The Evolution of HR From 2008 to 2013
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Every year, Inc. Magazine releases its list of the top 5,000 fastest-growing companies in the nation: the “Inc. 5000.” The list encompasses 30-some industries, from travel and hospitality to insurance and logistics. Among those industries, we find a list of companies serving the Human Resources function—what we’ll call the “HR ecosystem.”

In this ecosystem, there are five main business models:

  1. Staffing and recruiting firms: Companies whose primary service is finding and placing talent for clients.
  2. Business service providers: Companies who perform outsourced human resources (HR) functions, such as payroll and benefits administration.
  3. Management consulting firms: Companies working with clients to improve overall performance, helping address organizational problems and develop plans for improvement.
  4. HR technology firms: Companies offering clients software solutions that perform HR functions, such as payroll and applicant tracking, and online professional networking sites and job boards.*
  5. Multiple models: Companies employing two or more of the above business models. For instance, some companies offer staffing and recruiting services, in addition to management consulting.

*Human resources software vendors were originally categorized by Inc. as part of the “Software” industry. Software vendors offering solutions specifically for HR functions were pulled from the Inc. 2008 and 2013 lists, and added to the dataset of human resources companies in the HR technology category.

We decided to see how this HR ecosystem has changed over the past five years, analyzing the data available from Inc.’s 2008 and 2013 lists—which, it should be acknowledged, represents information from 2007 and 2012 respectively. What did we find? From 2008 to 2013, the HR ecosystem grew and changed, gaining employees and generating more revenue than five years ago.


Human Resources Shows Below Average Growth

We compared the percent of revenue growth between Inc.’s 2008 and 2013 lists across all industry segments. While overall revenue for the human resources industry grew by approximately 20 percent, it trailed behind the staggering growth of other industries.

Percent Growth by Industry


Business Service Providers Lead the Pack

All types of HR firms in this sample saw revenue growth from 2008 to 2013, but business service providers led with 60 percent growth, followed by staffing and recruiting firms with 25 percent growth. 



Staffing and Recruiting Consolidates; Business Services Proliferate

The most notable trend between 2008 and 2013 was a decline in the number of staffing and recruiting firms found in the Inc. 5000. In 2008, staffing and recruiting firms comprised 63 percent of Inc.’s list of the fastest-growing HR firms. However, in 2013, only 56 percent of the companies on Inc.’s list were staffing and recruiting firms. Meanwhile, business service providers increased—from 13 percent in 2008 to 20 percent in 2013.



But while the number of staffing and recruiting firms on the list decreased, revenue for this business model grew. This may be due to a number of reasons from companies going out of business to surviving firms gaining more market share to merger and acquisition activity. According to this report, there were 62 percent more acquisitions in the first half of 2012 compared to the first half of 2011 (among staffing and recruiting firms). This would suggest mergers and acquisitions are responsible for much of the change.

Business service providers also saw impressive revenue growth over the past five years, up from $1.6 billion in revenue in 2008, to $4.2 billion in 2013.

Average revenue (per firm) for business service providers also increase——from approximately $80 million in 2008 to $100 million in 2013. 



Management Consulting Firms Earn Highest Revenue Per Employee

Revenue generated per employee provides a sense of each type of firm’s profitability, but it should also be noted that it is not a direct measure of a firm’s financial returns. That said, management consulting firms generated nearly $500,000 per employee, which is the most revenue per employee of any business model. Meanwhile, staffing and recruiting firms generated an average of only $20,000 in revenue per employee.

Each type of firm reports revenue differently, which may contribute to the low revenue per employee for staffing firms. For instance, a staffing company may legally employ people on behalf of clients, but only recognize revenue on their markup. Say they charge a client $50,000 per year for using their services, while paying the employee $40,000 per year. They would then only recognize a $10,000 profit, leading to a lower reported revenue.


The Geography of the Human Resources Ecosystem

 

Now that we know the types of businesses found in the HR ecosystem, where are they located? The states hosting the highest number of HR firms on Inc.’s 2013 list are: California, Georgia, New Jersey and North Carolina. Meanwhile, Illinois, Texas and New York all saw losses in the number of HR firms located within their borders.

 

From 2008 to 2013, the HR ecosystem grew and changed. Overall revenue for the HR companies on Inc.’s list went up, and the companies represented now employ more individuals than five years ago. Based on the data from Inc.’s lists, the future looks bright for the HR profession.

To further discuss this report or obtain access to any of the charts above, feel free to contact erin@softwareadvice.com.


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