Executive Summary

When evaluating the current health and state of Human Resources Outsourcing ("HRO") and Finance and Accounting Outsourcing ("FAO"), it is apparent that FAO is now beginning to enjoy a high percentage of delivery success. Service providers and buyers are finding the experience more transparent, quantifiable, and manageable; deals are more profitable and the industry is becoming increasingly attractive to investors.

HRO’s evolution has been more advanced in recent years than FAO; its total expenditure was double that of FAO last year. However, the HRO industry is becoming embroiled in delivery complexity, high-profile management overhauls within the leading providers, and increasing concerns on Wall Street surrounding the industry’s viability. Thus, attention is being directed towards outsourcing delivery models that are scalable, profitable, and deliver the right balance of people, processes, and technology to make the Business Process Outsourcing ("BPO") experience worthwhile.

Bottom-line: The FAO business model is taking full advantage of the cost benefits of offshore labor arbitrage. In comparison, HRO benefits only from pockets of low-cost resources, relying more on streamlining of service delivery and advancements in application tools and solutions to deliver cost benefits. While buyers are increasingly demanding higher value and incremental business benefits from their HRO and FAO engagements, the desire to strip out cost remains the dominant driver — and that is precisely the reason the FAO industry is now beginning to flourish.

The HRO industry finds itself in a difficult position today. HRO service providers are battling to deliver immediate cost savings as well as the promised improvements in employee care, management and service delivery, while also trying to build common HR standards that can be deployed across their existing and future customers. Simultaneously, many service providers are fighting an uphill battle to win the hearts and minds of the early buyers.

HRO buyers are in the midst of enterprise-wide outsourcing initiatives that impact the lives of all their employees and managers and bring many new challenges and significant organizational change. They are finding the process of moving towards an ideal HRO end state proving much tougher to achieve than originally anticipated.

Despite the fact that HRO, in many cases, involves a much greater degree of business transformation complexity, and often a more challenging governance structure, the whole industry can take some valuable insight from the balanced expectation-setting, simplicity, and sensible economics being practiced in FAO.