by Michel Janssen

Several outsourcing suppliers claim they have global capabilities for HR services. Are the claims true?

As HRO continues to expand globally, now is the time to focus on the industry’s current and future capability of meeting the needs of multinational buyers. The first step to doing this is to take a reality check on providers’ claims. The fact is that various providers differ in their perspectives and definitions of “global capabilities.” With the emergence of a global economy, “global” has become a buzzword with several connotations. Often, it is a synonym for establishing business in a foreign market, establishing e-Business and e-Commerce presences, and doing business on a worldwide scope. Sometimes, people equate “multinational” with “global”— a practice that is happening increasingly in the HRO space.

Multinational buyers are rapidly adopting fullservice HRO, with services delivered in various regions worldwide. Motorola, for instance, has a Malaysian component in its HRO arrangement with ACS, and Procter & Gamble has a South American component in its HR services outsourced to IBM. In fact, Everest Group’s analysis of the HRO market (as of July 2004) reveals increased HRO activity worldwide. Europe, for example, is the geographic location for 15 percent of the total existing HRO arrangements. As illustrated in the figure, this region also claims 22 percent of the total contract value originated in the past 18 months.

Local laws and customs impact service delivery on a regional basis, thus suppliers are developing best-practice models on a regional level. But simply working with a multinational client to develop regional HR process solutions and having delivery centers around the world does not qualify a supplier as having complete global capabilities when it comes to executing against HR objectives.

In order to assess the numerous claims of multinational capabilities, Everest evaluates the globalization of HRO suppliers against these criteria:

• Geographic scope—breadth of countries supported, depth of in-country experience, locations of processing centers, and languages supported.
• Level of integration—degree of process ownership and degree of system integration.
• Existing customers—number of clients, geographic orientation, and clients’ industries.

Other parameters for defining “global HR capability” include having one basic value proposition, one integrated delivery engine, one management team, and the ability to move resources from place to place without disrupting an entire system. It would mean, for instance, the ability to roll out a compensation plan globally.

HR suppliers currently have different levels of capabilities around the world. Multinational companies considering outsourcing HR should be wary of suppliers that market themselves as having “complete” global capabilities; such capabilities will be developing over the next three to five years. Buyers need to understand today’s realities for capturing optimal value from HRO and how to position themselves to take advantage of tomorrow’s global solutions.