Defining the ‘HR Industry’ is a challenging task, not only for the reason that there is no standard definition set one can refer to, but also because the dynamic and fragmented nature of the industry makes a unanimous classification almost impossible. In this story, People Matters attempts to create a framework for this industry and share opinions from practitioners, industry players and expert professionals, to bring transparency and tangible information to the buyers in this industry: CEOs and CHROs.

The CEO of an SME spends 3 months a year along with his HR team for performance management and salary revision. He wonders year after year, that if the human race was able to find a way to get to the moon, we should by now have found a more efficient way to manage the process of performance management and salary revisions…

A nationalized bank plans to grow 3,000 new branches across India in the next 36 months. The HR Head of the bank will need 3,000 branch managers to support the business expansion. She knows this is not possible through lateral hires alone, due to multi-fold costs making the process counter-productive for the bank. While she knows who to connect with for hiring, assessments, background checks, identification of internal talent, for training existing senior level executives to prepare them for the next move, and even who can advise on compensation and retention guidelines, she wonders why she cannot find one partner who understands the entire gamut of services and provide an end-to-end solution? As she meets diverse service providers, everyone talks about the process, technology or systems they will use to support her organization’s need. But she cannot find someone who will spell out the impact of these interventions on her business and whether that outcome will mean de-risking her business and eventually having the 3,000 people ready for those roles on time.

HR Head of an FMCG firm looks at the increasing cost of their HR operations and the diminishing value of its output. He recently finalized a job evaluation exercise and realized that the HR team spends more than 60% of their time on transactional HR activities, even as attritions are on the rise and employee engagement falls. He thinks the team should focus on areas that impact business growth, and outsource the rest.

The CHRO of a pharmaceutical company is planning their yearly HR intervention. To accomplish the new strategy, she needs the best partners in each field - be it search, selection, placement, assessment, consulting or technology. She believes the company should engage only with the best service providers in each category for maximum advantage, but is absolutely clueless as to who the best are.

A HR manager in the retail industry working at the branch level is looking at how her sales executives can increase their sales figures as the branch needs to dramatically increase revenues and the Regional Sales Manager has asked for her help. She first reaches out to her corporate L&D team and realizes that the people they work with are all based out of the city in which the company is headquartered. Looking at the budget allocated by the Regional Sales Manager, she realizes that spending on the consultant’s travel and stay would defeat the purpose. She then reaches out to local HR community for help, asking for references. The number of people who revert with their pitches end up thoroughly confusing her: assessment experts tell her that before training, she should assess her sales executives and discover gap areas; soft skills trainers tell her that sales is all about assertiveness and listening; sales experts, who will charge by the hour tell her that, at first, one needs to spend time looking at how the sales people actually sell and then advise on what they need to do, charging by the hour in the process; an MNC sales training firm reaches out to her with a proposed solution that has been implemented in 37 countries and more than 40,000 sales people have used globally. Where does she go now?

India’s business environment poses its unique challenges on people managers. Firstly, business continues to grow within traditional structures and HR set-ups, where the CEO and HR head struggle on the question of how much and what they should outsource. Secondly, HR teams are juggling between operational, transactional and strategic activities even as they strive to create internal efficiencies through effective interventions. Thirdly, business growth in India is much higher than the organizational capability for growth and hence companies need to bridge the gap through external people service providers.
As a function, HR is witnessing an exciting time. Dhruv Prakash, MD, Korn/Ferry Leadership and Talent Consulting, India, believes that top managers are increasingly paying close attention to their people interventions and hence to HR spending. “HR budgets are growing as quality of people, attraction and retention concerns will drive business growth more than ever before. Efficiency in managing people processes is also becoming significant, and therefore attracting attention and investment. Today, HR spending has the CEO’s and CFO’s attention, he says.HR heads and CEO’s of client organizations are striving to find the right partners that will help them in this rapid growth phase. The HR decision varies along different dimensions, depending on the value of investment, expected impact of service/product, window for results, return on investment (long term/short term) and involvement of internal team for successful delivery of the product or service. All such factors play a key role in deciding simple or more complex tendering processes. “As a client organization looking for the best HR services provider, we generally undertake extensive research, including multi-level interactions with different service providers and a thorough analysis of vendor capabilities, experiences and expertise on few basic evaluation parameters ranging from integrity of purpose, committed talent pool and unrivalled services in a most cost effective manner,” says Deepa Mohamed, Group Head HR & Training, SMC Group.
The Indian HR industry is complex, undefined and fragmented; with a number of players offering a wide range of solutions with no clearly defined standards of quality or industry accreditation. There is an evolving dynamic in this industry to adapt to the new and changing needs of the client organizations.

