At mid-year, employers are choosing to dip their toes in the outsourcing pool, rather than jump in feet first. Attempts at wide-scale HR outsourcing haven’t been successful, mainly because vendors are underestimating the costs and companies won’t settle for cookie-cutter solutions.
A more selective outsourcing approach allows vendors and employers to tackle each function independently, understand the requirements, and then customize the implementation and refine the processes before moving on. At least for now, that’s the direction managers are taking.
“Comprehensive outsourcing of HR administration hasn’t worked out as expected for either party,” says Mark Marcon, senior research analyst and director for Robert W. Baird & Company, Inc. “I think most of the vendors under-estimated the costs and the profitability of these contracts, so there’s been significant pull-back and a more selective adoption approach.”
A survey of 182 U.S. companies by consulting firm Watson Wyatt Worldwide validates that selective, rather than comprehensive H.R. outsourcing is the clear preference among employers, with 6% of the respondents indicating they plan to outsource recruiting in the near future.
Recruitment process outsourcing is increasing, despite the macro outsourcing trends, according to Marcon. More staffing providers are offering outsourced recruiting solutions to customers, and many have made acquisitions of existing RPO firms to enter the market. Because RPO is still a fairly new concept, a standard service model has yet to emerge. The flexibility to customize services under the contracts, such as only outsourcing hiring processes for hourly workers or contracting strictly for exempt personnel sourcing, is enticing early adopters and easing the trauma of handing over the services to an outside provider.
Software as a Service
With as much as 80% of the early adopter market already penetrated, HR technology firms, including applicant tracking system and talent management providers, are consolidating and offering new products for mid-size companies in order to boost revenues. Employers have been waiting for leaders to emerge in the highly fragmented space, and thanks to a slowing economy, the process seems to be well underway.
“What’s hot is software as a service and talent management suites via SaaS,” says Marcon. “Everything else is cooling.”
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Software as a service, which consists of hosted software solutions accessible via the Web for monthly subscription fees, reduces the financial barriers to entrance and opens the door for medium and small companies to manage talent through automated solutions. Access to more sophisticated tools may level the recruiting playing field between large and small employers. Taleo’s new product release is further validation that solution providers are looking for growth outside the enterprise marketplace. Taleo Edge was unveiled at the SHRM conference and is targeted toward the mid-size market, which Taleo defines as employers with 2,500 to less than 10,000 employees.
While industry consolidation may be a good thing in the long run because the surviving vendors will be financially stable, and customers may finally receive the comprehensive talent management suites they’ve been seeking, Marcon cautions talent acquisition leaders to review a prospective vendor’s financial strength before committing.
Says Marcon: “Right now talent acquisition managers should absolutely select vendors based upon their ability to withstand a protracted downturn.”