HR Outsourcing Jumped by 7% Last Year, Pushed by Covid-19

Outsourcing of HR functions increased by 7% between June 2020 and June 2021, according to a report by management consulting firm Avasant.

The company’s Global Hire-to-Retire Business Process Transformation 2021-22 RadarView said Covid-19 accelerated a spike in HR outsourcing demand and adoption during the year.

The manufacturing, banking, financial services and insurance (BFSI) industries led the adoption. Manufacturing contributed 23% of revenue while BFSI contributed 15%.

Avasant said its findings were based on interactions with enterprise chief experience officers and other key executives, targeted discussions with 16 service providers, subject matter experts and Avasant Fellows, and lessons learned from consulting engagements.

Meeting HR Demands

Enterprises are increasingly relying on service providers for flexible HR operations and digital transformation because of continuous disruption of the labor market, the report said. That disruption is being fueled by labor shortages, pressure on wages and the changing expectations of employees working from home.

“With HR at the center of enterprise-wide disruption, firms are increasingly entering into long-term engagements with service providers for streamlining their core and strategic HR processes,” explained Shabnum Grewal, a partner at Avasant.

Platform adoption — which is usually designed to facilitate seamless software learning by simplifying the user experience — continues to be at the core of HR transformation as enterprises extend their existing HCM systems or implement new ones.

Over 32% of enterprises planned to enhance their HCM platforms during the report’s period. “With challenges around hybrid working and skills shortages, the need to revamp the HR function has become a strategic business priority,” said Shwetank Saini, Avasant research leader. “This gives services providers new opportunities to expand their role in streamlining client HR operations with deployment of digital technologies.”

Climb in Regional Demand

North America continues to lead demand for HR outsourcing, the report said. However, the UK and Europe and the Asia Pacific markets also recorded significant revenue contributions – of over 30% and 12% respectively. That signals new market opportunities for service providers

To meet these demands, service providers are investing in their regional capabilities through local teams, regional partnerships and acquisitions.

They’re also expanding their digital capabilities through proprietary solutions and partnerships with HCM suite vendors.

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