Don’t be fooled: Multi-process deals still exist. But they’ve morphed into business transformation programs.
By Jill Goldstein
The multi-process human resources outsourcing (MPHRO) industry is changing. Gone are the days of engagements purely focused on cost reduction. Today the industry is working on tailored, business-outcome focused offerings in an entirely different economic climate.
As business confidence recuperates after several tough years, spending on multi-process HR outsourcing is on the up. According to Everest Group’s Multi-Process HR Outsourcing 2014 Annual Report, between 2009 and 2012 the industry witnessed a 3 percent compound annual growth rate in both North America and Europe, the Middle East and Africa, to $1.79 billion and $1.09 billion respectively. Deal sizes increased across the board, with a significant increase in mega-deal signings. News for the future is also good: a 5 percent compound annual growth is predicted over the next two years.
Nevertheless, market commentators sometimes question whether multi-process deals still exist, given that so few companies talk about them. The reality is that these deals are on the rise, and there’s a strong pipeline of work for the future. Considering that the reality of the market’s strength contrasts with its perception, it is worth asking why there is such a disconnect. The answer lies in the amount of change that MPHRO can effect in a business.
While it may appear that not as many deals are happening, in reality, the way in which clients and providers are talking about this work is changing. MPHRO deals today are often part of broader business transformation programs and the vernacular used to describe this work is increasingly moving from business process outsourcing to business operations. So while announcements of big MPHRO deal wins may appear to have slowed, it’s merely that the terminology and scope of work is evolving.
The era of transition that we are now experiencing bears little resemblance to the change during the decades of outsourcing that have preceded it.
In the first generation of the market in the late 1990s, pioneering outsourcing clients were concentrating on “lift and shift” deals focused on labor arbitrage and cost- cutting. By 2005, in the second generation of the market, there was a peak in demand for HR outsourcing, and providers were ruthlessly focused on industrialization, standardization, and globalization.
In 2006, the market began to consolidate, and some companies exited the area, while others were acquired. As spending slowed, there was a need for change among those that remained. To prepare for the next phase of the market, successful providers began to step back, getting their processes in order so as to better serve clients.
In the last few years, client organizations have begun to look at HR outsourcing as an opportunity not only to save money, but also to better manage key processes and gain a strategic operational, talent, and revenue advantage. And HR outsourcing providers have realized they need to better meet client needs and offer more tailored services.
One way to appreciate the implications of this realization is to look at Starbucks as an example of a highly industrialized company. Highly industrialized doesn’t necessarily mean highly rigid—in fact, it’s just the opposite. Starbucks has a crystal clear understanding of the market, their clients, and their cost structure. The beverage company leverages industrial certainty and confidence in its operating model to allow customers to tailor drinks in seemingly infinite combinations of shots and flavors.
Today, leading HRO providers are focused on offering a full range of options to suit exactly what different clients with changing needs are looking for. This differs immensely from the standard with-or-without-milk style of business that the industry offered not so long ago.
Transition to Wider Business Value
There has been much change, but it is far from over as clients have a wide range of evolving requirements. As the industry continues to mature, we expect to see a continued focus on the business value of multi-process work.
Leading providers are driving the fourth generation of the market, which is characterized by using data and analytics to achieve continuous improvement and to generate workforce insights. They’re focused on workforce productivity and business outcomes, such as quantifiable revenue increases per employee as a result of talent programs. The industry is also moving toward developing more scientifically measured benefits, which is important as other business units beyond HR are increasingly becoming involved in analyzing results.
Through the last two decades of MPHRO, the demands, nature, and scale of work have changed dramatically. One thing is for sure: organizations are highly interested in the business outcomes they can achieve when outsourcing multiple human resources processes. As the industry continues to mature in a changing climate, there are strong opportunities for substantial growth and continued specialization of HR services.
Jill Goldstein is managing director of talent and HR for Accenture Operations.