One of the most interesting discussion points I had on my recent visit to India was centered on the eagerness of some of the India providers to infiltrate the HRO market. I recall the entry of the Indian top tier into HRO three years' ago, and have to admit I was skeptical. Not many people believed you could take broadscale HR services offshore and run them successfully, while saving money for clients at the same time. However, times have really changed since then, with the Indian top-tier now competing aggressively for hybrid IT-BPO contracts. What's more, the Indian providers are very good at working out how to take on back office work remotely. It's their focus – and eagerness – to take on ground-up processes, such as payroll, data management, document fulfillment, which is driving a breath of fresh air into the flagging HRO business.
The old HRO model was focused on providers sub-contracting out a plethora of point-solutions to niche vendors in areas such as payroll, benefits administration, workforce management, recruitment and compensation tools. The value to the client was that they only had to deal with a single “end-to-end” provider for all these services, and the provider managed all these subcontracted services under a portal layer, while negotiating arrangements that would ultimately deliver some cost savings back to the client from its original budget. What resulted was a scale issue – the “end-to-end” providers struggled to find economies of scale for themselves (it’s not easy when most of the work is being subbed out), and in addition to that, too many points of failure emerge, when too many parties are involved in delivering the operations.
More recently, suppliers like IBM have focused on taking more of the HR work into their offshore delivery centers, for example with its recent Bristol Meyers engagement, in order to leverage more economies of scale and lower cost labor resources. They also have the ERP-enablement skills offshore to help develop and manage commonly used HR platforms, namely SAP and Oracle. This is where TCS and Wipro have begun to impress, with some notable inception HRO clients in the last two years. They are willing to develop ground-up competency in areas such as payroll, where many of their western counterparts have opted to subcontract to the likes of ADP and Northgate (ARINSO) in the past. They understand the cost-leverage they can pick up by taking on these processes offshore, in addition to driving their “Platform BPO” approach, where they can take on companies ERP solutions and dovetail the IT services with their corresponding business processes. What’s more encouraging, is the fact that they are prepared to move quietly into client situations, prove they can take on smaller piecesof work successfully, in order to win larger outsourcing contracts in the future. In three short years, we have seen the leading Indian firms break into the top tier of BPO services with a pragmatic approach to taking on routine work and moving up the value chain. Will this provide a new direction for an HRO industry that has suffered from a lack of scalability? You tell me!