HRO Carrying On Despite Slow, Decelerating Economy

Amy L. Gurchensky, HRO Research Analyst, NelsonHall

For those of you who are not aware, NelsonHall assesses the confidence in the HRO market on a quarterly basis. The report involves surveying HRO suppliers from all disciplines to get a pulse on the market.

 From time to time, my colleagues and I will blog about these results. I thought I would take a step back and re-examine HRO supplier confidence levels since the report began.

 As the name suggests, the supplier confidence level measures how confident HRO suppliers are in the future market with a level of 100 representing no change in confidence.

Since the report began, the index has constantly shown a healthy level, despite some fluctuations in between. The following chart graphs HRO service provider confidence levels since its inception.

HRO Supplier Confidence Chart

2011 shows a major turning point in HRO vendor optimism, revealing a downward trend line that coincides with the Employment Situation report produced by the Bureau of Labor Statistics.

There is no need to panic though. It appears that supplier expectations are now more accurately aligned to pipeline activity, which showed a slight weakening in Q1 2012. Again, the most important thing to remember is that the indices are still at a healthy level.

Despite the headwinds from the economic recovery, business for HRO has carried on as evidenced in the following contract activity:

• ADP: awarded a multi-country payroll contract by HP covering ~130,000 employees in 40 countries across Asia Pacific (excluding India), Europe, and the Americas (excluding the U.S.)
• Fidelity: awarded a DC administration contract by the University of Washington for ~31,000 employees; it is now the sole recordkeeping provider for the university
• Talent2: awarded a three year RPO contract by Bankwest in Australia providing full RPO services from job requisition through onboarding including employment branding, establishing an innovation program for sourcing, and more
• IBM: awarded a learning services contract by a government entity in South Africa including content development and delivery of learning
• Aon Hewitt: renews and expands its multi-process HR outsourcing contract with BMO Financial Group for payroll, workforce administration, H&W administration, recruitment services, and compensation administration covering 46,000 employees in the U.S. and Canada for eight years.

There will likely be continued challenges from clients such as stalled decision-making or demands for lower pricing, and some service lines will fare better than others in this slow economy that is decelerating.

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Temporary Staffing Boon to Workers, Employers, HRO Buyers and “Smart” HRO Providers

I read with interest several recent articles, including from USA Today, which focused on hiring temporary workers. In one of these pieces, the U.S. Bureau of Labor Statistics stated that temporary staffing agencies found slots for 52,000 additional temporary workers in November 2009, the most since 2004. In another, experts predict that temporary workers could constitute up to a quarter of the workforce in a few years. While I think we’d be hard pressed to find 25 percent of our workforce comprised of contingent labor, as companies must build their core with loyal employees who feel they have a stake in the business, rather than just a paycheck for an unknown period of time, there is very real value for all parties in the temporary staffing equation.

Temporary workers are given the opportunity to showcase their talents, capabilities, drive and commitment to employers, which may lead to permanent employment status as economic fears ease.

Employers that leverage temporary workers – factory workers, office personnel and even professionals such as engineers and physicians – can reduce their hiring risk by gaining access to staff when and as needed, and for only as long as needed.

Temporary staff are typically placed by temporary staffing agencies, and their volume of placements is increasing, per the article cited above. But smart HRO and pure-play RPO providers can gain a piece of this pie, and assist their clients – existing and prospective – by offering temporary staffing services. A prime example is that of the Contingent Workforce Outsourcing Group of KellyOCG, which on November 18 was awarded by BP a multi-year global outsourced managed service provider contract. While specific details were not released, it is expected to be one of the largest such contracts in terms of size, scope and geographic reach for temporary labor.

I do believe the volume of available temporary jobs will grow for the short-term, and continue to be a portion of the overall staffing model. But I also believe that once businesses improve their balance sheets, hiring of permanent workers will return to at least somewhat “normal” levels. Thus, my recommendation for HRO and pure-play RPO providers who do not currently offer temporary staffing services is, re-think your strategy now! Doing so will not only help enhance your bottom line, but enable you to deliver a highly important additional service to existing and prospective clients.

Gary Bragar, Lead HRO Analyst, NelsonHall