Mid-Market Organizations Extend HR Outsourcing to Recruitment and Talent Management

Business process outsourcing (BPO) analyst firm NelsonHall announced the availability of its latest research, “Mid-Market HR Outsourcing in the US.” This report assesses mid-market human resources outsourcing (HRO) services in the United States and makes recommendations for vendors in addressing this market.

While single-process payroll and benefit administration services are well established in mid-market companies, 10% of mid-market organizations intend to purchase or significantly extend their use of HRO services by the end of 2007. “Although organizations typically start their HR outsourcing initiatives with payroll or benefits administration, mid-market organizations now face major challenges in recruitment and talent management. As a result, they are increasingly prepared to outsource these services to a trusted provider,” said Rachael Stormonth, Research Director, NelsonHall.

The research also supports the finding that some mid-market organizations are looking to a single HR service provider, having experienced difficulties in working with multiple services providers (e.g. for payroll and tax filing, COBRA administration, benefits administration, recruiting, employee verification, training) and that those vendors already providing payroll and/or benefits services into this marketplace are at a competitive advantage as there is a high level of willingness to outsource additional services to current providers. Accordingly, NelsonHall forecasts that the mid-market multi-process HR outsourcing market will double in size over the next four years to reach $1.5 billion by 2010.

“However, while mid-market organizations are prepared to use standardized utility services, they expect HR outsourcing vendors to take the trouble to understand their individual business needs and tailor their services accordingly,” said Stormonth. “Mid-market organizations, like their larger counterparts, want an improved service compared to their in-house capability. Vendors that try to impose standard services at arms length will not succeed in this market.”

NelsonHall’s research reveals that mid-market organizations are experiencing seven main issues with their HR functions:

  • The effectiveness of their recruitment activities and the management of high staff turnover.
  • The effectiveness of their talent management activities.
  • Management of a distributed workforce.
  • The increasing costs of service delivery and increasing demand for a wider range of services to employees, while under budgetary constraints.
  • The increasing costs of employee health and welfare compensation insurance coverage, workplace safety programs, and employee-related complaints.
  • Compliance with federal and state employment legislation.
  • Inadequate internal HR information systems.

“Mid-market organizations tend to be moderately dissatisfied with their current HR Information Systems (HRIS),” Stormonth said. “Most express concern regarding the ability of their current systems to support emerging benefits requirements, for example in consumer-driven health plans. Other areas of major dissatisfaction relate to current employee and manager self- service functionality and, for organizations with 2,000-10,000 employees in their ability to integrate with recruiting systems. There is a high-perceived level of need to replace current systems and implement a new HRIS in combination with outsourcing additional services. Mid-market organizations are looking for vendors to offer a ‘leading edge’ platform and the requirement for a new HRIS alongside the provisioning of third-party HR services rises sharply with organization size.”