PEO market share to only grow bigger
Posted on October 22, 2007 by author in HR Outsourcing, News in General
It’s always heartening to be an industry that’s just starting to show its best years. Despite having been around for decades, the idea of Professional Employer Organizations (PEOs) is still picking up steam and gaining momentum among small and medium-sized companies. It’s hard to believe that the concept hasn’t found more penetration–but there are concrete signs that this has started to change.
Such, at least, is the viewpoint of IDC analyst Lisa Rowan and long-time industry observer Carrie Aaron. They see that years of PEO data plotted on an S-curve and matched against Bureau of Labor Statistics (BLS) data provides insight about the current status of the PEO industry. They also make some predictions about when the industry might reach its tipping point and double in market share.
They point out that whether you’re speaking with investors or current providers, those people already engaged in the PEO industry are consistently upbeat about the prospects for growth being fueled by trends such as:
- The small business market opportunity is strong in the United States given its size and growth. Employment among small employers increased at a growth rate of nearly 12 percent from 1999 to 2006, according to the BLS. Small companies employ half of all workers in the U.S. private sector.
- The number of PEOs in the United States declined in 2003 versus 2000, but made a dramatic rebound in the 2006 Census. This is due in part to an increase in the number of small businesses in the United States, according to the U.S. SBA’s 2006 study of the small business economy.
- The introduction of HR BPO at the high end of the market is shining a light on comprehensive engagement that has had a halo effect on the PEO market.
- PEOs are capturing middle-market clients that were turned down by HR/BPO companies because they are multi-state/multilocation.
- PEOs will reach the magical 10 percent market share in 2008 or early 2009.
My own contribution to Carrie and Lisa’s discussion was to point out that as the large PEOs increasingly use their scale advantage to drive down operating costs and deliver sophisticated technology that is expensive to deploy, smaller PEOs will find themselves at a disadvantage to compete on a level playing field. PEOs who want to grow big should find out how to specialize in a specific niche market–because specialization and industry-specific HR capabilities are definitely the wave of the PEO future.
The full article is available here (note: this links to a PDF file).