Experts believe that 2006 will be a watershed year for HRO. While last year saw the customer, service provider and consultant battle with complexity, compliance, security and cost issues, this year will see a realization of the hard work, evaluation and investment with significant contracts. In short, while HRO has proved complex, the industry has woken up to the reality that huge business benefits can be had for organizations moving towards HRO.

Aberdeen and EquaTerra (now merged with TPI to form Veritage) have indicated in their recent reports that HRO is all set to rise this year. According to the HRO Benchmark Report by Aberdeen, the top three strategic driving HRO decisions are cost reduction, need to focus on core business objectives and improved end-user service (see Figure 1).

What is interesting is that corporations with over $1 billion in annual revenue both outsource more and actually plan to outsource more of their HR practices than their smaller counterparts. The findings suggest that 66% of large corporations regularly outsource their HR needs while 9% have plans to adopt the practice in future. The report finds that the least amount of growth planning in outsourcing is among the mid-sized companies.

Among the HR processes, 401 (K) and payroll lead the list of transactions-oriented processes outsourced to third parties. They are followed by pension management (See Figure 2).

Meanwhile, EquaTerra, in its Advisor Pulse survey for 4Q05, has found that within the HR process area, benefits administration and payroll are the two functional areas with strongest demand, by 80% and 76% respectively. n