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IDC U.S. HR BPO report: Robust growth, more consolidation

The human resource business process outsourcing (HR BPO) market in the U.S. will continue to grow at a compound annual growth rate of over 16 percent through 2009, reaching almost $16.5 billion, according to a new market forecast and analysis by IDC. IDC's Lisa Rowan predicts that service providers in this highly competitive market are in for more consolidation. In fact, IDC's Leadership Grid shows new market leaders beginning to emerge.

According to IDC, the U.S. HR BPO vendor landscape has shifted over the last 12 to 18 months, resulting in fewer major players due to mergers, acquisitions, and joint ventures. These moves have primarily been undertaken to position for competitive advantage in the area of HR domain expertise.

"Not all service providers possess the needed skills to win," said Lisa Rowan, program manager for IDC’s HR and Talent Management Services. "HR domain expertise, particularly benefits, has emerged as a core competency, and talent management looms as the next competency that will be needed to gain share. In addition, we haven't seen the end of market consolidation as additional areas of HR expertise will likely drive further acquisitions."

In 2004, 37% of U.S. HR outsourcing spending was on HR and talent management services.

This IDC study also finds, however, that barriers for entry are rising despite increased interest in HR BPO services, resulting in fewer competitors entering the market as opposed to two years ago. In order to attract market attention and acquire new business, providers must now be able to illustrate that their competencies match the growing complexity around HR BPO engagements.