BenefitsEmployee Engagement

Crystal Ball, Schmall-Some HRO Predictions for the New Year

Self-preservation has HR leaders adjusting their expectations of HRO. We’ll certainly put a spin on our words if they fail to predict things to come.

by Andy Teng

Few things in life are more dangerous than predictions. Every time I watch one of these talking pinheads on TV making calls about the stock market, next Sunday’s big game, or something as unscientific as the weather, I shudder. The only certainty that accompanies these predictions is no matter how off the mark or outrageous the prognostication, the televised soothsayers get invited back to make more bad pronouncements.

So with the new year upon us, let me offer up my two cents for 2008; but I’ll refrain from spewing vitriolic one-liners against detractors. (Besides, most readers will have forgotten all about my silliness this time next year.)

• Industry Capacity Meets up with Buyer Demand. No question, the HRO market was hobbled this year by choosey providers. It took a while, but vendors have finally realized profitability is paramount, and to remain in the market, they can only engage in deals that fit their business models. Not wanting to repeat past mistakes, they have understandably retreated from aggressively pursuing new deals. But having reached steady state on a number of past implementations, providers will again grow hungry for new revenues.
Furthermore, offshore providers are getting ready to establish beachheads. Many big-name BPO players who have focused mostly on finance and accounting outsourcing appear ready to step in. I’m not sure how successful they will be because HRO is a wholly different animal from accounting or IT outsourcing. HR is more of an art than accounting is, and number-crunching experience doesn’t easily translate into the touchy-feely people skills. Then again, how much love can you impart onto a paycheck?

• Consolidation Mania Falls upon us. M&A activities among the big HRO providers have been limited in the past two years. With the exception of the Northgate-ARINSO marriage this year, few screaming headlines were written. So what makes me think consolidation
will occur?

My money is on Tier-2 and point-solution providers to pick up the pace of consolidation. A look at the vendor market reveals a sizable number of players, but the march toward globalization continues unabated. Regardless of whether an organization has multinational operations or aspires to have them, an HR leader will almost always opt for a global player if all things are equal. That means Tier-2 guys will have to bulk up, whether through M&A, partnering, or organic growth.

Case in point: RPO is stretching its tendrils across the Atlantic and into Asia. None of the providers—even ones with a full head of steam—can currently serve their clients’ needs everywhere, so a lot of partnerships are cropping up. But as we all know, partnerships are the first step to one partner clubbing the other one over the head in a grab for market share. In 2008, listen for skull-splitting cracks.

• Buyer Expectation and Actual Service Delivery Get Aligned.
Comedian Emo Phillips used to say, “When I was a boy, I’d pray to God everyday for a bike. When I didn’t get one, I just stole one and asked him to forgive me.” HRO practices today are a product of shattered expectations. Outsourcing works, but not to the degree envisioned during the industry’s nascent stages. And just like Boy Emo, HR leaders adjusted their expectations and improvised when HRO failed to deliver everything it promised. What’s the alternative?

“Yes, Mr. CEO, I was wrong about outsourcing HR services. Can we go back to internal delivery?” Talk about career hari-kari.

So rather than cave in and concede defeat, HR leaders who have adopted HRO are in it to stay. The choice of provider might change, but holding on to the concept is a must.

Like the HRO buyers we cover, I’m hoping my words don’t come back to haunt me. Then again, I can always resort to what many enterprising HR leaders have done during their toughest times while implementing HRO: Put the most positive spin on it that you can imagine.

Tags: Benefits, Employee Engagement

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