Indian HR Industry – 3 Disruptors for 2016

The Global economic growth for 2015 is projected at 3.1 percent. Even as advanced economies show a moderate pace of economic recovery, emerging markets are still going through an ongoing adjustment followed by post crisis credit, investment boom and growth realignment in China. Global trade volumes have seen a slow growth in the years after the recession and businesses are strategizing to reduce cost and are increasingly focused on their profit margins. This has led to a boom in the merger and acquisitions space, as companies are focused on expansion and diversification of business. According to a study by Dealogic, globally, the M&A activity has reached a value of $3.24 trillion year on year, this is only a little short of the $3.43 trillion reached in 2007, just before the crisis.

In the last one year alone, India has moved up by sixteen places to rank at 55th on the Global Competitiveness Index. The rise on the index is credited to improved macroeconomic environment. The areas where India has done better include investor protection, gross national savings, domestic market size and GDP. This economic outlook in the country has been led by the government’s major initiatives like Skill India, Make in India and Digital India. While the full potential of these initiatives are yet to be fully realized, they have already had an impact on business growth and hiring patterns. According to the People Matters HR Industry Study 2015 that surveyed 137 HR leaders, the demand in recruitment, training and employment are on the rise and businesses are increasing their spend on products and services. 

In the last two years, the biggest global trend in the business world is that of technological disruption. By driving global transformation that is both innovative and scalable, they are disrupting traditional markets led by big established business leaders, whether it is Banking (SocietyOne), Telecom (Skype and Wechat), Hotels (Airbnb), E-Commerce (Alibaba), Transportation (Uber), Media (Facebook), Software (Apple and Google) or Human Resources (Zenefits, Workday, Logi-Serve). Many among these companies provide a platform for players to come together. A few connected innovative trends include the increased use of the cloud as a platform of service linking social media and mobile. The second is the increasing emphasis on automation as cost pressures continue to rise and technology can today automate and reduce the need for human intervention. The third element is a preference for globally standardized processes as opposed to country-specific or company-specific models. These elements are playing a significant role in how organizations are defining their operations and in turn their human resources requirements.

Conducted every two years from 2011, People Matters analyzes the landscape of the HR market in a changing global and national economic context. The estimates for the current HR Industry stands at 40,000+ crores. Recruitment is estimated at 14,700 crores, HR Outsourcing including Recruitment Process Outsourcing (RPO) is 13,000 crores, the learning and development space is estimated to be around 9500 crores, HR Technology is 2,000 crores and HR Consulting is about 800 crores. 

The India HR Industry Study not only provides a view on the present but also brings insights about the future of the HR Industry in the country. We spoke to Industry leaders from across verticals and horizontals of HR and launched an exhaustive study across 137 buyers that participated this year.  Making this bi-annual report the only and most comprehensive research on the HR Industry in India. This year, the Study reveals four major findings that set the direction for the future in the this industry:

With companies focusing on the interface between driving technological innovation, managing costs pressures and finding business models that allow for a possibility to scale, leaders from different industries list the Cloud as a disruptor. “A major change seen today is the increased shift of Outsourcing service providers towards cloud-based technolog. In the present scenario, while 25 per cent of HR Outsourcing is cloud-based, 75 percent is not. However in another 10 years, this could change to a 50-50” says Morgan Yeates, Research Director, Global HR Business Process Outsourcing, Gartner.

Today the HR buyer has strong focus on efficiency-driven strategic interface and service providers are focused on catering to this demand. As organizations are migrating to a ‘Cloud-first’ environment, “Even Indian companies have been quick to look at the Cloud, which has been a source of major tech disruption in the past few years in the country,” says John Hansen, Vice President, HCM Product Management, JAPAC, Oracle. Cloud brings a huge potential for integration of HR products/services in the platform.

While in the past, the use of technology was focused on simplifying overall processes, today organizations are looking at automation to spend less and improve efficiency. According to a recent research by the Hackett group, leading HR organizations now spend 37 per cent less while delivering improved effectiveness and greater agility. Key areas where HR automation has been adopted include total rewards administration, payroll administration, staffing services and training administration. 

With service providers focusing on delinking sales growth from head count, there is increased revenue growth that companies are using to scale up operations. Naveen Narayanan, Global Director of the Arrows Group points out that in the recruitment space; technologies that use artificial intelligence are redefining the role of the recruiter. 

The emphasis on innovation and the focus on cloud is pushing service providers to standout in the marketplace. “In order for a market place to evolve, there is a need for service providers to provide niche HR services and specialize in them” says Madhu Raghunath, Head - Human Resources and Organizational Capability, TVS & Sons. A total of 84 per cent of the buyers in India surveyed in our Study listed the inability to measure effectiveness among the top five concerns while buying HR products and services. While there is an increasing preference for globally standardized processes and products, there is a certain degree of customization that needs to be provided.

While young start-ups are innovating with their products and services, they are also exploring avenues to experiment with their pricing model, “The problem we have had with external service providers is a mismatch in economic interests. Although today’s service providers deliver a good process experience, they are not incentivized to look at the ways in which they can improve the process from a cost perspective” says Judhajit Das, Chief Human Resources at ICICI Prudential. A total of 76 per cent of buyers in India surveyed list the price of products and services among the top five challenges faced by them.

Recently there has been a number of mergers and acquisitions in this segment. A few major acquisitions include Sumtotal and Skillsoft, Hay Group and Korn Ferry, Randstad and RiseSmart. There is increased scope for consolidation in the future as well. What’s driving this trend is the demand from the HR buyer. As HR buyers today are looking at one-stop solutions, the scope for consolidated services has risen. “The significant shift has been in the HR’s focus that has moved from a pure trade module to consolidated HRO platforms. HR buyers tare looking at consolidated services which meet four or five HR processes,” emphasizes Rishi Rana, General Manager – APAC, SumTotal, a Skillsoft Company. Further, while companies are looking for one-stop service partner, they are also looking for partners who can provide niche and innovative solutions. On the other hand, not all young emerging companies that provide niche solutions have the ability to scale. “Consolidation within the industry will continue to happen due to the rise in numbers of niche firms entering the market today,” says Moorthy Uppaluri, Managing Director and Chief Executive Officer, Randstad-India. 

Despite the increased number of players in the market, large companies still hold competitive advantage with their ability to provide end-to-end services since companies today want to partner with as less vendors as possible. “Organizations usually look to partner with a vendor that can provide a wide range of services instead of working with many vendors for different services,” says Satya Sinha, CEO, Mancer, Consulting Ltd. Thus, the growing demand for a one-stop solution has kept big industry players ahead of the curve today. 

In India, there has been a steady rise in the number of startups in the HR marketplace that provide niche services/solutions. “The landscape of HR service market previously was diluted because of the number of similar products/services on offer. The older players were increasingly focused on solutions without understanding business needs. Being able to see a trend of young start-up companies bring in a lot of ideas in the market place and engaging with business problems is a refreshing change,” explains Anju Sethi, Head - Recruitment and L&D, Tesco.

Overall, the HR industry is seeing an increased emphasis on driving business value in the face of technological disruption. While cloud and automation are transforming processes and systems in the industry, they are also bringing in new players. This change in the landscape is defining the 'what' and 'how' of progressive HR practices. While the marketplace continues to expand with new ideas, products and players, we look at the impact that they have across verticals including recruitment, learning and development, technology, consulting and outsourcing. The study also outlines the buyers' expectations and response to the dynamism that is transforming the industry.