Comments on: Is HR Outsourcing “cleaning up” in today’s market? http://www.inflexionadvisors.com/blog/2007/01/22/is-hr-outsourcing-cleaning-up-in-todays-market/ Seeding growth through innovation. Tue, 06 Jan 2009 13:02:47 +0000 http://wordpress.org/?v=2.5 By: Phil Fersht http://www.inflexionadvisors.com/blog/2007/01/22/is-hr-outsourcing-cleaning-up-in-todays-market/#comment-8 Phil Fersht Mon, 05 Feb 2007 23:58:53 +0000 http://www.inflexionadvisors.com/blog/2007/01/22/is-hr-outsourcing-cleaning-up-in-todays-market/#comment-8 2006 - as predicted - was a transition year for the HRO industry, as suppliers and buyers invested increased time and resources to understand how to develop workable solutions to run HR function within a global outsourced environment. Whereas 2005 saw dramatic growth of 37% in deals signed, with a total of 39 multi-process HRO contracts, 2006 saw a decline, with 34 deals reaching closure." (Everest defines multi-process HRO as having 3 specific HR processes bundled within an HR outsourcing deal). Despite this slow down in new deals, annualized contract value in the multi-process HRO market increased a further 18% to reach $2.6bn. The large global deals, for example Unilever and DuPont, have helped drive expenditure higher. The fact that more focus is now on buyers adopting transformational approaches to HRO, as opposed to the classic "lift and shift" model, has slowed-down the HRO market. The change in delivery model has signified a rapid maturing of the HRO industry, which is necessary for workable HRO solutions to exist in the future, and todays' suppliers to invest in the global resources and infrastructure necessary to delivery HRO in an operationally-successful and economically-feasible fashion. When we look at the recent wave of deals, it is clearly apparent that these "new" HRO buyers are not going into HRO with the prime incentive of simply making some modest administrative cost savings. Recent deals have included HR transformation costs that, in some cases, are driving more than 100% of exising costs for year 1. To quote a recent buyer who signed an major HRO deal recently: "If you think we did this to make the savings we ended up negotiating, you're very wrong". Net-net, HRO in 2007 will be largely focused on broader business transformation initiatives with the bill footed by cost-arbitrage. Many buyers simply cannot experiment with alternative sourcing options like shared services or captives due to high costs, structural/political issues and poor technology, so outcourcing is they optimum way to drive shock and change into the organization quicxly and effectively. 2006 - as predicted - was a transition year for the HRO industry, as suppliers and buyers invested increased time and resources to understand how to develop workable solutions to run HR function within a global outsourced environment. Whereas 2005 saw dramatic growth of 37% in deals signed, with a total of 39 multi-process HRO contracts, 2006 saw a decline, with 34 deals reaching closure.” (Everest defines multi-process HRO as having 3 specific HR processes bundled within an HR outsourcing deal). Despite this slow down in new deals, annualized contract value in the multi-process HRO market increased a further 18% to reach $2.6bn. The large global deals, for example Unilever and DuPont, have helped drive expenditure higher. The fact that more focus is now on buyers adopting transformational approaches to HRO, as opposed to the classic “lift and shift” model, has slowed-down the HRO market. The change in delivery model has signified a rapid maturing of the HRO industry, which is necessary for workable HRO solutions to exist in the future, and todays’ suppliers to invest in the global resources and infrastructure necessary to delivery HRO in an operationally-successful and economically-feasible fashion.

When we look at the recent wave of deals, it is clearly apparent that these “new” HRO buyers are not going into HRO with the prime incentive of simply making some modest administrative cost savings. Recent deals have included HR transformation costs that, in some cases, are driving more than 100% of exising costs for year 1. To quote a recent buyer who signed an major HRO deal recently: “If you think we did this to make the savings we ended up negotiating, you’re very wrong”.

Net-net, HRO in 2007 will be largely focused on broader business transformation initiatives with the bill footed by cost-arbitrage. Many buyers simply cannot experiment with alternative sourcing options like shared services or captives due to high costs, structural/political issues and poor technology, so outcourcing is they optimum way to drive shock and change into the organization quicxly and effectively.

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