Changing needs of client organizations
The HR industry must evolve to align to the needs of the client organization that the industry aims to serve. Consequently, there is a need to first understand what is happening inside client organizations with respect to talent needs, gap identification and other focus areas that the industry of HR must address.
Today, an integrated approach to talent management has become a strategic component of any business regardless of the industry it belongs to, and this calls for HR to align to this new reality. Following the key trends in talent management presented in the last cover story (People Matters, April 2011), this is an attempt to bring forth the evolving needs of client organizations that will impact the buyer-supplier relationship:

The talent challenge
Talent challenges that today’s organizations face are manifold. There is an increasing cost implication in finding and hiring talent, putting most businesses, especially the people-intensive ones, under pressure. There is also the concern of employee engagement levels impacting business productivity, revenues and customer satisfaction - a concern capable of keeping CEOs up at night. To support the business agenda, client organizations need an integrated approach to talent management that will help de-risk their business. The solution, as Deepak Dhawan, CEO and Founder, Talentonic says lies “not in recruitment alone anymore, as the pressures for talent availability and cost of recruitment has forced organizations to look at an integrated strategy for recruitment, development, performance management, compensation etc. to ensure that the talent pipeline can support business growth”.

Flexibility & adaptability to business solutions
Client organizations today seek flexible business solutions to address changing business needs. Off-the-shelf products and services do not hold relevance anymore. They are not solely interested in the service providers’ processes, tools or systems, but their focus is on business outcome. Hence the need for service providers who are capable of understanding and servicing the specific business requirement of their clients.

Greater need for HR analytics and metrics
Increasingly CEOs and HR heads need access to real-time people-related strategic information for any business decision. The client organization is in need of technology and processes to gather metrics that will make such HR information available to the CEO.
With these changing business requirements and its implications on HR’s new role, HR professionals in organizations will need to build on more than just core HR capabilities. There is a need for HR professionals to focus on building program management and project management skills, going forward.

Understanding the HR marketplace
The slow evolution of the HR industry is a result of many Indian organizations being reluctant to engage external vendors. This has seen a change today as more organizations face the challenge to create effective ways for managing talent, thereby forcing them to look for alternate means of doing so. This opportunity in turn has led to numerous service providers vying for their very own place, resulting in a cluttered space.
N. S. Rajan, Partner and Asia Pacific Head of Human Capital, Ernst & Young attempts to bring clarity to the definition of the industry, and says, “There is no uniform definition for the HR industry. I define the industry of HR as any decision on buying products or services for any part of the human capital value chain. This is not restricted to HR as a function, or the HR Head as a decision maker, but includes any decision in the supply chain of people within the organization. So the HR industry includes all services rendered across the value chain of human capital and some of those services are governed by HR while some are not.”

The present HR marketplace canvas in India has traces of individual freelancers, start-ups, small and medium players, as well as large Indian firms and MNCs. The size of this space is huge and growing, yet there is no reference to determine the exact size of the industry. Although there is consensus in expert views which estimate the industry to be between INR 9,500 crores to INR 10,500 crores. The largest share in the pie is the recruitment segment which is between INR 4,500 crores and INR 5,000 crores, of which INR 2,000 crores represents RPO business. This is followed by the L&D segment which is between INR 3,000 crores and INR 3,250 crores, considering only soft-skills training. The HR administration and compensation & benefits outsourcing segment is next between INR 900 crores and INR 1,000 crores. HR technology’s size ranges from INR 800 crores to INR 900 crores while HR consulting is estimated to be between INR 500 crores and INR 600 crores. These ranges give an idea of the size of each segment and should perhaps be taken only as a reference point.

