Wednesday, March 16, 2005

Multi-process HR outsourcing growing quickly

The outsourcing of three or more HR functions, commonly referred to as Human Resources Outsourcing (HRO), grew by 37 percent in 2004, according to an in-depth study issued today by the Everest Research Institute. The report, Human Resources Outsourcing (HRO) Annual Report 2005, also found cost savings accelerating for buyers, both large and small, and the scale of HRO engagements increasing, as global deals become increasingly common.

Key findings of the report are:

-- Buyers - Prices across all segments have fallen over the last 4 to 5 years by more than 20 percent as the market has matured, with prices for larger buyers (in excess of 25,000 active employees) falling faster than those for small buyers (with fewer than 25,000 active employees). However, the number of small buyer transactions has recently crossed that of large buyers, and this segment will see further price reductions as the market continues to scale and the delivery model matures. While the offshore component has not been much of a driver in HR outsourcing, its impact could accelerate in the future.

-- Suppliers - Major revenue opportunities for suppliers still abound. These include the small buyer segment, less mature markets such as Europe and Asia, and larger global transactions. Effectively penetrating each of these markets, however, will require a different set of skills and technologies. Meeting the needs of the small buyer segment, for example, will require that suppliers effectively leverage a single technology platform to work for a number of smaller customers.

-- Investors - Increased merger and acquisition activity is likely as suppliers seek partners with complementary capabilities and large suppliers without capabilities buy into the market. The European and Asian HR outsourcing markets are far less developed than North America, and new VC-funded initiatives could arise in these locations if established suppliers do not make investments. At the same time, the window for organic new supplier entry is rapidly closing, and established suppliers will have an advantage going forward. Visit Everest website.