We’ve long talked about the large HRO organizations trying to go after the middle market. After all, how many companies out there can afford a 10 year contract valued at $500M? With large HRO contracts closing in on 200 contracts, there isn’t nearly as much high end opportunity left out there, but there’s no question that middle market organizations capable of spending $2-5M per year are plentiful and for every one large contract sold over the last 5 years, there are probably 10 middle market organizations that might have some interest.
What’s interesting is that as the large HRO providers clean up their game, make themselves more profitable, and attempt to increase their level of customer satisfaction, some of the mainstream middle market providers are aggressively moving into the HRO market. Most of these are benefit providers that are trying to offer HR services and possibly get into the payroll market with a partnership, but players like ADP and Ceridian have long since expanded their offerings to encompass all of HR, payroll and benefits. Recent acquisitions or partnerships of theirs have also expanded their capabilities in recruiting and talent spaces.
What’s interesting is that the really small market players also seem to be making moves into the mid-market. Organizations like PEO’s who have traditionally operated in the 1-50 employee space have been seen stretching into the 200 and even 500 employee space. While this isn’t really impacting the mid-market, it is impacting the mid market vendors who are feeling a bit of compression in their space.
Basically, what is happening seems to be an overall convergence in the space with the high end HRO guys coming down, the traditional mid-market guys broadening their offerings, and some pressure coming from the small market. The result seems to be that we should expect some downward price pressure over the next couple of years and hopefully a better selection of mid-market vendors to choose from. All the while, hopefully their level of service also expands to the point where mid-market companies don’t need to “settle” on service based on their price point. I personally have traditionally been disappointed in the mid-market space, but I hope that’s all about to change.
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Middle Market HRO Convergence Most of these are benefit providers that are trying to offer HR services and possibly get into the payroll market with a partnership, but players like ADP and Ceridian have long since expanded their offerings to encompass all of HR … [