Where HR services have been—and where they’re headed.
By Debbie Bolla 
Looking back 10 years, strategy, expertise, and innovation weren’t major parts of HRO contracts—or even the mindsets behind them. Cost savings was top of mind, and HR executives looking to get in the game wanted a third-party provider to take over their noncore business processes (a.k.a., the administrative headaches). But it certainly wasn’t smooth sailing from the get-go.
The pioneering deal of the industry—BP and Exult (now Aon Hewitt)—didn’t set a leading example. Exult perhaps bit off more than it could chew, having to deliver payroll, severance, benefits, and mobility services for some 100,000 BP employees worldwide. The not-so-successful engagement eventually changed the HRO mentality from a “lift and shift” type of model to “your mess or less.”

It was one complicated deal, and many of the other first-generation deals weren’t any different. They were too large, and providers were making promises that were nearly impossible to keep. However, the fault lay with both the buyers and the providers. “Unfortunately, intentions were a bit ahead of capabilities in both buyers and providers and in technology,” notes NelsonHall Research Manager Linda Merritt.
While the first years did give hurt HRO’s image to an extent, they didn’t deter it from growing. “Luckily for the industry, most clients and service providers fought through the issues, the losses, the changes in scope, and even changes in providers, to stay with HRO,” Merritt says.

We’ve Come a Long Way, Baby
“We have gone from the ‘galactic HR outsourcing deals’ of the 2000 to 2006 time period to a series of ‘process optimization deals’ during 2007 to 2011,” explains Rohail Khan, group president of HR outsourcing and solutions at Xerox. “Today in 2012 we are driving a clear focus on ‘HR transformation’ that is based on an outcome orientation.”
As an earlier adopter of HRO, Lisa Knutson learned first-hand how the industry adapted to the buyers’ needs. “Ten years ago, it was all about large-scale BPO deals with large contracts and multifunctions,” says the chief administrative officer for The E.W. Scripps Company. “Now you see smaller contracts in terms of scope of processes—only three or four—then buyers turn to best-in-breed providers for other services. We were going to do everything through one vendor, and over time that didn’t materialize as best in class. Five years ago, we knew that outsourcing did transactional functions well, and best in breed was better for things like talent management and compensation planning tools.”
Michael Beygelman, president of Adecco RPO, North America (and a columnist for this magazine) paints a similar picture of the industry. “Today, HRO is a marketplace of vendors who offer best-in-class, standalone HR solutions, since most buying HR organizations no longer have an appetite to outsource all of their HR functions,” he explains. “While some companies still have interest in exploring multi-process HRO, they are the exceptions as are vendors who offer one-stop shopping HRO services. The market will come to rest where it is today—a plethora of one-off HR services that clients can buy a la carte or in bundles.”

A few big trends stand out. “The last 10 years have been characterized by industry consolidation, broader portfolios of offerings to employers, greater expertise, and focus on efficiency and scale to deliver savings to employers,” says Charlene Parsons, VP of talent optimization for Cigna.
The growth of HRO has been in part a response to the change in the HR function. “HRO has evolved dramatically in both design and prominence over the past decade,” says Sue Marks, CEO of Pinstripe. “The HR function is increasingly being asked to promote business strategy, reduce costs, and increase effectiveness, and, as a result, more and more organizations are leveraging external partnerships to add expertise, optimize technology, and transform the function faster than they could alone.”
The maturity of HRO can be categorized under several different umbrellas: sector growth, standardization, globalization, accessibility, value-add services, mergers and acquisitions, and technology.
Where We Are
More than just payroll. As companies saw the value in outsourcing standard, noncore processes, leveraging outside expertise to bring in best practices for other areas of the business became more and more accepted. “While 10 years back HRO was largely synonymous with payroll and benefits outsourcing, today it includes several others including multi-process HRO (MPHRO), recruitment process outsourcing (RPO), learning services outsourcing, and global mobility,” says Rajesh Ranjan, vice president of the Everest Group. “It is fair to say that today HRO is an amalgamation of several subsegments—with overlaps, but at the same time distinctions as well.”

The economic downturn has also played a role in the evolution of outsourcing sectors. The ever-shrinking internal HR department has bolstered the appeal of HRO. “As companies have downsized in the last 10 years, more and more HR functions have been outsourced,” says Joseph Morabito, president and CEO of Paragon Global Resources. “As a result, what used to be core internal HR functions are now being done by many external consulting specialists. This trend will not only continue, but also increase in the next 10 years.”
(See the sidebar HRO: Sector by Sector for additional coverage of individual HRO market services.)
Globalization. Over the years, more and more organizations have expanded their global footprint and require that their outsourcing provider be able to deliver on a multicountry basis. “HRO is global in every sense of the word,” says Merritt. “Clients are based in every region of the world, as is sales and service delivery. While the highest revenues are still generated from the established markets, the growth markets in Asia Pacific (APAC) and Latin America (LatAm) are developing beyond service delivery for multinationals into internal markets for growing regional businesses. For example, while IBM is headquartered in the U.S. and Tata Consulting Services (TCS) is headquartered in India, both have major multi-country, multi-process HRO clients in Latin America, as well as a growing set of in-region service delivery centers.”
Everest’s Ranjan sees the growth in APAC and LatAm as a market shift. “Earlier, these regions were only considered as ‘supply’ locations offering a labor arbitrage advantage to ‘source/demand’ locations of North America and Europe. However, these ‘supply’ locations are increasingly becoming ‘demand’ location as well,” he explains.
Rebecca Callahan, president of recruitment process outsourcing for Randstad Sourceright, says this is one of the single biggest changes over the last few years, and the industry has evolved accordingly. “[There is] the need to provide services globally—buyers have also adjusted their needs globally, allowing outsourced providers to customize locally based solutions with global governance models,” she says.
Still Changing
Standardization over customization. In the early years, providers tended to over promise and under deliver. Buyers wanted highly customized products catering to their individual needs, and providers simply couldn’t afford to make it happen. Providers and buyers had to meet in the middle.
“There was an advent of ‘wide-scope customized transformation’ that looked to make significant upfront changes across the buyer organization from a functional and geographic standpoint,” explains Ranjan. “This met with mixed results because of significant complexities and change management issues that were difficult to manage in one go. For service providers, a heavily customized model also meant that they found it difficult to realize economies of scale advantage that impacted their profitability. In light of these, there is an increasing realization that a ‘middle/balanced’ path will likely create a win-win solution. Depending on the HR process, buyer size, there are elements that could (and should) be standardized, while there are elements that need to be delivered in the customized manner.”
Accessibility. “The biggest change has been accessibility,” says Greg Dubecky, president of Corporate Screening Services. “HRO has matured over the past 10 years, and the price of technology has decreased and is now available for the small and mid-market companies. For example, where system integrations were typically built for enterprise level buyers, the maturation of HRO and its technology now extends to mid-sized and small buyers too.”

Delivering value. As HRO became more widely accepted and buyers became enriched through education by case studies and industry associations like the HROA, the market had to offer more. “With talent-driven innovation now widely recognized as key to competitive advantage and market leadership, HR and organizational development professionals have been increasingly asked to improve the value they deliver to the business,” says Andrew Grant, executive vice president of Allegis Talent2.
“Outsourcing has become a highly effective tool for addressing the challenges they and their organizations face, and this has been reflected in the growing uptake of HRO. As outsourcing matures, we have seen new, more collaborative engagement models that enable more strategic levels of business value.”
The motivation to outsource has also changed. It’s no longer only about transactional functions. “Now companies are looking to bring in outside expertise to solve complex problems and achieve metrics-driven strategic objectives with an emphasis on quality and brand,” says Paul Harty, president of Seven Step Recruiting.
Consolidation & the Tech Boom
Mergers and acquisitions. Market growth is an inevitable catalyst for new entrants into the market. But more isn’t always better—sometimes more is just more.
“Mergers and acquisitions (M&A) are part and parcel of the creation and growth of the HRO industry, both 10 years ago and today. In addition to old and new HRO entrants, a few early vendors were formed from joint ventures (e-Peopleserve), spin-offs (Convergys), and assisted by venture capital funding (Exult),” says NelsonHall’s Merritt.
“About two years ago, we saw a major wave of consolidation that created Towers Watson and Aon Hewitt, and NorthgateArinso’s purchase of Convergys HRM. Last year, Xerox bought ACS, and this year IBM announced it is acquiring Kenexa. M&A is also being used to expand service capabilities and add geographical coverage. ADP acquired Workscape and SHPS for benefits and The Right Thing for RPO. European Randstad instantly became a player in the North American RPO market with the acquisition of SourceRight.”

