Outlook for the Staffing & HRO Sectors

Staffing

• Most staffing segment trends are correlated with GDP growth (healthcare and outplacement are the exceptions). According to Staffing Industry Analysts, the staffing industry is expected to contract 10.3% in 2009 (the temporary help component, which excludes PEO, outplacement and search, is expected to decline 8.2%).
• Healthcare staffing has mixed expectations after growing 3.5% in 2008. According to Staffing Industry Analysts, it should grow by only 1.5% in 2009. Locum tenens and allied healthcare professionals are particularly hot subsectors with 14% and 4.5% growth, respectively, projected in 2009.
• IT staffing is expected to contract 8%, after a flat 2007. Certain verticals, such as healthcare IT and government services, should continue to fare much better.
• Professional staffing outpaced commercial staffing in 2008, with growth of 0.8% versus a contraction of 7.8%. According to Staffing Industry Analysts, professional staffing has a forecasted contraction rate of 5.1% in 2009. Technical and engineering staffing is anticipated to contract 4.0% in 2009. Clerical and industrial staffing are expected to contract 13.5% and 12%, respectively.
• The biggest question for the next recovery to answer is will it be "jobless", as the 2001-2003 recession’s recovery experienced.
• All businesses with a federal government focus should fare better than average, given the planned stimulus spending package.
• Buyers who are actively looking at deals are focused more than ever on fundamentals. Those companies with long term project based businesses, those serving core functions within regulated industries, or those whose value proposition is clearly cost savings to the client, will be in highest demand.
• Distressed sales are usually driven by top line contraction, margin compression, credit market constraints, and/or a reduction in alternative exit options. We expect to see more companies with credit constraints looking for very fast exits, some via Chapter 11, as we witnessed in the 2001-2003 recession.
• Many buyers are actively considering acquisitions of those that need to sell – but sellers should be prepared for lower valuations and creative financing to bridge risk.
• For those considering an exit when the rebound arrives, be prepared to move quickly as some segments will witness very rapid growth.

HRO

• According to HRO Today, contract activity as well as contract values declined significantly in 2008. Everest Research Institute reports that the multi-process market was estimated to have reached $2.9 billion during the year, with 28-32 deals versus 47 in 2007. A turnaround could take place in the new year since some aspects of outsourcing have an inverse relationship with economic growth. Also, with many organizations looking to shed fixed costs, HRO may have a better 2009.
• The market in 2009 will be shaped by trends other than the global economy, although it will still weigh heavily on decision makers who have the final say on adopting HRO in their organizations. However, with the industry still maturing, a shift toward equilibrium is likely to occur because for the past several years there has been a constraint on supplier capacity due to providers’ unwillingness to take on new deals. And with all eyes on cost savings, the way employers plan to outsource will mark a return to the early days of the HRO market.
• In previous years, many organizations were attracted to the transformational aspects of HRO, and how it could help them align services with their business goals, enable HR leaders to focus on strategic functions rather than tactical ones, and improve service quality.
• The shift in focus occurred quickly in 2008, and instead of long, drawn-out comprehensive HRO, many looked to point solutions that could be implemented in a short period and offer quick returns on investments.
• Technology will be the differentiator. Access to technology without big overhead has always been HRO’s great value. Whether it’s an applicant tracking system, a learning management platform, or even an enterprise resource planning system, appropriately selected hardware and software help reduce administrative burdens, improve performance, and minimize costs. Technology investments also help generate critical data, which enables organizations to be able to react quickly to changing market conditions.
• Staffing Industry Analysts predicts that the overall PEO industry will grow by only 0.5% in 2009 after 2% growth in 2008. Larger PEO’s should fare much better due to their economies of scale and insurance purchasing power.
• Look for HRO providers to offer recruitment and other related HR assistance to the Federal government and its contractors with the Obama administration’s plans to invest in U.S. infrastructure.