by Mark Hodges

Chances are the answer is 'yes.' Here's the in-house assessment you should complete before he gets to read it.

I have spoken at a number of HR conferences and forums attended by senior HR leaders from multiple countries. Audiences typically consist of 50 to 100 senior HR leaders, and I routinely ask the audience to raise their hands if their company has received an unsolicited HR outsourcing proposal recently. Usually 10% to 20% of the audience raises their hands and in one case, the percentage was well over 30%.

This phenomenon of unsolicited proposals landing on the desk of your CEO or CFO is not uncommon. Does your CEO have one on his desk now? I bet the answer is "yes." The question your CEO is asking himself is the following: "Is this a good deal for my corporation?" Unfortunately, this seemingly easy question does not have an easy answer. Getting to the correct answer can be a difficult and complex process requiring significant information and can impact a number of business units, decision makers, and even fiefdoms.

Why would an HRO provider submit an unsolicited proposal? Because it ensures attention at the highest levels of the organization. It also protects the provider from getting "blocked" by the SVP of HR. There is a major downside risk to this strategy-if the CEO decides to delegate the unsolicited proposal to the SVP of HR, then the jig is up!

Typical Proposal

The typical unsolicited proposal from an HRO provider reads as follows:

• We believe there are significant cost-savings opportunities in your company's HR function on the order of 10% to 20%.
• Using industry benchmarks, we believe your HR staff-to-employee ratio is in the lower quartile of the industry and your total HR cost per employee is in the lower 25% of peers as well.
• Based upon the number of active employees in your organization, your projected HR spending next year will be in excess of $200 million.
• Our HR Outsourcing unit will save you between $200 million to $300 million in total costs during the next 10 years (10% to 15% per year) in committed run-rate reductions.
• We would like to conduct a thorough assessment of your total HR costs-people, process, technology, and third-party contracts-in order to validate our assumptions and projections.
• The result of this assessment will provide you with a detailed business case including projected cost savings, required technology, process improvement initiatives, and other necessary components of the business case.
• This assessment is free if you end up outsourcing with us…if you don't, the fee will be approximately $300,000 to $500,000.

As you might surmise, your company could save up to half a million dollars by performing the assessment itself. As you can see from the accompanying checklist, there are nine key deliverables you should have in order to objectively compare your HR operation to that of an HRO provider's before ever issuing an RFP to the market. The first five activities-an HR assessment-are crucial to answering your CEO's question. An HR assessment should provide objective, fact-based information that presents a business case for internal HR improvement compared with the proposal of the HRO provider.

The first three checklist items are by far the most important. I liken these three activities to a three-legged stool-if one of the legs is missing the entire stool comes crashing down:

1) The statement of work

2) Service levels and

3) A financial base case.

Put another way, these three deliverables answer the following three questions:

1) What is the work?

2) At what levels of service and

3) At what cost?

Most HR organizations do not know the answer to any of these three questions, let alone all three, hence an unsolicited proposal holds some attraction to your CEO.

The fourth checklist item-knowing all your current HR third-party providers (payroll, training, staffing, benefits, etc.)-is also important as it is a major cost category. It is not uncommon for a large HR organization to have more than 100 third-party contracts in force.

The fifth item, a list of likely HRO providers, is also important. This demonstrates that you are not complacent and too inwardly focused and that you understand current external market developments and innovations.

HR departments should have already completed checklist items 1-5 before your CEO ever receives an unsolicited proposal. There are consequences if you don't-you will have demonstrated that you don't really understand the business function that you lead, the CEO will know you don't have your act together, and the HRO provider's unsolicited proposal is likely to be accepted at face value without any internal counterbalance.

HR Outsourcing Checklist for an Unsolicited Proposal

DO THESE NOW BEFORE IT'S DONE TO YOU

1. Statement of Work (for 22 processes)

2. Service Levels, Methodology, and Service Level Agreement

3. Financial Base Case (5-10 year projection)

4. Schedules (e.g., existing third-party contracts)

5. List of Likely HR Outsourcing Providers

DO THESE BEFORE ISSUING AN RFP

6. Pricing and Payments

7. Exhibits (e.g., in-scope countries, personnel)

8. Sourcing Strategy

9. Service Contract and Business Terms