Composition of the industry
Below is the traditional segmentation of the HR industry, its nature and composition in India.

Recruitment and staffing
This includes search, selection and placement companies, and a wide variety of services from job portals, temporary staffing, RPOs, relocation firms, testing and assessment tools, applicant tracking technologies, background verification services, etc. From the client organization’s perspective, this industry includes all products and services related to activities that take place before and until the employee is hired.
The recruitment & staffing industry vertical is divided into senior level (CXO level) hiring, middle management hiring, mass selection & placement services, and the job portals. At the CXO level, business is traditionally defined as retained search (client pays the fee at the beginning of the service and is not linked to the success of the search), with high margins and high engagement. This segment is dominated mostly by the multi-national companies which position themselves as consulting services. Hiring at this level foresees a healthy and welcome trend, as the market for talent becomes global and as many firms acquire domain focus. Deepak Dhawan explains, “Who I would go to if I need a CFO in the US is not necessarily the same firm I would go to for hiring a CEO or a senior management team for the power or telecommunication industry in India”.
At the middle management level, business is mostly contingent in nature - clients pay only when the candidates join their organization. This space is also dominated by MNCs along with some large Indian players. The segment is evolving from an unstructured and fragmented ecosystem, to players adopting new norms of productivity and cost efficiency where “resume pushers” (who do not add value to the clients) will eventually get marginalized.
Most companies that operate in this segment also offer staffing and placement services for hiring at the bottom of the pyramid. This segment has many small and fragmented players that specialize in a location or industry. For lower level hiring, consolidation continues to increase as the name of the game will be in managing low margin business through volumes. Middle and lower hiring has the biggest growth opportunities as more organization look at reducing cost and ‘time-to-hire’ via RPO.
Finally, recruitment portals which provide access to candidates as a technology-enabled service also form a part of this segment. There is strong competition and pricing pressures in this space as differentiation is based less on product offering and more on establishing scale & brand dominance.

Learning and development
Data on the size of this segment in India is not readily available, but the numbers are generally very high. This is true especially if training were to include activities at all levels - bottom of the pyramid, technical, functional, behavioral and leadership training including business schools offering executive level training. “The nature of services in this industry vertical varies from training services on a per-day basis for training 2000 employees in a year with standard content, to highly customized leadership development services with specialized content and program management services substituting ‘stand up and conduct training’ services”, says Deepak Dhawan. Technology has and will make a huge dent in this area. Mass customization enabled by technology, will emerge to span the mental chasm between volume and customization.
This segment will witness fast growth, as companies begin to look at training as an investment to improve productivity. As Pallavi Jha, Chairperson & MD, Walchand PeopleFirst Ltd opines, “The mindset to training has witnessed a paradigm shift. Training has evolved from a feel good, reward centric system, to a performance-linked setup employing best practices and benchmarks. The over arching talent and skills shortage in workforce has made it to the CEO’s top priority, and longer remains the prerogative of the HR domain.

HR technology
This segment includes all technology service providers from end-to-end HRMS products, to niche products for recruitment or payroll management or e-learning, to workforce analytics tools. This industry is moving rapidly as a result of demand for integrated support solutions and with the Indian buyer becoming more open to invest in technology. All this is further pushed by the need to improve HR productivity. There is a range of players from large technology companies providing end-to-end human capital modules, to specialized companies that develop HR modules and niche players that focus on automating a specific function or process.
Ganesh Balaji, CEO, Adrenalin eSystems Limited exemplifies the scenario further and adds, “There are many local players and some national. We also find companies that have done some turn-key projects in this area, converting the same into a generic offering - more prevalent in payroll automation. The unique characteristic in India is the abundant availability of system integrators or software development houses which take up building specific tools to meet specific customer needs, and this acts as a good source for low key automation”.
Indian firms (SMEs and large organizations) mirror global organizations in the way HR technology procurement is led by HR and supported by the internal technology team. The IT team checks and validates issues like security, performance, disaster recovery while HR assesses the functional capability. “The biggest challenge in getting HR departments to buy technology is in helping them to establish a direct link between investing in HR systems and net income or productivity,” says Andrew Baillie, VP, Kenexa.

