Everest Study says Huge, Never-Before, HRO Opportunity for Suppliers in Mid-Market Segment

Mid-market companies more attractive to suppliers since they offer less complexity, less customization requirements and less implementation time frames

ASIA PACIFIC HOLDS HUGE UNTAPPED MARKET POTENTIAL FOR HRO

New Delhi, August 29 2008 ─ Unlike earlier, an increasing number of mid-market companies (with 3,000-15, 000 employees) are leveraging benefits of Human Resources Outsourcing (HRO) and, in a few years, are likely to adopt HRO at a rate higher than larger corporations (15,000 or more employees), says the Everest Research Institute, research arm of global consulting firm Everest Group. Companies in the mid-market segment are adopting HRO due to the allure of a growing supplier base that continues to bring forward focused offerings that support cost reductions, access to up-to-date technology and standardized processes according to Gathering Momentum: Mid-market HRO, a new study by the Institute. The study includes a market overview, transaction characteristics, changing marketing dynamics and implications for buyers and suppliers.

For a long time, HRO suppliers were mostly focused on larger companies with 15,000 employees or more. Serving these companies involves more complexity, more customization requirements and much longer implementation timeframes than the mid-market would require," said Monica Barron, Vice President, HRO Research. "To take advantage of the barely penetrated mid-level market, suppliers have developed profitable offerings by leveraging economies of scale and standardized solutions. This is why we're seeing a significant increase in HRO suppliers - including offshore suppliers - and offerings focused on the mid-market buyer. And this, in turn, is really good for the buyer because they now have more suppliers and offerings from which to choose. The issue now becomes how to choose wisely."

"With mid-market buyers, suppliers can potentially look at a higher profit margin, given the relatively higher price points in the mid-market; lower pursuit, implementation, and operational costs; and the ability to create economies of scale through adoption of one-to-many solutions" said Rajesh Ranjan, Research Director. Furthermore, since mid-market buyers often lack an existing ERP and want access to better technology to support HR services, they are generally more open to adopting proprietary solutions as well as highly standardized offerings from the suppliers, adds Rajesh Ranjan.

According to Everest Research Institute, while the mid-market segment currently comprises 51 percent in terms of HR outsourcing activity yet it constitutes only 16 percent of the total market in terms of annual contract value. However, in terms of market activity, the study highlights that the mid-market will grow at a faster rate than the large market in coming years. In terms of annualized revenues, the global HRO market is growing at a decelerated rate and reached US $2.8 billion in 2007.

Elaborates Rajesh Ranjan, "As of December 2007, 116 out of 229 HRO transactions were in the mid-market segment. Although the current HRO penetration levels are low in the mid-market, reflecting the relative immaturity of this segment, yet they indicate significant growth potential. Besides Americas and Europe which represent a huge market potential of 5450 and 6350 companies respectively, Asia Pacific too holds a huge HRO market potential with as many as 5050 companies. However, with just 3 HRO transactions in the Asia Pacific, the current penetration is a low 0.1%."

Transaction-intensive and regulatory processes are more frequently outsourced by mid-level companies. Since 2005, there has been a considerable increase in outsourced talent management services, primarily in the areas of data administration and technology in support of training, recruitment and compensation.

"Suppliers need to understand the unique characteristics of the 3k-15k employees segment as they target this market. Solution offerings are significantly different between the 3k-15k segment and the>15k in terms of service delivery requirements, how they are sold, implemented, and operated. The suppliers need to ensure that both their technology strategy and organizational structure are aligned to make that happen" added Rajesh Ranjan. Some of the leading suppliers who have focused offerings based on proprietary technology platforms for mid-market HRO include ADP, Ceridian, NorthgateArinso, Logica, Accenture, Capita (all have). Other than these, ACS, Fidelity and Infosys have also announced their plans to offer a focused solution. Although suppliers such as Hewitt, ExcellerateHRO, IBM, Xansa, and Xchanging have signed deals in the 3K-15K employees segment, they don't have a focused / separate offering for the mid-market segment.

Source : Equity Bulls

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