With more organizations making the decision to use HR business process outsourcing services, even in the face of a still uncertain economic environment, the overall confidence of HR outsourcing suppliers in the market over the next 12-months is at its highest level in six quarters according to the latest NelsonHall HRO Confidence Index (HROCI).The HRO vendor confidence level is up 6% year-over-year reaching 155.5, where 100 represents unchanged confidence and higher scores indicate increased confidence.
Drivers Outweigh Inhibitors
The impact of the wider economy is strengthening the drivers for HR outsourcing which appear to be outweighing its impact on the associated inhibitors such as unrealistic pricing expectations and frozen decision-making. Currently, 89% of HR outsourcing suppliers believe that a net up-turn in HRO decision-making is taking place, with just 7% of suppliers perceiving that a net down-turn in HRO decision-making is taking place.
The top principal drivers for HR outsourcing include:
- Increased cost reduction
- Greater process consistency across business units and geographies
- Organizations looking for an increased transformational emphasis.
New private sector HRO deals typically remain limited in initial size, and significant growth opportunities continue to come from existing clients in the form of added scale or scope. In line with the “increased focus on cost reduction driven by the worsening economic climate,” organizations are finally showing an increased interest in evaluating outsourcing opportunities previously rejected.
Transformation Beyond Cost Arbitrage
The HROCI supports our 2013 trends with “a clear ‘transformation’ agenda” and a focus on value. Clients are looking to vendors to help them:
- Deliver a more empowered employee experience and access to learning using technology to administer, deliver, and share learning
- Manage business outcomes by driving higher employee engagement including a better end-user experience and continual “future-thinking”
- Achieve solid productivity and accelerate time to competency.
HRO vendor expectations for 2013 look best for payroll, then MPHRO which looks solid, followed by RPO, benefits administration, and then learning services. Multi-country deals for payroll and RPO will again be common with the average number of included countries around 20. Of little surprise is that expectations for the government sector have slightly worsened, particularly for defense and state & local government.
Have You Listened
Another NelsonHall product of interest is the BPO Index which is supported by a quarterly conference call open to all who register.
According to the January Index, total BPO contract value was down significantly for 2012, especially in North America and Europe. The global economy and the U.S. fiscal cliff added to business growth uncertainty, which drove down industry-specific BPO the most.
At the same time, back-office BPO, which includes HRO, was up 25%, and HRO was up significantly year-over-year.
If you can lower total cost, improve performance, and increase business value, you can get an HRO deal!
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