Global recession to spur HR outsourcing: Gartner

Despite the global financial crisis, the human capital outsourcing (HRO) market will grow according to Gartner and HR systems and services provider NorthgateArinso.

Mike Ettling, formerly vice president for global outsourcing and infrastructure company Unisys, and now CEO at NorthgateArinso, said the current economic environment was accelerating growth in HR outsourcing.

“In good times doing the HR or payroll outsource may have been down the list of priorities, because there were perhaps bigger pools of potential cost savings to address such as supply chain and IT infrastructure,” he said. “Now, everything is being re-looked at. Companies are chasing every dollar they can.”

According to Ettling, the financial crisis was playing nicely into the HRO value proposition, particularly around talent management - the process of developing and integrating new workers, developing and keeping current workers and attracting highly skilled workers.

“If anything in a recession you need to increase the focus on talent management as the companies who figure out how to retain their focus, or even increase it will come out of this economic crisis the winners,” he said. “No matter what the economic environment is, good talent is always mobile.”

Another factor in the growth in HRO was the large number of tier two organisations currently nearing the end of life of their first-wave HR systems, Ettling said.

“There is definitely a second wave of tier two HR platforms coming through. The first were geared toward payroll - all an organisation’s work arrangements, union agreements, leave tracking, etc,” he said. “Now tier two wants what tier one has – talent management, great user experience, zero foot print deployment, employee self service - but they don’t want to pay the SAP-level cost.”

According to Gartner, in the short term at least, the economy was the biggest market force affecting the HR business process outsourcing (BPO) industry worldwide.

In its Market Trends: Recession Brings Worry and Opportunity to Worldwide HR BPO Market in 2009 and Beyond report, the research firm said the market was witnessing more buyers driven to HR BPO as a way to cut costs.

“But the instability in market conditions is leading many to focus, for now, on discrete, piecemeal HR BPO opportunities, in places in which the cost reduction impact can be greatest, such as unoutsourced pockets of benefits administration activity,” the report said.

“As a result, the pipeline for comprehensive HR BPO has slowed to a trickle, as the market deals with instability that comes with not knowing what your business needs for HR will look like in five years, let alone after the two years that contracting and transition will require.”

Despite the short term gloom, Gartner predicts that the longer term trend will be for HRO growth.

In 2007 the human resources outsourcing market in Australia was worth some $US757 million whereas by 2012, Gartner predicts HRO to be worth $US1.102 billion

Concurring, Ettling estimated that demand for HR outsourcing in Australia was growing to the point where a the Australian market could support a pure play HR provider of $100 million a year in turn over

“But that’s a five year journey,” he said.

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