Multi-process HRSourcing

The Top 22 Enterprise HRO Providers

When the Fortune 1000 are looking for HRO services they can count on, this year’s group of service providers is most often on the finalists’ list. More than anyone else, these players have the global footprint, the delivery capabilities, and the industry experience to meet the myriad needs of employers of all sizes and businesses. It’s probably safe to say that if this group can’t deliver the service, it’s most likely undeliverable.

by Peggy Cope

When we began compiling this year’s list of top enterprise HRO providers, it was clear that several important trends are affecting this group of global companies. From market growth to acquisitions to changing buying trends, the industry today is noticeably different from this time last year.

We’ve got both good news and bad news. The good news is demand for outsourcing is up. The bad news…it’s not increasing at the same rate as in previous years, and the number of suppliers is also growing. In other words, the pie may be somewhat bigger, but there are more diners grabbing a piece of it.

A report from EquaTerra in November 2006 looked at outsourcing trends and found that although demand was up for 46 percent of the company’s advisors, it was still shy of previous levels: a 13 percent decrease from third-quarter 2006 and fourth-quarter 2005. Similarly, the number of service providers who noted an increase in demand was at 61 percent—up from 48 percent in the third quarter of 2006—but down from levels shown in the fourth quarter of 2005.

The reasons for an overall slowing are many. According to EquaTerra’s Stan Lepeak, managing director of research, the drivers include BPO supplier capacity constraint, historic high levels of demand in previous reporting periods, more multi-sourcing (smaller, less visible deals) and more prudent, sophisticated, and selective buyers.

Peter Bendor-Samuel, CEO of the Everest Group, had similar observations to make after checking his crystal ball. The two trends he pointed to were an increase in demand for outsourcing services, as well as a changing supplier landscape—including a proliferation of suppliers. The Everest Group at the end of 2006 estimated that the total number of outsourcing suppliers of all kinds was close to 4,000.

What it means is that the heyday of the big enterprise deals might be a thing of the past—not that headline-grabbing contracts will be extinct. It’s just that fewer of these may be in the works, displaced by many more best-in-class engagements. And large deals could be concentrated in fewer sectors or get broken up when they come up for renewal.

What does it mean for the provider community? Will we see more consolidation down the road? Lepeak pointed out that acquisition work is difficult and “easier to discuss on paper than to pull off.”

“Consolidation will take longer than was anticipated,” he said. “Service providers are hesitant to jump into that right now.”

For evidence of this, just take a look at this year’s list of top providers—which has remained mostly unchanged from last year’s list. The two most notable changes have both been recent transactions, with the announced acquisition of ARINSO by Northgate in the U.K., and the proposed buyout of Ceridian by Thomas H. Lee Partners and Fidelity National Financial. Both are sizable acquisitions, but the field of global providers has been pared by just one player since the proposed buyers of Ceridian are not existing HRO suppliers.

Still, with the year only half over, will we see more consolidation among Tier 1 providers or can we expect acquisitions of Tier 2 suppliers by larger competitors or other counterparts in the segments?

Only time will tell.

Criteria for the list: Providers must have at least one documented end-to-end HRO client with 1,000 employees or more, and be able to provide national service. Providers are listed in alphabetical order.

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Tags: Multi-process HR, Sourcing

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