HRO is no more an option that companies can choose; it is now of strategic importance
Today the HR outsourcing industry is proliferating as a key aspect of an organization’s broader strategic approach to growth. The industry today is growing at a rapid pace of 25 per cent year-on-year and in India, the industry is currently estimated to stand at INR 13,000 crores (including Recruitment Process Outsourcing). This growth rate is significantly higher than the mature markets like Europe and America which is seeing a growth rate of 5 percent today.
What began with payroll outsourcing and benefits administration outsourcing, HR outsourcing industry witnessed a major turnaround after the entry of Recruitment Process Outsourcing (RPO) and Multi-Process HR Outsourcing (MPHRO). “HR Outsourcing (HRO) has become a “strategic necessity,” according to Pankaj Bansal, CEO, PeopleStrong. While some companies focus solely on outsourcing HR admin processes, and keeping the strategic HR in-house, there are few who even outsource strategic HR. According to India HR Study 2015, top HR processes that have been either wholly or partially outsourced are hiring, assessments and training; areas that are kept completely in-house are communication (57%), rewards & recognition (56%), succession planning (55%), onboarding (54%) and performance management (49%). “There are some aspects which serve as secret sauce and needs to be built and utilized in-house. So, it’s all about identifying the right combination. Organizations need to know their secret sauce and outsource and in-source to get the right blend,” says Raj Raghavan, Director, Human Resources – India, Amazon. As companies look to reduce costs, the demand for companies that provide MPHRO has seen an increase. Especially those providing Cloud-based solutions have seen growth in the last few years.
In today’s fast-pacing landscape of technological evolution, keeping pace with change is a big challenge for HRO firms. “In the age of hyper-development and hyper-automation, it is very difficult for business process HRO firms to keep pace with the evolving technological currency,” argues Morgan Yeates, Research Director, Global HR Business Process Outsourcing, Gartner. With the boom in the HR technology space, the HRO landscape has undergone significant change. While MPHRO like are increasingly gaining prominence for their consolidated and integrated services, Single Process Outsourcing like RPOs are losing business to technology platforms that provide results based on assessments and analytics. According to India HR Industry Study 2015, only 14 per cent of the companies say that their budget for RPO is increasing. Whereas, 26 per cent say that their budget for recruitment technology is increasing, 32 per cent say that it is staying the same. 35 per cent of the companies also say that the budget for social hiring is increasing. Further 30 per cent of the surveyed companies say that the budget for assessment products for hiring in increasing.
Another major challenge faced by service providers is the ability to incorporate measurability of ROI in their services. According to India HR Study 2015, Measurement of ROI is the biggest challenge faced by companies. Today, service providers are not able to articulate the value that they add to business, and this is an excruciating issue for sale of such services. “If the customer value proposition is cost saving or innovation, they need to be able to articulate that and communicate it to the customers,” emphasizes Yeates.
The need for HR outsourcing is big as the HR needs to offload the tasks that are administrative in nature and adopt a more focused approach towards its core competencies for growth. For this, the HR service providers need to differentiate themselves in the competitive landscape. Therefore, the biggest opportunity that exists in HRO is in terms of value addition. With organizations demanding service quality and that too at a lower operating cost, the HR service providers can provide solutions that match the current speed of technological advancement. And the only way to stand out is to invest in continuous innovation of products and services.
Most companies today seek integrated platform providers that can provide solutions to all HR challenges. “The focus for most HR buyers is to reach out to as less vendors as possible; they usually look to partner with a vendor that can provide a wide range of services through integrated platforms. As a result, there is growth in demand for a one-stop solution,” says Satya Sinha, CEO, Mancer Consulting. Therefore, the opportunity within HRO lies in MPHRO services with focus on SMAC technologies.