Bang the HRO Drum Slowly

In my blog last week, Don’t Rain on my HRO Parade, it was fun accentuating the positive signs of health returning to the HRO market. This week I’m taking another look at the latest NelsonHall HR Outsourcing Confidence Index, this time with a moderating eye.  

Total contract values are starting to rise as scope slightly increases, but remain far below historic levels. HRO contracts are still smaller in scale and scope, and there are fewer $100,000+ deals. Further, more deals are occurring in the mid-market, and platform HRO is making inroads, both of which will also lower the average total contract value. All these factors look to become part of the new normal, at least for the foreseeable future.

While the grand plan for multinationals may still be to go global, deal patterns indicate organizations are starting with a more regional approach with fewer countries in the initial roll out. Fewer service lines are also now typical, with payroll and basic HR administrative processes remaining strong as the entry point for companies looking to standardize processes across the enterprise.

 This continues to make it look like the era of multi-process HRO is over. And yet, part of what has traditionally buoyed HRO service providers is follow-on contract expansions of scale and scope, including new services. That approach will only grow more important, putting greater emphasis than ever on making sure the initial client experience is as smooth and positive as possible to build the base for attracting more share of the HRO wallet. With buyers demonstrating willingness to go with multiple vendors and multiple stand-alone services, the role and value proposition of a primary vendor needs to be refocused and honed to meet today’s reality.

Frozen decision-making is finally thawing, albeit very slowly. Service providers report that about 20 percent of buy-side organizations remain iced up on sourcing decisions, down only three percent from the previous quarter. Other inhibitors are reducing in impact, but do remember that given continued economic uncertainty, getting senior management’s attention on making a decision for a major change and financial commitment like HRO will still be difficult.

Expect buyers to continue wanting HRO solutions that do not require large upfront investments and provide robust technology at a transparent price. HRO vendors are increasingly emphasizing the business value in their propositions, which is important to build a bridge for the future. At the same time, buyers are increasingly looking for proof points of real business results before they are willing to commit to crossing the bridge with a service provider. 

The news is moderately good for HRO, but bang the heralding drum a bit slowly, as the celebration parade is not here yet.

Linda Merritt, Research Director, HRO, NelsonHall

BPO Platforms – a Springboard or a Swan Dive?

Last week I attended Infosys BPO’s analyst day and BPO conference in Baltimore, Maryland, overlooking the beautiful Inner Harbor. Platform BPO was one of the big topics, and one of Infosys BPO’s big bets for new avenues of growth. 

Platform BPO is the service delivery model whereby end-to-end processes are offered as managed services on a standardized business platform based on an ERP solution that is hosted, managed and maintained by the BPO provider. Platform as a Service (PaaS) providers bundle operations, integrating management of an end-to-end process with their technology suite and staff. Designed to be configured instead of customized, platform BPO will accelerate mid-market BPO adoption with its lower cost of entry, scalable services, variable pricing and ease and speed of transitions.

Platform BPO service providers will continue to build out their global service delivery footprint with service centers and partnerships, taking advantage of locations with low cost labor and access to skilled talent. These true multi-tenant service platforms will renew the promise of economies of scale the earlier generations of customized client-specialized services did not deliver. It’s an enticing value proposition designed for today’s capital constrained and challenge and change fatigued buyers. If the adoption rate is good, it will be a more economical infrastructure for vendors which can provide a springboard for profitability.

The timing is right. Clients are asking about and for solutions they would have rejected pre-downturn. The advent of new technologies like Service Oriented Architecture (SOA) and the openness of ERP providers like SAP and Oracle to work with service providers are enablers supporting the degree of needed integration.

There will be challenges, especially for the provider community. In return for moving to a configurable platform, the buyer gets to pass some risk and increased expectations over to the service provider. The provider becomes responsible for managing and integrating specified processes, applications and technology, including the investment in development and upgrades, and the selection, management and fit of any third-party applications and delivery partners. Also, accepting accountability for the increased complexity of integrated IT and operations requires a greater level of skilled staff capabilities and coordination across the expanded value chain. 

Hmm…not hearing any HRO platform BPO cannonball splashes yet? It’s a big leap for HR to make and platform BPO is not expected to fit everyone. Yet it is a viable option for many in the mid-market and even some in the large market. PaaS for HR will be especially appealing to those with openness to new solutions, positive experiences with hosted services and point solution SaaS providers, and those pushed by economic realities.

Single service platforms are not new; think payroll or benefits administration as managed services platforms. What is new is the possibility of multi-client and multi-process HRO on a platform that delivers globally for buyers and providers.

There are already some buyer toes in the water. Infosys reports it has several clients up and running on its new Hire-to-Retire HRO business platform which includes talent acquisition, development, retention and management services. At the conference I spoke with an attendee from a borderline mid-market to large-sized company who was thinking about replacing several current separate HRO provider services and wanted to learn more about the new Infosys HRO offering.

Overall, PaaS sounds great and the water is warm, so jump on in! Not ready? Then watch the pool of platform-based services and providers expand, learn about the challenges and successes, and get ready to test the waters.

Linda Merritt, Research Director, HRO, NelsonHall