BenefitsEngaged Workforce

CEO’s Corner HRO: Hot or Not?

What is the true state of the market? Analysts and pundits ponder, but the data tell all.

by Elliot Clark

The other day I was talking with my good friend Phil Fersht, a leading HRO analyst and member of AMR Research about the state of the HRO market. He had just posted to his blog (http://fersht.typepad.com ) an article about the HRO market and the fact it had the jitters in spite of an approximately 97-percent success rate. That’s right,97 percent. Out of about 200 major deals, six have unwound.

Now, bear in mind, outsourcing HR is a lot like running a marathon. To get to the finish takes a while and involves some pain, but satisfaction ratings among HRO buyers are between “somewhat satisfied” and “very satisfied” based on our survey data and others.

So why the jitters? We can talk ad nauseam about early deals gone wrong and “your mess for less” and “badge flipping frenzies.” We can climb on our “burning platforms” and go down with the ship, or we can just accept the market has matured.

I heard Mary Sue Rogers, executive vice president of IBM Global Services, who is also now the secretary/ treasurer of the HRO Association, speak at HRO World Europe in Brussels last November, and she used the best analogy I have heard. She described early HRO deals and the provider community approach as being akin to teenagers. Everyone stayed out too late, took too many chances, partied too hard, and had a hangover the next day.

Today, there is too much attention focused on that past. In the present, the caution and preparation has lead to extensive “transformation” consulting prior to deals being done, and this approach may have slowed market velocity, but it will not change the value proposition. Some parts of HR are available to be outsourced, and in some companies most of the functions can be outsourced. The business case for this is still as compelling as it was a few years ago.

While much ink and blood have been spilled on enterprise HRO, the real heat in the market right now is in single-process and multi-process (six or fewer) and mid-market deals. Single-process deals are taking place at a brisk pace, and the size of some of these deals is astounding. To wit, the ADP payroll deal with Sodexho for more than 100,000 employees. In addition, the recruitment process outsourcing industry could not be hotter as the predicted consolidation is well underway. In the past few months, The Right Thing acquired recruiting software and training leader AIRS. Alexander Mann Solutions acquired Capital Consulting, officially making it the 800-pound gorilla in Europe. Manpower fortified its offering with the acquisition of West Coast-based CRI, and Kenexa expanded its global footprint with the acquisition of Quorum International.

We are also seeing considerable mid-market activity. The HRO Association (www.hroa.org ) has officially launched a mid-market Special Interest Group that will have its inaugural meeting at HRO World in New York this month. I am personally on this committee, and the first call had more than 30 attendees.
The HROA is trying to define “middle market” HRO and establish standards and practices for members.

Mid-market deals are occurring at a much higher rate than enterprise deals, and many mid-market buyers used a program management office approach in which the HR department may select a group of vendors who are specialists, rather than one single provider.

However, a shifting pattern is emerging as providers have built more compelling value propositions for the mid-market. We are seeing comprehensive mid-market deals, particularly in geographically distributed industries such as retail and hospitality.

So, I ask you, HOT or NOT? Regardless of what you are hearing about the enterprise deals, they are happening, and only a few have ever been terminated. As for other sectors, they are hot right now and will continue to be. The economic climate will only create more G&A expense scrutiny, and HRO is one potential way to achieve savings and still deliver high-quality HR services.

Tags: Benefits, Engaged Workforce

Related Articles

Menu