Shaping up or shipping out?

It's difficult to identify an over-arching pattern in the post-recession outsourcing landscape. Instead, several mini-trends help build a picture of an industry that's quietly weathering the storm. Andy Allen repoits
iven the economic backdrop of the post year, one could hardly expect HR and RPO providers to be reporting record-breaking deais. And it is fair to say the mood in the industry has ; been restroined. Yet scratch the surface of the HR outsourcing business and things are far from grim. Rather than any single

to be conclusive, Most outsource providers report either brisk business, often coming from different directions to the usual, or a slight lull in activity. The CIPD, too, is finding it hard to see which way things are moving. In its survey. HR outsourcing and the HR function: threat or opportunity?, from June this year il Found 29 per cent of organisations were outsourcing ospects of their HR activity. Over the long term, most have been increosing their use of HRO. Over the past five years 20 per cent have reported significant increases in HRO activity, while t^ per cent have reported o slight increase. Only 11 per cent have reduced their reliance on HRO. Yet it is hard to identify whether this long-term movement is happening now. "We're seeing things moving in both directions. Some people are moving things out ond some are taking things back in-house." soys Rebecca Cloke. organisation and resourcing adviser at the CIPD. What seems certain is that there is a move oway from big generolist deals towards more specialist ones.

shattering mega-trend one can identify severol micro-trends converging on the industry. It is these trends that HRO and RPO (recruitment process outsourcing) providers believe will help their market emerge strongly from the current downturn. However, on the big question of whether the overall direction in the industry is towards more outsourcing or less it is hard

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corporote agenda by wider business concerns in the current climate. "The opportunity to make a 20 to 25 per cent cut in your HR cost is not getting the same visibility at board level os toking out a large chunk of cost somewhere else in the core process," he says. The good news is that those factors have had little impact on smaller deals, according to Clarke. He believes many smaller deals are able to go through without this kind of board-level scrutiny as they can pass "underneath some corporate threshold in terms of cost". As an example of how promisinglooking deals can be quashed from above. Clarke cites a potential European client of on outsourcing provider he worked for eariier this year before joining Xchanging. The client was on the point of signing a deal for a multi-million pound HR transformation programme when the board decided outsourcing would be inappropriate when it was having to make cuts elsewhere. As Hearn of Plus HR puts it; "Financial directors are all over these decisions." The consequence of this is that lead times on signing contracts are increasing - something widely acknowledged among providers. "Clients recognise the need to change. but they're talking about it for a prolonged period of time. There are people we've been talking to for 12 to 18 months and in that time it's been taken to board level," says Hearn. This need not be a bad thing, according to Rosaleen Blair, chief executive officer at Alexander Mann Solutions. 'We've found that because CFOs are getting involved it's enabling things to happen In a strategic way," she says. The very fact that such issues are attracting attention at senior level means in her view that they are likely to be treated with more urgency. So. what of Anthony Bruce's assertion that RPO is faring better than HRO? This is backed up by many providers in that area, though not without qualifications. ]erry Collier, international development director at Kenexa. says: "The amount of deals is definitely up in RPO.

Anthony Bruce, UK HR transformation leader at PricewaterhouseCoopers says: 'There are fewer landmark deals in the HRO space. Where the deals are taking place is in the RPO area, alongside payroll." A notable trend, according to Bruce, is for clients ta Initially consider a wide range of services but when they finally sign the deal, to settle for a more limited range. At the same time they may well choose a niche supplier for certain services. whereas previously they might have "bundled" all services together with a single one. "Quite often they will extract whole processes and say this provider can't do recruitment as well as a specialist can for the same price," he says. It is something other suppliers are seeing on a general level. Stuart Hearn, a partner at Plus HR, says: "What we are seeing from large companies is interest in outsourcing very particular sen/ices. They have all read about large outsourcing deals that haven't worked. So people are increasingly seeking out niche suppliers."

'There has definitely been an increase in public-sector organisations looking at outsourcing'

Ian D'Cunha, director, product marketing and development at ADP, believes the scarcity of these "allencompassing mega deals" can be put down to clients retrenching and considering their HR needs more carefully. "Organisations are examining what their principal challenges are and prioritising what they want to outsource. They're making sure that works well and then they're taking another step. The 'lift and shift' approach wasn't looking corefully enough at the problem." he says. According to Peter Clarke, managing director. Xchanging HR Services, HR initiatives have been pushed down the

