The Upsides and Downsides of HRO Provider Consolidation

A recent phone-based survey NelsonHall conducted among 30 major U.K. buyers of outsourcing services found that 50 percent had already examined their existing contracts with a view to renegotiation in light of the credit crunch. This reexamination activity will continue to intensify – not only in the U.K., but also across Europe and North America – during the second half of 2009 with the majority of contracts being subject to review and requests for pricing adjustments.

The survey also revealed the level of outsourcing provider consolidation – i.e., eliminating some providers from the existing portfolio and moving the services managed by those suppliers to another existing provider – taking place. The findings? Before the credit crunch, those surveyed had an average of 7.7 suppliers. They now have, on average, 6.7 providers. And by the end of 2010, the average will be 5.0 outsourcing suppliers. Here again, while those surveyed were major corporations in the U.K., these levels of supplier consolidation hold true across Europe and North America.

What is the impact of provider consolidation on HRO buyers? There’s no question it can lead to price reductions due to economies of scale, and also eliminate heritage, grandfathered or other contracts which aren’t living up to their promises. But before undertaking such a major business decision, HRO buyers must factor in the same considerations as when they made the initial decision to outsource, including:

•  Do you have confidence in the targeted supplier’s ability to perform in each new service area? For example, in recruiting, does the provider possess the specialized industry knowledge, e.g., in the healthcare, entertainment, travel or manufacturing fields, you require? In learning, does the provider have the ability to provide a blended approach suitable for specific outsourced training domains, or does it have expertise in training technical staff members but lack strong skills in manager training and development?

•  Does it have on the ground coverage in and deep knowledge of the variables and intricacies in each of your organization’s geographies, e.g., local legislative requirements for outsourced payroll?

•  Is it financially stable and committed for the long-term to all the HRO services under consideration?

•  Does it have the bandwidth and “A team” capacity to effectively deliver the new services?

Before consolidating, HRO buyers need to vigilantly vet each of the above through discussions with the provider and existing clients, and advisably with industry researchers and sourcing consultants.

And an internal factor HRO buyers must carefully consider is their ability to put in place a strong governance team capable of managing an expanded contract covering multiple services. While solid governance is critical in any outsourcing initiative, its importance grows exponentially as the size of the contract increases.

While provider consolidation is unquestionably occurring and will continue to do so through 2010 (and perhaps beyond), we don’t believe it will result in a glut of the “big bang” contracts we saw in the early part of this decade. More likely it will be consolidation in a more limited fashion, such as leveraging a single multi-country payroll provider rather than a collection of payroll companies, as opposed to a broad-brush contract with one provider responsible for delivering payroll, benefits, learning, contact center support, recruitment, HR administration and tech support.

Gary Bragar, Lead HRO Analyst, NelsonHall

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

Tags: , , , , , , , ,

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

Leave a Reply

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

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

Google photo

You are commenting using your Google 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 )

Connecting to %s