HRO Confidence Jumps 13 Percentage Points, Per NelsonHall’s 4Q10 Index

What a difference a quarter, or two, or three, can make! NelsonHall’s just-released 4Q10 HR Outsourcing Confidence Index found that 54 percent of respondents are much more confident about the health and growth of the HR outsourcing industry over the next 12 months as compared to the previous 12 months. And this number is up from 41 percent in 3Q10, 33 percent in the second quarter of 2010, and 27 percent in 1Q10. 

The primary drivers for this boosted confidence are increases in both new contract awards and in providers’ pipelines. The strongest pipeline is in RPO, followed by outsourced payroll (especially in the SMB market, as providers are offering better technology and services targeted specifically to this segment) and then outsourced learning services.

In terms of revenue growth, based on financial results for the period ending 3Q10, RPO led the pack, followed by payroll, learning, benefits administration and multi-process HRO (MPHRO) taking the next four rankings. It should come as no surprise that RPO took the top spot as contracts continue to be awarded weekly. As I’ve written about before and consistently hear during discussions with RPO providers, growth in this space is about scalability to meet demand while lowering fixed costs of dedicated internal resources when volumes are low, while, of course, simultaneously improving quality of hire.

At the opposite end of the spectrum, MPHRO is facing significant challenges due to a range of factors – especially risk aversion, which in turn is driving more point solution deals – but it is by no means dead. If I were an MPHRO provider, I would continue to hold steady as MPHRO contracts are being awarded, albeit smaller in scope than in the boom years of mega deals.

As for expected HRO growth by geography in 2011, on our 1 to 5 scale, with 1 being lowest and 5 being highest, we see:

  • U.S.: 4.6
  • Asia Pacific (overall): 4.3
  • U.K.: 4.1
  • Europe: (overall) 4.0
  • Central and Latin America (overall): 3.9

I believe all these indicators point to a move out of the mucky waters HRO has been slogging through for the past eight quarters. Further, I believe the U.S. and other regions will continue their outsourcing trend as companies try and continue to grow their strategic businesses, while offsetting costs associated with non-core areas (and companies’ views of what IS core are changing quite substantially.) Finally, I believe we will continue to see more multi-country and multi-continent point solution HRO deals as companies look to standardize those processes and implement best practices provided by a single, best-of-breed vendor.

Gary Bragar, Lead HRO Analyst, NelsonHall

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