Issue link: http://www.e-digitaleditions.com/i/210252
10th Anniversary Special ``It's obvious there has been a significant change in technology in the last three to five years to support client requirements in terms of HR systems,'' he says. ``Things are changing very fast and the employee experience is taking the power.'' Pushing that leap in technology in the past decade has been the growth of cloud applications, reports Gartner's Yeates. ``There has been a lot of innovation derived from it,'' he notes. ``It has enhanced both the capability and functionality of outsourcing functions and expanded the viability of outsourcing. Cloud functionality has matured to where more judgment and decision-making is embedded in those services. It can reduce staff and improve functionality.'' The Cost Equation Have the drivers for outsourcing changed? Yes—cost reduction is no longer getting top billing in contracts as seen 10 years ago, the analysts report. In 2003, the main value proposition of HRO was for companies to save money. That driver may be a little less of a priority now, considering the flexibility and maturity of the market, plus the promise to innovate. ``In Europe now it is more about value,'' explains NelsonHall's Bragar. ``Providers have to do it better for less." Still, cost was a much bigger factor in Europe 10 years ago because clients had specific targets, he says. ``That was driving it and some of that is still happening today. But it has got to be an improvement on services. It's who can get me the best candidates, hires, and talent going forward." That sentiment is echoed by Gartner's Yeates, who says the socalled first- and second-generation waves of HRO have been about achieving cost efficiencies. ``It depends on the maturity of the market,'' he says. ``The number one reason globally behind HRO for the last 15 years has almost universally been cost savings. Now it's about improving quality of service internally and freeing staff to focus on strategic goals. Third- and fourth-generation waves will certainly focus on these other reasons.'' For ISG's Boubon, issues such as compliance and risk are driving most deals these days versus a decade ago, even as providers still ``have to be elegant on a cost perspective,'' he reports. ``The main aim of a global payroll engagement is risk management and compliance, but not cost savings.'' Where costs still have a great impact is in the public sector, like the government, Yeates reports. And both national and city governments in the U.K., Australia, and Canada are leading the way in ``actively investigating more outsourcing'' now than a decade ago, a trend he expects to continue, the analyst adds ``They are seeing they can overcome security and privacy issues as they are being forced to find savings, and outsourcing is a good solution for that,'' Yeates says. Growth and Execution The U.K., the biggest first-adopter of HRO in the region, is leading the movement in the European HRO market from the first-generation cost-efficiency models to value-based deals, confirming its position as the continent's most mature market just as it was a decade ago. While it may be poised to continue to lead the area in terms of deals, the larger transactions going forward may be out of continental Europe, says ISG's Boubon. ``The big deals are coming from the continent,'' Boubon notes. ``Does that mean they will create innovation? I think they will on the basis of the big contracts they are being signed today. In the U.K. you may have another generation of contracts.'' While analysts expect the U.K. market to remain the dominant player in HRO in Europe for the foreseeable future, the rest of the region is ripe for growth as agile providers with more sophisticated offerings are able to better meet the needs of clients with multicountry businesses than 10 years ago. ``Today, multicountry HRO is really accelerating, led by payroll and recruitment,'' reports Bragar. In his 2012 RPO market analysis, he noted that a third of all new RPO contracts are multicountry and "10 years ago that would have been in the single digits." The ability of providers to meet that demand demonstrates the maturation of the European market and shows it can transform itself without waiting to take its cues from the bigger firstadopters, according to NelsonHall's Rennie. Europe ``is no longer looking to the U.S.'' on how to evolve in HRO, Rennie says. In running multicountry platforms, ``you now just look at the market you are interested in." To meet the challenges brought on by such multicountry contracts, providers are merging and acquiring in order to adopt the specialisation needed to fulfill needs of European businesses that have global presence. That's another mark of a more seasoned and transformative market, Bragar says. ``Ten years ago we didn't see that type of M&A activity in the same extent as today,'' he notes, citing Randstad's acquisition of SFN Group in 2011 and Pinstripe Inc.'s merger with Ochre House this year as examples. ``That's mostly due to multicountry contracts. A decade ago providers didn't really have the capability ``to handle such complicated businesses,'' he adds. ``But there is a maturity of clients now. Clients are more comfortable and have confidence that vendors can deliver.'' Continued consolidation among providers to offer niche services will be key to the continued maturity of the global HRO market going forward, explains Gartner's Yeates. ``I see more acquisitions of niche vendors making for quick and efficient new offerings by larger, established providers,'' he concludes. ``We are going to see niche providers growing in multiple countries and we will even see them buying other niche players. They are already growing their footprints.'' AUTUMN 2013 | www.hroglobal.com [43]