The human resource business process outsourcing revenue will reach $46 billion in 2003, an 18 per cent increase over $39 billion in the previous year, according to a report by global IT research firm Gartner.
By 2004, the HR BPO revenue is expected to reach $51 billion, representing 39 per cent of all the BPO revenue.
Gartner analysts are providing their outlook for the outsourcing industry this week during the Gartner Outsourcing Summit being held in Los Angeles.
The outlook serves to buttress the view of the companies that they need to outsource services and human resources, despite attempts by the lawmakers in several US states to enact legislation to ban the outsourcing of government contracts on services.
The payroll and benefits services are the most popular in the HR BPO, and are driving the growth of the market, Gartner said. Companies that are already outsourcing the HR processes expect to significantly increase their investment in HR outsourcing in the next 24 months.
''Best practices and vendor scalability have been proven in HR over time and enterprises perceive the HR BPO option as being less risky and offering good value for the money,'' said James Holincheck, research director at Gartner.
''HR is a more mainstream and common BPO undertaking, so inhibitors to its uptake are low compared to the other processes,'' Gartner analysts said.
A short-term drive to cut costs is leading to an increase in enterprises signing the HR contracts that are focused on immediate cost ramifications, they added.
As more companies become comfortable with the BPO, they will shift focus to longer-term engagement models that transform their HR processes, Gartner said.
The bulk of the HR BPO deals in 2003 are priced on a utility basis, while in 2004, there will be more multi-process deals, they added.
Traditionally, the HR outsourcing deals have been low in flexibility, but in 2004 there will be an increased ability to change service levels and adjust process delivery outputs.
By 2004, an increasing number of businesses, encouraged by an improving economic and competitive climate, will become mainstream adopters of the end-to-end, strategic BPO deals, the analysts said.
Enterprises should note that the HR BPO is a vast, mature and growing external services option for their businesses, they added.
"However, the market is not monolithic, and enterprises must understand what 'flavors' of HR BPO can most meaningfully impact their business,'' said Holincheck.
''Creation of a sourcing strategy for HR that determines the proper mix between internal and external services will be critical to success,'' he pointed out.
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