Technology is also playing a role in the M&A game. “The push to the cloud and virtualization of the technology infrastructure has been a key driver of change as well as of the M&A activity in our space,” says Khan. He points to the recent acquisitions: IBM attaining Kenexa, SAP of SuccessFactors, and Oracle of Taleo.
So is all the M&A activity good or bad for outsourcing? Both sides can be argued. Buyers can gain innovation that might have been lacking from their original provider—or suffer headaches if the new merged organization has a different business strategy.
“Because of the drive toward consolidation, the landscape has changed dramatically with the reduced number of providers that serve the market,” notes Xerox’s Khan. ”This has lessened the competitive value for clients. However, if acquisitions bring services under one umbrella, it creates more seamless integration.”
Fewer vendors can often translate into time saved for busy HR professionals, says Cigna’s Parsons. “In some cases, M&A has benefited the customer in terms of having a broader portfolio to offer clients, and clients having fewer vendors to manage,” she explains.

The vetting and request for proposal process can also become easier. “Through the creation of a select number of full service providers, this should simplify the selection process for buyers,” notes Grant of Allegis Talent2. “For these reasons, we expect M&A activity to continue over the coming years.”
While fewer vendors are in the marketplace, the need to be competitive is more important than ever. “The number of acquisitions has accelerated the maturation of the market, bringing significant technology and process enhancements,” explains Joan Davison, president and chief operating officer at Staff Management | SMX. “It also requires those companies that remain specialists in certain aspects of the market to have to work harder to provide a truly unique platform and innovative solutions in order to differentiate their service offering from some of the larger, broader HRO organizations.”
Technology. “In the last 10 years, technology and automation have been the largest part of the human resources outsourcing evolution. The market is booming with software services and solutions that help HR automate and streamline paperwork and other tasks,” says Brian Platz, chief operating officer for Silkroad. “Coincidentally, this helps to automate what HR outsourcers are doing, which can be extremely helpful for organizations working with folks outside their company, country, or virtually. For example, manual processes for steps of recruiting were a pain to monitor before, but with automation, outsourcers can relay information easily and also recruit better and more strategically than companies can do from within.”
Enterprise resource planning and human resource management systems allowed HR to decrease time spent on administrative duties, and even push some onto employees through self-service portals. On-demand and software-as-a-Service (SaaS) models deliver performance while being cost-effective, easy to access, and on the bleeding edge of how technology can impact business.
“The creation of SaaS services, HRO platform services that add BPO to SaaS, and the cloud are bringing more options and affordability to all clients, especially to the mid-market,” says NelsonHall’s Merritt.

