Don’t Rain on My HRO Parade

The HRO community deserves a break, and the latest NelsonHall HR Outsourcing Confidence Index is here to deliver with lots of good news. Strike up the band and let’s have a virtual HRO parade!

To gauge HRO confidence, we use a scale in which 100 equals no change and 200 means all participants are highly confident. Compared to the dearth of optimism at 115 in Q2 2009, the 3Q 2010 HRO Confidence Index is at a high of 168. HRO vendors stating they are much more confident in their HR outsourcing business increased from a dismal 10 percent to a buoyant 41 percent.

We have been reporting for some time that pipelines are filling and looking better, and that continues. And yet, providers’ financial results have not yet shown a logjam break in frozen decision-making and willingness to commit in many HRO service lines.

On the other hand, this quarter we finally see an upswing in contract value growth. In fact, we have a triple play of good news underway! HRO service providers are reporting increases in:

  1. New contract activity
  2. Scope expansion with existing clients
  3. Volume in existing contracts

New contract activity is now outpacing increasing scope with existing clients. New deals signed, given the lag time before revenues flow, will take a while to show up in results. Volumes beginning to pick-up with existing clients will show up sooner in results, especially if vendors can gear up to increasing activity levels quickly and efficiently.

RPO and payroll continue to lead the parade to revenue growth recovery, with multi-process HRO also improving. While learning has been slow, its current 3.5 ranking in NelsonHall’s 3Q 2010 HRO Confidence Index indicates a much brighter outlook as compared to its score of 2.8 in Q4 2009.(Note that we use a scale of 1 – 5, with 5 being a strong increase.) 

Benefits administration outsourcing revenue growth expectations have been stable for several quarters around 3.5, but the outlook for pipeline growth is lower for benefits administration outsourcing than other HRO areas. Expected increases in health and welfare consulting should lead longer term to opportunities, but vendors are not seeing it yet. There may be short term distraction caused by the spate of mergers and alliances this year. ADP recently reported the successful acquisition of Workscape, now an ADP company, and Aon announced the leadership slate for the soon to be Aon Hewitt team.

Global delivery remains a factor in HRO growth in two ways. First, multi-country contracts, at 34 percent of deals, continue as organizations seek to standardize payroll and other HR processes. Also, acceptance of multi-shoring HRO continues. Onshore HRO delivery is still in the lead at 71 percent, but nearshore and offshore delivery are now 29 percent of HRO contract values.

People have parades for many reasons including celebration, commemoration and optimism. Our virtual parade is for optimism with a tad of celebration thrown in. Let’s save the full celebration parade for when the earnings results match the current high level of optimism.  Hmm, when and where do you think we should have a real HRO community parade?

Linda Merritt, Research Director, HRO, NelsonHall

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One Comment on “Don’t Rain on My HRO Parade”


  1. [...] the HRO Drum Slowly In my blog last week, Don’t Rain on my HRO Parade, it was fun accentuating the positive signs of health returning to the HRO market. This week I’m [...]


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