Annual Delve Brand Index finds buyers still unsure about the impact of HRO. Cost savings remain the No. 1 driver behind engagements even as a best-in-class approach is preferred.
Despite a few notable blockbuster deals, 2006 was a modest year for HR—a year marked more by stabilization than by flux. In particular, there was a
distinct leveling of perception in many quarters, and several of the factors motivating buying decisions have stabilized and become consistent across the industry year over year.
These were some of the findings of the 2006 Delve Brand Index, an annual survey of the HRO market. In the course of research on this year’s edition, Delve
analysts conducted interviews with more than 100 buyers, providers, analysts, and industry experts. Across our research during the past year, the following findings stand out.
• Reasons why buyers outsource aren’t changing—How they select their provider is. Cost savings continue to be the No. 1 reason cited by buyers for choosing HRO. While adding or improving service, accessing expertise or technology, and even transforming HR make the top five list, savings have remained firmly at the top since 2004.
While provider selection criteria are unchanged, their relative importance is shifting. In our 2006 research, price overtook values and culture as the most commonly cited provider selection criterion. This is not to say that other issues—compatible values and culture, provider capability, global reach, experience, and reputation—are not important, but pricing is moving up the list. The HRO industry is experiencing increasing pricing pressure as it moves farther from the early adopter phase, and increasingly buyers are commoditizing HRO and component processes, demanding better and more service at lower prices.
• “Global” still draws. Buyers continue to place high value on a provider’s global presence, but their focus has changed. Whereas buyers last year valued a vendor’s ability to provide services in multiple currencies and languages, those capabilities are now considered table stakes. Increasingly, buyers place much higher value on whether a provider offers services across all of their locations and if it has a local presence in each.
The European market continues to grow incrementally. Market segmentation—lack of common laws, languages, and social values—continues to limit the growth of HRO in Europe.
• Buyers prefer best in class. Our research indicates a preference among buyers (60 percent) for best-in-class, point-solution providers over full-service ones. Those inclined to go with best in class generally seek HR expertise; those who prefer one provider seek ease of management and seamless delivery.
But even buyers who want full service are stymied. There’s an ongoing belief among buyers that no company is successfully providing full-service,end-to-end, global HRO services. Time and again, buyers noted and lamented this gap. Some even expressed downright frustration that providers hadn’t yet
“figured it out.”
• Size matters. Larger global organizations generally express interest in large, more recognized providers—notably Accenture, Hewitt, and IBM. Smaller
firms, on the other hand, preferred not to work with large providers, sensing they would receive second-tier service.
• Limited buyer change management offers opportunity to providers. Buyers say that internal changes as a result of HRO were limited. And, while many report establishing success measures, few effectively identify, implement, or measure metrics beyond service level agreements (SLAs). The result is that although the provider can indicate how well it is performing against specific goals, nobody can effectively say whether HRO is a success for the buyer. This situation presents an opportunity for providers to help buyers plan, launch, and measure progress against their overall HR change goals.
• HRO isn’t transformational by itself. Buyers see HRO as one of the tools they can use to transform HR, but very few view HRO as driving the transformation of their HR function.
• Provider perceptions are slow to change. Since last year, a few players continue to dominate the landscape. Accenture, Hewitt, and IBM are most often noted as the dominant full-service providers; ADP and Fidelity, while highly recognized, are viewed as leaders in their niches and less as full-service providers.
Richard Crespin (rcrespin@delvegroup.com) is the CEO and a founder of The Delve Group, Inc. Its clients include companies in the Global 1000, international and non-governmental institutions, non-profit organizations, and agencies of the U.S. federal government.
Elizabeth Boudrie (not pictured) (eboudrie@delvegroup.com) has 20 years’ experience in qualitative research management and product and service development across a variety of business-to-business industries. In her role as research director of The Delve Group, she oversees all global research efforts addressing transformation and outsourcing of business processes.
