IDC, HR, BPO, Market, Outsourcing

IDC reports on the shifting competitive landscape for HR BPO

13 Nov 2006 | (News)

Human resources (HR) business process outsourcing (BPO) is the fastest-growing segment of HR services and will grow at a compound annual growth rate (CAGR) of 16% in the United States, reaching $18.9 billion in spending by 2010. As the market continues to grow, IDC's research indicates that the barriers for entry are rising at the high end of the market despite increasing market interest in HR BPO services. IDC believes this trend may change in the future as India-based firms set their sites on HR. There has been increased interest in the less served midmarket and with fewer barriers to entry, more competitors have emerged to serve the midmarket. Overall, the landscape continues to evolve through mergers, acquisitions, and joint ventures.

"HR BPO is an option that is on the minds of more and more HR executives as a strategy for lowering costs," said Lisa Rowan, program manager for IDC's HR and Talent Management Services. "In 2004, 37% of U.S. HR outsourcing spending was on HR BPO services. IDC projects that HR BPO services will continue to grow, reaching 46% of HR outsourcing spending in 2010 as the market solidifies and leaders achieve profitability through economies of scale."

Additional key findings from IDC's study include the following:

• 2005 was an exceptionally strong year for HR BPO deal activity. Contracts announced through September of 2006 indicate that 2006 has a slim chance of matching, but is not likely to exceed 2005 in terms of total number of contracts.
  
• Most companies today, even mid-sized firms, are launching operations outside of their headquarter country. The desire to have commonality and consistency across the organization is increasing in importance. As a result, global reach is one of the factors contributing to recent vendor success in HR services and BPO in particular.
  
• Although it may take longer to implement, vendors need to examine all of the client's processes and act as a trusted adviser on current best practices. Conducting this exercise will help ensure that the client receives the savings and efficiency they seek while giving the vendor a much more easily supported platform on which to move forward.
  
• There are emerging capacity issues at the high end of the market as vendors work towards implementing the many clients signed in 2005.

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