The critical drivers behind global HRO.
In continuation of Everest Groups series on global HRO, here is another installment delving deeper into why global HRO is a proven business solution and how the market is progressing. But you cant discuss globalization of HRO without asking first whether the technical capability and experience of a supplier can, in fact, deliver the business value that is driving organizations to turn to HRO as a solution, and second, whether the current market illustrates a growing trend with a pattern of success in truly global HRO.
WHY DO ORGANIZATIONS CONSIDER GLOBAL HRO?
Each organization is unique in its needs. However, there are critical drivers that are common to all, for example the desire for:
- standardized processes;
- common technology and leverage throughout the organization;
- increased flexibility for change;
- ease of access to information across the organization, regardless of geography and time zone;
- reduced costs, including capital cost avoidance in investing in expensive HR packages;
- and increased employee satisfaction.
When looking for a supplier to achieve those goals, look for a company that fulfills the three criteria defined in the October Advisors Corner: geographic scope, level of integration, and experience (that is, referenceable customers).
To date, there have been 18 full-service global HRO transactions. Most of them were led by North American based companiesaccounting for 83 percent of the transactionswhile Europe trailed with only 17 percent of the transactions.
Interestingly in these global transactions, 10 percent of employees served are located in the Asia-Pacific region. However no Asia-Pacific based company to date has originated a global HRO transaction.
WHAT DO WE EXPECT TO SEE IN THE FUTURE THAT WILL CHANGE THE CURRENT MARKET PROFILE?
- Watch for increasing numbers of senior HR executives to evaluate their relative position against their global peers and market opportunities.
- Look for HR outsourcing transactions to expand beyond the purely transactional relationships into solving emerging global HR issues.
- Look for buyers to use the global HRO platform to implement cost savings via offshore strategies.
- Watch for suppliers that dont have a global footprint to expand their capabilities via key strategic deals where they aggressively bid price to win.
- Look for suppliers to make strategic downstream acquisitions to more quickly reach the global HRO market.
- Not withstanding the first comment, expect to see to see fewer deals that involve substantial asset purchases by suppliers.
- Anticipate that Indian and Asia-Pacific suppliers may begin to enter the market via key transactions in their local markets.
Administrative portions of HR are not a core competency component in the majority of organizations, and any function not core to the business is a leading candidate for outsourcing. Although the global HRO market is far from mature, we believe organizations should begin the evaluation process now to determine if global HRO can deliver on its promise of substantial return on investment and add significant business value to your organization.