Is the HRO Sector Regaining Confidence?

A Financial Times article published earlier this week stated, “Services sector companies in European and emerging markets have recovered much of the confidence lost as the global recession took its toll, providing another sign of green shoots after a bruising six months.”

NelsonHall’s Q1 2009 Global Outsourcing Confidence Index study – which monitors quarterly changes in industry confidence in a range of ITO and BPO processes – found the same, yet on a global basis. The Index determined there is a significant net increase in confidence in the outsourcing sector over the next 12 months, as represented by a score of 122 (a score of 100 on the Index represents no change in confidence, while a score lower than 100 means a confidence drop.)

But is the HRO sector following suit in the confidence department?

Not quite. Our Q1 2009 HR Outsourcing Confidence Index study shows HRO is perhaps missing a sock and a shoe as compared to the relatively full-dressed overall outsourcing market. The study found that 30 percent of HRO providers were slightly more confident, 20 percent were as confident and 50 percent were less confident in their HRO business in 2009 than they were in 2008. This equates to an HRO Confidence Index of 93, a bit less than the neutral 100 percent.

Many factors are contributing to this lower confidence level including: the continuing decline in transaction volumes and the extent of frozen decision-making within organizations due to today’s economy; buy-side expectations for cost reduction certainty in the first year of the contract; and buyers’ reduced willingness to take on long-term transformational deals that require significant up-front investment and their requirement for providers to take on more of the financial risk.

Our Recommendations for Providers to Raise Confidence among HRO Buyers

Get even closer to and expand business with your existing clients, explore opportunities to reduce costs both for your clients and your own organization and introduce user-based pricing.

Our Recommendations for Buyers to Increase HRO Confidence and Results

In addition to making certain you obtain from your provider the expected value through cost-related KPIs, also consider performance-related KPIs that will have a longer term impact on the health of your business. For example, assess outsourced learning courses in the context of ensuring that graduates can gain and apply new skills faster; this has a much longer-term impact on overall business performance than making sure your cost per hour of learning delivery is low. And make sure you have your ducks in a row before outsourcing. Going down the “outsourcing your mess for less” route can have dire impacts on the success of your outsourcing engagement and on your bottom line.

Until next time, happy sourcing!          

Helen Neale, Research Director, Human Resources Outsourcing, NelsonHall

FYI – If you’re a service provider interested in participating in our next quarterly HRO Confidence Index, please email me at: helen.neale@nelson-hall.com.

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