ContributorsMulti-process HRSourcing

Dive Into the Middle Market

Tired of swimming in the shallows? Its time to jump into the HRO deep end.

by Michel Janssen

Mid-to-Large Companies Have a Viable Alternative in HRO

 

Heres a business conundrum: You have been reading about HRO as an emerging business trend for the past several years, but most of the headline case studies are about very large companies like BP, Bank of America, Procter & Gamble, and Motorola. However, you only have 12,000 employees. Can HRO work for you? The answer is yes. You dont believe me? Look at the latest set of deal announcements. They include companies like Rockwell Automotive, Chubb & Sons, Williams Cos, and Sandvikcompanies that all average slightly more than 11,000 employees. Each has an HRO relationship with enterprise-level suppliers such as Accenture, ACS, Hewitt, and IBM. Fortunately, companies with 5,000 to 25,000 employees no longer have to be the pioneers on the bleeding edge of the markets development. Although they may have been keeping a low profile, companies of this size have been outsourcing for the past four years. Today, employers with fewer than 25,000 employees are the fastest-growing segment of full-service HRO buyers. (Full service is defined as where companies outsource at least three processes to a single supplier.). Our most recent market analysis shows that during the past five quarters (January 2004 to March 2005), there were significantly more deals involving companies with less than 25,000 employees than companies with more than 25,000 employees than any time before in this industry. During this period, approximately 60 percent of the transactions were done by this mid-to-large market segment. In addition, there were several deals completed by companies with fewer than 5,000 employees.

 

WHAT IS DRIVING THE MARKET?

From a buyer perspective, there is a strong propensity to avoid spending any money on new HR systems. Going to the CFO for additional capital for new HR projects or to upgrade the existing HR system is often not in the cards especially when competition from other business units for that capital is fierce, and the upside benefits are much more apparent for revenue-generating units. In those cases where senior HR executives have completed aggressive HR projects in the past, the business case for taking the next step in the vicious ERP upgrade path seems much less certain and fraught with additional risk. At the same time, the HR delivery needs of the less than 25,000-employee companies are continuing to grow. These companies need increasingly sophisticated systems and higher degrees of services combined with ever-present cost pressures. Beyond that, senior HR executives are trying to refocus their organizations, becoming less transaction driven so they can spend more time on the strategic HR issues.

 

WHATS A SENIOR HR EXECUTIVE TO DO?

Today, there are many options to consider. One option is outsourcing, which effectively removes many of the dayto- day technology and operating issues from the HR organization. A key purpose of entering into an outsourcing relationship is for both parties to identify the desired end results and deliver those requirements. Outsourcing allows suppliers to take over the buyers ERP systems and can shift much of the responsibility for future system upgrades to the supplier. Thus, there are no more capital expenditures requiring the humiliation of begging at the CFOs door. SO

 

WHAT HAS CHANGED?

The reason the 5,000- to 25,000-employee companies are finding better solutions in the marketplace is because suppliers are making their offerings more concrete. These mid-to-large market companies can shop for the solution that best fits their needs. They are good customers for suppliers, because they are used to less glamorous, off-the-shelf solutions and are willing to accept industry standards. They dont expect the world to change simply because they ask. Outsourcing suppliers are making changes too. They are investing in technology and developing operating practices in multiclient environments. Today, suppliers understand their unique leverage points and execute in a more business-like fashion. More and more mid-market companies are looking to outsource their HR because, today, they can!  [HRO]   

Tags: Contributors, Multi-process HR, Sourcing

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