Article: Gartner's Viewpoint on HR Outsourcing

HR Technology

Gartner's Viewpoint on HR Outsourcing

With companies transitioning more and more towards standardized products & services, players in the industry need to differentiate themselves in the competitive landscape.
Gartner's Viewpoint on HR Outsourcing

The future of business is where BPAAS and SAAS converge, which will lead to a hybrid approach i.e. availability of all services in one integrated platform


There are drivers that are directly affecting the business landscape today in the BPO space that are also affecting the HR Outsourcing segment. The first driver or change that can be seen is Business Process as a Service (BPaaS), which is a new model of Business Process Outsourcing (BPO). This model is delivered on the Cloud, is highly automated and standardized, and is built for multi-tenancy. It is estimated that 25% of the global BPO market is Cloud-based BPasS and 75 per cent is traditional BPO. However, in about 10 years’ time, this split is going to be 50-50. Therefore, Cloud is the future of all areas of business processes, not only HR. Secondly, in all major of business processes like procurement, finance and HR, there is accelerated automation or hyper acceleration. Even in the HR BPO which is so mature and has actually become a commodity, the only way to differentiate is through automation, so processes like payroll, recruitment, talent acquisition etc, are increasingly automated. Thirdly, there is an increase in demand for globalized solutions or globally standardized processes. Companies are now transitioning more and more towards standardized products/services. So, what they are looking for is not ‘one size fits all’ solution, but 80 per cent fit all and 20 per cent configurable. And this demand is mostly met by Cloud since it allows for standardization and customization.

On the side of buyers, there’s continuous cost cutting taking place. This is a result of two major macro-economic impacts. First, the US dollar has become very strong in the economy; second, the Euro-crisis. These have resulted in low sales rate and slow activities affecting all areas of business. As a result, companies have now taken to BPO services to cut costs. Standardizing business processes by outsourcing not only changes bottom-line processes, but also leads to change management, as well as HR transformation. On the other hand, some companies also took advantage of the slowdown and low market rate and resorted to acquisitions of other companies; especially by cutting across geographies. These changes as a whole are changing the landscape of HR services.

HR service providers today need to focus on differentiating themselves in the competitive landscape. However, the challenge they face is on the lines of value addition; service providers need to be able to articulate the value that they add to business processes. For instance, if the customer value proposition is cost saving or innovation, they need to be able to articulate that and communicate it to the customers. Today measuring ROI of services is very difficult and is a major aspect that is affecting the sales of these services. Another challenge service providers face is to keep up with the continuously evolving technological currency, especially with hyper-development and hyper-automation taking place in all areas of business. As a result of these challenges, service providers themselves are looking to cut cost. With cloud and automation coming in and the demand for globalized and standardized products rising, service providers may now look to consolidate delivery centers as a way to cost cut; this trend hasn’t been observed right now, but may soon hit the industry.

The HR industry in the last few years has seen tremendous growth, especially in the non-western markets. There are new services which are doing very well but have not proven to be market disruptors; for instance, Zenefits in the USA, CDP in China, CloudPay in the UK, etc. If one were to talk about disruptors, WorkDay, which has been in the market for about five years, comes closest to being a disruptor. This is because they provide cloud-based solutions. Cloud has not been explored to the fullest even now, and the future of all business processes is going to be the Cloud. Another thing that’s going to affect the future of the industry is the coming together of BPAAS with Software as a Solution (SAAS). The future of business is going to be where the BPAAS and SAAS converge, which will lead to a hybrid approach i.e. availability of all services in one integrated platform. 

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Topics: HR Technology, #TheNowAndTheNext

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