HRO in the Manufacturing Industry…Facing the Same Fate as GM Plants?

A March 19, 2009 NYTimes.com article stated, “In Europe, for example, where manufacturing accounts for nearly a fifth of gross domestic product, industrial production is down 12 percent from a year ago. In Brazil, it has fallen 15 percent; in Taiwan, a staggering 43 percent. Even in China, which has become the workshop of the world, production growth has slowed, with exports falling more than 25 percent and millions of factory workers being laid off. In the United States, until recently a relative bright spot for manufacturing despite the steady erosion of blue-collar jobs, industrial output fell 11 percent in February from a year ago”. The Institute for Supply Management predicted in its Semiannual Economic Forecast released in early May 2009 that revenues in the manufacturing sector will decline 14.7 percent this year. General Motors was just forced into bankruptcy.

This all supports what we know all too well…the manufacturing industry worldwide is in serious trouble. But what impact will its decline have on the HRO industry?

Quite significant, actually. Manufacturing has historically been a strong sector for HRO, from the early multi-process HRO contracts entered into by organizations such as International Paper and yes, General Motors, to contracts for single processes such as learning, payroll and RPO in which companies like United Technologies, Texas Instruments and Cooper Tire & Rubber are engaged. The robust HRO uptake by manufacturing organizations was due to the requirement for process standardization across their so greatly dispersed locations, the need to quickly ramp-up in lower-cost regions in which they didn’t have feet on the street, and the challenge they faced in obtaining basic, consistent data across their locations in order to better manage their plants and their workforces.

But as plants continue to close their doors at an alarming rate, or if they are able to remain open continue to lose considerable revenue and workers, the volume of outsourced HR processes will accordingly decrease. For example, our research shows that some single process providers are suffering revenue drops of 20 – 30 percent, and this is closely linked to the manufacturing sector decline. Further, our April 2009 HRO Confidence Index found that near-term pipeline confidence in the manufacturing industry was relatively low, ranking eighth out of 13 industries.

The future doesn’t appear terribly bright either. For the provider community, the manufacturing sector must reach some level of stability when the economy recovers in order for HRO volume and revenue to increase. But in the meantime there may be some provider casualties, particularly within the single process market in which less mature suppliers can rely too heavily on single client revenue streams.

On the buyer side, there’s likely to be much more caution on going down the outsourcing path, in part because of manufacturing organizations’ uncertainty of their own future, and in part because of the questionable financial stability and staying power of providers, especially those who over-rely on single struggling sectors. And inked deals will likely be smaller as revenue is down and workforces have been cut to the bone.

HRO in the manufacturing industry isn’t dead, but it will continue to hit many big road bumps which even a Hummer would have difficulty navigating over or around.

Until next time,

Helen Neale, Research Director, Human Resources Outsourcing, NelsonHall

Advertisements
Explore posts in the same categories: benefits administration outsourcing, hr outsourcing, hr outsourcing research, hro, multi-process hro, payroll outsourcing

Tags: , , , , , , ,

You can comment below, or link to this permanent URL from your own site.

2 Comments on “HRO in the Manufacturing Industry…Facing the Same Fate as GM Plants?”

  1. joe vales Says:

    Helen… great insights on manufacturing vertical for HRO from both the buyer and service provider persectives . You are right on target in seeing the financial problems that both bundled providers and single solution providers are facing. What is disappointing is that what is happening in the manufacturing vertical is spreading to other verticals. No surprise that the overall large HRO market in in a downward flux as many service providers are responding by offering more of the same with nothing new to drive buyers to the table or even just come out of their shells. Where are the value propositions to bring excitement back to the market? Is there another Exult to disrupt the market like what Jim Madden and Exult did in early 2000. Will Workday or new SaaS offerings drive service providers to restructure their offerings. Will integrated analytics finally demonstrate business value to customers? The market wants a leader and a winner to reshape the global HRO market.

    However, instead of attacking the problem with breakthrough ideas and clear cut business value , the solution for some is to focus on the mid market – the new “Holy Grail”. But for most the mid market will be a “Death Trap” as the top down sales and solution approach does not work in the mid market.

    Nevertheless, this can be an exciting time as both the large market and the mid market market for HRO is wide open for innovation and will enbrace a service provider who can redefine the HRO value proposition and deliver on its promises. My guess is that this will happen over the next two years.

    • hjneale Says:

      Thanks for your comments, Joe. I agree that organizations are trying to move into the midmarket, and you are right, you need to offer a different approach in this marketplace. Not least, that you must be more willing to offer midmarket HRO in various different guises, from SaaS to full service, depending on the requirements of the particular organization; which vary widely from one process to another, naturally! Its interesting times, and I am sure that, as you say, things will all become clearer over the next two to three years.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s