Change Management: a Key to Successful Outsourcing

Getting the most out of transformation.

by Scott Gildner

According to the TPI Prevalence Database, nearly 100 organizations have established multi-process HR outsourcing relationships. The database tracks the utilization of outsourcing on a function-by-function basis among large organizations.

During the past two months, I have engaged in a series of discussions with the service provider community to begin to identify the key ingredients common to their more (and less) successful client relationships. One key ingredient for success has percolated to the top during those discussions: the importance of effective change management within the client organizations to facilitate the successful introduction of the new outsourcing model.

Service providers almost uniformly identified that the acceleration of the transformation of the retained HR organization was a critical success factor for the effectiveness of their relationships with clients. Moreover, proactive change management was identified as the most important tool for accomplishing the necessary transformation that accompanies outsourcing.

Organizations that have not done a good job of managing the change associated with the establishment of these large outsourcing relationships are suffering from the consequences. They find themselves not able to achieve their cost objectives as quickly because the remaining work has not been restructured and, therefore, they have overlapping and redundant roles with their service provider. Too much time is wasted trying to help managers and employees understand how to work with the new external service provider in a reactive rather than proactive fashion. And doubts about the service provider’s capabilities and the success of the relationship are introduced due to a lack of common understanding of the role the service provider in delivering HR services.

So what does effective change management entail?  At a minimum, an effective change management program should include the following components:

  • A broad-based communications strategy for each key stakeholder groups in the organization, including not only HR but also executives, managers, and employees;
  • An effective staff transition strategy, including appropriate redeployment, severance, and retention policies;
  • An organizational design strategy for both the new governance organization and the retained organization whose positions are affected by the change in roles and responsibilities due to outsourcing;
  • A change acceptance strategy to help make the HR transformation initiatives “stick;” and
  • A training program to help employees, managers, and the retained organization understand how to work with the provider in the post-outsourcing environment.

It takes a long time to educate and communicate the extensive changes to the organization associated with HR transformation via outsourcing, so the change management program should be initiated as early as possible in the outsourcing journey, with most elements introduced during the assessment of the feasibility of outsourcing. Those messages need to be repeated and reinforced as each client learns more about the specifics of how its own service provider relationship will work in practice.

Furthermore, the change management program needs to be a joint effort between the client and the service provider. While the service provider may have a significant role in the training program described above, nearly all other change management program components are the primary responsibility of the client organization. Given the resource demands already placed on the HR organization as part of merely exploring outsourcing or selecting a service provider, many organizations may want to consider reaching out to external organizations to assist them with their change management activities. Obvious candidates for providing such support include HR strategic consulting firms or even your sourcing advisory firm. Regardless of who leads the change management effort, it is absolutely essential that they have a well-grounded understanding of how outsourcing works to ensure the program is designed to address the optimal, post-transformation future state of HR.

The evidence is now clear, and the choice is yours—either implement an effective change management program early in the outsourcing process or suffer the consequences during the early years of your contract with the service provider. These activities are a prerequisite for the establishment of a successful and healthy outsourcing relationship.

Tags: Consultants & Advisors, HRO Today Global, Professional Contribution

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