HR Outsourcing clients can avoid repeating the mistakes of information technology outsourcing.
Compared to Information Technology (IT) Outsourcing (ITO), HR Outsourcing (HRO) is a relatively new phenomenon. What lessons have we learned in the past 15 years of drafting and negotiating IT outsourcing agreements that can be applied to HR? The answer requires a review of the maturation of the ITO contract during the past decade.
Historically, a large number of IT outsourcing agreements failed to provide the benefits that either the customer or provider sought. We all have learned a lot about outsourcing contract negotiations from these unsuccessful transactions. For example, these transactions showed that a lack of good information at the negotiating table resulted in arrangements in which the sides had failed to really reach agreement on a workable deal-there was a flaw in pricing, scope, or service that did not become evident until after the ink was dry. So, nowadays both sides in an ITO agreement insist on more diligence resulting in more openness in negotiations. Parties learned to share more information about the customer's baseline costs, people, processes, and tools, as well as the provider's lead personnel and solution, and even its potential margins. When the transaction was done, there were fewer surprises-and this meant more success.
ITO customers also learned that although they asked for everything, they could not necessarily get it. Unless the provider made a business case using transformational IT, the deal was considered "like for like for less"-the only added value was cost savings. Customers wanted cost savings and increased scope and better performance-and they soon realized they could be getting some of this themselves, given typical IT productivity increases. Providers could only do so much-and those that "bought market share" by promising too much learned to regret the deals-dragging many into renegotiation, some within months of signing.
Simply because HRO is relatively new, the HRO customer does not need to repeat the problems of the past. The HRO customer will understand that it can benefit by applying best contracting processes such as these:
Getting advice from experienced consultants and outsourcing counsel can shorten the contracting process and increase the probability of a mutually beneficial-and therefore successful-transaction.