The Buyers’ Group data reveals stabilizing price points, and changes in buyer preference. Adoption of transform-and-transfer gains greater acceptance among enterprise buyers.
The HR Buyers’ Advisory Group now represents more than 60 of the largest HR BPO arrangements around the world. And, with a total contract value of more than $20 billion and representing just about every industrial sector, group members are among the most experienced HR BPO buyer-practitioners on the planet. From its founding in Philadelphia in 2003, the group has met every six months to compare notes, participate in surveys and research and to learn from each other.
The goal of the group is nothing less than improving the overall quality of HR BPO services … period. Commitment to influencing the development of HRO includes meeting with vendors to help them understand the needs and common expectations of buyers. In short, our vision is to shape the evolving marketplace by sharing insights and information with the wider HR outsourcing partnership.
At the last meeting of the Buyers’ Group, members reviewed the results of their latest survey project. This was a HRO Benchmark Analysis (Phase One) that the group commissioned with Towers Perrin and the Everest Research Institute. Among other things, the study was designed to foster information exchange in the benchmarking of industry data in support of:
• Value propositions—what buyers can expect;
• Costs/performance trade offs—what terms and pricing will support a long-term beneficial relationship;
• Standards—what definitions, metrics, and measures facilitate optimal realization and data collection.
• Deal Evolution—how the needs of buyers evolve during the contract term.
The survey concluded that 56 percent of the HR BPO market has outsourced 10 to 12 HR processes. HR BPO processes can be conceptualized as a mix of mature and emerging services. Five processes that appear to have achieved maturity are: payroll, benefits, employee data management, HRIT, and HR contact center operations. Pioneering processes, on the other hand, include performance management, regulatory and compliance management, and employee relations.
As the HR BPO market matures, the survey illustrates that dominant models are becoming visible—for example, the “technology hybrid” and “transform-transfer.” The former is a mix of proprietary and best-of-breed applications common in 50 percent of large deals. Despite the focus on HR, it is clear that 90 percent of HR BPO arrangements include a technology component. The transform-transfer model refers to the strategy of a buyer “transforming” their own IT and process “mess” before outsourcing.
Prior to 2004, outsourcing the mess and contracting with an HR BPO supplier to do the transformation represented the majority of deals. Since 2004, half of new contracts are transformation first.
As for service levels, the survey noted that there is only a small variation in the service levels of the most frequently used metrics.
Given the short life of the HR BPO industry, it is impossible to over estimate the value of this data and the quality of this information for benchmarking and improving HR service delivery. The data also quantifies important trends and new developments—some of which parallel development in IT a decade ago. This includes the fact that offshoring is emerging, but as of 2006, it has had limited adoption in HR.
Also, the market is seeing the benefit of a vendor serving multiple buyers—especially in the areas of training and staffing. The development of one-to-many systems is an important development. Although at a process level there remains significant variation in pricing, overall pure pricing models are gaining dominance—that is, only fixed price or only variable price. Price points are lower between the pre-2004 and post-2004 HR BPO deals. The point? One-to-many models have a much lower price point.
By the time you read this, the Buyers’ Advisory Group will have reviewed the results of part two of the above benchmarking study. In a future column, one of my colleagues will update you on our perspectives about the evolving HR BPO market and what we continue to learn. In the meanwhile, if you have any questions please contact us through the editors of HRO Today or e-mail me at Hugh.email@example.com.