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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Why We’ll See Increasing RPO Contract Activity in a Jobless Recovery

We’ve already witnessed a variety of RPO contracts with 2010 start dates, including Kenexa’s with the U.S. Air Force, PeopleScout’s with US Airways and the United States Infrastructure Corporation, and CPH Consulting’s with EEF. And I believe we’ll see an increasing number of RPO contracts announced and kicked-off in 2010, despite the jobless recovery. Why this counter-intuitive expectation? Let’s look at two factors which will contribute to an increase in RPO contract activity this year.

Soon-to-be and 2009 University Graduates

According to research conducted by U.K.-based RPO provider Alexander Mann Solutions, there will be significant competition for fewer jobs among this year’s graduates, only 26 percent of graduates feel confident of finding a position this year, 18 percent of 2009 graduates wound up applying for any job and only 37 percent are limiting their job applications to positions which are in line with their long-term career goals. Further, a full two-thirds of those fortunate enough to be offered jobs said they would accept more than one offer due to skepticism of the job actually coming to fruition until they actually start and are on the payroll. Think about the havoc this economy-driven “apply for any job/many jobs/accept several job offers” rise in quantity of applications and potential loss of selected candidates will wreak on internal recruiting departments already cut to the bone.

I’m Just Happy to Have a Job – Not

RPO provider Adecco Group North America’s annual American Workplace Insights Survey found that just 39 percent of employees feel the economic crisis has caused them to appreciate their jobs more (a steep drop from 55 percent of workers who felt that way a year ago), only 17 percent of employees accept working harder to avoid layoffs, only 19 percent are willing to work longer hours, and 93 percent of workers have less confidence in company leadership since the economic crisis started. Employee satisfaction is clearly on the decline, even worse than when I wrote about it in my September 3, 2009 blog. If companies don’t step-up their hiring activity at least a bit, work quality will suffer and top quartile employees may well jump ship and join another company which has begun hiring and has a strong employee satisfaction brand in the marketplace.

Both these scenarios point to increased RPO contract activity in 2010. In-house recruiting departments may well need assistance in handling the huge influx of incoming job applications, screening and selecting the best talent, and retaining key employees, all while reflecting a positive brand image for both talent attraction and retention purposes.

So despite the jobless recovery, I do expect to see resurgence in RPO activity this year. What do you think?                

Gary Bragar, Lead HRO Analyst, NelsonHall