The Incremental Recovery – When will HRO Really Take Off?

The last round of major HRO vendor’s quarterly earnings calls suggested business will pick-up more in the second half of the year, but they still expect to see flat to slight declines in revenues in 2010. In a few weeks the next round of earnings call will begin, and we will see if forecasts remain the same, or get more or less optimistic.

What can we see now that will support a sustainable acceleration in revenues?

Bookings – business sold and being implemented – is a top predictor of coming revenues. The largest providers like IBM and Accenture have been reporting solid bookings. For example, Accenture reported last week on its fiscal 2010 second quarter and bookings were up. On the flip side, revenue predictions remain at the lower end of its range, consulting was expected to remain flat to single digit growth, and no comments were made on HRO growth.

Unemployment rates have recently started to stabilize. Worker productivity – the output per hours worked – has increased and provided a cushion for companies reluctant to hire full time staff.  My NelsonHall colleague Gary Bragar recently commented that the increases in temporary staffing may finally be ready to lead into more hires.  Accenture is doing its part as it again increased its own global hiring estimates from 45,000 to 50,000 for the year.

Relocation outsourcing was hit particularly hard during the recession, and volume dropped by thirty to as much as fifty percent! However, I am talking to a number of relocation companies and each is reporting that although volume has not yet returned to normal, it is picking up nicely.

The major buy-side corporations are sitting on big cash reserves amassed during the downturn due to cost cutting and steep spending reductions…cash to the tune of $832.4 billion, according to Standard and Poor’s.  And on the sell-side, Accenture has $4 billion in cash. Spending by the largest corporations stimulates business up and down the supply chain, including for HRO service providers, so we need them to spend!

Yet, the incremental nature of the recovery has left even those with piles of cash reluctant to make big bets. So far, the main use of the cash has been to continue stock buy-back programs. Sooner or later organizations need to return to investing in growing their businesses.  Since 60-70 percent of the economy is consumer-driven, we all need consumers to consume. The U.S. Commerce Department recorded another monthly increase in consumer spending, 0.3 percent in February.

If we are to do our part in ensuring the recovery accelerates, we too need to spend. So go, buy something today!

Linda Merritt, Research Director, HRO, NelsonHall

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