Businesses large and small are expected to continue their adoption of HRO over the next decade, says Robert Brown, research vice president at Gartner, a global IT research and advisory company.

The UK market was worth £1.2 billion in 2006 but is expected to grow to £1.9 billion by 2011. Globally the HRO market will increase in value from £13.3 billion in 2006 to £21.7 billion by 2011.

Jeff Croyle, a partner at sourcing advisory firm TPI, says his research shows that “HR outsourcing service providers support an estimated 4.8m employees worldwide: 65% of these are in the Americas, 31% in Europe and 4% in Asia-Pacific”.

Gartner monitors the outsourcing of five HR functions: payroll, benefits administration, staff recruitment, education and training and personnel administration. Most deals over the past decade have been in areas such as payroll and benefits administration, says Brown, but providers such as Convergys, Capita, Accenture, ACS and IBM are increasingly selling “comprehensive” contracts that cover up to all five HR functions.

Meanwhile, says Croyle, the length of HRO contracts has increased for both European and American contracts and now averages about seven years following implementation.

Some of the biggest publicly disclosed deals in the HRO market, since the start of 2005, according to Gartner, are comprehensive deals, including Johnson and Johnson’s outsourcing of HR to Convergys in a 10-year £500m contract last May. The length of HRO contracts has been increasing for both European and American contracts, says Croyle, and now averages about seven years following implementation.

However, Brown reveals, there have been problems with comprehensive deals: some providers are worried whether they will make enough profit from the contracts and some businesses remain dissatisfied with the service delivered.

Last year, a survey of 416 European companies revealed that 12% had cancelled an HRO contract, compared with 9% in North America. Nearly half of the European respondents who cancelled took HR back in-house, while a quarter outsourced it to another provider.

Why did they cancel? Four out of 10 of the Europeans cited a “bad cultural fit” with the outsourcer while 36% said it took too much time to manage the contract.

Brown predicts that the biggest long-term HRO growth area will be recruitment. Research by Harte-Hanks, a survey specialist, revealed that the foremost concern of HR managers considering outsourcing part of their work was the desire to keep ahead of legislation (cited by 76% of respondents to a survey). Other concerns included the desire to get the most out of IT systems (75%) and to improve employee morale (71%).

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