HR outsourcing to get a boost from recovering economy

Tech developments and fewer cost restraints mean UK companies are rethinking how HR services should be delivered...

HR outsourcing (HRO) is set to pick up this year in the UK.

Recent research by the Everest Research Institute has predicted that the total contract value for multiprocess outsourcing - where three or more HR processes covering at least 3,000 workers are outsourced to a single company - will increase from $2.9bn in 2009 to $3bn globally in 2010.

The UK will account for 25 per cent of multiprocess outsourcing, which can include HR services such as payroll, recruitment and training, this year due to the large number of multinational companies headquartered here. UK-headquartered companies with significant HRO deals include pharmaceutical giants AstraZeneca and GSK, as well as telco BT and oil company BP.

The UK has been relatively quiet in terms of deals over the past two years - between 2008 and 2009, eight multiprocess outsourcing deals were signed in the UK compared to 19 between 2006 and 2007 - but Everest expects resurgence in 2010.

HR outsourcing is set for a revival among British companies
(Photo credit: Shutterstock)

In 2010 alone, research director at Everest, Rajesh Ranjan, predicts there will be seven to 10 deals of this type signed in the UK with outsourcing companies including Accenture, ADP, Ceridian, Hewitt, IBM and - increasingly - Indian giants Infosys and TCS, among those likely to benefit.

The public sector will continue to be the biggest adopter of multiprocess HR outsourcing in the UK - the sector has been the source of nearly half of all deal value to date - as HRO lends itself to the shared services model currently popular in Whitehall and the efficiencies it can generate also satisfy the government's need to cut back office costs.

The pharmaceutical, manufacturing and high-tech sectors will also remain significant users of HRO. According to Ranjan this may be due to the fact that these kinds of companies often have a geographically dispersed workforce and using a single HR provider can help ensure a consistency of HR services across the globe.

Meanwhile, financial services will be an important growth area for HRO in 2010 as the sector recovers from the worst of the recession.

Although cost reduction will remain the main driver for HRO, Ranjan told silicon.com that as the UK economy emerges from the recession...

...businesses will start to think more about HR's place in their organisation.

"As organisations are taking a more long-term view in terms of their business, in terms of the way they want to engage their employees, they will look at multiprocess outsourcing more," he said.

Ranjan added that outsourcing HR could provide organisations with processes that support the business more effectively: "A lot of organisations are really struggling to align HR with business needs. To align HR with business needs they need to have the right kind of technology in place, the right kind of processes."

The improving economic environment also means companies are now more likely to have money to spend on the upfront costs required to set up HRO contracts. Companies willing to take on these high upfront costs will generally be pursuing what Ranjan called "transformational HRO" where extensive process and technology re-engineering is required.

However, such typically high upfront costs will continue to put off companies who want to make cost savings using HRO but want to avoid significant initial investment.

Some HRO suppliers are therefore coming up with different charging options that require fewer upfront costs - for example, allowing customers to pay in instalments over the lifespan of the contract.

Ranjan also predicted that there will be a greater adoption of analytics and business intelligence related to HRO as businesses try to get a better understanding of their workforce.

With many organisations chasing greater efficiency in their business processes following the worst of the recession, making better use of HR information to boost staff productivity is becoming more appealing. Using analytics to indentify which training most improves employee productivity can help organisations to invest in the right programmes, for example.