The last five years in outsourcing from three experts.
By the Editors
During the past few years, the HR outsourcing market has endured growing pains and enjoyed maturation. Misperception, followed by consolidation and reformulation has led to a new understanding between practitioners and providers. Oh, and there was the small matter of a financial meltdown and a global recession, fallout from which has not stopped even now. Where does it leave the marketplace. HRO Today asked a trio of thought leaders for their views.
— The Editors

Maturing Market
The HR outsourcing market has changed dramatically over the past five years. In the mid-2000s, the market was overwhelmed with buyer demand and providers were challenged to digest and support newly awarded contracts.
Focused solely on transaction processing and reducing HR operating costs, buyers and providers were trapped in what Accenture refers to as second and third-generation BPO. Providers were unable to make the most of their emerging scale since very little was being shared across contracts. Clients were hearing noise—problems in delivery—and were not seeing the level of innovation and cross-client synergy they expected. As such, the market reacted. Contracts were cancelled and the industry saw a consolidation of providers, dramatically changing the landscape.
Today, the HR BPO market has markedly matured and buyer values have shifted. Leading buyers and BPO providers have realized the same thing: there is a wealth of insight about client organizations that providers can leverage to help achieve better performance. Buyers are beginning to seek providers that can help them obtain tangible results that include better selection of top performers, improved retention of critical performers and workforces, and accelerated time to competency. Companies need partners that can help create competitive advantage by forecasting and fulfilling talent requirements, and aligning talent plans, workforce capabilities, and employee performance with business strategy.As the HR BPO market has matured, buyers want industry-specific expertise and deep-process knowledge from their outsourcing partner.
Over the past several years, interest in HR BPO has been particularly strong in consumer goods, retail, and industrial companies as well as the financial services, communications, media and technology sectors. What is driving this interest? Across industries, the global economy, new marketplace realities, and continued cost pressures are factors making it challenging for companies in these industries to figure out how best to grow and manage their organizations. A key strategy in the current economic climate for most organizations is getting better utilization from people to increase workforce productivity and performance.

It’s this slew of demands that are driving a new fourth generation of the market. Providers who possess deep industry and functional knowledge can apply analytics to create insights and drive real business value. Recent Accenture research, conducted in conjunction with the Everest Group and The Outsourcing Unit at the London School of Economics, validates that leveraging analytics to mine data about the functions and processes being outsourced to more predictably drive business outcomes is one of eight best-in-class practices of high performers.

The evolution of HR BPO over the past five years has largely come about as a result of market maturity. Those clients and providers that can widen their focus beyond just transactional processing and lower costs to leverage HR BPO to drive business insight and innovation stand to leapfrog the competition.
Jill Goldstein is HR BPO offering lead at Accenture.
Built to Thrive
Charles Darwin said, “In the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment.”
Five years ago, HRO growth was hovering around 10 percent per year and considered modest. Then wham! The entire HRO community was forced to grow up fast to survive the global economic crisis. Between 2008 and 2009, revenues declined with learning, RPO, and large-scale multi-process HRO (MPHRO) taking the hardest hits. Lift-and-shift deals, long implementation times, and substaintial upfront client investments fell by the wayside. Evolution is largely trial and error, and not all forms survive.
Client willingness to use HRO service provider systems and processes with multi-shored back offices increased, as did the acceptance of standardized service offerings. Executive approval was more likely for single-process solutions and smaller MPHRO deals if the engagement required little or no upfront investment, would be quicker to implement, and offered faster return on investment. C-suite executives sought a transparent total workforce with improved employee data management, payroll, and real-time reports.
Technology was also changing rapidly. HRO service providers needed to continue to invest in building efficient global client service delivery networks, introduce new technologies, and add smartphone and multi-device mobile accessibility. Software-as-a-service (SaaS) with subscriber-based pricing and multi-client platforms is making inroads in HR applications and basic HR administration systems.
Even with such challenges, there are many positive outcomes to show that the HRO industry can quickly adapt and continue to thrive.

