Industry consolidation continues full speed ahead. Standardization helps profit margins (finally!). The mid-market takes off (really!). Suppliers may even start to sell deals differently. Here are some educated guesses about what will happen in HRO next year.
- The industry consolidation that started in this year will continue in 2008. Pat Goepel, President of HR Services for Fidelity Investments, predicts stronger players will buy two large suppliers with traditional business models. Gianni Giacomelli, SAP's Head of BPO Global Strategy and Marketing, says suppliers who can't become profitable by making the service delivery deals more economically sustainable "will either go under or be acquired."This will be especially true in niche HRO markets. Big players will buy smaller ones in the recruiting process (RPO) space, according to Michael Beygelman, Senior Vice President of Business Development, Adecco. Until now, large corporations were the ones who hired RPO suppliers. Smaller suppliers just can't compete in this market, he explains. The same thing will happen in the learning space, adds Martin Cook, SGO, Outsourcing, Capgemini. He predicts Tier-1 HRO suppliers will buy learning outsourcers in 2008.
- At the same time, new players will enter the market. "A number of people are ready to pounce on the HR market," says David Poole, Vice President and Deputy Chief Executive of Global Business Processing for Capgemini. But they plan on doing "HR in a different way."Goepel agrees. He posits these entrants "will have new business models, which will capture the market's imagination." He says people today have GPS systems in their cars, which tell them where to turn. He says HRO will go the same way: "from a static map of life events to a navigation system where suppliers provide guidance."
- The drive toward standardization in solutions and delivery models will accelerate in 2008. "Providers need to create leverage across multiple buyers," Cook points out. This is the best way to address the HRO suppliers' ongoing profit-making challenges. "The market has to evolve towards increasing standardization so the HRO suppliers can become profitable," says Cook.
- The focus on profitability increases. Giacomelli says the one-to-many providers will become more financially viable while the one-to-one providers "will harmonize the elephants they have hunted," like Convergys with Starbucks. This will require more focus on service delivery and its economics: scale, process optimization, and labor arbitrage across buyers, the SAP exec adds.
- Suppliers will sell HRO deals differently. Giacomelli says salespeople will take a back seat (or at least a side seat) as the service delivery people come out in front. Discussions about delivery, including "how to design process, people, and systems jointly" will deepen. A consequence will be the need for better cooperation, often behind the curtains, between suppliers and technology vendors.
- HR buyers will switch their goals from efficiency in isolated silos (e.g. payroll, learning, recruiting, and travel and expense) to effectiveness in the end-to-end process (hire-to-retire.) Giacomelli adds this will change how buyers measure HR performance. He says they will stop measuring performance by input alone and switch to charting the business impact of HR on sales, customer satisfaction, and customer retention. This will emphasize integration and increase the focus on understanding interdependencies between processes.
- Second-generations buyers are changing the architecture of the deals. Kim Davis, Senior Vice President, RPO Group, Adecco, says these buyers "didn't know what they wanted the first time around. Now they are smarter and know what they want."One big change: buyers are "trying to push a lot more risk onto the supplier than they did the first time around." For example, since employment is variable, these savvy and seasoned buyers now want to buy HRO and RPO services in a variable way. "They want to pay per hire," he reports.
- 2008 may be the year the mid-market takes off. (Really!) Giacomelli calls mid-market HRO "the Holy Grail because it requires very tight mastery of service delivery." The big players are interested in servicing this market. Poole points out Hewitt Associates purchased RealLife HR in August. (Accenture purchased Savista last year for the same reason.) "Hewitt was entrenched in very expensive applications. This purchase helped them come up with a cheaper and more flexible offering for the mid-market," says the Capgemini executive.Poole, Head of NA BPO, says the mid-market is looking for solutions that don't include new ERP systems. "They still have huge requirements to preconfigure systems like SAP," says Poole. He says next year companies in this sector "won't want to make any more big investments in an ERP system." Instead, they will embrace a supplier who arrives with a preconfigured system.
- The emergence of Gen Y, employees 21-30, will change HR. Goepel says they are the fastest growing segment of the US workforce. These technology-savvy employees "are changing work habits and HR requirements."
- Globalization is influencing HR processes. Iris Goldfein, Vice President, Global Offerings and Centers of Excellence for ExcellerateHRO, says ExcellerateHRO buyers now have employees in both mature and emerging markets. "They need to deliver services to employees who are different from others, which precludes standardization. Yet they also need to deliver the services at a lower cost," she says. At the same time, companies have to determine what can be the same and what has to be different in portals for mature and emerging countries.
- Collaborative approaches between the company, the employees, the insurance carrier, and the supplier will become a key component of outsourcing quality. Goepel says this is mandatory if the suppliers want to provide Six Sigma HR quality. "All the parties will cooperate because it's in everyone's best interest. Every buyer wants to deliver quality services to its employees," he says.Giacomelli says buyers and suppliers "should systematically ask their software vendors for intelligent contributions when crafting the service design." Those who are not able to do so should be labeled "unwanted cargo."
- The focus of HRO will change from IT transformation to better employee satisfaction. Poole says buyers still want cheaper, but now they want better services. He calls it "the return of service-based BPO." In HR, that means the buyers want outsourcing to improve the value of the employee rather than just reducing the cost of the service. The new goal is to improve employee productivity and satisfaction so they perform at a higher level. Poole says this will have another benefit: Buyer organizations have undervalued the HR function. Next year HR will get more recognition.
- The health insurance industry will switch from annual to multi-year pricing. Goepel says this change will allow suppliers to focus on encouraging healthy lifestyles like adding smoking cessation plans to their outsourcing offerings. "Suppliers will be able to offer more innovative solutions for the long-term," he explains.