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Red-Hot HRO

Thanks to customers, the race to be the best, brightest, and most successful HRO provider is red hot.

by Glenn Davidson

Today, more than ever before, customers are driving the HRO industry. And their expressed requirements are forcing service provider firms, big and small, to rethink their strategies, from top to bottom. What are customers looking for? Among their requirements are:


End-to-end services. The irony with this requirement is that only 18 months ago providers believed they still had a major education project on their handsconvincing customers of the value of end-toend services. No more! Companies are now discovering that any hole in a companys outsourcing profile can and will be exploited by aggressive, mature competitors.


Global reach. It also wasnt long ago that analysts wondered whether HR outsourcing would ever move beyond the United States and Europe. Now, customers want providers where they areeverywhere. It means speaking every major language, having service centers in every major business locale, and knowing how to leverage labor markets rapidly and efficiently with plenty of customer flexibility and choice.


Critical mass. The first stage of HR outsourcing engagements was dominated by brownfields arrangements big companies with expensive HR installations looked for partners to take them off their hands and find value for them. The second phase centered on greenfieldscustomers with underdeveloped HR operations used outsourcing as a quick way to catch up with competitors. Id like to call the third phase Wrigley Fields in honor of the Chicago Cubs much beloved baseball cathedral. In this phase, it seems customers are no longer looking for clean-up jobs or rapid ramp ups, but top-notch, mature, fullycapable services. Just like the Cubs have made Wrigley the centerpiece of their brand, new customers want HRO to be the focal point of their corporate strategy and growth.


Experience and proven results. Now that HRO has taken on such a vital corporate role, the days of promise are long past. Customers want to see results, built around solid customer credentials and provable bottom- line results for a wide variety of clients.


Know-how and profitability. Hand-in-glove with the desire for results is a somewhat diminished demand for lowest prices. Todays customer is sold by the reputation and reliability of the provider rather than by overall cost. Customers want providers with strong financial backing, notable industry mindshare, and an absolute obsession with competing and winning in this market space.


HR knowledge and expertise. Finally, customers are looking beyond the broad reputations of providers to see just how well outsourcers know HR, and what leads to solid workforce performance. Not only do they want HRO providers that have an organic understanding of the industry and the specific value of HRO, but they also want these providers to bring this knowledge and expertise into the engagement.

Taken together, this is a very challenging environment for all HRO providers. An industry that has been defined by rapid provider growth is now being defined by capabilities, reach, and maturity. Every company has to take a hard look in the mirror to determine how they can meet the expectations of this new model. Central to this question is the outsourcing mantrabuild or buy?


How do providers acquire capabilities, achieve sufficient scale, expand geographic reach, and improve their financial position? For some companies, the answer is organic, internal change. For others, mergers, acquisitions, and strategic alliances are the best (or in some cases only) answers.


Following a year full of major mergers and acquisitions, 2005 is already off to a roaring start. Already this year, EDS and Towers Perrin announced an agreement to create a new company to deliver human resources outsourcing services. This followed the Hewitt-Exult merger and numerous small-company acquisitions by Convergys. And rumor has it that other major players are on the block.


The winner in all of this is no doubt the customer. The second wave of HRO created a flood of new providers, gave customers more choices, and spread the seeds of HRO further than it could have with only a few major players. But the third wave is now bringing all this expertise back to the companies best capable of providing the highest level of service at the best price.


Thanks to customers, the race to be the best, brightest, and most successful HRO provider is red hot.

Tags: Consultants & Advisors, HRO Today Global, Multi-Processed HR, Professional Contribution, Sourcing

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