SOURCING WITHIN THE THREE functional areas of General and Administrative (G&A) — Human Resources (HR), Finance and Accounting (F&A) and procurement — has historically been dominated by single-process deals. But the emerging trend in the G&A marketplace is of full-service outsourcing. While a single-process HR outsourcing (HRO) deal may be that of payroll-process outsourcing, a full-service HRO deal would be structured to include multiple processes, such as payroll processing, benefits administration, time/labor management, regulatory compliance and/or recruiting. Similarly, a full-service F&A outsourcing (FAO) deal might include a combination of general accounting, accounts receivable, tax and management reporting.

We define full-service transactions as those that have multiple (usually three or more) processes in scope, a term of three or more years and a size of more than $1 million in annual contract value (ACV). The size definition is adjusted for each functional area, given their unique characteristics. HR, for example, is segmented by the number of employees served; F&A by contract size; and procurement by annual expenditure on management outsourced.

We estimate the current full-service market as a $6.4 billion market segment with approximately eight percent market share. This market is growing four to five times faster than the single-process market, and should achieve a market share of approximately 24% by 2010. Given its large contribution to the overall outsourcing market, it is an extremely important area for the industry to begin to understand and develop best-practice solutions around. To facilitate this process, we will provide in this article an overview of the outsourcing occurring today across each of these areas. The questions that we will address are:

Adopters of Full-service HRO, FAO and PO

In terms of full-service transactions, HRO has matured the most, followed by FAO. Both these functions have entered the “emerging-rapid-growth” stage of market development. This stage is characterized by three key market characteristics: The emergence of operating standards, a robust set of suppliers and sufficient depth of buyer adoption. PO is still in the first stage of market maturity — pioneer stage — as it has limited emergence of standards, provider and/or customer adoption. In terms of customer adoption, the three key dimensions along which we evaluate adoption are by industry, company size and geography.

As can be expected, adoption is quite prevalent across all industry segments given the universal nature of HR, F&A and procurement. The four leading sectors are manufacturing, energy and utilities, financial services, high-tech and telecom, whose combined market share is approximately 70% in terms of number of transactions, total contract value and cumulative ACV.

In terms of company size, adoption is still a “large buyer” phenomenon, with most adopters being companies with annual revenues of greater than $5 billion. The market, however, is rapidly maturing to include smaller buyers. For example, the market share of companies with revenues below $5 billion has almost doubled in 2000, from 9% of ACV to approximately 16% in 2004. In terms of number of transactions, the smaller buyers’ market share has grown from 20% in 2000, to 24% in 2004.

Along the geography dimension, adoption is still primarily a North American phenomenon with North America (including both the U.S.A. and Canada) contributing 63% of the market share. Europe holds 30% market share (U.K. has 13%, Continental Europe another 17%) and the rest of the world has approximately a seven percent share.