A guide to the reasons why this key segment turns to outsourcing.
By Gary Bragar
Mid-market HRO buyers share many common reasons for purchasing HRO. However, there are some distinct differences among top buyer drivers for payroll, benefits administration, recruitment process outsourcing (RPO), and multi-process HRO (MPHRO). Let’s first explore the common reasons why buyers want to outsource:
Need to reduce the cost of HR services. Most buyers are looking for a 15-to-20 percent cost reduction over what they currently spend. Due to increasing cost pressures, buyers today are looking to reduce fixed costs and pay more on a variable basis, for example in payroll and benefits on number of employees, in recruitment on number of hires, in learning on number of classes delivered or employees trained.
Improved service delivery. Buyers need consistence in administration of such matters as benefits, who to call for questions, and how to apply for leave of absence. In recruitment, standardizing client processes for submitting job requisitions, screening and testing candidates, extending job offers, and onboarding candidates. Buyers are also looking for improved service by streamlined processes, for example eliminating paperwork by allowing access to benefits online and online enrollment.
Access to better technology. Vendors can often provide more sophisticated hardware and software than buyers are able to invest in themselves. They can provide one platform and the ability to integrate and aggregate HR content and data. For Multiprocess HRO (MPHRO), they can offer the ability to provide a single sign-on across applications. In benefits and payroll, providers can implement self-service for managers and employees and give real time access to information and the ability to view and update information online. In recruitment, we are seeing movement towards more standard technology platforms and Applicant Tracking Systems such as Alexander Mann’s launch of AMS OnDemand, and the use of Taleo Business addition is becoming more common in the mid-market.
Improved metrics and quality of data. For some buyers, more so in the lower end of the mid-market, this is the first time they have used metrics or if used, better metrics than typically present internally. Consistent monitoring and reporting of metrics in the mid-market is difficult as well due to lack of resources. In recruitment, common metrics are time to hire, cost per hire and quality of hire. Buyers are finding quality of hire more difficult in the mid-market due to fewer resources, but with the help of an RPO provider they can now measure quality of hire, and many are measuring candidate experience as well to better manage talent.
HR strategic focus. Outsourcing can free administrators from doing transactional work, liberating HR managers and executives to attend to business policy issues and focus on being strategic partners to help improve the business. Also, strategic HR can include an increased focus on talent management and the performance management process. In recruitment, hiring managers get more time to focus on the business instead of recruiting. Prior to outsourcing, one hiring manager revealed spending as much as 50 percent of work time on recruitment instead of business.
Better employer compliance and consistency. This includes buyers that have recently undergone M&A activity. Buyers are looking to providers to help create consistency of rules and procedures for the newly combined companies. Also, continuous changes in legislation create risk that needs to be managed. Buyers are looking to providers whose core competency it is to keep up to date on changes in employment laws and legislation. For example, in the U.S. an I-9 form, proving eligibility to work in the United States, must be completed and accurate within three business days of hire. Buyers might find it difficult to comply and measure compliance; a recruitment specialist can help them.
Improved employer brand. This can apply to both prospective candidates and current employees in helping them to understand what the employment value proposition is including:
a. Why an employee would want to work there, what the company values are, what the culture is like, career path opportunities; and
b. Total compensation statements, quantification of all the benefits and compensation provided, and comparison with the competition.
Improved employee experience. For example, for applications such as payroll, benefits, and HR administration/records management, when moved to self-service, employees feel more in control by being able to access and update their information online. In recruitment, as talent acquisition remains the top issue faced by organizations today, it’s important to improve candidate experience, and many providers are now helping buyers to understand and manage employee satisfaction and improve employee retention.
Now let’s take a look at mid-market HRO buying habits and prioritization by buyers of payroll, benefits administration, RPO and MPHRO.
Cost reduction. Cost savings buyers commonly achieved by buyers range from 15-to-30 percent, with 22 percent the average. Buyers are also looking to reduce their fixed costs and pay variable costs based on size of number of employees paid. Today’s economic climate is causing clients to decrease their workforces, thus increasing the need for per employee pricing. Buyers are also looking for costs that are predictable. Some do not have a good handle on what they are spending prior to outsourcing.
Improved service. Buyers are looking for access to external expertise and consistency of delivery, including after mergers and acquisitions where the buyer has grown significantly. Buyers want to automate and implement self-service and not have to worry about having enough resources to do the work.
