A Look Over the HRO Horizon

 What to expect in 2010—and why it will be about much more than cost.
 By Linda Merritt
As the early dawn light of recovery breaks the horizon, many HRO trends are in clear view.  In 2010 we can expect HRO deal volume to pick up at a lower average total contract value, renewals to go well overall, single process HRO to outpace multi-process, and cost to remain the top concern.
The sun shines on HRO deal volume, which will pick up worldwide, with the U.S. remaining the largest single market for HR services. The U.K. will continue to adopt multi-process HRO, keeping the lead in the public sector. European providers and companies will push where HRO can work within in-country constraints and where multi-country coverage can add value. Activity will increase in Asia Pacific and Latin America, but the emerging markets will not yet make the long-awaited debut as significant HRO markets.
Renewals will go well, with reported 80 to 85 percent retention rates. Within those renewals, a quieter level of two-way restructuring will better balance service and cost. Buyers will maintain their primary provider for multiple services in the areas that have been most successful and use single process and internal services in others.
Providers will complete adjusting and renegotiating client portfolios to align with their sweet spots—a core of competitive and compelling services to enable building sustainable margins. For example, NelsonHall expects that RPO will continue to be de-scoped from multi-process HRO (MPHRO), unless the provider has recruiting services strong enough to compete head-to-head with the single process providers, or a specialty provider has been successfully integrated as a partner.
Bouncing back, but not as high as before the recession, will be RPO, learning, and talent management. RPO will grow as hiring volumes increase, but it will take a good year in 2010 to recover from the revenue reductions many providers have experienced. Learning will pick up nicely if it can highlight more than ever how LBPO helps do more with still-limited training dollars. Adoption of talent management applications will increase, but full talent management BPO services will remain limited.
MPHRO will come back to life as the crop of MPHRO deals signed increases. Few will be mega deals, and the scale and scope at signing will be smaller, moderating total contract values. The promise of MPHRO for the midmarket finally will emerge, thanks to the increased functionality and affordable pricing possible with SaaS-based services. 
Look for the field of MPHRO providers to continue to refresh itself with plenty of major players committed to staying in the game. Even though a few providers have left the field, others are hoping to break into the large market and new geographic markets. Jostling will continue with a few new partnerships and limited acquisitions to build out multi-country coverage, acquire new service capabilities, and enter new markets.
A bright spot for both single process and MPHRO is the interest in multi-country services in areas such as payroll, RPO, and learning. While not necessarily global, multinational companies want integrated and consistent multinational services that are delivered by fewer vendors.
With a new day dawning, new questions and answers emerge, forged by the practical realities of crisis, survival and, now, recovery. For example, the question is no longer if there will be offshoring, but what are the options for its use as many vendors now offer voice services from onshore, nearshore and offshore, depending on a client’s desired price points. With new sophistication in case management and workflow tools, automated processing might be in one country, voice inquiries received in another, and non-voice issues handled by a topical center of excellence in a third.
Cost will remain top of the decision factors list. Most signs indicate that we are once again having a “jobless” recovery, as unemployment has already passed 10 percent in the U.S. We are also seeing a “spend-less” recovery. Just as businesses are showing caution in adding back employees, businesses are going to remain reluctant about committing big money over long periods. Smaller outsourcing deals commit fewer dollars, feel less risky, and are easier to get signed. On the upside, smaller initial scale and scope contracts should prove more manageable for both buyers and providers while still offering long-term growth potential.   
As important as cost is in getting deals signed, cost savings do not alone create satisfied long-term clients. All of the service performance, user experience, and business benefits—along with a great relationship—must be there. We will soon see in the light of day who has just driven out cost, and who has driven out cost and improved transition capabilities and service offerings.
Finally, expect the new level of C-suite interest in the cost and capability advantages of HR outsourcing to continue as long as they can see a well-lit path to delivery of its promised benefits and savings.
Linda Merritt is research director for human resources outsourcing at NelsonHall. She can be reached at
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