Everest Group: HR outsourcing market will grow 8-10 percent this year; contract activity and mid-market adoption rebound in 2010 | Press Release

Contract size and length decreased; North America remains leading adopter; 5 service providers earn ‘2010 HRO Market Star Performers’ status

DALLAS, March 30, 2011 ─ A stronger economy brought new contract activity in the multi-process Human Resources Outsourcing (MPHRO) market and a strong rebound in mid-market adoption in 2010, according to the Human Resources Outsourcing Annual Report 2011 published by Everest Group, an advisory and research firm on global services. Everest Group projects the MPHRO market will grow by 8-10 percent and reach around $3.35 billion in 2011.

Despite positive signs of increased activity with 46 new deals signed in 2010, average contract size and term length continued to decrease, largely due to a decrease in the number of processes outsourced within new deals. Last year, annual contract value (ACV) grew by US$170 million to reach approximately US$3.07 billion.

Market activity was driven by new deals as well as by several extensions. In addition to an increase in new MPHRO contracts last year over 2009, there was a substantial drop in terminations, pointing to the stabilization of deals.

“Cost reduction remains the top driver for MPHRO adoption; however, managing compliance, greater alignment between HR and business, and access to technology are increasingly important,” said Rajesh Ranjan, research director “With an improving economy, greater buyer confidence, and a more robust and healthy service provider landscape, we expect to see 8 to10 percent market growth this year. We also expect to see increased adoption by industries that have been slow to adopt MPHRO, such as insurance and technology, and continued strong adoption by mid-market buyers.”

Other report findings include:

  • North America remains the leading MPHRO adopter while Europe increased its share of adoption by 33 percent. Asia Pacific, experiencing rapid economic growth, also saw an increase in deal signings.
  • In recent years, the share of financial services and manufacturing adoption decreased while healthcare and energy verticals saw increases in deal signings.
  • In spite of a decrease in process scope, geographic scope of MPHRO deals is increasing, particularly those signed by multi-national buyers.
  • While technology continues to play a significant role within MPHRO deals, inclusion of IT components decreased last year.
  • Global sourcing in MPHRO continues to increase with India remaining the most popular offshoring location; however, Southeast Asia and Eastern Europe are quickly emerging as major offshore locations.
  • Mid-market buyers, strongly affected by the recession, staged a strong comeback in 2010, drawn to MPHRO for lower cost propositions as well as access to expertise to manage complex compliance requirements and technology with minimal or no up-front investment.
  • Payroll and benefits are the most commonly included processes in MPHRO contracts.

Everest Group’s Performance/Experience/Ability/Knowledge (PEAK) matrix classified Accenture, ADP, NorthgateArinso, Aon Hewitt and IBM as market leaders that further strengthened their positions. Everest classified ACS-Xerox, Capgemini, Capita, Ceridian, HP, Infosys, Logica, TCS, Wipro, and Caliber Point as major contenders. Also classified in the report are emerging players Genpact, HCL, Neeyamo and Xchanging.

Everest Group also highlighted five service providers as 2010 MPHRO Market Star Performers: ADP, Accenture, NorthgateArinso, Aon Hewitt and Infosys. Last year, these service providers demonstrated the strongest movement forward across the following two dimensions:

  • Market success in 2010 based on ACV growth, number of contract signings and value of contract signings last year
  • Capability advancements in 2010 based on expansion of scale, scope, delivery footprint and technology investments

The Star Performers designation relates to year-on-year performance for a given service provider and does not reflect on overall market leadership positions. Those identified as the 2010 Star Performers include both leading service providers and major contenders.

“We expect to see more consolidation this year as service providers that continue to struggle to gain new clients will likely exit the MPHRO market or be acquired,” said Ranjan. “Partnerships will play a key role for service providers, particularly with regard to improving offerings in areas of global payroll, recruitment and United States benefits.”

Everest Group’s analysis includes multi-process HRO contracts with a minimum of three HR processes covering 3,000 or more employees that were signed as of November 2010.

To read an extract of the Human Resources Outsourcing Annual Report 2011, purchase the report, inquire HRO research or about other research services, please visit research.everestgrp.com, email [email protected] or call +1-214-451-3110.

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