Evolution of the HRO sector

19 November 2009:

Riding on the success of the BPO and IT industries, India has always been well positioned to be a leader in the HRO space. After a decade, the HRO industry continues to evolve in a rather mixed way—while many well known IT companies have joined the fray to give the necessary fillip and visibility to the sector, there are a few factors that continue to hold back.

The HRO industry can be broadly classified into two segments—the enterprise HRO (for multiple HR functions) and single process outsourcing. India has witnessed more of single process outsourcing, particularly in payroll space and benefits outsourcing. RPO (recruitment process outsourcing) and learning/training are the other emerging functions. “The complexity in single process is lesser than in enterprise segment and has witnessed maximum maturity in India. Payroll processing is in fact the most matured practice in India as there are some decent service providers in this space,” stated Rajesh Ranjan, Research Director, Everest Group. A global consulting and research firm, the Everest Group conducts worldwide studies on the HRO industry. From maturity prospect, the enterprise HRO in India is still at a nascent stage though certain suppliers in India are interested in building capability in this space.

Destination India

Many large global HRO service providers have a presence in India and see the country as a key delivery location. In recent times, offshoring of HR outsourcing has been gaining ground. “The HR directors in countries like US and UK are questioned by their CEOs and CFOs why their HR cost is high. That is why offshoring to a location like India makes sound business sense,” stated Ranjan. This apart, presence of a few big Indian IT companies having entered the market have added to the success story.

R. U. Srinivas, Chief Executive Officer, Caliber Point, the wholly owned subsidiary of Hexaware Technologies, acknowledged that the HRO industry in India is still evolving. While the ability to deliver at a large global level with the offshore component has attracted buyers, the growth has been in select processes like payroll (few countries), benefits administration, recruitment, workforce administration etc., but not some of the other parts of HRO. “The Indian service providers capable of delivering the end-to-end HRO services are just a handful at the moment while there are a large number of single/stand alone service providers,” said Srinivas. He pointed out that domestic HRO is more established and growing with some players beginning to standout. With some exceptions, the captives in general do a lot more comprehensive HRO work than the typical third party BPO player. Over the years, the big change has been that the large multi process, multi country HRO deals are no longer being pursued by the large companies alone. Mid sized market has also opened up.