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"The size of those deals is down because clients are doing less recruiting and they are certainly taking a lot longer to sign, but the increase in numbers is being driven by the fact this is a good time to make changes before the next surge of recruiting." Very soon. Collier believes, we will see a huge surge in demand for RPO services as job markets pick up and staff who believe they hove been badly treated during the downturn seek work elsewhere. At Alexander Mann Salutions the facus with many clients has switched to internal recruitment. "Our team has probably been engaged 70 per cent in moving people internally in client organisations over the past nine months in particular," says Bloir. "One organisation that over the past two to three years has had 11 to 12 per cent internal mobility, had 70 to 72 per cent Internal mobility over the past year." While recognising that this trend will probably disoppeor os economic circumstances change, Blair is confident

that other factors will boost the RPO market as it does so. Not only is she seeing a fresh demand from new sectors such OS phormaceuticais and healthcare but also significant extra Interest from public-sertor organisations. There is a widespread belief that calls far efficiency in back-office functions in Sir Peter Gershon's review have increased the pressure on public-sector bodies to outsourceallorpart of their HR function. This pressure will only increose under a Conservotive government, outsourcing providers believe, James Ranksley. business development director at NorthgateArinso, says: 'There has definitely been on increose in publicsector orgonisations going out and looking at what is achievable in terms ofHRO. "With the Gershon report, this has really come to the fare and I think that there is going to be a lot more interest." Ronksley odds on importont qualifier though - he stresses that outsourcing is on emotive subject within the public sector.

"Whether this interest will actually come to anything is a different story," he says. One possible area of growth, according ta Simon Constance, a partner at HR transformotion odviser Orion Partners, could be from local authorities looking to form shared service centres. "Three of four councils that band together to create a shared service centre can came up quite quickly agoinst the realisatian that this is a complex thing ta do," he soys. At that point many will consider asking an outsaurcing pravider to run the centre. Constance stresses though, that there is a division between councils that oppose outsaurcing and those that believe it is essential to look ot the outsourcing market because of the difficulties of setting up and mointaining shored service centres. Andrew Grant, CEO, Europe, at Talent2, believes the massive recruitment spend of public-sector orgonisations omounts to o huge opportunity far RPO providers. It is eosy to exaggerate doubts about their willingness to outsource, he believes.

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"I don't think that's the case any more. They've been outsourcing IT and infrastructure for 20 years." Grant adds. At the other end of the scale but equally welcome, not only for RPO providers but HRO providers as a whole, is increased demand from SMEs. Stuart Hearn at Plus HR says: "There has been a lot more interest from SMEs. Perhaps some SMEs have been less hardhit than larger companies." fat a small business, he points out, outsourcing may be a good alternative to hiring an in-house HR specialist. They may be looking for a single individual to combine the roles of an HR administrator. HR manager and HR director, for example - someone unlikely to be found In the marketplace. "In the past we saw very small companies wanting a bit of HR help, but we certainly never saw peaple wanting to outsource their HR." says Hearn, In addition, outsourcing give SMEs greater access to technology that they lack the capital to purchase, says Ronksley of NorthgateArinso. "The SME market is taking an upswing." he says. As the outsourcing markets mature other developments occur, not just in the type of clients or services but in the quality of deals being signed. Dan Ferrandino. managing director at Reed Consulting, says clients are demanding providers that "are able to deliver on the dream". "They can't make empty promises like some were doing 10 years," he says. Like many other providers. Ferrandino believes that the drive to save costs through outsourcing has played a major role in sustaining the demand for RPO services. But he stresses that cost is not the oniy factor behind the decision to outsource. Over the past year he has increasingly seen HR departments participate in the outsourcing agreements themselves. "Outsourcing used to be completely procurement led. Whot we're seeing now is increasing HR involvement and HR is negotiating less on price and placing a greater emphasis on quality." Given that a frequent complaint from HR itself is that it has been all too often on the outside looking in when outsourcing deals have been signed, no doubt many will be keen to see if this trend emerges more strongly over the year ahead.

Case study: outsourcing at Emap

When media group Emap came under private equity ownership in 2008 it began looking to outsource HR to give it the freedom to concentrate on strategic issues. As Emap performance director Tracey Gray explains, the company's previous business model had led to disparate processes and procedures being in place throughout the business's autonomous units In HR. for example, employees had different appraisal forms depending on what part of the business they were in. The lack of consolidated business information had a direct impact on day-to-day strategic decision-making. Emap was already buying an in-house payroll solution from NorthgateArinso ond initially began to consider outsourcing payroll with the same provider. Later it looked at a much more comprehensive outsourcing arrangement, considering a range of providers. It eventually chose NorthgateArinso to provide an end-to-end service, covering the entire employee lifecycle from HR and payroll to flexible benefits and recruitment. "Having recently moved into private equity ownership itself, it understood Emap's challenges," says GrayEmap moved from having internal generalist HR and payroll teams to a structure where specialist heads of service managed specific HR streams, such as employee relations, resourcing, reward and learning and development. NorthgateArinso took responsibility for transactional and operational elements of HR such as the Tupe transfer of staff as well as setting up an HR advice line. Since the introduction of the outsourcing arrangement, which took nine months ta complete, HR has been able to focus more on where the business is going strotegically. says Gray. "Bringing on board NorthgateArinso allowed us to transform HR, establishing new structures and procedures that support Emap's core values for accountability and high performance," she concludes.

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