HRO is well established as a trend for the next several years, and it is more than reasonable that the mid market will begin adopting this fairly expensive service offering. In fact, I’d suggest that over 100 mid market companies have actually decided to outsource a considerable amount of services with ADP a clear leader in the segment.
Nelson Hall had a curious press release about mid market HRO a few weeks ago:
The research also supports the finding that some mid-market organizations are looking to a single HR service provider, having
experienced difficulties in working with multiple services providers (e.g. for payroll and tax filing, COBRA administration, benefits administration, recruiting, employee verification, training) and that those vendors already providing payroll and/or benefits services into this marketplace are at a competitive advantage as there is a high level of willingness to outsource additional services to current providers. Accordingly, NelsonHall forecasts that the mid-market multi-process HR outsourcing market will double in size over the next four years to reach $1.5Bn by 2010.
“However, while mid-market organizations are prepared to use standardized utility services, they expect HR outsourcing vendors to take the trouble to understand their individual business needs and tailor their services accordingly,” said Stormonth. “Mid-market organizations, like their larger counterparts, want an improved service compared to their in-house capability. Vendors that try to impose standard services at arms length will not succeed in this market.” ((“Mid-Market Organizations Extend HR Outsourcing to Recruitment and Talent Managmeent Says Nelson Hall Study.” Retrieved from PRnewswire on July 31, 2006))
First off, I’d like to make a case that outsourcing an HR activity is not necessarily HRO. Perhaps I’m wrong, but it isn’t a single HR service provider doing payroll, tax, COBRA, and benefits that makes an HRO vendor. Certainly ADP, Ceridian and a number of others can do this stuff in their sleep in a traditional outsourcing model. What distinguishes traditional outsourcing from HRO is the outsourcing of process as opposed to processing. So in addition to the basics above, HR administration, recruiting, training, etc would be considered HRO type activities.
It’s certainly reasonable that recruiting and talent management would be the next phase of outsourcing for the mid market. Simply stated, talent management is too expensive to set up and maintain from a expertise and infrastructure level to have 5-10K employee companies investing in. Knowing that good talent may be getting more scarce, partnering with an HRO organization to provide sourcing and process support is often the right thing to do.
Second of all, clients “expect HR outsourcing vendors to take the trouble to understand their individual business needs and tailor their services accordingly.” This flies in the face of what HRO is all about. HRO is about providing a set of leading practices that conforms to some basic standards so that the client can leverage lower cost models per employee. By doing this, they should get a better level of service across all platforms, but certainly they should not be getting large scale customization.