New to HR? Templates, tools and development to make you a seasoned pro in no time.
Shawn Premer shows how doing the right thing for employees leads to positive business results.
Is your employee handbook keeping up with the changing world of work? With SHRM's Employee Handbook Builder get peace of mind that your handbook is up-to-date.
Build competencies, establish credibility and advance your career—while earning PDCs—at SHRM Seminars in 12 cities across the U.S. this spring.
#SHRM18 will expand your perspective – on your organization, on your career, and on the way you approach HR. Join us in Chicago June 17-20, 2018
HR executives may have more leverage when purchasing outsourcing services.
Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.
The story of HR outsourcing right now is a tale of two markets.
For single-process vendors, especially recruitment process outsourcing providers, it is the best of times. And although it is hardly the worst of times for providers of multi-process services, HR executives and other buyers "tend to be looking more for specialized HR outsourcing partners, not broad-scale vendors," explains Mike DiClaudio, a senior consultant at Towers Watson.
The value, in U.S. dollars, of all global HR outsourcing contracts in late 2012 was roughly $20 billion, up from $18.5 billion in 2011, according to researchers at the Everest Group. That value has grown nearly 43 percent from $14 billion in 2007, the cusp of the recession.
Global single-process contracts account for 80 percent to 85 percent of that $20 billion, reports Everest Vice President Rajesh Ranjan. He notes that 70 percent of that combined contract value was spent by companies in North America.
Everest research also indicates that 44 new multi-process HR outsourcing contracts were signed in 2012, a slight increase from 2010, when 42 were signed, but down significantly from the 60 new multi-process contracts signed before the 2007 recession. Ranjan and other Everest researchers gather data for their studies from vendors and through interviews.
Today, HR executives investing in multi-process contracts are more inclined to favor phased adoption of services, Ranjan says. This approach lowers initial costs while giving buyers time to ensure that relationships meet expectations before purchasing more processes.
What does this trend mean for HR professionals? It depends on whether they buy multi-process or single-process services.
The multi-process market is more consolidated than it was before the recession, thanks to mergers such as the one that formed Aon Hewitt and Xerox Corp.'s acquisition of Affiliated Computer Services Inc. Because of this, some multi-process buyers have fewer choices and slightly less negotiating leverage, Ranjan reports.
69% of companies that had outsourced an activity in the previous 18 months reported that the relationship met or exceeded expectations.
Source: Towers Watson, 2013.
The same holds true for buyers of single-process benefits administration services. In 2007, there were 10 large providers offering benefits administration; today, five large providers serve the market—thanks to the Aon Hewitt merger as well as acquisitions by Towers Watson, Xerox and Mercer LLC.Fidelity Investments is the fifth large provider.
Buyers of other single-process HR outsourcing—including recruiting, learning services and payroll—are likely to have more negotiating leverage with providers because these markets remain fragmented. Based on the number of vendors, "clients continue to have quite a few options, with several new players coming to the marketplace," Ranjan wrote in an e-mail.
Furthermore, considerations other than service and price—convenience, for example—factor in when deciding to contract with several single-process providers or one multi-process provider.
The volume of single-process providers "can be pretty overwhelming" to deal with, observes Safariland Vice President of Human Resources Adam Goldman. He recently met with numerous providers to find one to handle payroll, HR information systems, 401(k) administration, employment verification, recruitment and more for Safariland's roughly 1,000 U.S. employees.
Goldman opted to outsource payroll, HR information systems, 401(k) administration and employment verification to one multi-process provider, ADP. "It's very hard for a multi-process provider to be great at everything," Goldman acknowledges, but "a one-stop provider gave us ease of implementation and a single point of contact."
More Emerging Trends
In addition to consolidation, providers, researchers and HR professionals say that developments in the following areas are worth noting:
Recruitment process outsourcing (RPO). Kevin Pennington, a Dallas-based director at PricewaterhouseCoopers, says more employers are interested in outsourcing recruitment to increase the quality of their hires and gain access to larger talent pools.
"Providers are bringing access to talent pools [that employers] previously had limited or no access to," he adds.
IBM's $1.3 billion purchase of recruiting and talent management outsourcer Kenexa Corp. late last year reflects the growing interest in recruitment by multi-process vendors, Ranjan explains.So does ADP's purchase of recruitment provider The RightThing.
The number of global RPO contracts rose by 33 percent from 2008 to 2011, according to Ranjan, who projects such contract revenue to increase between 12 percent and 17 percent this year.
Tailored services. During his search for a provider, Goldman says, he was surprised by how many vendors offered to tailor their services to meet the specific needs of his company and HR function. "The good providers are taking much more of a partnership approach," Goldman says.
Software-as-a-service (SAAS). Ranjan says providers are currently investing in social networking, mobile analytics and software-as-a-service technologies with the intent of integrating them into existing services.
To expand its SAAS capability, for example, Aon Hewitt acquired Omni-Point Inc., a deployment and integration firm and a Workday partner, in October 2012. The move may represent a defense against the tendency for cloud services to reduce buyers' needs for some kinds of outsourced HR systems.
According to the results of the 2013 Towers Watson HR Service Delivery and Technology Survey, conducted in January and February, 29 percent of 1,052 global employers said their companies plan to implement a new primary HR information system this year. Of those, 19 percent said they will implement Workday.
With the adoption of SAAS-enabled HR information systems, most organizations will not need traditional outsourcing, DiClaudio explains. "Most organizations that move on to Workday, for example, do not outsource HR administration," he says. "Adoption of SAAS models will mean a fundamentally different type of outsourcing demand in the marketplace."
Health care reform services. Benefits administration outsourcers are helping clients understand health care reform and make necessary changes from an administrative standpoint. Greg Kuisel, Aon Hewitt's senior vice president of outsourcing based in Jacksonville, Fla., expects more employers to consider private health care exchanges for employees and retirees. These exchanges, including those that companies such as Aon Hewitt currently offer, allow participants to buy group-based health insurance coverage from multiple carriers.
"Our research shows more than 60 percent of employers are reassessing their long-term retiree health strategy in response to rising health care costs and mandated changes," Kuisel notes. Those re-evaluations may spark interest in a budding form of HR outsourcing.
Eric Krell is a business writer based in Austin, Texas, who covers human resource, finance and social marketing issues.
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Please sign in as a SHRM member before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
Recommended for you
Talent Attraction Study: What Matters to the Modern Candidate
Choose from dozens of free webcasts on the most timely HR topics.
SHRM’s HR Vendor Directory contains over 3,200 companies