Happily Ever After
By Elliot H. Clark
Happily ever after is the way most fairy tales end, but real life has a way of making them, well, fairy tales. I had an old friend who used to say that you could tell the difference between a fairy tale and a war story because fairy tales began with “once upon a time” and war stories started “this s#*t really happened.” When it comes to HR and the selection of HR partners, it typically starts as a fairy tale and ends as a war story.
I have been concerned for years by the rise of the procurement function in HRO, RPO, MSP, and HR technology. In fairness to procurement departments and their ability to partner with HR, they bring order, data discipline, and process to the buying cycle. However, they also bring an attitude that treats many bespoke and customized solutions like commodities. And when you treat something like a commodity when you’re buying it, the product will turn into a commodity so it can be bought. Yet, real buyers of HR and the line management usually want more from the outcome than a commodity service. When that happens, the fairy tale start to the partnership may end in a war zone.
The best example of this is deal duration: It has dropped significantly. One hardly hears of an HRO deal longer than five years, or an RPO deal of more than three years. But just a decade ago, 10-year deals in HRO and five-year deals in RPO were the norm. Deal duration has declined since buyers don’t want to feel locked into a contract, but what most don’t understand is that shorter-term contracts means that they pay more money over the life of the agreement. What? Yes, it costs more. Let’s examine why.
Any complex deal requires investment on the part of the provider to set up or implement the solution. The proliferation of large implementation fees is essentially a requirement to offset this cost. However, any human endeavor in science, technology or, yes, even HR, will get more efficient over time. In a five-year deal those early inefficiencies are offset by the harvesting period length at the back of the contract allowing the provider to enjoy the profits from achieving efficiency over a three-year period of a five-year deal. But, if the deal is only three years, they get no “tail” on profits and the cost in every year has to be higher. In addition, sales expense or “pursuit costs” on major deals are significant and the more often the providers have to “sell” buyers (to get a renewal), the more the organization pays for that process. While procurement and HR may believe they are getting a better deal because it is shorter, they really aren’t.
In addition, the soft costs—like cultural fit between firms—are the hardest to score and the evaluation of it needs to be systematized. I mentioned in my January/February column that HRO Today was moving into a phase of incubating some new areas of technology or service. We have co-invested with long-time industry veteran, Jennifer Beck, formerly CEO of Impellam Group, North America (Guidant Group), to launch a consulting firm Higher Metrix. Higher Metrix will offer consulting services to corporate HR on procurement processes and the selection of partners. This is only one area of consulting the firm will engage in. Others will be around use of data and benchmarking services. HRO Today has also entered into an agreement to give Higher Metrix full access to the HRO Today Baker’s Dozen response pool. This provides question-by-question comparisons of providers in the six areas where we rate providers (this does not include the information on the companies rating the providers to protect our survey takers confidentiality, which is sacrosanct).
We have a unique perspective because we see the whole marketplace in several areas and we think this partnership will help HR and procurement groups with making sure the fairy tale never ends.
For more information, visit www.highermetrix.com or contact Jennifer Beck at Jen.Beck@HigherMetrix.com