Everest’s Ranjan notes that the cloud allows buyers to access the best in technology without any significant upfront licensing cost. And as a subscriber, executives can remain up-to-date through all upgrades.
More Analytic, More Strategic
Plus, increasing the user experience is key. “Individuals today want all of their transactions in life to reflect the ease, simplicity and consistency of the online interactions they experience as a consumer,” says Marks. “This creates an immense opportunity for HRO providers to leverage what they do best—high-touch human relations—with what the market has made accessible—high-tech interactions. This includes engaging candidates through social media networks, leveraging algorithms to develop customized content and tailored online interactions, embracing the power of mobile technologies and gamification, and breaking through silos that have traditionally limited HR effectiveness.”
Ranjan points to social media networks and how they have created opportunities across several HR areas, talent management being the most prominent.
“Technology has a huge impact on how businesses attract and retain talent, and should be considered as part of a total talent management strategy,” says Grant. “For some young professionals, access to social media, mobile devices, and the Internet more freely in the workplace is strong enough to influence their future job choices, sometimes more than salary.”
Being able to access information from anywhere at anytime continues to push organizations further. Apps and compatibility on mobile devices has a bevy of multiple advantages including productivity gains, flexibility, and in some cases compliance, notes Ranjan. Plus it increases the potential success of a virtual workforce.
“With the rise of cloud computing, no longer does a business need to operate within its own four walls. People can now operate as part of a cohesive unit while working from the field, from home, or from halfway around the world, making the move to outsourcing a much easier prospect,” says Grant.
In the last few years, analytics through today’s better technology is moving its way to the top of HR executive’s lists.
“There is much more focus on the data warehouse to do workforce analytics. Companies need to leverage the substantial HR data available to make better strategic workforce decisions through predictive modeling analytic dashboards and more actionable reporting,” says Parsons.
Today, HRO is definitely in the arena of being strategic, and delivering expertise and innovation. A more sophisticated, knowledgeable buyer is encouraging the marketplace to push the envelope a bit further. “Cost effectiveness is table stakes, a given for the business case, and more sophisticated customers are now asking about HRO partners’ investments and innovation to meet their future needs,” concludes Parsons.
HRO Sector by Sector
Background Screening
A little white lie on a resume can turn into one large legal nightmare. It’s been happening for years. During the mess of Hurricane Katrina in 2005, it was unearthed that Michael Brown, then director of the Federal Emergency Management Agency, had several inconsistencies on his resume; he eventually resigned in disgrace. More recently, Yahoo’s CEO Scott Thompson falsified an academic degree (see page 63 for more), also leading to his resignation.
Background checks help prevent such headaches from arising, and their value to HR professionals has become increasingly important over the years. “The biggest change has been the expansion of the number of employers doing background checks versus 10 years ago,” says Kevin Olson, chairman and CEO of Universal Background Screening. “And the sophistication and expanded knowledge base of the client pool [has grown too].”
Ray Conrad, CEO of GIS, agrees. “Background checks are becoming less of a commodity service,” he reports. “As technology has advanced, companies have been able to expand their portfolios of offerings and forge various strategic partnerships, allowing many providers to differentiate themselves from the rest of the industry in a way they were unable to do before.”
Screening services continue to offer employment and education verification as well as criminal background checks to help companies mitigate risk. Technology advancements have made electronic employment verification possible through E-Verify and Form I-9 solutions. But more and more organizations are seeking screening outsourcing just to comply with fast-changing market demands and regulations.
Observers point to an alphabet soup of overseers and rules—from the Equal Employment Opportunity Commission (EEOC) and Fair Credit Reporting Act (FCRA) to the recently formed Consumer Financial Protection Bureau (CFPB) and “ban the box” prohibitions on some criminal conviction inquiries—as having fundamentally changed the landscape.
“Legislation in pre-employment background screening is more active than ever before,” explains Conrad. “Background screening providers that [offer] great compliance assistance and stay on top of upcoming legislation and regulations on behalf of their clients have always had an advantage, but this is even more true today. Between EEOC activity, FCRA authority changing over to the CFPB, ‘ban the box’ proposals across the nation, and enough state and industry specific background screening legislation proposals to make the everyday HR practitioner’s head spin, compliance assistance is gaining importance in a substantial way.”
So what’s next? Background screening providers will continue the move into onboarding and integrating with applicant tracking systems to strengthen their role in the talent management process.
While the way learning is delivered has changed significantly over the years, its goal to align employees with business process and increase productivity has remained unchanged. The United States market for outsourcing learning and training remains strong, worth approximately $54.8 billion as reported by TrainingIndustry.com.
Through the years, learning was purchased through both multi-process contracts and best-in-breed solutions. Learning management systems (LMS) were an early offering used to automate training activities and oversee learning development programs.
Delivery models have changed with improvements in technology. Classroom-led training is not necessarily a thing of the past, but is often combined with some of the newer on-demand learning techniques. Yet with budgets tighter than ever, organizations often deem in-person learning an expense not worthy compared to virtual settings. On-demand and web-based tools are displacing the brick and mortar classroom-style training for a number of reasons, including the expense of materials, lack of measurement, and employee time away from work.
Modern learning happens everywhere: in a virtual Intranet; via social media networks; on smartphones and tablets; through YouTube videos. At the root of learning delivery is engaging employees in order to earn the most knowledge retention. The next and newest way to deliver this goal might be gamification.

