Bigg fishing for business: HR outsourcing firms are forming partnerships and acquiring resources in a bid to get contracts from big business - Outsourcing

HR Magazine, April, 2002 by Steve Bates

With all the alliances and multi-million-dollar contracts at the high end of the HR outsourcing game, will the little guys get buried?

No, says Cunningham; not every small HR outsourcing firm will be gobbled up by a large consulting company.

"Size is important" in many ways--including marketplace recognition--admits Joe LoCicero, chairman and CEO of Buck Consultants. For example, "it's nice to be on everybody's short list" for outsourcing contracts, he says. Yet he doesn't see the consulting Goliaths taking sole position of the field. "There's a lot of opportunity and potential for growth in this area for all of us."

The alliances of the major players "will have an impact, but I'm not worried," says Lissa Julius of the two-person company HR Consulting, located in Noblesville, Ind., near Indianapolis. "We get many referrals" from existing customers--many of whom can't afford and don't want a big company taking over their HR operation.

"Yes, the competition is out there," says Julius. "Some big firms use the big guns to get the contract, but they send in the 'B Team' to implement it." Smaller firms like hers will still flourish through personal service to clients who want to be able to pick up the phone and get crucial advice from someone they know and trust, she notes.

RELATED ARTICLE: Outsource Everything?

Surveys indicate that about 9 percent of U.S. companies outsource at least one HR function, but analysts expect that number to rise. Some see a trend among large corporations to outsource virtually all administrative and transactional HR functions to outside firms, leaving a few other functions--such as strategy and salary decisions--in-house.

So-called "total outsourcing" is a market that Exult Inc.--an Irvine, Calif., HR outsourcing firm--is pursuing aggressively, says CEO, chairman and president James C. Madden. Exult promises clients "a comprehensive solution" of HR outsourcing services To date, it has signed BP Amoco, Unisys, Bank of America and International Paper to nine-figure contracts.

"Well see more of it," says Madden. "This is real, and it's not going away."

People, Power, Money

"Outsourcing is about people, power, and money," says Jose Cunningham, managing director of the Outsourcing Institute in Washington, D.C. "The most contentious issues tend to center around people."

For HR managers and other HR professionals discussions of outsourcing a few, or a lot of their firm's HR functions can be unsetting--even if the outsourcing firm makes a sincere effort to hire the people whose jobs are being farmed out.

"It creates a perception that 'my job goes away if I'm outsourced,'" says Marc Pramuk, an analyst with IDC, a technology and e-business market intelligence firm in Framingham, Mass. But about 80 percent of HR professionals in such situations retain their jobs, he says.

"Usually they are happy, and they learn a new skill," Pramuk states. "Instead of being a bookkeeper, they start thinking, I can be more strategic. What can I do to help grow revenue 15 percent?"