Last week, a contingent of PEO industry operators and veterans gathered for the NAPEO Strategic Planning Meeting at the Boulders Resort in Carefree, AZ.
There were a number of topics and assessments of the past and future that were discussed in the two-day event.
One of the focal points of the session was an ongoing debate regarding whether NAPEO should remain with its core mission and focus on the PEO industry or expand the tent to offer junior memberships to include other types of services such as ESOs (Employer Service Organizations), HROs (Human Resource Outsourcing), ASOs (Administrative Service Organizations, RPOs (Recruitment Processing Organizations) and/or BPOs (Business Process Organizations).
I believe that most in the PEO industry believes that the market is changing. The question is whether that represents opportunity or peril? Let’s consider what has changed: The old time traditional small and middle market PEO primarily offered just co-employment. Over the years a significant portion of the PEO industry has added ASO, insurance and some even staffing or RPOs. Over the past decade, the PEO industry has had increasing competition from competitors outside the space such as Namely and Zenefits. As a diversification strategy, a number of forward thinking PEOs have begun developing a number of other business service offering such as tax services, accounting services, and outsourced IT services to name a few. The industry has historically held itself out as a “one-stop shop” for small businesses. Perhaps now, it is time to add additional shops to its suite of products and services.
Small Business (SMBs) Needs and Service Expectations are Changing
The reason for this debate is because small business expectations for our industry is changing very rapidly. This warrants consideration that a PEO’s services must change accordingly to meet these needs or the SMB will find someone (or other industry) who will. We must understand these trends deeply to make quality decisions.
In doing research for this article, I found some interesting contents in a November 26, 2018 article from Business News Daily by Adam Uzialko entitled “20 Small Business Trends and Predictions for 2019 (Trends or Trends Article)” which is good input basis for discussion.
Table I – 20 Small Business Trends and Predictions for 2019 from the Trends Article
| Sales & Customer Service | Technology & Cyber Security |
| 1. Businesses will further adapt to the modern customer focusing on delivering faster more efficient personalized service. | 11. Welcome the new kid on the blockchain. |
| 2. Technology will not replace the human touch. | 12. The rise of IoT computing will prompt the rise of edge computing. |
| 3. Genuine relationships trump technology. | 13. Big Data contextualization will become easier. |
| 14. We will build ethics into our algorithms. | |
| Marketing & Advertising | Public Policy |
| 4. Marketing will continue to grow more personalized. | 15. Political conditions favor entrepreneurs. |
| 5. The user review will be king. | 16. Data privacy regulations will proliferate worldwide. |
| 6. New sources of customer data will drive new strategies. | 17. The uncertainty of tariffs grow in 2019. |
| 7. Voice search has finally arrived. | |
| Banking | The Modern Workplace |
| 8. Big shifts could be on the way for Banking. | 18. Businesses will prioritize employee happiness. |
| 9. A radical change toward digital marketing will continue. | 19. The shift toward remote work will increase. |
| 10. Mobile banking means more cyberattacks. | 20. Tech start-ups will hire candidates from a broader range of professional backgrounds. |
Ten of the twenty highlighted in green above have a direct relevance in the relationship of PEOs to their client base. PEOs that adapt and evolve with the changing business trends and expanding needs of the market will continue to grow and prosper.
With the growing consolidation of the PEO market and the distance in size between the large and small getting greater, the question is often asked:
“Is there still a place for the small and middle market players? Or will there ultimately only be a handful of players?”
Traditionally, consolidating markets leave a handful of major competitors which can relegate the small and middle market to specialty and niche plays. However, most markets do not focus on the SMBs, which has its own set of market behaviors.
In the Sales and Service of the Trends above, the critical piece for the PEO to consider is that their SMB clients do not want to be just a number. As the large get larger, these entities may tend to focus more so on automation and transaction processing, as evidenced in other related industries such as payroll processing. With available workers’ compensation and access to the same underlying technology, the smaller and middle market PEOs have an opportunity to be nimbler and more agile relative to focusing on specific client needs than the larger players in a swiftly evolving market.
The small and middle market PEOs should wake up every morning reciting a quote from Rupert Murdoch:
“The world is changing very fast. Big will not beat small any more. It will be the fast beating the slow.”
As for the NAPEO Strategic Planning meeting, the question remains whether NAPEO should continue to focus solely on its original mission or should it have a bigger tent? PEOs are diversifying their services and perhaps we should help.
If you have any questions or would like to discuss the content of this article, please do not hesitate to contact me at dan@mchenryconsulting.net.
Referenced content
20 Small Business Trends and Predictions for 2019
https://www.businessnewsdaily.com/7605-business-trend-predictions.html