“Gamification of corporate learning will integrate social networking concepts with learning, training, and development, to create massive multiplayer online gaming communities in a business context that will help companies train their employees and increase retention,” says Michael Beygelman, president of Adecco RPO North America.
Newer, more cost-effective training methodologies have reintroduced the importance of investment in learning to the c-suite. “We have witnessed the widespread adoption of training outsourcing as more of a strategic business practice, rather than a short-term business solution,” notes Vic Melfa, CEO of The Training Associates. “Soft skills training such as leadership, sales, call center, and presentation skills have been instrumental in maintaining client relationships and increasing employee satisfaction and productivity in the workforce.”
Managed Services Programs
Managing contingent labor has been one of the hottest topics in HRO in recent years. It has seen a reemergence of growth due to the way that organizations came to manage their talent during the recent economic downturn. According to Chris Dwyer, senior research analyst for global supply management at Aberdeen Group, 26 percent of the average workforce is considered contingent, temporary, or contract labor. Steady growth in this sector has been trending over the last few years: 2009 reported 18 percent; 2010 showed 20 percent; and 2011 was 23 percent.
“Temporary employment will continue to grow globally as companies choose to variable-ize a larger portion of their workforce,” explains Adecco RPO’s Beygelman.
Dwyer’s research finds that 60 percent of organizations site contingent labor as a vital component of their business and that it plays a major role in achieving corporate goals. Managed service programs (MSP) give organizations the ability to gain visibility into their spend and the performance of their contract workers. Experts in the industry report that MSP has moved forward through its experimentation phase and has developed into more standardized practices.
In the primary days of MSP, providers were asked to manage vendors and deliver workforce visibility and economies of scale. Today, buyers are looking for a technology platform to manage their contingent workforce including all work categories—light, industrial, statement of work (SOW), and clinical. A total workforce solution is also top of mind.
“Clients today are requiring a total workforce solution to manage all talent associated with their organizations, including their contingent workforce, independent contractors, and permanent hires,” Frederick Winstead, vice president of Allegis Group Services says. “Combining all labor services into one program offers better visibility into usage and increased reporting and workforce planning capabilities.”
Up next for MSP: growth, growth, growth. Joan Davison, president and chief operating officer for staffing solutions firm Staff Management | SMX, reports that MSP will expand into two new marketplaces: small- to mid-size companies (SMB) and global concerns. She says traditional price models will be altered to get SMBs in the game. Target areas for global growth include Latin America, India, and Singapore.

