HR outsourcing to touch $25 bn in '07

Human resource outsourcing (HRO) services are expected to touch a volume of $25.4 billion by year-end, fuelled mainly by mid-sized North American and European companies, says an Everest Research Institute's Human Resources Outsourcing (HRO) Annual Report.

Growth will also be aided by reduction in transition costs and timeframes by existing suppliers, along with promotion of standardised offerings.

Outsourcing of human resource functions include management of payrolls, benefits, employee data management, information systems, and contact centres.

The study noted that the HRO market had remained flat over the last three years and the cumulative total contract value of human resources outsourcing transactions reached $21.2 billion in 2006.

Due to the low level of HRO penetration across all markets, suppliers are focussing on the largely underserved mid-market and are offering compelling price points.

North American consumers account for more than 70 per cent of the HRO business, but Europe has seen increased deal signings over the past three years, the study revealed.

Further, the study identified manufacturing, financial services, high-tech and telecom as the leading consumers of HRO overall.

Monica Barron, vice-president, Everest Research Institute said, "Over the last three years, we've seen a flat market in terms of the number of global HRO deals made due to the limited capacity of suppliers. However, the share of regional transactions has increased, especially for mid-sized companies having 3,000 to 15,000 employees."

She added, "We've seen a definitive move away from the 'lift-shift' model, where the supplier takes over the buyer's existing staff, processes, and technologies largely 'as-is' to provide outsourcing services. Buyers are leveraging a transformation-transfer model in which standardised processes and technologies are implemented and provided by the supplier."

According to the study, the average transaction size of HRO deals remains less than $100 million. However, there has been a steady increase in the number of smaller transactions (less than $20 million).

The average deal term remains around 6.5 years with 75 per cent of the transactions having a deal duration of five to 10 years, the study noted.

The price point for the companies with over 15,000 employees is poised to increase, after suffering a decline for the past three years.