European HR Services Market to Surpass $34 billion by 2006

According to a recent report by IDC, the human resource (HR) services market will enjoy strong continued growth in Europe in the period 2002 to 2006, with HR business process outsourcing services in particular forecast to grow at a CAGR of 27.2% over the next five years.

The HR services market in Western Europe grew across all service categories in 2001and early 2002 - against a backdrop of falling ICT stock market values and despite a difficult economy - and will top $34 billion by 2006.

The findings highlighted that despite some well-publicized difficulties experienced by organizations such as BP in the outsourcing of its HR function to Exult, European companies are responding to the toughening economic environment and an increasingly competitive European market by focusing their attention on process improvements in back-office functions such as HR.

According to Mike Friend, Senior Research Analyst at IDC, "The bulk of recent technology investment and related outsourcing activity has been in customer services and customer retention. However, many companies are struggling to define what justifies as an appropriate return on their CRM investments. The current economic climate has encouraged organizations across Europe to focus their attention on driving through process efficiencies in their back-office operations. The outsourcing of HR processes or indeed the whole HR function is being increasingly seen as an important business tool in helping to manage inflated cost structures and improve operational capability."

Other key findings of the report show that:
- HR processing services spend, including payroll processing and benefits administration, is likely to see steady growth of 5.1% over the forecast period. However, the growth of the BPO market is likely to see a greater proportion of processing services revenues captured in broader BPO; hence IDC forecasts a declining share of discrete processing services in the total HR services market.

- HR consulting services spend, which includes services such as HR strategy, HR best practices, HR process reengineering and process improvement, organizational design, and compensation and benefit design, is forecast to grow 13.6% over the period 2001 to 2006. Consulting services will become the largest HR services segment by 2005.

- IDC forecasts the total European HR services market to grow at a CAGR of 11.4%, with growth anticipated to peak in 2004 at 12.3%. The growth of the HR services market beyond 2004, particularly the growth of the HR outsourcing services market, will to a large degree be determined by attitudes towards the BPO model in Germany, the largest economy in Europe.