• The HRO service provider community remains robust. Providers continue to deliver: focus on HR transformation, operational efficiency, MPHRO or single process HRO, complex ERPs, and SaaS solutions.
• HRO is truly global. For example, recruiting and staffing services have been around for decades but were usually local and used by local hiring managers. Now, more and more clients want services from one RPO vendor that is able to meet their needs locally, regionally, nationally, and even globally, and the RPO community has responded
• HRO has finally arrived for the small and mid-market, and they are buying. Now the advantages of HRO, including self-services, are available to more than the enterprise market, thanks to new lower-cost technology and service platforms
• Health and wellness services are expanding. In response to the high cost of healthcare, wellness programs, dependent audits, absence management, and health savings account management are all growing.
• The success rate for renewals from the early adopter mega-deals has been very high.
• Total HRO revenue opportunity is as great as ever. Service providers with satisfied clients delivering high performance and lower total cost of services grow revenues over time as new services are added and scale is expanded to other geographies or business units.
Today’s HRO is more customer-focused, adaptable, operationally efficient, and offers more choices in pricing and services. The HRO community has successfully adapted to the new business environment and is ready for the future.
Linda Merritt is research analyst for NelsonHall.
Getting Integral
Five years is a long time in outsourcing. And back in 2007, before the Wall Street calamity, we all thought outsourcing was the ultimate direction for businesses’ delivery models for IT and business administration. However, corporate mentalities have become much more conservative, with the majority of business leaders preferring to focus on developing their shared services infrastructures, and leverage outsourcing to provide specific needs and capabilities to support their overall global operations strategies.
New research from HfS Research, supported by ACCA, covering 1,800 organizations worldwide, shows that BPO is the dominant delivery model in barely a tenth of mid-large organization, with 42 percent sticking with a shared services delivery model. Yes, outsourcing is still a critical delivery component for 97 percent of Fortune 1000 business, but what has transpired is how it’s being delivered. For example, 44 percent of large organizations view their delivery infrastructure a “hybrid” of shared services and outsourcing models. This isn’t bad news for outsourcing providers, however, it does mean they have to become broader in their business relationships and view their offering as supportive and augmentative for many clients, as opposed to a complete game-changer.
All-in-all, the last five years have seen buyers figuring out where to focus their outsourcing plans to benefit their core businesses. We have seen a gradual realization that retaining some processes internally isn’t bringing organizations a competitive edge, and these sourcing decisions are no longer only about cost: They represent a fundamental change in the way business leaders now view outsourcing as an integral function of their global operations.
Today’s buyers are getting a lot smarter at figuring out how they can improve their organizations by using the resources and knowledge available through third-party relationships. Industries experiencing dramatic secular shifts are developing long-term aggressive outsourcing strategies.

The five most bullish industries planning significant increases with outsourcing include entertainment, media and publishing; software and hi-tech; energy and chemicals; banks; and insurance. There are just a few examples of major industries where we can discuss secular shifts driving unprecedented demands on organizations to remain competitive.
Industries that have already experienced much of their secular changes in the past are more focused on investing in shared services frameworks. These businesses are typically reactive to market conditions and often radical long-termism doesn’t fit as well with their mentality, especially when faced with uncertain times ahead. In addition, many of them have already shaved their operating costs to the bone, hence digging out new productivity benefits via outsourcing is often challenging—and mistakes can prove fatal in a low-margin business.
Industries such as retail and manufacturing, one can argue, have already been through their secular shifts over the last three decades or more. While they have had to experience much fundamental change, for example mass globalization of markets and volatile changes to consumer spending behaviors, the very essence of these industries is still the same—their organizations are focused on inventory management and supply chain optimization, maintaining operating margins and accurately predicting demand. To them, outsourcing has always been an option, and has been readily explored over the years to find more pennies to save. So while economic conditions may have been vicious, focus on short-term cash-flow has clearly been the priority for many in these sectors, and radical overhaul of operational infrastructure clearly not an attractive option.
Utilities are also proving to be more conservative with outsourcing, with a strong shared services focus. While many of the large utilities organizations have been among the earlier adopters of hybrid outsourcing and shared services models, many of them have not felt such secular change as many of those industries that were more dramatically impacted by the 2008 crash and many of the fundamental shift mentioned above.
While there are many active outsourcing engagements—both existing and new—in telecom and wireless, HfS sees more these engagements as relative small in scope as these firms opt for more incremental, conservative ventures into outsourcing. For example, several major telecom firms are evaluating smaller BPO initiatives in areas such as sourcing and transactional accounting, and still prefer to engage in several smaller multi-vendor engagements in the ITO space.
It’s no surprise that these organizations are more conservative with their long-term operational planning. Moreover, many have proven to be heavy outsourcing adopters in the past, and we expect these sectors to remain focused on maintaining their outsourcing initiatives, but with a large proportion opting for a more reserved approach, with increased focus on improving, and in some cases expanding, their internal shared services competencies.
The public sector is facing incredible sector change. Quite simply, national and local government bodies are under unprecedented pressures to drive austerity measures and make long-term plans to drive new productivity programs. This explains why 55 percent of public sector bodies actually foresee some moderate increase in outsourcing activity over the long-haul. Huge political bodies, such as the U.S. Navy, NASA, the U.K. Inland Revenue, and National Health Service—and even the FBI—all outsource elements of their operational support functions to varying degrees. With increased onshore delivery resources becoming available from several providers, this could well turn out to be a surprisingly large growth sector for outsourcing.
Outsourcing is entering a new era—one where organizations can no longer afford to ignore its benefits. As these radical and secular changes to many of our core industries take hold, business leaders simply cannot overlook the competitive advantage outsourcing offers: enabling them to focus on developing competitive advantage. These secular shifts are threatening the survival of many businesses, but at the same time are opening up major opportunities to build smarter, more globalized and leaner organizations. Business leaders can no longer afford to cling to many of the methods of yesteryear to steer their organizations, and this data points to a more bold, radical approach to embrace the benefits of global sourcing.
However, most smart organizations are no longer evaluating shared services and outsourcing strategies in silos; while these initiatives are singularly successful at providing benefits to that individual function, our research has shown that these initiatives have failed, in many situations, to improve comprehensively the broader corporate strategic objectives of these organizations.
Phil Fersht is founder and CEO of research analyst firm HfS Research.

Tags: Benefits, Contributors, Employee Engagement, Enabling Technology, Learning & Development, MSP / Contingent Labor, Multi-process HR, Payroll & Compensation, Recognition & Rewards, Relocation, Screening & Selection, Shared Services, Sourcing, Talent Acquisition

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