Following our recent discussions surrounding the successes and challenges of the HR Outsourcing (HRO) industry, I was sent a recent study from Erik Samdahl at the Institute for Corporate Productivity, which canvassed the opinions of 231 senior HR executives, mainly from large organizations, and has some telling stats on the future direction of HRO, which I wanted to share and interpret with you. There are two key observations from this study that standout in my mind:
1) HRO is massively under-penetrated outside of benefits administration:
- 72% said their organizations have elected to keep compensation functions in-house
- 58% say their firms do not plan to outsource their payroll function.
- 57% report that their companies do not plan to outsource employee contact centers
If you stick with the philosophy that dictates you should outsource when a 3rd-party can perform the work at significantly lower cost, and at an equal, or better, standard than you do already, then you have to conclude that these statistics point to plenty of future outsourcing opportunities for compensation, payroll and employee contact center solutions, due to the large majority of enterprises which have still yet to outsource these processes.
These are areas where HRO provision is constantly maturing and providers are working towards more common standards. As we see more of these "Platform BPO" solutions being delivered into the marketplace (I will be talking more about these in the coming weeks), I expect these three areas to form the centerpiece of future HRO activity. As the global providers become increasingly proficient at deploying offshore resources to support these processes, they will generate more cost-savings and compelling business cases for their customers.
- 54% say their organizations do not outsource for recruiting
- 46% of participants say training and development is kept within their organizations
Recruiting and training are processes where many companies need additional help, but the processes are often highly unique and finding cost savings and improved quality from a third-party can often prove challenging, if you cannot find an HRO provider specialized in your particular industry. This helps explain why many firms which outsource recruiting, often go with specialist providers with specific industry expertise (i.e. retails versus financial services).
- Seventy percent report that their organizations either fully or partially outsource the administration of 401(k) plans, followed by flexible spending account administration (69%), COBRA administration (59%), and the administration of defined benefit plans (58%).
Unsurprisingly, benefits administration is the most widely-adopted of the HRO processes, where many firms have found significant cost savings by using a single outsourcing provider, in addition to high-quality solutions, with self-service hosted applications. No wonder firms such as Fidelity, Hewitt and Mercer have centered their HRO solutions firmly on their bedrock benefits services, where they can upsell their substantial existing client bases onto their existing technology and delivery resources.
2) Once outsourced, HR functions are rarely brought back inhouse:
- Less than 2 in 10 companies have brought an outsourced function back into the organization
As we discussed here back in March, most companies which venture into HRO don't go back. Of the 200 comprehensive end-to-end HRO adopters, only 6 have pulled services back, and not always for operational reasons. This 8/10 HRO-sustainability ratio, which includes single as well as multi-process solutions, indicates that once firms have moved into an an outsourced end-states for an HR process, the chances are they see little strategic value in internalizing it again, and will only bring work back if it no longer made business sense - normally due to a change in business strategy or volume, or the provider did a poor job satisfying the client.
Is Platform BPO the answer?
All-in-all, this data tells us that HRO is only really beginning taking shape, and both vendors and clients are learning what works, what doesn't work, and where to center HRO solutions in future. The move towards consolidating BPO solutions under a common platform layer is clearly taking center-stage among the major global outsourcers with transactional HRO functions proving core to these offerings. The key is finding new avenues for driving out cost, as this is still the major driver behind HRO, and it will be interesting to see how the new offshore-centric entrants, Infosys, TCS and Wipro fare as they push hard with their platform-centric BPO solutions to compete with the incumbent HRO providers.