SBPOA, Personal Magazin, Survey, Germany, HRO, Market

SBPOA and Personal Magazin study finds that German HRO market is growing

23 Jun 2005 | (Survey)

A recent study jointly conducted by the Shared Services and Business Process Outsourcing Association (SBPOA) and Germany’s PERSONAL magazin, found that the German market for outsourcing is growing significantly. This finding is confirmed by other recent studies that say, that the German outsourcing market has jumped to 12.5 percent, up from less than one percent four years ago.

Why this significant increase? Continuous cost pressures and intense competition are compelling an increasing number of German companies to consider – and adopt as a strategic transformation option – the outsourcing of commercial functions and processes, especially those in the HR domain, to external service providers.

To gauge the capabilities of the HR outsourcing service providers in Germany, the above-mentioned study sought to discover the following:

* What HR outsourcing processes the service providers offer to clients
* What software platforms are utilized by the service providers
* What methods the service providers use to exchange data with their clients
* How the service providers educate their clients on newly-supported HR processes
* What their clients’ average cost savings are as a result of outsourcing
* What success measurements/metrics are utilized (e.g., service level agreements, key performance indicators, etc.)
* What they believe are clients’ primary criteria for selecting one service provider over another

Quality is more important than cost savings
One of the most interesting findings from the study is that cost savings falls far below quality of services delivered as a driver for service provider selection. In fact, 59 percent of the service providers participating in the study cited “quality” or expertise as the number one criteria, while only 17 percent cited cost efficiency and savings.

Extent and performance of service providers vary significantly
The study revealed that 95 percent of German HR outsourcing providers deliver payroll services, while more strategic functions, such as personnel development (34 percent) or the definition of HR strategies (22 percent), are offered by far fewer providers. Administration of pensions and benefits are offered by 76 percent, and Human Resources Personal Information Systems are offered by 66 percent of the providers.

Contracts are closed on long-term bases
The study further found the majority of the HR outsourcing contracts in Germany – as in other world regions – are long-term partnerships (ranging from four-to-five years all the way up to 10 years), especially because a growing number of providers with an historical focus on payroll services are extending their portfolio to offer additional services such as pensions/benefits administration, employee communications, and HR information systems.

Most of the accounting takes place on a fixed-price basis
88 percent of the HR service providers offer fixed prices, while only 20 percent offer a performance-related fee structure. But 51 percent offer a pricing according to consumption of time and material. It is very interesting that most of the companies provide a variety of pricing arrangements. Clients should take great care to negotiate the pricing arrangement with their supplier, based on their specific needs.

Service Level Agreements are a standard performance measurement tool
Service Level agreements (SLAs) are the number one choice of provider performance measurements, and 89 percent of the providers integrate service level agreements into their contracts. In addition, approximately 36 percent of the providers offer Key Performance Indicators (KPIs), and 39 percent provide a continuous improvement model to assist with performance measurements.

Quality of customer training is key
Most customers (90 per cent) are trained very profoundly by a coach or written documents. About 30 percent are additionally trained by for example business simulation, webcasts, e-Learning and other tools.

Compared to international standards, HR outsourcing revenues in Germany are still quite low
A quarter of the interviewed HR outsourcing providers make less than 1 million € revenue; approximately 40 percent make 1 to 10 million; and 29 percent make 10 to 50 million € revenue. While low compared to revenue levels of outsourcing providers in other parts of the world, it is reasonable to assume that the German revenue levels will significantly increase as adoption of HR outsourcing grows in the country.

It is also reasonable to conclude that outsourcing service providers will enlarge their portfolio of services, especially those who were focused on payroll services in the past, a sweet spot for German HR outsourcing providers.

Said Andrew Kris, Chairman of the Advisory Board of the SBPOA, "HR outsourcing’s entrenchment in the German market is only a question of time. There is no doubt that enterprises can no longer bear the burden of such high administration costs. Economic conditions are causing significant challenges for German companies trying to compete in the global marketplace. Thus, the transfer of non-core HR processes to a third-party is increasing as a component of German companies’ strategic business model. The results of this study will help German companies better understand the capabilities of HR BPO service providers, and assist them in making the right service provider choice for their own unique needs.”

The story on the study results is accessible by going to: http://www.personal-magazin.de/SID109.P0zC20KExDk/newsDetails?newsID=1114684225.57.

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