HR represents nearly 19% of global outsourcing market

HR outsourcing continues to be a major component of the overall worldwide outsourcing market and is expected to be worth $24.6bn (£12.9bn) in 2006 – an increase of 4.7% on last year, research has found.

According to a study by analyst firm Gartner, HR outsourcing is the biggest component of the overall worldwide business process outsourcing market, with an 18.7% share.

Within the HR market, payroll services and benefits administration comprise the largest segment, together covering nearly three-quarters of the market in 2006. The remainder is made up of education and training, hiring and recruiting, and personnel administration services.

However, Gartner warns that the HR outsourcing market reached a crossroad in 2006, with some providers struggling with profitability.

HR outsourcing revenues in Western Europe are expected to reach $4bn (£2.1bn) in 2006, an increase of 6.5% from 2005, it said.

“HR has long been identified as a key area for outsourcing, usually in the areas of payroll and benefits administration services,” said Robert Brown, research director at Gartner.

“As a back-office function, aspects of HR are often deemed critical, yet non-core functions for outsourcing and are usually most companies’ first stop on the sourcing journey for business process outsourcing. Payroll outsourcing is also a key area for consideration among small and midsize businesses that are often underserved by larger, more-strategic forms of business process outsourcing.”

Many organisations that consider using HR outsourcing have created shared-service centres. However, many companies seek an outsourcer that can provide the next level of leverage to cut costs and continue to innovate on service delivery, the report said.

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