Embracing HRO for the Right Reasons

Winning the hearts and minds of employees is half of HRO’s battle. A compelling business case must be made to convince the C-suite.

by Paul Davies

For some, there is little hope that HR outsourcing will establish itself as the norm. For others, it is obvious that the current trend will continue until a mature, commoditized industry emerges. Those in between reflect upon not only the pros and cons of such a venture but also the timing, because once convinced of the benefits, judging readiness is the next step.

Full-scope HRO is still relatively a fledgling relying on technology and remote service delivery. Local, high-touch, exception-based models have been slow developing, not least because they have to be coupled with cost reduction but also because many buyers see the “decision handling” as their own.

Therefore, though the capability exists to take on a range of integrated, “professional” HR services, buyers have tended to focus mostly on activity that is self-service orientated, technology constrained, and lends itself to offshore call centers. A buyer not ready for this or who simply does not believe in it would be ill advised to embrace HRO until delivery models have evolved that meet more complex needs.

The emerging nature of HRO also means that HR can have an uphill slog to convince the organization that it is the right thing to do. Any change management advice holds that senior management and stakeholders must support a change initiative. With HRO, it helps to reckon that such consensus is unlikely and to ask oneself if HR is ready to deliver the change without widespread or wholehearted support.

That is not to say that decision makers must not be in favor. Obviously, the argument has to be able to carry members of top management. More often than not, the organization is made up of functions, divisions, and geographies that control their own resources. HRO is vulnerable to resistance by such fiefdoms, and the readiness of HR to deliver despite them is essential.

A factor closely linked to the power of HR’s argument is the business case. Some buyers will likely manage to prove their case through the strategic shift brought about by HRO; most will get a lot further with significant bottom-line improvements. Despite the qualitative benefits of HRO, outsourcing is not automatically a good thing in itself. Rationalization of processes, standardization of technology, and labor arbitrage are the bedrock, while outsourcing is often the best means to get there. Relatively new companies that have built their in-house may not have much to gain from HRO until the offering has matured and widened.

It’s not just the overall financials; it is the distribution of internal charges, also. Those responsible for the P&L of any division suffering from increased HR charges are unlikely to be rabid supporters of the new initiative through troubled times. So, if the numbers don’t add up by a clear margin, it’s best to wait until HRO implementation becomes a less tricky business.

The risk benefit analysis is as integral to HRO as any other business strategy. However, in highly regulated legal jurisdictions or in companies with organized labor, it should not be forgotten that HRO usually entails restructuring and job losses.

However, for those companies headquartered in low regulated environments, it’s worth remembering that separation and early retirement costs in some countries can be very substantial. Equally, limitations on separation methods are traditionally acceptable in some industries such as an aversion to compulsory job losses and legal minimum payments. In case of agreements to restructure by voluntary means only, the retention of employees whose jobs have been outsourced, coupled with the costly terms needed to induce separation volunteers can lead to very high exit costs, which in turn can unexpectedly ruin an otherwise promising business case.

There are benefits in joining the HR revolution early, not the least of which is the opportunity to mold the offering. Equally, there are risks, reducing all the time as more and more companies appreciate the gains, but present nevertheless. Those best placed to take advantage right now are probably large, costly multinationals with fragmented HR systems, strong HR leadership, and a desire to “de-content” their HR administrative processes. Companies that already employ a technology-based “transformed” HR model, or wish to see local, exception orientated handling of employees HR needs, or, rely on the ‘Line’ to implement successfully might want to watch this space for a while.

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

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