HRO Déjà Vu

Linda Merritt, HRO Research Analyst, NelsonHall

Each quarter, we publish the NelsonHall HR Outsourcing Confidence Index (HROCI) for our clients and the participating service providers. I like to share some of the highlights in my blog, but it can be hard to make fresh insights during times when the results are stable from quarter to quarter. When the confidence ratings are generally strong, as they are, then stability is pretty good news for HRO service providers.

Overall Confidence Remains Stable

The most recent HROCI shows a vendor confidence level of 157 for Q1 2013, where 100 represents unchanged confidence and higher scores indicate increased confidence. That is in line with the 156 from Q4 2012 and a bit up from the 153 one year ago. Confidence dipped mid-2012 with Q2 at 138 and Q3 at 140, which was not too surprising given the political and economic uncertainty we saw last year:

• While the overall confidence score at 157 remains stable, those suppliers reporting slightly more or much more confidence increased 13% quarter over quarter
• Increased confidence is reflective of solid pipelines of potential new sales and expectations for growth.

Growth Expectations Vary

Service lines: HR business process outsourcing service lines do not grow at the same rate. Some services like RPO and payroll remain steady performers, followed closely by benefits administration. The pipeline for benefits administration is looking especially strong. Expectations for multi-process HRO and learning remain about the same, which indicates continued slow growth.

Geography: Location matters in HRO and the patterns of growth also vary by region. The economic recovery is uneven in pace, readiness for HRO is uneven, and multi-country deals are a smaller part of the mix than in the recent past.

Overall, vendor confidence by geography has weakened with many regions showing some decline in confidence. North America, Asia Pacific, and Latin America show the strongest numbers, but there can be significant variation country by country. As we have seen for some time, growth expectations for Europe and the Middle East remain dampened.

Industry: High-tech and retail look to be the optimistic growth industries with most sectors remaining within prior modest expectations for growth. Expectations remain low for federal government and defense.

Mostly Steady and Stable Ahead

It is good to see the balancing of demand for cost savings and process standardization continuing. Client pricing expectations may still be unrealistic as there are always those who want a quick 50% off along with some freebies thrown in at the same time.

One area to watch is the growing client interest in and adoption of platform-based services. Some buyers are specifying SaaS and cloud-based services in proposals. We need to help educate buyers on leaving some room for discovering the best solution fit for each client situation.

To end on a positive note, 79% of HRO suppliers believe that a net up-turn in decision-making is taking place. Let’s get out there and get those deals signed!

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Surprise, Surprise (not): Cost Reduction Reigns as Top HRO Driver in 2010

Although reduced service delivery costs are not always the key reason companies outsource to third parties, it comes as no surprise (and really, why should it?), that the overriding issue which continues to concern HR departments in 2010 is the ongoing need for HR service cost reduction.

NelsonHall’s just published research report, “HR Issues and Outsourcing Intentions,” found that 78 percent of the 120 buy-side HR executives interviewed – with a nice cross-section of participants from the banking, consumer products, healthcare, high-tech, insurance, media, pharmaceuticals, retail, telecommunications and utilities industries – ranked the corporate requirement for reductions in HR administration costs as their number one issue. Other issues and challenges 2010 HR departments are facing include providing support for organizational restructuring and retraining, of course while reducing HR costs, and standardizing HR processes and providing improved HR information in an environment in which there is little management support for internal investment in HR technology.

This need for cost reduction with minimum investment is having a major impact on the manner in which organizations are approaching HRO. A full 60 percent of our buyer interviewees stated cost decreases (“maintenance of our current services and systems, with only minor changes/additions”) was their main HRO need and expectation over the next 12 to 18 months.

Overall, organizations are seeking average cost reductions of approximately eight percent from their HR services during 2010. However, they will be seeking significantly higher cost reductions from their outsourced HR services. Consequently, they will negotiate with their providers for further cost reductions within existing HRO contracts, and engage in additional HRO deals that focus on both process standardization and cost reduction.

As a result, we’ve seen an increasing number of announcements of new standardized service offerings, particularly in the small and medium enterprise (SME) market. For example, earlier this week Sweden-based Aditro, an outsourcing provider of payroll and HR services to Nordic countries, announced a packaged payroll service for SMEs that includes a standardized payroll service with pre-defined service levels, enabling clients to receive the benefits of outsourcing, but at a lower price.

In an upcoming blog we’ll speak in detail about uptake of SaaS-based vendor hosted applications, another topic we covered in detail in our “HR Issues and Outsourcing Intentions” research report. But, given the extensive nature of the report, (it’s more than 176 pages!), there are many other areas we can also try to cover in future blogs. Interested in hearing more about the key issues HR departments are facing relative to HR service delivery, and initiatives planned in response to these issues? Level of satisfaction with current HR service delivery? Expectations from HRO, including benefits sought and attitudes toward use of hosted HR platforms and offshore service delivery? Let us know!

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall