Rapid Growth Makes HRO an SRO Act

What’s new in outsourcing? If you don’t quite recognize the letters HRO, you will soon—it’s about to be everywhere. Anecdotally, random conversations at last September human resources outsourcing according to the Outsource Institute. The International Association for Human Resource Management (IHRIM) is featuring an entire track devoted to human resource outsourcing at its conference and exposition this year in Reno, NV. Attendance at last year’s HRO World conference was up 25% over the previous year’s inaugural show. IT outsourcing giant EDS has just signed a collaborative, 10-year agreement with human resources consulting firm Towers Perrin, positioning the new entity to handle 33 million HR plan participants in a field already crowded with competitors such as Accenture, Wipro, Tata, Infosys Technologies Ltd., IBM Global Services, and Hewlett-Packard.

Gary Budzinski, president of Aon Consulting’s Human Resources Outsourcing, positions the practice beyond simple economic benefit as being one that frees executives from administrative tasks so that they can “more effectively develop and align HR programs with the strategic goals of the organization in mind.” According to Frank Casale of The Outsourcing Institute, HR outsourcing is “currently the fastest-growing market segment on the OI network.”

Outsourcing can save 15% to 30% of HR administrative costs, according to Budzinski. Activities commonly outsourced include everything from payroll and benefits to recruiting and training and testing. The theory is that outsourcing HR functions will allow the HR department to concentrate on making strategic plans and decisions regarding a company’s workforce. As with any outsourcing program, according to Budzinski, a company must select its vendor/s carefully to avoid culture clashes. The very nature of human resources functions also means a company should be especially sensitive to the possibility of security risks.

The Outsourcing Institute cites a Gartner Inc. figure of HRO growth from a $25.5 billion industry in 2003 to $37.2 billion in 2008. In fact many companies have outsourced such functions as payroll and insurance benefits programs for years. Gartner also predicts that 85% of companies in the United States will be outsourcing at least part of their human resource functions by the end of this year. Human resources outsourcing already represents a significant subcategory of the estimated $15 billion business process outsourcing market for small-to-medium businesses—defined by Aon as those with more than 2,500 and fewer than 10,000 employees.

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