Yes, last year’s Unilever deal punctuated the HRO industry’s continuing trend of big-deal engagements, but will 2007 sputter when it comes to more global, enterprise outsourcing? Even outside in shorts on a January day, HRO Today’s editor is warmed by the prospect of the mid-market.
On January 6, I stood outside in a T-shirt and shorts playing basketball with my son in Northeast New Jersey. A parka and snow boots should have been the norm. Winter, it seemed, had passed us by on the East Coast and for much of the country.
This unusual season—one of the warmest on record—is an unwelcome development in the larger climatic picture, although many of us running around in shorts like the break from icy roads and snow shoveling. It helps with perfecting our hook shot. But what does it mean for the long term?
That’s the same question I have about the similarly quiet year the HRO industry experienced in 2006. According to our sources at firms such as EquaTerra, TPI, and others, market growth clearly slowed in the past year. For many global providers up to their elbows implementing contracts signed in 2005, this was a welcomed respite from deal-making. The most notable exception was the Accenture-Unilever contract, the biggest yet on an annualized basis.
But what does the lull of 2006 mean for the industry for the long term?
Some sage advisors have this to tell you: don’t panic. While 2006 cooled from the white-hot market of 2005, this year holds the promise for more huge signings considering the visible pipeline. Whether we will see more Unilever-type deals is questionable, but for sure global engagements are not dead, especially as European and now Asian organizations warm up to the HRO phenomenon.
Still, the list of Fortune 1000 prospects shrinks with each new deal announced. And there will be holdouts who will never cozy to the idea of outsourcing. So where do we go in the long term?
Mega-deals make great headlines, and as an editor, I salivate over news of these contracts. However, I’m convinced future growth will be driven by mid-market buyers—those with 500 to 5,000 employees. Why? An awful lot of them have yet to realize HRO’s potential in their organization. That’s mainly due to two factors: market penetration remains low and vendor offerings aren’t compelling enough yet to drive wholesale adoption in this segment. But we’re getting there.
Nothing sells like success, and when companies report successful adoption of HRO they’re sure to draw a crowd. And as mid-market buyers grow increasingly comfortable with outsourcing—not just single services but end-to-end solutions—they’ll further the industry’s momentum.
But if you know anything about HRO, you know that savings are just one of the gains. Mid-market employers will certainly welcome not only lower HR capital and operating costs but also more transparent processes, access to detailed reporting, and, arguably the biggest benefit, improved services for employees.
That’s enough excitement to make an HR executive run outside in shirtsleeves on a (balmy) winter’s day.
To make this a reality, here’s what’s needed: news of mid-market success must continue to flow, and we at HRO Today will ensure this with a new column covering the segment called “Mid-market Momentum,” in which we profile active buyers with fewer than 5,000 employees. You might quibble with us over the definition of mid-market, but we’re setting our sights on the segment in which we see the greatest amount of interest.
We’ll also keep an eye on not only established mid-market providers but also those focusing on large companies. With the Global 1000 having now gone heavily for HRO, the bulk of new HRO clients will come from downstream. They and their smaller counterparts hold the key to keeping mid-market growth on track, and the industry’s ability to come up with many cost-effective outsourcing solutions will determine whether potential buyers move quickly into outsourcing or wait on the sidelines for a few years.
So what can we expect in ways of industry growth this year? As we take a break this winter from ski slopes and snowman-making, we get to focus our energies on helping the market move forward. Hopefully, it’ll awaken from its slumber noisily with lots of deal announcements from both large-company and mid-market buyers.