HRO – When Will the Horizontal Go Vertical to Grow?

Most HRO Insight blogs provide commentary on HRO market news. Occasionally, I like to speculate and dream about how HRO can fully become the linchpin in leveraging HR into the strategic business partner the HR profession has long desired – and business has long needed.  This week, I blend a bit of both market news and pondering on the vertical specialization of HRO.

According to the January 2011 NelsonHall BPO Index, 2010 was an uneven year for BPO recovery.  Total contract value (TCV) for HRO declined from $2.3Bn to $1.5Bn largely due to the drop off in Europe.  North America HRO almost held its own with $1.3Bn in 2010 compared to $1.6Bn in 2009.

Which BPO area grew its piece of the smaller BPO pie?  The options include back office, middle office, and front office.  Back office BPO functions are horizontal and include HRO and F&A; middle office BPO functions cover vertical industry-specific services such as mortgage processing or check processing in the banking sector, etc.; and front office BPO includes customer contact and sales centers.  Middle office, or industry-specific BPO, is the winner with the largest area at $13Bn and 69% of 2010 TCV, leaping up from a 40% share in 2009.  Growth in a down market is surely the sign of compelling client interest and savvy vendors meeting their needs.

Horizontal BPO processes cross the enterprise and are part of almost every business.  The problem is mistaking universality for being generic.  HRO is too often marketed on the strengths of cost and process functionality.  Customization is used for adapting to the quirks of client’s prior HR systems and processes.  To fight the costly morass of over-customization, HRO service providers have strengthened the use of preprogrammed selectable parameters – building in cost effective flexibility, but also reinforcing the generic aspect of HRO.

Rajiv Raghunandan, Infosys BPO Strategic Business Practice Head for Sales and Fulfillment, was recently interviewed by SSON and commented on how Infosys is taking an end-to-end process view of the F&A order-to-cash process and expanding its revenue, client relationships, and market opportunities.  Infosys leveraged its internal knowledge and experience from its client base to find areas of critical mass to take what was a horizontal process and verticalize it for a growing list of industry segments.

Vertical specialization can and should be done for HR as well.  As I have previously mentioned, TriNet, a PEO and HRO service provider in the small and mid market, is already offering integrated solutions for software and banking.  TriNet combined its core technology with customized services for hiring, compensation, performance management, and risk mitigation.

Sustainable growth in HRO is dependent on breaking the bounds of cost-driven volume administrative transaction processing and moving up the value chain to strategic business impacting partnerships.  There is a largely untapped HRO gold mine out there.  Just think of what the large HRO service providers could do with a gathering and packing of the knowledge and services already resident in their client bases!

Linda Merritt, Research Director, HRO, NelsonHall

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One Comment on “HRO – When Will the Horizontal Go Vertical to Grow?”


  1. The information provided by you was excellent.I want know more information about this article will you provide.
    ___________
    Nancy
    BPO Processes


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