Access to up-to-date technology. Again, this helps buyers avoid the initial investment outlay. Buyers are looking for providers who can integrate the different technologies they are using and provide a single sign-on across applications used by the client.
Access to payroll service metrics. Some buyers have not previously measured their own performance prior to outsourcing, or, if they have, are now looking for use of detailed service levels that can not only be tracked, but reported on consistently and used for analytics to improve business performance.
Ability to now focus on more strategic aspects of HR. Buyers are looking to free up HR managers’ time by giving time-consuming tasks of payroll administration to a vendor and be able to attend to business policy issues and strategic planning with their business partners.
The mid-market benefits administration HRO buying habits include:
Improved technology. Clients often do not have the capital to invest in this themselves. Buyers are looking to automate functions and implement self-service for managers and employees. This can provide real-time access to information, allow employees to view their own information online, make their own updates and enrol in annual benefits online; all of this saving time, improving accuracy of data and saving cost.
Improved employee experience. When moved to self service, employees feel more in control by being able to access and update their own information online.
Standardized processes. Again, who to call for benefits questions, how to apply for leave of absence.
Streamlined processes. Providers help eliminate paperwork by allowing access to benefits online and implementing online enrolment of benefits.
Cost reduction. Savings for buyers ranges from 15-to-30 percent, with 26 percent the average. For example, Workscape was able to save a client almost one million dollars by moving the clients internal call center to Workscape.
Improved employer brand. Through improved benefits management, providers offer a positive impact on current employees and prospective candidates. This includes not only health benefits but all benefits including savings plans and helping employees to better understand their choices, thus also driving greater participation in plans such as Health Savings Accounts, etc.
The mid-market RPO buying habits include:
Cost reduction. Cost savings achieved by buyers generally ranges from 20-to-30 percent, with 26 percent the average. Buyers are looking for costs that are predictable; some clients do not know what they are fully spending prior to outsourcing because recruitment might be decentralized and costs hidden in various departments and business units. Buyers today are also looking for more variable costs, often not wanting to pay any fixed costs and pay on a per hire basis only.
Improved service and consistency of delivery. Providers have standardized client processes for creating and submitting job requisitions, screening and testing candidates, extending job offers, etc. Buyers want increased efficiency, including centralization of services into a shared service center. For example, The RightThing has implemented centers of excellence that include global recruiting, resume mining and interview scheduling. Vendors provide dedicated client delivery teams that specialize in the client’s industry and types of positions hiring managers are looking to fill. The client does not have to worry about having enough resources to do the work. Providers have the capacity to scale to meet demand for sudden spikes in hiring volumes.
Access to up-to-date technology. Again, this comes in where clients do not have the money to invest. The mid-market is seeing movement towards more standard technology platforms/Applicant Tracking Systems, such as Alexander Mann is doing with its launch of AMS OnDemand. The resulting benefits include reduced sourcing channels and reduced costs.
Consistent monitoring of metrics. These include time to hire, quality of hire, attrition, etc. Clients find improving quality of hire more difficult in the mid-market due to less resources and want to improve candidate experience which is increasingly being measured by providers
Better employer compliance. This comes from improved consistency, for example EEO capture of data and reporting, completion of I-9 (Employment Eligibility Verification form) to work in the U.S. (I-9 forms must be completed and accurate within 3 business days of hire.)
Improved employer branding. This includes redesign of client websites to improve look, articulate company values including culture, commitment to diversity, etc.
The mid-market multi-process HRO buying habits include:
Cost reduction. Buyers have seen cost reductions ranging from 15-to-40 percent with 27 percent on average.
Better technology. Results include Increased automation, self-service, one platform and a single sign-on across applications / services
Improved service delivery. This includes standardized processes and a consistent way of delivering services, for example centralizing employee call centers into shared service centers, as opposed to being managed departmentally, thus lowering costs as well
Though the recession might have ended, and the economy is beginning to recover, due to continued pressure on achieving financial results, expect for cost reduction to remain the top driver for mid-market buyers to outsource HR services, followed by improved service and better technology as key differentiators.
Gary Bragar is the lead HR outsourcing analyst for NelsonHall’s HR outsourcing program. He can be reached at firstname.lastname@example.org
This article includes the latest analysis from the Mid-Market HRO Market Analysis published by NelsonHall in Q1 2009