BPO Activity to Increase in 4Q09 and Beyond: Will HRO Follow Suit?

NelsonHall’s 3Q09 BPO Index call, held on October 7, revealed that global BPO contract value was down 46 percent year over year. By region, the U.S. fell 42 percent, Europe declined 31 percent, and Asia-Pacific declined 88 percent (but it’s important to keep in mind that Asia-Pacific has a much smaller base, so even a small decline in contract value would be significant percentage-wise). A pretty dark picture for providers in terms of reduced new revenue streams, and for buyers in terms of missed opportunities to increase service delivery capabilities and improve the total cost of ownership.

The recession’s impact will continue to linger for some time, and not all areas of the global economy will recover at the same rate. For example, as generally predicted, the U.S. unemployment rate is still rising and credit is still tight. On the bright side, as the recession begins to ease, there is cause for optimism as BPO activity has been sequentially rising each quarter to date in 2009, indicating we have passed the bottoming of the recession’s impact on BPO.

In September, NelsonHall completed interviews with 480 BPO buyers in North America, Europe and Asia-Pacific. Only 15 percent were engaged in preparation of new RFPs during the past 12 months, but 48 percent plan to do so in 4Q09 and into 2010. Likewise, during the past 12 months only eight percent awarded new BPO contracts, while 37 percent plan to do so in the fourth quarter of 2009 and in 2010.

So do we have reason for the same type of optimism in the HRO space?

Yes, HRO activity was down year over year at essentially the same rate as BPO, 45 percent. North America was especially impacted with HRO total contract value down by 58 percent, as the hard hit of the recession caused a drastic reduction in major multi-process deals, and there were fewer new contract awards overall.

But when you are looking for a light at the end of a long tunnel, any glimmer is welcomed. European HRO contract value increased 33 percent. While this is on a much smaller starting base than North America, it is good news for the industry. It’s also consistent with our analysis of a rising number of European-based HRO contracts, and with interviews I’ve conducted in Europe thus far for NelsonHall’s Payroll Outsourcing Market analysis. All the providers I’ve spoken with are stating their revenue continues to grow, and that the state of the economy is actually helping to increase demand for payroll outsourcing.

Further, the most recent NelsonHall HRO Confidence Index, published in July, took a real upturn in market activity. For example, on a scale of one to five, expected revenue growth in payroll outsourcing came in at 4.5, benefits administration received a 4.3 rating, RPO a 3.3 rating, and learning services a 3.0 rating.

That confidence is matched by NelsonHall’s current conversations with many HRO providers who are reporting strong pipelines, and that activity is getting much more real deal focused. One provider said it had more RFPs in various stage of response than it has had in six years. Another said buyers are “past the kick the tires” stages and more are in the final stages of getting deals signed.

While the evidence is yet to be seen, I do believe the indicators are there, and when we do the same quarterly analysis and year-on-year comparisons in 2010, we will see HRO activity increase in the U.S. and Asia-Pacific, and continue to increase in Europe.

Gary Bragar, Lead HRO Analyst, NelsonHall

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Explore posts in the same categories: benefits administration, benefits administration outsourcing, hr outsourcing, hr outsourcing research, hro, HRO providers, hro research, learning outsourcing, nelsonhall, outsourced learning, payroll outsourcing, recruitment process outsourcing, rpo

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