HR consulting
This segment has emerged from management consulting and is a cross-functional category that includes consulting firms from the big four, to the specialized HR consulting MNCs, to SME local players and even single-handled freelancers.
As organizational needs become more specialized and focused on the gap between business needs and workforce capabilities, HR management consulting will see increasing opportunities, attracting even newly created firms to fill this gap.
The accepted core areas around which most HR consultancy services operate include human capital management; rewards and remuneration; health and benefits, including retiral strategy and administration; the people angle of transformation, mergers and acquisitions; feedback and communication, including designing and implementing surveys on employee’s attitudes, satisfaction and engagement; and data services.. This latter offering has been growing within this segment driven by the challenge for predictability of revenue forecasts among consulting companies, so these companies have been building on annuity businesses which results in data services - salary surveys, benchmarking and job descriptions. “This offering today accounts for more than 50% revenue of large HR consulting firms”, says Debabrat Mishra, Consultant.
Integrated talent solutions in the consulting space are limited and developing. Traditionally most Indian companies did not feel the need for strategic HR inputs and kept it in-house. However, changes are happening at the client organization’s end - M&A, globalization, changes in business model, unprecedented growth rate - are making more organizations engage in consulting assignments.

HR outsourcing
Outsourcing is not really a category in itself as it emerges from the previous four categories defined earlier. Its growth and complexity needs separate analysis and hence requires a separate mention. Within outsourcing, one finds process-driven, function-specific and people-driven outsourcing offered by service providers.
Process-driven outsourcing includes complete corporate function outsourcing and is not restricted to HR alone. These service providers will normally cluster with the HR technology segment because they leverage on technology for providing services.
Function-driven outsourcing includes recruitment process outsourcing (RPO), HR administration and compensation & benefits outsourcing, where clients can leverage on the expertise, scale and technology of expert services providers for execution of these tasks.
Finally, people-driven outsourcing includes companies that offer to replace the complete HR team within the organization and function as the internal HR team in the eyes of the employees. These providers mostly cater to the SME sector and their solutions are closer to providing consulting support.
This classification is rapidly evolving... Over time, this classification of the HR Industry is fast-changing with client organizations’ requirements for a complete solution and also with the opportunity for the service provider to cross-sell and up-sell to the same client. “You will see, for example, top consulting companies like McKinsey or Bain getting into leadership training but not as a ‘stand up and train’ offering but more on creating the strategy, process, program, and running it for a year before leaving it for another training company to continue. Or executive search firms getting into assessment and leadership development,” adds Deepak Dhawan.

Challenges for clients
As business evolves, the role of HR will see a transformation towards becoming more business-oriented, and this will create varied challenges for client organizations in finding the right partner and engagement model to address their business needs. While there is systemic demand for HR services, client companies face a host of challenges in finding the right partners to
• Fragmented market - As a result of low entry barriers, lack of certification norms, huge business opportunity and decentralized decision-making process in the HR function, many service providers are entering this market, resulting in more confusion for the client organization in making the right choice.
• Inadequate information and absence of a central access point: While the service providers are many and come in all sizes, client organizations often face the issue in finding the right partner as there is virtually no central repository or information network where client organizations can find information about all service providers to assist in decision making.
• Absence of service providers’ credentials: The absence of credentials of the existing service providers add to the challenge. This is especially true for recruitment and technology segments where the buyer has no protection against unethical practices.
• Inability of service-providers to scale up to client organizations’ needs: The client organization faces a challenge in finding a partner that will be able to cope with their potential growth projections.
• Lack of India-centric frameworks - Most assessment tools, consulting frameworks, and HR services are borrowed from the west, leaving many loopholes while addressing the needs of organizations operating in India.
• No pricing standards and benchmarks: While client organizations’ focus is to ensure price advantage while partnering with service providers, there is no defined price catalogue that service providers follow. This has led few client organizations to focus on outcome-based payment where the fee charged is directly proportionate to the success of the intervention.

