The Indian HR industry is complex,undefined and fragmented;with a number of players offering a wide range of solutions with no industry accreditation
Integrated talent solutions in the consulting space are limited and developing
Defining the ‘HR Industry’ in India is a challenging task, not only for the reason that there is no standard definition set one can refer to, but also because the dynamic and fragmented nature of the industry makes a unanimous classification almost impossible. In the April cover story, People Matters attempted for the first time to create a framework for this industry and to bring transparency and tangible information to the buyers in this industry: CEOs and CHROs
CEOs and CFOs have finally turned their attention to HR spending. Organizations are striving to find the right partners to support their talent management requirements at different business stages. This is increasingly so regardless of the business cycle or economic situation; during growth, client organizations will require support to fuel their people requirement in terms of recruitment, consulting, and outsourcing; during slowdown, client organizations will require support to optimize resources and investments.
The Indian HR industry is complex, undefined and fragmented; with a number of players offering a wide range of solutions. The HR industry is fast getting recognized as an industry in its full right. This industry will witness more interest from the investors and venture capitalists and consequently, will continue to see new players, consolidation and growth in the coming years.
Composition of the industry
The traditional segmentation and composition of the industry of HR in India includes the following:
Recruitment and staffing
This includes search, selection and placement companies, and a wide variety of services from job portals, temporary staffing, RPOs, relocation firms, testing and assessment tools, applicant tracking technologies, background verification services, etc. From the client organization’s perspective, this industry includes all products and services related to activities that take place before and until the employee is hired.
The recruitment & staffing industry vertical is divided into senior level (CXO level) hiring, middle management hiring, mass selection & placement services, and the job portals.
Most companies that operate in this segment also offer staffing and placement services for hiring at the bottom of the pyramid. This segment has many small and fragmented players that specialize in a location or industry. For lower level hiring, consolidation continues to increase as the name of the game will be in managing low margin business through volumes. Middle and lower hiring has the biggest growth opportunities as more organizations look at reducing cost and ‘time-to-hire’ via RPO.
Finally, recruitment portals which provide access to candidates as a technology-enabled service also form a part of this segment. There is strong competition and pricing pressures in this space as differentiation is based less on product offering and more on establishing scale & brand dominance.
Learning and development
Data on the size of this segment in India is not readily available, but the numbers are generally very high. This is true especially if training were to include activities at all levels - bottom of the pyramid, technical, functional, behavioral and leadership training, including business schools offering executive level training. Technology has and will make a huge dent in this area. Mass customization enabled by technology, will emerge to span the mental chasm between volume and customization. This segment will witness fast growth, as companies begin to look at training as an investment to improve productivity.
This segment includes all technology service providers from end-to-end HRMS products, to niche products for recruitment or payroll management or e-learning, to workforce analytics tools. This industry is moving rapidly as a result of demand for integrated support solutions and with the Indian buyer becoming more open to invest in technology. All this is further pushed by the need to improve HR productivity. There is a range of players from large technology companies providing end-to-end human capital modules, to specialized companies that develop HR modules and niche players that focus on automating a specific function or process.
This segment has emerged from management consulting and is a cross-functional category that includes consulting firms from the big four, to the specialized HR consulting MNCs, to SME local players and even single-handled freelancers. As organizational needs become more specialized and focused on the gap between business needs and workforce capabilities, HR management consulting will see increasing opportunities, attracting even newly created firms to fill this gap.
The accepted core areas around which most HR consultancy services operate include human capital management; rewards and remuneration; health and benefits, including retiral strategy and administration; the people angle of transformation, mergers and acquisitions; feedback and communication, including designing and implementing surveys on employee’s attitudes, satisfaction and engagement; and data services. This latter offering has been growing within this segment driven by the challenge for predictability of revenue forecasts among consulting companies, so these companies have been building on annuity businesses which results in data services - salary surveys, benchmarking and job descriptions.
Integrated talent solutions in the consulting space are limited and developing. Traditionally, most Indian companies did not feel the need for strategic HR inputs and kept it in-house. However, changes are happening at the client organization’s end - M&A, globalization, changes in business model, unprecedented growth rate - are making more organizations engage in consulting assignments.
Dr. P.V. Bhide, President - Corporate HR, JK Organization (EZ) presented a paper on ‘Executive Coaching’ that was captured in the November issue. It showed, that at a fragmented and nascent stage, a rough estimate suggests that the size of the executive coaching in India is USD 60 million. The increasing role of executive coaching is evident from the 50 percent industry growth seen in recent years resulting in a new entrepreneurial opportunity. Executive coaching today is being sponsored by the CEOs and organizations not only for top level executive buy also for high potential employees for accelerated growth.
Outsourcing is not really a category in itself as it emerges from the previous four categories defined earlier. Its growth and complexity needs separate analysis and hence requires a separate mention. Within outsourcing, one finds process-driven, that affects to the complete corporate function and is not restricted to HR alone; function-specific, that includes recruitment process outsourcing, rewards, benefits outsourcing; and people-driven outsourcing, that include replacing the HR team within the organization.
Trends ahead for the HR industry
The industry of HR is evolving and growing very rapidly. 2011 has witnessed many examples of this growth: new entrants both international and domestic, consolidation and venture capital being invested in this space.
The industry will also see players trying to capture the complete value-chain. Organizations traditionally focusing on a defined area in HR will expand their offerings to leverage the opportunity to cross-sell. There are many examples like Mafoi’s Randstad investing in outsourcing with the Strategic Alliance with ADP; Executive search Korn/Ferry leveraging their build capabilities to deliver leadership and talent consulting with Lominger and recruitment services and RPO with Futurestep.
Consolidation is happening, and rapidly. The industry has grown over time through consolidations. Better technology, marketing muscle and benefits in terms of offering and outreach from being part of the larger player will continue to drive this trend. IKYA Human Capital Solutions acquired Hyderabad based Magna Infotech for Rs 100 crore to include the offering of temporary software programmers to their portfolio. PeopleStrong HR Services acquired the frontline hiring business division of Summit HR India. Futurestep, Kenexa, and Alexander Mann have launched their Indian operations. Globally too, HR industry is witnessing consolidation; Northgate Arinso has bought Convergys HRO for USD100 million, AON has acquired Hewitt globally and Talent 2 acquired Singapore based Zapper in the payroll space.
Veterans like Dr. Santrupt Misra from Aditya Birla Group, Dr. Arvind Agarwal from RPG Enterprises, Venky Mysore from Kolkata Knight Riders, NS Rajan from E&Y, Pankaj Bansal from PeopleStrong and Varun Talwar from the Withya Group have come together to launch India’s first HR Fund. The fund will place its investments in HR companies with the objective to build best-in-class HR services and product providers. With the aim to grow to Rs.60 crore in the first stage of investment, the fund has already roped in PeopleStrong in its portfolio. Apart from this, the fund will assist HR entrepreneurs who struggle with bright ideas, but in the lack of capital, those ideas are not given a concrete shape. To begin with, the newly launched fund will invest in PEO (Professional Employer Organization) services that focus on compensation and benefits, administration, HR software, payroll and general staffing.
Experts suggest that the industry will see a growth of 3 to 4% of the country’s GDP growth rate. As a consequence, the market will see growth for current players and increasing entry of new players.