Depending on who you ask, the answer could be bright or bleak.
Former New York City Mayor Ed Koch was known for asking voters this catch-all phrase: “How’m I doing?” For the HRO industry, it’s a question well worth asking.
How is the industry doing? To hear HRO providers tell it, you’d think we’ve reached a equilibrium after years of unfulfilled promises. After all, many cite an increasingly global footprint, growing deal sizes signed in the past year, and moving beyond cost-cutting as market drivers. Sounds like things couldn’t be peachier in the HRO world.
That is, until you speak with the buyers.
Buyer discontent is significant as early potential remains unfulfilled. Among large enterprise customers, edgy anticipation for vendors to make wholesale changes dulls their enthusiasm for HRO. Some lament the absence of a truly global payroll platform, where one database really can provide transparency into compensation practices. Others still await for marked improvements in quality of delivery. And then there are those wondering if benchmarks—many of which are industry standards—offers a clear picture of the effectiveness of HRO engagement. Buyer dissatisfaction has not been completely assuaged by the continuous maturing of the HRO market.
Research firm Nelson-Hall recently found that nearly 30 percent of all BPO evaluations result in no actions. That means a great number kicked the tires and looked under the hood but found no compelling reason to outsource. Many continue to pursue the shared-services alternative after concluding that HRO providers probably can’t do any better than their internal operations.
What about current buyers? Well, studies show that while they might not be totally thrilled by their deals, they don’t want to go backwards either. Firstly, bringing HR back internally is a non-starter because it’s terribly hard work, and no SVP of HR wants to concede that he or she was wrong to begin with by outsourcing. Secondly, they all recognize that the market, still in a nascent stage, has much growing to do. Consolidation will take place, best practices will be honed, and vastly more build-out will occur, which can only benefit buyers down the road.
Buyers want and deserve more from the vendor community—in the form of better service quality, more innovative ways of continuous improvements, and gainsharing. At the same time, don’t expect providers to achieve all this without some incentives. Many first- and some second-generation deals were executed mainly on price, and after being beat over the head on price, providers are in no mood to give up additional perks without some payback. It’s understandable considering that many large providers are still in the red.
So the next time you’re tempted to ask the HRO industry, “How are we doing?” just remember who’s answering the question.
