In a joint telebriefing today, an research and outsourcing advisory firm concluded that the marketplace is seeing major changes and shifts in human resource outsourcing (HRO) adoption, deal trends, and provider positioning.
As the first-generation of these contracts begin to reach their expiration periods, buyers are becoming increasingly savvy. As existing contracts are renegotiated and recompeted, the market for HRO has become more competitive. Projections are for healthy revenue growth in this market from $11b worldwide in 2006 to $19b in 2011.
Some key findings from the briefing include:
- As standalone HR outsourcing grows in the forecast period at a compound annual growth rate (CAGR) of 8.3%, comprehensive BPO
- Combining multiple HR functional towers, is growing at a CAGR of 14% for the same period
- Buyers are increasingly combining HR functions with others, including finance and accounting, creating 'multi-tower' deals
- After a steady decline, HRO pricing is on the rise and HRO provider profitability is increasing
- Large, global HRO deals are on the decline. Only two to four are projected in 2007
- Demand is outstripping supply. HRO providers are capacity-constrained
- New providers are still entering the market
Comprehensive HRO contract durations are tailing off after several years of growth and are now averaging seven years. This may reflect greater adoption by mid-market firms that are new to the market and who are accustomed to shorter engagements.
As HRO moves beyond single-function deals, buyers are finding it more important to take a strategic view of their objectives and desired outcomes. Both firms commented on seeing lots of activity in the HRO market, but the buyer landscape has certainly changed as more organizations understand the reality of HRO. It is a complex undertaking that requires careful planning, clear communication of strategy and purpose, and significant effort to design an outsourcing governance organization that can manage all of these moving parts. There are benefits to be had, but not without effort.
Source(s): IDC, EquaTerra