NelsonHall forecasts 21percent annual growth in multi-process HR BPO market by 2008

BPO market research firm NelsonHall released an HR outsourcing market study and forecast predicting that HR BPO will lead the outsourcing market in terms of growth through 2008. North America is the dominant geographic market for multi-process HR BPO, according to the analyst firm's findings.

In a report released last week, NelsonHall announced it forecasts the worldwide market for multi-process HR Business Process Outsourcing (BPO) to grow at 21% annually, reaching $7 billion by 2008. This forecast ? contained in NelsonHall?s latest study, ?Targeting HR Outsourcing? ? is highly significant as the study also forecast that the total HR outsourcing market will grow by only 11% to $33 billion worldwide in 2008. This makes the multi-process component of the market the most robust in terms of growth.

Said John Willmott, founder of NelsonHall, ?To date, the great majority of HR outsourcing deals have been transaction-focused, single-process engagements, such as localized payroll services, pensions and benefit administration, and recruitment. However, we are now seeing the emergence of the multi-process market, as vendors partner with and acquire other firms to broaden their service delivery capabilities, across these and other areas including organizational and people development, employee data management, workforce planning and deployment, and human capital services.?

Cost Reduction and Process Transformation Key to Multi-Process HR BPO

NelsonHall?s study confirms that cost reduction is a key driver for outsourcing HR processes, which can be achieved through a combination of business process re-engineering, self-service technology, the adoption of shared services environments, and the management of certain processes in nearshore or offshore locations. However, organizations adopting multi-process HR outsourcing are also driven by the desire to transform and enhance their HR processes.

Said Willmott, ?Organizations outsourcing multiple HR processes expect reduction in HR operating costs of between 20 and 40 percent, but they are also looking for improvements in their HR service quality, the introduction of e-HR service models, and access to improved management information and performance metrics?.

An Industry View

The NelsonHall study found that the manufacturing and financial services industries ? which have historically presented key opportunities for HR outsourcing vendors ? are likely to continue doing so as they both seek a mix of cost efficiencies and process improvement, allied to a requirement for complex benefits and pensions services for professional staff. The study also identified the retail and government sectors as presenting substantial HR outsourcing opportunities in the future.

Supply-Side HR BPO Market Fragmented, Experiencing Acquisition Fever

The global HR outsourcing market remains fragmented, with large numbers of vendors targeting this market opportunity. ADP is the leading global HR outsourcing player, with its payroll and employee administration services commanding a 17 percent share of the global market. Hewitt Associates has the next largest market share, with 9 percent of the market as a result of its strength in benefits administration services and its recent acquisition of Exult, the market leader in multi-process HR BPO, where the company has an estimated 18 percent market share.

North America is the dominant geographic market for multi-process HR BPO, where Exult leads the way, with Accenture HR Services and ACS gaining ground. Currently, North America accounts for three-quarters of the global multi-process HR BPO market.

Meanwhile, the HR outsourcing market is experiencing acquisition fever, with sixteen major acquisitions between April 2003 and April 2004, including Exult?s acquisition of ReloAction, Ceridian?s acquisition of Recruiting Solutions International, and Mercer?s acquisition of Synhrgy. NelsonHall expects this acquisition activity to continue as vendors seek to widen their service and platform coverage and expand into new geographic regions.

Vendors Face Multi-Channel, Multi-Client Shared Services Challenge

The overriding challenge for HR outsourcing vendors is the ability to manage multi-channel, multi-client shared services environments. NelsonHall breaks this down into a number of ?must do? challenges for vendors, including:

- For multi-process vendors, develop end-to-end process expertise across the full spectrum of the employee lifecycle (sourcing, rewarding, developing and exit/retirement)

- Move beyond the provision of HR services through third parties, to providing services directly to clients

- Integrate employee contact channels to enable employees to have a seamless HR experience

- Develop technology that enables a truly multi-client, shared services environment while maintaining high employee support levels

- Extend service offerings to include business intelligence, and the ability to advise organizations on solutions to highlighted problems