversified international player, it would have been tough for NGA HR to compete in this increasingly specialized area.

Bain meanwhile, has a growing portfolio of IT assets in its stable, like BMC Software, Symantec, and Sungard Availability Services. This will be its first foray into HR, and it’s not clear yet whether there are any synergies between the portfolio companies. Nonetheless, as a standalone entity, the new look UK&I software business has the potential to go onto bigger and better things.

NGA returning to its knitting

For NGA HR the separation is excellent news. It now gets to strike out on its own – delivering what it does best – large, complex, often multi-country HR and payroll software and services programmes. This is its heritage as the former global HR outsourcer Arinso, which became part of Northgate back in 2007, and began the wave of subsequent PE investment and merger activity.

This return to the core shouldn’t, therefore, cause too much disquiet among customers, and with the leadership of Monshaw, we would expect it to be more or less business as usual at NGA.

The separation does, however, provide the much-needed clarity required for customers, and freedom for both sides of the business to exploit their distinct areas of opportunity, without distraction.

Accelerating its HR and payroll partner ecosystem. NGA woke early to the notion that it couldn’t compete alone solely via it owns HR platform IP. In recent years, it has done a good job refocusing around key HCM platforms like Workday, Oracle, Kronos and SAP SuccessFactors, to augment its own payroll platform EuHReka. This dual approach has worked well where clients want choice and access to best of breed.

However, it’s early days in the transition to broader Digital HR, which makes the most of these ecosystem partners.

For instance, a lot of the innovations to date have been around its partnership with SAP SuccessFactors, where NGA is building out cloud extenders to SAP Hana like case management, HR request tracker, and ID-Synch. There is also its CleaHRsky BPaaS platform launched last November, built on SAP SuccessFactors, which now offers true as-a-service delivery with single customer billing and rapid go-live within 14 weeks. It will be great to see NGA now inject a similar pace of innovation across the rest of the partner network.

Then there is the question of the aggregated global payroll services model and the use of sub-contractors. Serving as a “broker of capabilities” is a core ideal of HfS Research’s as-a-service ideals. It allows customers to leverage a plug-and-play services delivery model through one contracted relationship and accountable vendor partner and continues to be the Achilles Heal in the global payroll outsourcing market. NGA needs to think through the potential impact of this divestiture on the coordination, oversight, and governance across the federation of its subcontractors (subs). Both NGA and its multi-national customers rely on seamless delivery of payroll services given that late payroll filings or miscalculation of taxes withheld or deposited around the globe result in significant financial penalties.

Bottom-line: NGA takes a OneOffice view of HR and payroll. 

Embedding automation and AI are vital planks of NGA’s strategy. However, we aren’t clear as to the roadmap or focus of these deployments. Like many organizations, NGA has been keen to get some early wins under its belt, so it has been an early adopter of RPA and continues to exploit use cases across the organization where it can drive productivity benefits, and time and savings back to the business. There are now also early use cases appearing in AI and machine learning, such as its myHRW chat sessions.

But there are gaps. As we’ll show in our soon-to-be-published Payroll Blueprint report, customers are telling us they don’t have good visibility on their suppliers’ planned innovations, the user experience is lacking, and this equates to a view that vendors are lagging behind on crucial digital aspects.

NGA now has an opportunity to break this paradigm, as a newly independent global player. It should consider how to bring all of these Digital strands together around Automation and AI in a coherent way for its customers so that it can become a more strategic part of their journey to the Digital OneOffice.

NGA’s future efforts should be fought around this, by getting closer to its clients, and helping them re-imagine and transform their payroll and HR processes, in a human-centric way. This is at the heart of the OneOffice to create an intuitive customer experience, where automation, analytics, and AI are completely native, and decisions can be made by predicting events, not merely reacting to historical data.

We will be attending NGA’s analyst event in Amsterdam in October and will be very keen to learn how its plans for the future to digitize HR, concur or clash with our views. We’ll share more about what the future holds soon.