BenefitsEngaged Workforce

Energizing the HRO Marketplace

As multi-process HRO struggles during a lull in the market, providers need to figure out how to instill confidence into potential clients. Now is not the time for caution.

by Neil McEwen

Reflecting on the development of the HRO market, many commentators would say that it has developed more slowly and in different ways from those envisaged by the pioneers during the late 1990s. The early adopters have “adopted” and generally stayed with an outsource solution through second-generation outsourcing.

There has been a significant acceleration in single-process and best-of-breed outsourcing as evidenced by the development of the learning space—focusing on the exploitation of learning management systems (LMS) and learning content management systems (LCMS) and of recruitment process outsourcing, focusing on integrating the talent cycle.

However, the multi-process market has not developed to the extent that many expected. Why should this be the case, and what is it that providers have to do to invigorate the multi-process HRO market?

Multi-process outsourcing has faced a number of important challenges as it has developed. Some provider business development and selling have set unrealistic expectations and led to two critical challenges. Thefirst is to demonstrate consistent capability in delivering on a global scale, and the second challenge is to demonstrate equal expertise in each key HR process.

Global-Scale Capability
Possibly, only four of the major players in the HRO space have the capability to deliver across the gamut of HR processes on a global scale. Success requires deep pockets to establish and maintain a global network of service centers and the technology capacity to sustain a consistent and unbroken service, together with a cost-volume ratio that allows them to manage the huge costs of delivering in multiple languages. Putting it bluntly, if you are not big already, then you are probably not going to get big!

Significantly, several multi-process providers have backed out of the global market to focus on the U.S. and U.K. on multi-national clients in markets where English is the business language.

No multi-process HRO provider has yet demonstrated consistent delivery capability in every HR process. Some are great at payroll, some deliver benefits
brilliantly, some are good in the learning space, but no one has mastery of all HR processes. This has proved a major disappointment to clients and has, in part, led to the rapid growth of RPO and learning solutions.

Several players have realized that they cannot be excellent at everything and are using integration capability, learned from systems implementation and management in the process sphere, to manage multiple, best-of-breed providers to seamlessly deliver to their clients. However, there are still issues about how those best-of-breed providers are managed so that the “whole” becomes more than the sum of the parts.

The provider community has to do a number of things to invigorate the market and excite the confidence of potential clients. Firstly, the two challenges set out earlier have to be met and exceeded, so that clients can be confident that they receive the service agreed to. Without market confidence in the basic ability of providers to deliver, there can be no market expansion

Secondly, providers will need to re-invent value in HRO as the market matures and (inevitably) becomes commoditized. This presents a significant new
challenge to providers because the implication is that delivery of agreed service levels on a consistent basis is simply not enough. Already providers are beginning to rise to this challenge by emphasizing the impact they can have on value-added areas of HR such as the talent cycle (hiring, developing, and managing succession, performance, and reward) and building technical and process innovation into their deals.

Thirdly, providers will need to rethink the way they construct deals and how they price them so that cost and pricing become more transparent and less byzantine. This means the end of cost-plus pricing and phasing out volume pricing to be replaced by transaction-based pricing and value pricing. Providers need to be more effective in exploiting the knowledge they have gained during the past 8 or 9 years.

All of the above will help, but there is also a mindset change needed. Providers who were once overly confident are now more cautious approaching deals, but this weariness has put a brake on the market. Providers need to recover some of the self-confidence that marked the pioneering phase of HRO, along with a thirst to satisfy their clients needs, to drive the next stage of market development.

Tags: Benefits, Engaged Workforce

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