HRO Can Help Companies Play the Employment Spread and Avoid its Pitfalls

The Consumer Confidence Index, earnings reports, unemployment rates, housing starts, inventory levels, non-farm productivity rates – we are all scanning leading and lagging surveys, reports and indexes for signs of where recovery will first start to occur and where the recession’s impact will linger longest.

To shed a little light on the outsourcing terrain, our September 2009 BPO buyer survey and 3Q09 HRO Confidence Index both indicate increased contract activity in 2010. All the providers we’ve been speaking with are excited about pipelines that are filling up with potential deals at every stage, from lookie-loo’s to those nearly ready to sign on the dotted line.

As reported this week by USA Today, more companies plan to hire rather than cut workers in the next six months. Most report no change (57 percent). Still, 24 percent said they planned to grow their workforce, up from 18 percent in July. Only 20 percent plan to trim further, down from 28 percent in July.

When hiring activity does increase, the service industries like retail, professional services and healthcare will lead with 31 percent expecting to add jobs in the next six months and only 3 percent cutting staff. Manufacturing will likely lag, with only 12 percent expecting to hire and 31 percent still anticipating further reductions, according to the National Association for Business Economics.

In our above-mentioned survey of 480 BPO buyers, the highest ranking current business metric was customer retention, followed by cutting costs and increasing revenue. Staff retention came in only 5th out of 6 in business metric importance. The gap in importance could be because employers are still playing the productivity spread. Productivity has been rising as companies have been able to produce what they need with fewer workers. According to the Labor Department, non-farm productivity rose 6.4 percent in the second quarter, even as unit labor costs fell by 5.8 percent.

And while we need not yet prepare for a grand hiring extravaganza as employers are likely to milk the productivity spread as long as they can to put off hiring, organizations must start playing their cards right in terms of staff retention and hiring plans, or they will be one-upped by their competitors.

As my colleague Gary pointed out in his recent blog on staff retention, ignoring rising indicators of employee discontent could leave employers not only adding hires to meet increased demand, but facing a more disruptive rise in turnover in high performers and hard to replace positions.

HR’s HRO partners must be forward thinking. For sales in the pipeline, HRO providers need to show how their services will help prospects prepare for and manage workforce changes. And for current clients, providers must be proactive and help them prepare for recovery by holding early discussions on using their available centralized data and analytics to anticipate needs – needs they can then gear up to help their clients meet.

Linda Merritt, Research Director, HRO, NelsonHall

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