Some educated guesswork about the coming year.
By Elliot Clark
You have to love the metaphor of millions watching a Waterford Crystal ball descending a modern day obelisk counting down to a New Year. Most in the crowd were thinking 2009 would never end. Here was the moment at hand, and, voila, the crystal ball was making its customary trip. The problem is they just don’t make crystal balls like they used to.
Given the obvious failure of modern-day orbs, when it came to the world of HR and HRO, we turned to some experts for a sense of what to expect in 2010. We spoke to Jeff Croyle at TPI about what he was seeing and hearing from the clients of their advisory and consulting practice. We asked him first about the multi-process HRO (MPHRO) deal flow, and he responded, “It’s hard to say if the economy is affecting deal flow. Tentative buyers are watching for more success stories. There is considerable debate about big bang versus best-of-breed choices. We are counseling clients to start with a few processes and build on that platform over time.”
As you read last issue (“A Look Over the HRO Horizon,” December 2009), and in Nelson Hall’s separate article (“The Sun Shines on HRO in 2010”), Linda Merritt paints a more optimistic picture: “In 2010 HRO deal volume picks up at a lower average total contract value, renewals go well overall, single process HRO outpaces multi-process, and cost remains the top concern. The sun shines on HRO deal volume, which picks up worldwide with the United States remaining the largest single market for HR services.
MPHRO comes back to life as the crop of MPHRO deals signed increases. Few will be mega deals, and the scale and scope at signing will be smaller, moderating total contract values. The promise of MPHRO for the mid-market finally emerges, thanks to the increased functionality and affordable pricing possible with SaaS-based services.”
Croyle agrees mid-market multi-process HRO deals will likely rise as new platform offerings in the mid-market are now available, making mid-market activity more likely than large market; however, he maintains most large market deals will renew. “We are seeing activity in Gen 2 and Gen 3 deals, but the more experienced buyers have different objectives with very carefully defined requirements for the next phase of the deal. They may bring pieces internally but will not bring HR back in house.”
Single Process HRO
Both TPI and Nelson Hall forecast an increase in single process HRO purchasing Croyle states, “Benefits are very mature, health and welfare is a newer subset that is more active. RPO promised to be the next big thing, but we did not see as much buyer activity as we expected, though there are some good success stories. We are seeing a lot of activity in payroll, particularly global payroll solutions, which most buyers find hard to achieve with a single provider.” Nelson Hall’s Merritt echoes this comment: “A bright spot for both single process and MPHRO is the interest in multi-country services in areas like payroll, RPO, and learning. While not necessarily global, multi-national companies want integrated and consistent multi-national services delivered by fewer vendors.” Indeed, one of the vast areas of disorganized spend in many companies is learning, and there will be some great opportunities for learning BPO to be a high growth sector when buyer adoption becomes higher and identification becomes easier. Learning is often distributed beyond the control of the HR department, and this makes the vendor management value proposition offered by a BPO provider more difficult to sell.
HR is becoming placeless, and the relentless drive of transactional HR processes to low-cost economies is a must for all global and non-global companies that can outsource services to global providers. According to Merritt, “With a new day dawning, new questions and answers emerge, forged by the practical realities of crisis, survival, and now, recovery. For example, the question is no longer if there will be offshoring, but what are the options for its use as many vendors now offer voice services from onshore, nearshore, and offshore, depending on a client’s desired price points. With new sophistication in case management and workflow tools, automated processing may be in one country, voice inquiries received in another, and non-voice issues handled by a topical center of excellence in a third.”
HR officers need to envision a future department where some core local services like generalist or HR partner support is local, and most other services are accessed remotely or technologically through self-service portals for managers and employees. For most companies, the future is now, and those solutions exist—and in many cases can be available—as a more cost-effective option than the traditional (i.e. old-fashioned) on-shore operation.
During the last two years, great HR leaders were focused on retention of top talent. While the term “jobless recovery” is frequently bandied about, remember that the so-called War for Talent never really started and certainly never ended. According to the Association of Executive Search Consultants 2009 Outlook, “Despite the economic recession, survey results show that executive jobs in several sectors are expected to grow in 2009. Search consultants anticipate executive job opportunities to increase in healthcare (32 percent), government (30 percent), pharmaceuticals/biotech (26 percent), and natural resources (26 percent).
While the overall outlook of search consultants for 2009 is negative, recruiting demand in several industries is expected to remain stable throughout the year, including non-profit (52 percent), education (48 percent), professional services (39 percent), media/entertainment (34 percent), and information technology (30 percent). AESC members who were surveyed expect the global executive job market to rebound in the second half of 2009.” This was the outlook for last year, which was expected to be worse than 2010.
Top staffing executives will tell you that, in fact, at the depth of the recession they were under pressure to find top talent. Everyone wants the top 5 percent to 10 percent of performers—even as they are letting go hundreds or thousands of workers. This is a sad reality. In the jobless recovery, the pressure to produce more with less human resources will continue unabated, creating more stress and selectivity around hiring. As a result, more than ever before, staffing departments will be Under Pressure (cue David Bowie).
Other HR Issues: The Rise of Employment Practice Claims
HRO Today does not just cover HR outsourcing, so we want to point out an HR phenomenon that has been raging over the last two years and is expected to continue. Employment practices liability claims have skyrocketed. Some of this may be due to the economic downturn, though at least some may be due to the plethora of attorneys who have taken an interest in the field.
Charge levels to the Equal Employment Opportunity Commission (EEOC) (see chart above) increased by more than 15 percent from 2007 to 2008 alone, and while they moderated slightly in 2009 they are not expected to return to previous levels anytime soon. Have employers suddenly turned more evil? Have employees gotten less likely to suffer abuse? Or have plaintiff attorneys—seeing, for example, the possibility of Vioxx suits running out—turned to employment law as a next frontier (in which case, we are witnessing a sick “carcass” effect as tort lawyers flood the market, and EEOC charges are a typical first stop on the way to the courthouse). Opinions differ, but it means sensitivity and manager training and HR generalist vigilance need to be at new levels as this trend will continue in 2010.
Till Next Year
As we look at the market trend in HRO, TPI’s Croyle recognized a leading indicator: “We are seeing a significant pickup in customers doing assessments of their opportunities to outsource and in what area. They are closely examining internal base costs versus outsourced options. We counsel them to consider internal costs based on a sustainable level of cost if the status quo, after recent cuts, is not. They are assessing and analyzing the data closely and the presence of these assessments suggests increased market activity.”
There will be more activity in 2010 in mid-market and single process deals, and large market renewals will be strong, but at lower total contract values as discrete parts of deals get pulled out. RPO, payroll, health and welfare will be hot areas. RPO was, in fact, very busy last year, and the adoption curve remains strong.
Learning will be the subject of considerable discussion, and some deals will get done, but for accelerated growth, HR has to get the training budget under HR control. Staffing pressure for performance will be intense, and while this might drive RPO adoption, even companies that do not outsource will press hard on this function.
HR virtualization and globalization will continue with full fury, and HR leaders had better have a good plan for this if they are going with an internal shared service model. Generalists, as always, need to be ever vigilant, as continued tough economic times can disenfranchise workers, and this will lead to bad outcomes. For HRO overall, it will be an up year, far better than 2009. And if we’re all wrong, blame it on the defective crystalline spheres….