The Human Resource Outsourcing (HRO) industry is at a critical point in its short history. Buyers are increasingly looking at HRO as an opportunity to streamline processes, reduce direct and indirect costs, get access to the latest technology and tools, consistently achieve better quality, and align HR with the overall business in the fastest time possible. At the same time, suppliers are seeking the most optimal way to provide improved services to their clients at a cost that still allows for a profit. Reshaping the business model in a way that benefits both buyers and suppliers is critical to the survival of the industry.

Many HRO suppliers started off with a “lift-and-shift” model, wherein they took over a buyer’s existing people, process, and technology and used the acquired infrastructure as a platform to build out their HRO capabilities. In the initial deals, the model worked well for suppliers, with buyers getting the cost savings they anticipated. However, as suppliers moved beyond the first few clients, the importance of scale and standardization became apparent to realize leverage across clients. Suppliers struggled to create some level of solution and platform standardization across buyer organizations that tended to be resistant to any standards but their own.

Everest Research Institute in late 2006 conducted a detailed survey of key large existing buyer organizations in order to better understand the scope and metrics in the HRO market today. The study focused on the definitions and measures for the overall deal and within specific HRO process areas that facilitate optimal realization of the desired outcomes of outsourcing the HR function.

Executive Summary

The Human Resource Outsourcing (HRO) industry is at a critical point in its short history. Buyers are increasingly looking at HRO as an opportunity to streamline processes, reduce direct and indirect costs, get access to the latest technology and tools, consistently achieve better quality, and align HR with the overall business in the fastest time possible. At the same time, suppliers are seeking the most optimal way to provide improved services to their clients at a cost that still allows for a profit. Reshaping the business model in a way that benefits both buyers and suppliers is critical to the survival of the industry. Many HRO suppliers started off with a “lift-and-shift” model, wherein they took over a buyer’s existing people, process, and technology and used the acquired infrastructure as a platform to build out their HRO capabilities. In the initial deals, the model worked well for suppliers, with buyers getting the cost savings they anticipated. However, as suppliers moved beyond the first few clients, the importance of scale and standardization became apparent to realize leverage across clients. Suppliers struggled to create some level of solution and platform standardization across buyer organizations that tended to be resistant to any standards but their own.

Everest Research Institute in late 2006 conducted a detailed survey of key large existing buyer organizations in order to better understand the scope and metrics in the HRO market today. The study focused on the definitions and measures for the overall deal and within specific HRO process areas that facilitate optimal realization of the desired outcomes of outsourcing the HR function.

This paper discusses some of the key findings from this survey, as follows:

Trends in scope and adoption:

• A majority of the market adopted a scope of 10 to 12 processes
• Highly transactional HR processes (payroll, benefits, employee data management, HRIT, and contact center) have mature adoption rates
• Hybrid technology adoption is emerging as a dominant model “Transform-transfer” model adoption is emerging as a dominant model post 2004, versus “lift-and-shift”
• Benefits, training, recruiting, and performance management have sufficient scale of multi-client implementations
• A majority of recent transactions adopted a configured or off-the-shelf solution for six or more processes
• A few service metrics have adoption across more than 30 percent of buyers
• There is only a small variation in the service levels of most frequently used metrics.

Conclusion

Demand for HRO remains strong as the initial buyers increasingly recognize benefits from outsourcing, even during the current level of trouble in the industry while suppliers create standardization and scale across clients. Further, buyers and suppliers increasingly agree that standardization is necessary for HRO to fulfill its value proposition, leading to growing acceptance of a “standard” solution with some degree of configurability. As implementations become more standardized and streamlined as well (meaning that both buyers and suppliers achieve the desired outcomes), the overall health of the industry will continue to grow and thrive.

Source: www.hroassociation.org

http://www.hroassociation.org/uploaded/documents/HRO_Benchmarks_Scope_Quality_and_Pricing__
Key_Findings_from_a_Survey_of_Large_HRO_Buyers.pdf