HRO Market On a Steady Incline

The Human Resources Outsourcing market has gone to $2 Billion in what seems like a split-second. The US $2 Billion industry has seen an annual growth spurt of 28 percent, showing a growth of nearly four times that of the general HR services market itself. During 2005 the HRO market saw nearly 40 deals signed which caused that year to become the turning point for the market in general.
The concept of Human Resources has been a major factor in outsourcing decisions with regards to staffing transfers and downsizing. HR functions, typically led by benefits administration, payroll administration and HR information and technology, are primarily the target for outsourcing and are beginning to see a major increase in offshore movements. While these movements are becoming the norm within HR functions, they are currently used in a little less than half the major outsourcing transactions that we see in force presently. This will of course increase as more and more companies begin to realize the substantial savings of this option. However with the skepticism that many buyers have of offshore skills, the HR industry is still a bit behind many other areas that are currently being outsourced. Major suppliers are currently focused on elevating offshore HR skills so it may not take long for the HR industry itself to make its mark with others such as IT and customer service that are currently being adopted as offshore options.
There is currently more complex work being outsourced to India by those thought of as giants among international corporations. Intel is expected to invest more than $1 Billion and JP Morgan Chase is planning to add another 4000 or more employees. India has increasingly seen a steady rise in outsourcing work. In the past year they have seen a major increase by Wall Street firms and larger globally based banks.
At the beginning of 2008, Ceridian saw a major growth in Human Resources Outsourcing, including eight new employers in the United States alone to add to the eight existing HRO clients that the company maintains who extended their contracts with Ceridian HRO. The company’s portfolio now consists of 29 US clients who are currently engaged in offshore outsourcing.
You will remember that a few months ago EquaTerra and IDC presented a flash report that predicted the growth and changes that would take place in 2007. Mark Hodges, EquaTerra founder and Lisa Rowan, IDC Program Manager, both presented interesting details into current and future HRO trends, forecasts for the market and lessons that were learned in the past few years that will help to ensure the future expansion of the industry.
As a standalone HR outsourcing has continued to increase at an annual growth rate of 8.3 percent. Comprehensive BPO when combined with multiple HR functions is also growing rapidly at an increase of 14 percent. Although HR outsourcing pricing was recently seeing a steady decline, it is now on the rise again and provider profitability is increasing at a steady rate overall.
What this means for the HR manager is that the multiple process Human Resources Outsourcing market has been constantly maturing over the past three years. With prices continuing to fall, outsourcing is becoming a much more attractive option than if was just a short time ago. Also, while standards have not yet been set, they have evolved steadily and are allowing suppliers to leverage scale across their customer bases. Offshore HRO services has become a reality and is now commonplace in many new deals, where just a few years ago this was simply a foreseeable option, although not really a strong reality. With stronger capabilities for suppliers and a constantly increasing competition in the market, pricing has gone down considerably from 30 to 50 percent in some segments. Those who have an existing outsourcing contract have a very attractive negotiation opportunity and new buyers are seeing much better pricing structures than before.
The bottom line is that Human Resources Outsourcing is a growing industry that is not simply for the large players any longer. More mid-sized buyers are beginning to come around to the effectiveness and cost-efficiency of offshore outsourcing. The number of providers is steadily growing, giving more options to all market sizes. Many of the larger powerhouses are offering or have already consolidated offering comprehensive services that include a large number of functions instead of simply one major service. Competition is a good thing. It can help to drive down costs while also offering choices for businesses that will enable all segments of the market to select providers that will best meet their individual company needs.