The TSA awards its HRO engagement to Lockheed Martin – an overreaction?

There’s been a lot of noise in the market this week concerning the TSA’s award or their HRO contract to Lockheed Martin.  While this is clearly a bold move into HRO for Lockheed, this isn’t likely to prove a major loss for Accenture.  Why?



  • Times have changed for HRO. The initial contract was established in 2002 – a time when the HRO market was on a major upswing and the 9/11 attacks had put Homeland Security firmly under the microscope. While the Federal sector is clearly a crucial market for Accenture, you’d have to question whether Accenture would be so interested in Federal HR services in today’s outsourcing environment. With the presidential election looming and a possible de-emphasis on massive investments in Homeland Security, this sector is not as attractive as it once was for a services provider. Demand for application services is rampant, combined with some areas of BPO (notably F&A), where Accenture is a market leader. Add to this the fact that HRO has slowed and will take time to rebound, and you have to question whether Accenture is as motivated as it once was to invest resources into this area, when they have so many other growth opportunities. Their recent 20% revenue hike from last year and record quarterly revenues, coupled with further double-digit growth in consulting and outsourcing, are testament to the fact this company is firing on all cylinders.
  • The Federal Government sector isn’t primed for the traditional sourcing model. Most of the established sourcing advisors are not accredited to work with the Federal government (with the exception of Equaterra). Moreover, most of the Federal agencies use their inhouse procurement arms to evaluate those vendors on the accredited supplier list, and only use the traditional consultancies, which have Federal approval, for their sourcing decisions. Often this is not to the benefit of the outsourcing providers from the commercial sector, who are unfamiliar and uncomfortable with the Federal Government procurement process.
  • It wasn’t as big a deal and many people think. While Lockeed assumes a new deal size estimated at $1.2 billion, Accenture’s previous tranche of the TSA HRO contract was far, far smaller than this ($214 million). It only handled the post-hiring employee support activities, benefits admin and payroll, while CPS Human Resources Services handled all employee-verification, recruiting and pre-hire activities and Avue Technologies the recruiting workflow systems.


For Lockheed Martin, this creates a great testbed to develop an HRO offering.  Lockheed Martin is a well-respected government services provider. The firm clearly has its eye on supporting the Homeland Security Department’s headquarters operations.  This could be up to three times the size of the TSA engagement and the sheer size of this engagement gives them the platform and resources to develop a competitive HRO offering.  I’d be surprised if Lockheed has serious HRO aspirations outside of the government sector, although it’s not inconceivable it could compete for HRO contracts in the aerospace and hi-tech sectors.  However, it will take time for the firm to develop a workable HRO model for the TSA that can be leveraged across other entities. 


All in all, it’s refreshing to have new domestic entrants into this sector, in addition to the offshore giants, which has had its challenges in recent years, and it’s the end of a chapter for Accenture, which put a lot of effort into getting the TSA fully operation (not a simple task for any provider).  It will be interesting to check back in with the TSA in a few months’ time to see how they are fairing with such a complex engagement.

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4 Comments

  1. Posted July 18, 2008 at 7:27 am | Permalink

    All excellent points Phil. What many may forget is that Accenture is the only external service provider authorized to provide payroll services to federal agencies vis-a-vis the HR Lines of Business (LOB) initiative. The HR LOB’s represent five internal shared service centers and four external shared service providers that are eligible to compete for the human resources needs of all federal agencies. (See http://www.opm.gov/egov/HR_LOB/ for more details) I point this out only to underline your view that although this represents a significant victory for Lockheed Martin, this by no means spells defeat for Accenture.

    Best,
    Mark

  2. Naomi Bloom
    Posted July 18, 2008 at 9:46 am | Permalink

    If rumors are true that Accenture had performace issues as a major contributor to their not being selected for this much larger opportunity, other agencies will take this to heart as they make their own decisions on HRO. Federal $$ paid for the startup of a lot of new lines of business for firms like Accenture and IBM, so I do expect we’ll see Lockheed Martin, which has been working on its HRO business for more than three years (based on their requests to me for participation in pursuits), expanding in HRO to state and local governments and then to te private sector IF they get this right.

  3. Posted July 19, 2008 at 8:49 am | Permalink

    Interesting points. Taking a broader view, you have to question the ability of public sector entities to take on BPO services. I recall all the issues with the UK’s Inland Revenue, National Health Service, not to mention the States of Florida and Georgia. It appears, based on multiple situations over the last decade, that public sector operational heads are too quick to eject their service providers than work with them to improve service delivery. I have also seen several outsourcing evaluations with public-bodies which were painful, unsuccessful engagements that never came near to fruition. Change is not something these orgs embrace well.

    Commercial firms also struggle in many instances to achieve operational success in BPO situations, but tend to work harder with their providers to get it right, rather than scream from the rooftops after 2/3 years and eject them after a single contract term.

    Good luck to Lockheed Martin – I hope they can sway the attitude of public sector leaders to be more proactive and positive towards supporting their outsourcing relationships.

    PF.

  4. Posted July 20, 2008 at 4:34 pm | Permalink

    Please allow me to make a few critical points for your and others’ consideration:

    Lockheed Martin (LM) is a bonefide provider of HR-related services to the Federal Government. In addition to the TSA contract, LM can claim the US Air Force as its client. LM and its team are serving as this armed services branch’s strategic partner for HR transformation.

    Accenture’s loss is, indeed, a big deal — not just in lost revenues (from $1.2B to $3B in TCV), it gave Accenture the “bonefides” to play in the Federal Government HRO marketplace.

    HRO in the Federal Government is here to stay … but it’s different. The Office of Management & Budget recently submitted a report to Congress on the HR Lines of Business program(http://www.whitehouse.gov/omb/egov/documents/2008_HRLoB_Report.PDF) that provides a strong case for continued support of the initiative.

    Glenn.

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