Shorter term deals setting new trends in HRO

As the economy is reviving, the HRO market is regaining its lost momentum. The number of deals has gone up over the last few quarters and adoption rates are improving. According to Krishna Baidya, Industry Manager, Frost & Sullivan, “The HRO market has received a great boost as increased number of multi-process outsourcing deals, involving HR services such payroll, recruitment, training and development etc have started pouring in.

A major chunk of the demand is coming from public sectors across regions, as pressures to cut costs are mounting. Sectors like financial services, pharmaceutical and manufacturing are some areas that are currently high on HRO adoption.

Everest Group's 'Human Resources Outsourcing Annual Report 2011' points out few noticeable trends for this year. Demand for global expertise by buyers, integrated HR services, technology innovations and preference for single service contracts will be major factors driving the HRO market in 2011.

Increased buyer preference for offshore service providers as a low cost HRO partner will most likely be an important trend to look forward this year. GIA's 'Human Resource Outsourcing: A Global Strategic Business Report (2011)’ expects United States and Europe to continue dominating the global HRO market.  

Going Strong

“In 2010, the Multi Process HRO (MPHRO) market grew by six per cent to reach an ACV of $ 3.07 B. More than 40 new deals were signed during this time and there were also significant number of extensions to the existing ones,” says Rajesh Ranjan, Research Director, Everest Group.

This coupled with reduction in the number of contract terminations indicate improved buyer satisfaction. As enterprises are becoming more careful in their outsourcing strategies and are reevaluating partnerships, there are some notable changes in the types of HRO contracts being signed

The visible trend is that the size of contracts is reducing and the contract period is going down. Enterprises are also including lesser number of processes in the MPHRO deals. The idea behind this is to start slowly and later move to bigger deals if the deal appears to be paying off.

“Such change in customers' mentality is keeping vendors on their toes in the increasingly competitive market. Through such outsourcing, buyers are seeking to scale up quickly or gain access to contingent workforce with the required skills, gain cost advantage at various geographical presences they may have and deliver consistent experience,” says Baidya.

Payroll has traditionally been the most outsourced function in HRO, considering its complexity and specialized knowledge required in the domain.

Typically, enterprises are initially starting with outsourcing transaction intensive functions like payroll and over time, they move to other areas like learning and recruitment. The opportunity service providers have here is to transform short term agreements into long-term strategic relationships by offering competitive services combined with innovative technologies that suit specific enterprise needs.

RPO is Hot

Recruitment Process Outsourcing (RPO) is relatively new as compared to most other areas in HRO, but it has matured fast. The segment is growing, though certain areas are still not developed fully. In terms of global RPO, there hasn’t been much of development as there are not many service providers capable of delivering a comprehensive global offering.

This apparently is the reason why buyers have been depending on multiple service providers for their global RPO needs. Employment branding is an RPO area that is increasingly gaining focus. Enterprises are looking for service providers for their employment marketing and communication initiatives as they find it cost effective to outsource these rather than doing it in house. Technology for recruitment processes are evolving and enterprises are looking for providers who are able to offer sophisticated technology solutions. These technologies include mobile platforms, and employment marketing and recruitment CRMs. Integrated technology offerings is most likely to be one of the major service provider innovations to be witnessed in 2011. In terms of the geographical demand, North America accounts for more than 50 per cent of the global RPO deals.

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