seven key trends in hr outsourcing

8/8/2019 Seven Key Trends in HR Outsourcing

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Gone are the days when organizations could overlook outsourcing and treat it as

a cost saving measure. What started off as a cost reduction attempt is now being

looked at as a strategic initiative to add value and provide the organization with

agility and flexibility to encounter the fast changing business environment. The

Business Process Outsourcing industry is taking a more holistic approach

towards outsourcing, with outsourcers looking at partnering with the service

provider to transform their processes.

New concepts, such as Platform BPO, as well as an aging Western workforce,

may lead to a new outsourcing wave, especially for midmarket firms. While

within the BPO industry, services like Contact Center, Finance and Accounting,

Data Processing, etc. are at a fairly mature stage there are a few new upcoming

services which are finding favour with outsourcers. This is predominantly the

effect of a maturing client community which is understanding the need to look

beyond cost saving and take a transformational approach towards outsourcing.

Human Resource Outsourcing (HRO) is one such emerging practice inoutsourcing. HRO began in 1997 with a single deal, and peaked in 2006 with 51.

In 2008, the number is expected to drop to 32.

Trendspotting: 7 key trendsin HR Outsourcing

About the AuthorChakrapani T is Vice President of

Solutions and Relationship Management.He heads pre-sales for

Human Resource Outsourcing.

1 13

5

1114

28

39

46

51

47

32

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Number of HRO Transactions 1997 - 2008

Source: Everest Research Institute

The global HRO market is expected to be $3.2 billion in 2009 (among about 18

active, experienced suppliers), and Europe's share of the total has increased from

20 to 30 percent (in number of deals) since 2005. In 2009, contracts worth more

than $1.6 billion are up for renewal. Many suppliers, including Mahindra Satyam

BPO, are honing their offerings and preparing to address several major HRO

trends. There are a few key developments that will shape the future of HRO.

Seven key trends are discussed here.



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Trend 1: Small will be the new bigDeal sizes are shrinking. In the past several years, the average project size has

declined from $374 million in 2000 to $60 million. There is a clear tendency to

break monolithic contracts into smaller chunks, introducing competition while

spreading risk. This approach has recently morphed into multi-sourcing,

whereby one supplier owns a piece of service and provides a common

governance framework. Clients mitigate risks associated with 'having all their

eggs in one basket' and are not locked in by a single vendor. By undertaking

outsourcing in phases, they can easily judge the ROI of each stage. This

approach provides the flexibility to take a milestone based approach, or end theproject if the benefits are not getting accrued.

374

162147

121103

80 80 8360

2000 2001 2002 2003 2004 2005 2006 2007 2008

Average HRO transaction size (2000 - July 2008);

US$ million, three-year trailing

Average over three years, including the mentioned year and past two years2 HRO transactions with TCV greater than US$1 billionSample size: 257 transactions as of July 2008 for which data is availableSource: Everest Research Institute (2008)

Trend 2: Midmarket will emerge as the front runner

Until today, most transformational and large HRO deals involved largecompanies. Scale was required to make them economically viable for vendors.

However, several factors have made HRO an exciting possibility for midmarket

companies with an employee count of 3,000 to 15,000. For instance, large multi-

process suppliers have become more selective about the deals they pursue. The

current economic turmoil is forcing large companies to pursue immediate

benefits, rather than undertake a patient approach. The emergence of new

suppliers and models such as Platform BPO is another contributing factor. Since

solutions and platforms can be shared easily and tuned to the requirements of

midmarket organizations, the segment can also profit from various forms of BPO.

Trend 3: Niche suppliers will be best positioned to forge partnerships

to support end-to-end solutionsLarge and mid-size companies demand end-to-end outsourcing solutions that

cover all aspects of HR, from payroll to claims reimbursements to temporary

staffing. To deliver these solutions, suppliers will have to forge partnerships with

2



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other providers. Several innovative organizations, notably in the platform and

indigenous application space, have emerged recently. Thanks to SaaS, they can

create services that can be delivered to users transparently and efficiently.

These partnership options will help traditional suppliers focus on niche offerings

while maintaining a competitive and innovative edge.

Trend 4: SaaS-enabled BPO (Platform BPO) is becoming the new waveQuality is critical for HRO vendors. For years, quality was determined by

technical performance—availability, scalability and reliability. Today, these

issues have largely been solved. IT's role is now wider, and includesincorporating effective HR best practices into applications. Best practices must

be an integral part of application design and development because they enable

cost-efficient and effective use of automated systems. They also deliver real

business value.

Platform BPO models offer numerous benefits to companies and suppliers.

These include

?Zero upfront capital costs

? Automation with global service delivery models

?Pay-per-user commercial models enabled by global, template-driven and

multi-tenant platforms

?

Flexible service choices?Phase-wise outsourcing possibilities that meet near-and long-term objectives

Trend 5: From infrastructure TCO to services TCOCompanies first outsourced business processes to lower total cost of ownership

(TCO) of their infrastructures. Business Process Outsourcing generally led to

transferring people and infrastructure segments to outsourcing vendors, who

offered services for fixed prices. Over time, the model has shifted toward

services TCO. Specific services determine the price of outsourcing, not

infrastructure and management. As such, HRO is more transparent and results

in more flexible budgeting for the companies that use it.

Trend 6: Global talent and ‘glocal’ delivery modelsIn recent years, nearshoring and offshoring have become major drivers for global

sourcing. Vendors have created global delivery organizations that offer scale and

– as a result – cost-effective services. Still, they must consider (and adhere to)

country-specific legislation and regulations. Until HR becomes standardized, it

will be necessary to support local rules.

Workforce in the United States is aging. An entire generation is beginning to

retire, leaving many companies without the ability to support mission-critical

business processes. This will drive HRO from emerging countries where highly

qualified and relatively inexpensive talent will deliver best practices to

organizations across the globe.

While local regulations may curtail offshore adoption of HRO, widening talentissues, coupled with the necessity to standardize processes for rapidly growing

global companies, favor global service delivery in the future.

3



Trend 7: A temporary return to cost-reduction?With the credit crunch impacting all aspects of the global economy, companies

and governments have to rethink their strategies and business plans. As for

outsourcing, cost reduction may re-emerge as a key driver. In the long run,

however, innovation, business transformation and business optimization must

also be considered. These are what will help companies enjoy transformational

benefits when the market improves.

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At Mahindra Satyam BPO’s Human Resource practice, we offer customized,

cost-effective and comprehensive HR services that help you achieve greater

efficiency. Our Human resource offerings include Recruitment, Compensation,

Payroll Administration, Employee Data Maintenance, Immigration &

Expatriation, Learning & Development, Performance Management, Organization

Development and HR Analytics.

To know more about how Mahindra Satyam BPO can partner with you to achieve

your objectives, mail with the subject,

‘HR Outsourcing’.

[email protected]

4Copyright © 2009 Satyam BPO Limited

seven key trends in hr outsourcing

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