Contributors

HRO for the Middle Market

Successful mid-market partnerships require less customization and more standardization.

by Scott Gildner

Discussions about the emergence of broad-based, multi-function outsourcing for the mid-market—organizations that employ 5,000 to 15,000—are on the rise.

At the HROA World conference in April, a panel discussion about the growth of mid-market capabilities included several HR service providers (ADP, Ceridian, and Gevity) and served to raise awareness and interest in this market. In the past year or two, some of the large-market providers such as Accenture, IBM, and

Hewitt, have seriously considered dipping their toes or even diving right in. Demand for outsourcing is rising, and many mid-market organizations are considering outsourcing options and strategies.

Outsourcing on a grand scale typically has been deployed by the world’s largest corporations and public-sector organizations; among the Fortune 1000, for example, only the upper 30 percent outsource IT or business processes to any significant degree.

The mid-market is so designated because most outsourcing solutions are designed by service providers for large employers. “Large” in the context of HRO has historically meant an employer with 30,000 or more employees for single- process outsourcing relationships, or with 15,000 or more employees for multi-function business process outsourcing relationships.

The significance of size is that at higher levels, it is possible to profitably deliver services using a dedicated team. With smaller employee bases, non-dedicated teams almost always are required. So,  in emerging markets, where providers have not achieved significant scale or in markets requiring a significant degree of customization, size is crucial in attracting service providers. In a seller’s market, companies weighing outsourcing must consider their particular situation to gain the most from the RFP process.

This provides some insight for mid-market companies considering outsourcing. In particular, a mid-market company generally will not have the same flexibility to customize service delivery compared with the flexibility available to larger employers. In fact, a key criterion for success in the mid-market is the capability to develop a set of standardized service.

Historically, this has posed a tremendous challenge for the service provider community. The best examples of success are found in functional areas with a high degree of consistency across business requirements, such as payroll processing and benefits administration. In more diverse functional areas such as learning administration or recruiting and staffing, there are few examples of standardized offerings.

Finding a balance between standardization and flexibility also has been challenging for mid-market companies. A considerable number actually have a corporate culture that expects highly customized support services. Finding a service provider may require some ingenuity. They might consider bundling existing outsourcing functions such as benefits administration or expanding the scope of their requirements to gain a position on the radar of large providers.

For other mid-market companies, a more homogeneous and standardized solution is more than acceptable. For those without large investments in HRIS platforms, emerging service provider offerings actually represent a significant improvement in services for their employees, particularly with respect to self service.

The key for mid-market clients that seek to establish a successful outsourcing relationship is to match expectations and objectives with the service provider’s operating model. Organizations desiring highly customized
services should seek to expand the scope of their requirements so they can engage the larger market providers, while those seeking less customized services should seek to find standard offerings closely meeting their needs.

Mid-market companies should be wary of service providers touting highly customized services at significantly reduced costs, as early entrants in this segment are not likely to enjoy any short-term cost reductions.

Because large-market service providers consider the mid-market an emerging segment, it can be helpful to use a sourcing expert to map out a strategy that makes most sense for your organization. No matter what size your company or organization, remember this: Careful planning, preparation, and due diligence at each step towards contract signing and attention to building strong sourcing management and governance structures before you “go live” generally pave the way towards a successful and valuable outsourcing relationship that achieves the results you envisioned at the outset.

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