Challenges for service providers
If the players in the HR industry want to capitalize on their increasing role in driving client organization growth, they must reflect on how they can turn this opportunity into an exponential growth trajectory for themselves.
• Build on home-grown expertise to develop Indian frameworks – Service providers face an urgent need to invest in extensive R&D to build on expertise through home-grown solutions and frameworks that will address local challenges.
• Maintain talent caliber – As a result of increased number of projects, service providers have resorted to engaging fresh talent from the industry who are often much junior and are less experienced than the client representative themselves. This has resulted in a credibility gap in the eyes of the client organization.
• Create measures to calculate business impact - As HR in client organizations struggle to show the ROI of these interventions, service providers have to prepare themselves with appropriate metrics that can demonstrate real business impact either on the top line or the bottom line. This will meet the urgent need to establish a link between fee and desired outcome.
• Pricing pressures will build with increased market competitiveness – The increasing number of players entering this space will lead to market cannibalization and therefore impact pricing. For example, a larger strategy consulting firms will find itself competing with HR consulting firm for certain assignments or even take up executive search or leadership development projects, taking away business from the traditional executive search firms.
• Choose your game plan - As the industry evolves, service providers will need to choose between positioning themselves either as a one-window-service provider or a niche expert. Both will find a space in this growing market.

Trends that lie ahead
The dynamic nature of the HR industry makes it an industry to look out for. The challenges faced by client organizations and service providers will result in creative steps taken at both ends: The industry of HR will witness the following as we go along: :
• Phenomenal growth opportunity will see an explosion of players. This industry will see a growth of 3 to 4% of the country’s GDP growth rate, says E. Balaji, MD & CEO, Ma Foi Randstad. As a consequence, the market will see growth for current players and increasing entry of new players. The traditionally non-HR providers (such as communications and branding firms entering the employer branding or employee communication space) and investment are expected to flow in.
• The top-end of the segment (executive search, HR consulting, leadership development) and the low-end of the segment (HR outsourcing, RPO and process driven services) will grow at a towering rate. Companies will spend either on farming out the low-value work to partners (like increased outsourcing of transactional or operational work), or focus on increasing investment in high performers (using leadership consulting or executive coaching services). Hence all service providers will have to either capture the high-end or the low-end (or both) to continue growing.
• Consolidation is happening, mostly dominated by MNCs. The industry has grown over time through consolidations. Better technology, marketing muscle and benefits in terms of offering and outreach from being part of the larger player will continue to drive this trend.
• Increased focus on HR shared services and HR outsourcing. As HR moves towards a strategic role, its focus will shift from transactional to business partnership. There will be an increased focus in HR shared services and HR outsourcing as more and more organizations will look at centralizing the HR activities. “HR Shared Service Centre combined with single process outsourcing (in big conglomerate) e.g. payroll, compliances, benefits administration, or strategic HR with major processes being outsourced, are maturing as two alternatives,” shares Deepa Mohamed.
• New career avenues for professionals. The HR industry is fast getting recognized as an industry in its full right and will attract talent from other industries. Candidates from other industries within functions like sales, marketing and finance are eyeing this industry as an opportunity for faster growth.
It has been established that internal HR functions need the assistance of the service providers to be successful in their growth journey and remain relevant to their businesses. The novel and emerging needs of HR professionals is the raison d’etre of the HR industry. The industry is still at a maturing stage in India, and many service offerings are very new and will require more time to mature. Both client organizations and service providers will see a lot of churn in the coming years, sometimes competing for talent, sometimes arguing over fees charged, and sometimes even over their engagement objectives and working models. However, it is like a marriage. Both sides need each other to grow and be successful. Increasing conversations between both sides will help them to know each other’s needs and therefore grow the industry as a whole. Perhaps the solution lies with the creation of a HR industry body that will focus on training, certification and quality benchmarks, of this large and fast growing industry.