By Amy Gurchensky, Liz Rennie, Gary Bragar

2014 was a busy year for HRO with ~60 partnerships, mergers and acquisitions combined. We now take a look at what to expect in 2015 and beyond for each HRO service line, including service offerings, market developments, and growth.

MPHRO driven by continued shift to cloud-based platforms

• The Multi-Process HRO (MPHRO) market will grow with a mid-single digit CAAGR through 2018
• In terms of revenue, North America will be the largest region, and LATAM will grow the fastest
• Offerings will continue to be structured around a core model, including payroll and HR administration; benefits and recruitment services will continue to be the most popular add-ons
• Workday use will increase in MPHRO contracts; other cloud-based platforms such as Employee Central will penetrate as well. Momentum among existing MPRHO clients for cloud-based platforms will pick-up significantly by 2017
• Partnership activity will far exceed acquisitions, with partnerships primarily focused on cloud-based platforms and analytics (in 2014 ~3/4 of all HRO contracts were platform-based, of which the majority were cloud-based)
• The proportion of mid-market clients will outnumber large market activity by 2016 (in 2014 the mid-market represented 45% of the market, up from 35% in 2012)
• Demand for end-to-end MPHRO deals will be almost non-existent, as buyers continue to seek specialists for some of their services (e.g. learning) and reduce risk by not having one vendor provide all HRO services.

Benefits Administration exchange offerings will be key

• The benefits administration market will grow at an upper single digit CAAGR through 2018, with the majority of activity coming from the private sector
• The U.S. market will be driven by a need to control costs and be compliant with legislation; the U.K. market will be driven by auto-enrolment legislation
• Within Health & Welfare (H&W) services, private health insurance exchanges, reimbursement account admin, and leave of absence offerings will grow the fastest through 2018
• The main emphasis for vendors will be to develop or enhance exchange offerings (e.g. launching an exchange geared towards the mid-market, adding extended lines of coverage); other efforts will focus on enhancing existing Employer Shared Responsibility offerings
• Technology updates will continue to focus around expanding portals with additional features, and improving the user experience, in an effort to further engage participants
• Multi-country benefits admin activity will take one of two approaches: leveraging existing benefits brokerage and consulting relationships, or focusing exclusively on a technology platform.

Learning key to attraction, development and retention of talent

• The Learning BPO (LBPO) market will grow at mid-high single digit CAAGR through 2018, with Government being the largest sector with growth led by Healthcare
• Selective LBPO contracts will continue to outpace full LBPO, led by content development, including the conversion of instructor-led training (ILT) to e-learning
• Client learning spend will accelerate for job skill training and professional development for purposes of attraction, development and retention of talent
• Vendors will continue to strengthen and integrate their talent management service and technology offerings with learning, both organically and via M&As and partnerships
• Clients will seek the help of LBPO providers to select and implement social learning platforms. Vendors who can help clients monitor and measure their effectiveness will have a competitive advantage
• Vendors will explore adding Corporate Massive Open Online Courses (MOOC) capability as clients seek to further reduce costs and reach a wider net of learners
• E-learning will continue to exceed ILT, though ILT remains important, including for hands-on learning and role-playing, e.g. performance management.

Payroll outsourcing driven by multi-country and platform integration

• The payroll market will show solid mid-single digit global growth. Primary growth is driven by demand for multi-country services and for integrated HCM/payroll cloud integration and/or interfaces
• There will be increasing uptake of employee access to payroll information via mobile, particularly in the U.S. Half of clients globally have self-service, and access pay statements online
• Payroll consolidation will continue to support geographical expansions
• Payroll services will develop by greater focus on technology and automation, including integrating with HR-cloud offerings and using platform-based outsourcing
• Retail, manufacturing, and financial services will continue to be the largest purchasers of payroll services
• Cost and compliance will remain fundamentally important requirements of payroll outsourcing.

RPO and MSP (Contingent Workforce Outsourcing) the fastest growing HRO services

• RPO and MSP are the fastest growing HRO services, expected to continue with mid-teen CAAGR through 2019, in a market driven by increased demand for talent
• Vendor consolidation and partnerships will continue to expand into new geographies to meet demand for global RPO / MSP services
• In the candidate-centric market, services will develop to support greater capability in analytics, improved visibility of labor market supply data, and workforce planning processes to address growing talent shortages. Candidate engagement and a streamlined process will remain a fundamental focus
• Technologies to support mobile marketing and video interviewing will be increasingly popular
• Vendors will continue to invest in onboarding services that go beyond the initial hire to support year 1 retention, and are expected to play a larger role in recommending employee progression and career advice for candidates to support retention
• Contingent workforce management services will grow in Statement of Work (SOW) programs and direct sourcing services to ~28% by 2018
• Requirements for diversity sourcing will be reinvigorated following the new legislation in the U.S. on veteran hiring
• Blended RPO / MSP services will increase in adoption, driven by a focus on developing optimal workforce strategies and bringing greater value to engagements through single governance and reporting and broader analytical insights on the total workforce.

We look forward to an exciting year!

Amy Gurchensky, Liz Rennie, Gary Bragar