Mar 20, 2011

Challenges and Trends for HR services

Some excerpts from the latest article we wrote. You can also see the presentation we made

Amplify’d from
Challenges for clients

As business evolves, the role of HR will see a transformation towards becoming more business-oriented, and this will create varied challenges for client organizations in finding the right partner and engagement model to address their business needs. While there is systemic demand for HR services, client companies face a host of challenges in finding the right partners to

• Fragmented market - As a result of low entry barriers, lack of certification norms, huge business opportunity and decentralized decision-making process in the HR function, many service providers are entering this market, resulting in more confusion for the client organization in making the right choice.

• Inadequate information and absence of a central access point: While the service providers are many and come in all sizes, client organizations often face the issue in finding the right partner as there is virtually no central repository or information network where client organizations can find information about all service providers to assist in decision making.

• Absence of service providers’ credentials: The absence of credentials of the existing service providers add to the challenge. This is especially true for recruitment and technology segments where the buyer has no protection against unethical practices.

• Inability of service-providers to scale up to client organizations’ needs: The client organization faces a challenge in finding a partner that will be able to cope with their potential growth projections.

• Lack of India-centric frameworks - Most assessment tools, consulting frameworks, and HR services are borrowed from the west, leaving many loopholes while addressing the needs of organizations operating in India.

• No pricing standards and benchmarks: While client organizations’ focus is to ensure price advantage while partnering with service providers, there is no defined price catalogue that service providers follow. This has led few client organizations to focus on outcome-based payment where the fee charged is directly proportionate to the success of the intervention.
Challenges for service providers

If the players in the HR industry want to capitalize on their increasing role in driving client organization growth, they must reflect on how they can turn this opportunity into an exponential growth trajectory for themselves.

• Build on home-grown expertise to develop Indian frameworks – Service providers face an urgent need to invest in extensive R&D to build on expertise through home-grown solutions and frameworks that will address local challenges.

• Maintain talent caliber – As a result of increased number of projects, service providers have resorted to engaging fresh talent from the industry who are often much junior and are less experienced than the client representative themselves. This has resulted in a credibility gap in the eyes of the client organization.

• Create measures to calculate business impact - As HR in client organizations struggle to show the ROI of these interventions, service providers have to prepare themselves with appropriate metrics that can demonstrate real business impact either on the top line or the bottom line. This will meet the urgent need to establish a link between fee and desired outcome.

• Pricing pressures will build with increased market competitiveness – The increasing number of players entering this space will lead to market cannibalization and therefore impact pricing. For example, a larger strategy consulting firms will find itself competing with HR consulting firm for certain assignments or even take up executive search or leadership development projects, taking away business from the traditional executive search firms.

• Choose your game plan - As the industry evolves, service providers will need to choose between positioning themselves either as a one-window-service provider or a niche expert. Both will find a space in this growing market.
Trends that lie ahead

The dynamic nature of the HR industry makes it an industry to look out for. The challenges faced by client organizations and service providers will result in creative steps taken at both ends: The industry of HR will witness the following as we go along: :

• Phenomenal growth opportunity will see an explosion of players. This industry will see a growth of 3 to 4% of the country’s GDP growth rate, says E. Balaji, MD & CEO, Ma Foi Randstad. As a consequence, the market will see growth for current players and increasing entry of new players. The traditionally non-HR providers (such as communications and branding firms entering the employer branding or employee communication space) and investment are expected to flow in.

• The top-end of the segment (executive search, HR consulting, leadership development) and the low-end of the segment (HR outsourcing, RPO and process driven services) will grow at a towering rate. Companies will spend either on farming out the low-value work to partners (like increased outsourcing of transactional or operational work), or focus on increasing investment in high performers (using leadership consulting or executive coaching services). Hence all service providers will have to either capture the high-end or the low-end (or both) to continue growing.

• Consolidation is happening, mostly dominated by MNCs. The industry has grown over time through consolidations. Better technology, marketing muscle and benefits in terms of offering and outreach from being part of the larger player will continue to drive this trend.

• Increased focus on HR shared services and HR outsourcing. As HR moves towards a strategic role, its focus will shift from transactional to business partnership. There will be an increased focus in HR shared services and HR outsourcing as more and more organizations will look at centralizing the HR activities. “HR Shared Service Centre combined with single process outsourcing (in big conglomerate) e.g. payroll, compliances, benefits administration, or strategic HR with major processes being outsourced, are maturing as two alternatives,” shares Deepa Mohamed.

• New career avenues for professionals. The HR industry is fast getting recognized as an industry in its full right and will attract talent from other industries. Candidates from other industries within functions like sales, marketing and finance are eyeing this industry as an opportunity for faster growth.

It has been established that internal HR functions need the assistance of the service providers to be successful in their growth journey and remain relevant to their businesses. The novel and emerging needs of HR professionals is the raison d’etre of the HR industry. The industry is still at a maturing stage in India, and many service offerings are very new and will require more time to mature. Both client organizations and service providers will see a lot of churn in the coming years, sometimes competing for talent, sometimes arguing over fees charged, and sometimes even over their engagement objectives and working models. However, it is like a marriage. Both sides need each other to grow and be successful. Increasing conversations between both sides will help them to know each other’s needs and therefore grow the industry as a whole. Perhaps the solution lies with the creation of a HR industry body that will focus on training, certification and quality benchmarks, of this large and fast growing industry.

Enhanced by Zemanta