Contributors

HR Leaders: Take Control of HRO

The numbers never liehow to deliver HRO cost savings that rival FAO.

by Andrew Kris

Sometimes conferences go better than anyone expects and sometimes they dont go so well. But judging by the feedback on last months SBPOA conference on Transforming the Finance Function, it was difficult to imagine what could have been done to make it better. 

Above all, one conclusion was loud and clear. F&A shared services are well established and accepted as an effective way to transform large, complex organizations. Shared services close cousin, F&A BPO, is not far behind, and a large number of companies represented by attendees confirmed that they already outsourced several transactional accounting activities, frequently offshore, to locations such as India.

 

Yes I know this is an HR magazine. So what does this F&A stuff have to do with HRO?

 

Just a year ago, HRO clearly had the greatest buzz about it, especially if you counted the column inches. Sure F&A shared services had been around a long time, but HRO seemed to be more doable and every outsourcer who could spell HR seemed eager to get on the bandwagon. I am not saying that HRO does not make sense or that it is not the right thing to do for many businessesquite the opposite in fact. But what is now pretty clear is that F&A outsourcing (or FAO) seems to be even easier to do, judging by the time it takes a company that has decided to outsource F&A to sign a deal with an FAO provider.

 

So why is it that HRO transactions seem to take forever to negotiate and put in place? During the last week, I set about studying the statistics and looked at several studies by the SBPOA and others to compare the case for F&A and HR shared services and outsourcing. There is little to choose between them. In general, cost savings of between 20 and 45 percent seem to be realistic for both functions. Both F&A and HR transformation promise faster, better service provision, improved compliance, greater employee satisfaction, and so on. No clues in the numbers.

 

Which function is more relevant to the success of an organization in terms of the likelihood of reducing administrative costs, F&A or HR? As this is an HR magazine and you are probably in HR, the answer may seem obvious to you. But realistically, I think the answer is F&A.

 

Lets face it, in a corporation with 25,000 employees and 125 HR people, reducing HR numbers by say 30 percent (37 people) is hardly likely to make much of an impact on the bottom line. Of course 30 percent savings is worth having, especially if you have to defend the HR budget. But it is unlikely to bring the company prosperity. Generally, there are more F&A people around in an organization than there are HR people and there is a significantly higher volume of F&A transactions, so finance has a chance to make a greater contribution to cost reduction through outsourcing.

 

Several HR executives I tackled on this topic say the answer lies in a problem evident since the days when personnel management became human resources. They cite HRs distance from the top rank of decision makers, its distance from the C-suite, and unjust bias that HR people are too often regarded as process jockeys focused on administration rather than direct contribution to the bottom line. Compounding the effect, according to some of the HR executives, was that HR people find it difficult and maybe even feel it is unreasonable to have to justify HR in terms of hard numbers. No one would ever say this about controllers or accountants!

 

Most corporations have a pretty clear idea of what it costs to run HR, but few HR groups make a sufficient effort to quantify the benefits of more effective HR service delivery. What is the true cost of inefficient HR processes to the company? How many work hours are wasted in handling requests that would otherwise not be made? I am not talking about time wasted by HR people but the time taken by every employee. Add these up, put a value on it, and suddenly you have a business case that goes way beyond taking 37 HR people out of the function! The economic benefits of HRO suddenly become meaningful, dont they?

 

Dont wait for outsourcing firms to convince your CEO or CFO that it is time to hand over HR. Make the case for transformation yourself, build the business case, and stay in control to take your place in the C-suite.  

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