Who knew that recognizing employees would be such a critical component of the HRO landscape? Rewarding top performers increases company morale, performance, and retention rates.
“In the war for talent, a lot of attention these days is focused on acquisition, but for many organizations, nothing gets more bang for the buck than the retention of valuable employees,” explains Dana LaSalvia, senior director of marketing for Rymax. “And short of boosting overall compensation packages, nothing is more effective at winning loyalty than a well-designed employee recognition program.”
Traditional recognition programs delivered a variety of merchandise rewards for years of service and landmark anniversaries. Today’s point-based recognition programs prove their value by incenting employees to hit performance goals in order to earn additional points to spend on rewards and gifts of their choice.
“Whether it is an employee survey or selecting the appropriate rewards, all program components are vital to motivating employees to reach their goals. Brand name, well-known product rewards are a strong driver for employees who may not be able to afford these items on their own,” explains LaSalvia. “An increase in luxury merchandise redemptions has consistently been growing as we’ve seen a trend in a majority of employees earning points and holding onto them until they reach rewards they truly want. Tangible rewards are a constant reminder of the company, and value they put in giving the employee that reward.”
Today’s technology enables daily recognition on social media-like platforms that let managers note employees’ achievements and peers to provide positive feedback for one another.
“Gen Y, [whose members] connect with each other via social media networks more frequently than other demographics, know which products are hot and which products their friends have,” LaSavlia says. “They compare and praise products with their online social network on a constant basis and are three times more likely to trust peer opinions.”
In a competitive economic landscape, recognition will continue to be a differentiator for talent. “Recognition will play an increasingly critical role in performance management programs, empowering HR executives to be more proactive rather than reactive in how they manage talent,” concludes Charlie Ungashick, chief marketing officer of Globoforce.
Recruitment Process Outsourcing
Ask any HR executive the cost of hiring, and they’ll tell you it goes way beyond filling a rec. The tenuous job market coupled with the urgency to secure the best talent possible has brought recruitment process outsourcing (RPO) to the forefront. In fact, RPO is the fastest growing segment in HRO, according to NelsonHall’s HRO Market Forecast 2012–2016.
“The true cost of hiring and training a new employee is being captured more consistently and is requiring a new way of thinking,” reports Phil Stewart, president of Kenexa Recruitment Solutions. “One of the biggest trends is the continued change in mindset from just filling a vacancy to a ‘quality of hire’ mindset.”
To charge ahead with demand, RPO providers have moved beyond simple staffing solutions. Sophisticated buyers are looking to bundle services in their RPO packages, including assessment, technology, employment branding, onboarding, and performance management, reports Stewart. They also want brand support and culture fit, he says.
“Cultural fit is being looked at from a team level, as well as a company overall match,” he notes. “How a client supports that through their brand—especially with online recruitment tools—is driving change throughout the industry.”
Total workforce planning—blending full-time and contingent hiring—is another direction that organizations are looking at to manage their talent during this economic downturn.
Technology and social media will drive RPO into the future. “Recruitment will continue to become less face-to-face, and more recruiter-to-social media-to candidate,” says Adecco RPO’s Beygelman. “Technology will just make it easier for companies to find needles in haystacks, and unless something radical changes, companies’ definitions of what ideal needles look like might even become more stringent than they are today.”
For now, it’s full speed ahead, says Linda Merritt, research manager for NelsonHall: “RPO has barely reached its full stride and will likely achieve the highest growth rates over the next five years.”
Packing an unending amount of boxes just to unpack them, adjusting to a new town and way of life. It’s a simple fact: Moving is stressful. This is why relocation providers have to be so savvy about incenting top performers to relocate for the job. And the pressure to successfully relocate in the recession has only accelerated the need for creative thinking.
In the early days, organizations typically maintained policies that delivered guaranteed buyout programs, direct reimbursement, and maintaining unsold homes in inventory. Nowadays, with nearly one in three homes underwater in the United States, providers are recommending several new approaches to make moving a financially sound decision for all parties involved:

• Pre-decision assessments on house values— understanding the true market value of the home before deciding to list it;
• Loss on sale provisions—an amount to cover the gap between the negative equity in the home and the
sale price;
• Buyer value option—the employee being responsible for finding a qualified buyer before the company buys the home;
• Short-term, flexible assignments;
• Renting instead of buying in the new location; and
• Incentive bonuses to sell faster.
Helping relocation move forward is technology. Mobile apps deliver transparency by keeping track of expenses and money spent. Neil Krupp, vice president of HR consulting and global compensation services at TheMIGroup, says that clients are looking for someone to “manage the entire relocation process, utilizing a single reporting platform that will facilitate access to consistent and accurate data at both the employee and company level.” Reporting in real time and data analytics help show the value of relocation programs even in a down market.


Tags: Benefits, Consultants & Advisors, Enabling Technology, Engaged Workforce, HRO Today Forum APAC, HRO Today Forum Europe, HRO Today Forum North America, HRO Today Global, HRO Today STA, Learning, MSP & Contingent Labor, Multi-Processed HR, Payroll & Compensation, Performance Management Rewards, Professional Contribution, Relocation, Screening & Selection, Sourcing, Talent Acquisition

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