HRO is Settling in for a Good 2011
HRO is back in the swing of things as evidenced by the NelsonHall Q1 2011 HRO Confidence Index, which is based on a questionnaire completed by HRO service providers. While the full report is for clients and survey participants, we like to share tidbits for our HRO Insight blog readers.
The HRO Confidence Index hit a low of 115 in Q2 of 2009 as the full impact of the recession hit home. On the rise since, it peaked at 170 in Q4 2010. The Q1 2011 HRO confidence level is 164. Some of the ratings slightly declined since the last quarter but remain at very positive levels, indicating a settling in of vendor confidence with a dash of realism.
Renewals and increases in scale and scope are going very well with existing clients. New deals are being signed and there is some increase in total contract values as geographic coverage continues to expand. Multi-country coverage is in ~30% of contract activity and the average number of countries included is 11. Growth is even expected to increase for multi-process HRO and there are hints that multi-tower deals may return as buyer confidence increases.
Revenue growth expectations are still positive, although with moderation from perhaps a bit too much holiday cheer in Q4 2010. On a scale of 1-5, with 5 being a strong increase, overall HRO expectations for revenue growth slipped from 4.3 to 3.6. RPO which had shown the greatest return to revenue growth throughout 2010, dipped to 3.7 from its high of 4.2 last quarter. A slight decline was also experienced by geography. The U.S. and Asia Pacific are still seen as the greatest opportunities along with Canada and the U.K. as traditional hot spots. Not surprisingly, given the current turmoil, the largest scaling back for growth was in the Middle East which dropped from 3.7 to 3.1.
The HRO outlook is quite positive and yet hurdles will always present themselves and awards will often be hard won. Getting the final commitment made and dotted line signed is still an issue. Clients continue to push hard for low prices and cost reductions. Across all BPO, including HRO, expectations for immediate and overall cost savings can be unrealistic. HRO is challenged to refocus on the overall value to the business in addition to operational cost to support its pricing.
Clients are growing in sophistication and understanding of outsourcing options. Fewer buyers are trying for lift and shift deals and are starting to wean themselves off of wanting heavily customized technology set-ups. They are also cautious about vendors with only a single offshore delivery center. This should ease the way for HRO vendors with growing multi-shore delivery options and expect business to continue to increase for hybrid and platform HR technology systems.
It is time to settle in and get down to the business of business and ensure a good year for HRO.
Linda Merritt, Research Director, HRO, NelsonHall
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HRO Insights 
March 8, 2011 at 3:11 pm
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