Four models await the the intrepid HRO buyer, but which one is best for you? Depending on needs, the right approach will increase the chance for success.
For years, HROs have invested millions of dollars in technology to help them focus more on workforce and talent management and less on day-to-day administration responsibilities. The investments were to implement HR management systems that would centralize business processes into shared-services centers.
However, these investments never quite kept up with the fast-evolving demands of the organizations or advancements in technology, resulting in unmet objectives. Moreover, for organizations that didn’t make the ERP technology investment, adding administration to support multiple, disparate HR systems and applications became their new HR focus.
The decision to outsource a business process always includes an implicit decision regarding a technology strategy. Because the technology platform and how IT is supported and possibly migrated will have a tremendous impact on how business processes are delivered, the technology strategy does matter. The key drivers in the technology decision are the company’s current technology environment, existing capital investments, and the strategy for service delivery.
Outsourcing companies today are offering a variety of technology strategies to choose from, with some offering more than one and the possibility of changing after a period of time. These strategies largely fall into the following four categories: keep IT inside; lift and shift; transform then transfer; transfer then transform.
Real savings for the client are least likely to be achieved with keeping IT in-house, as outsourcing companies can only be reactive. If an ERP solution is in place, the maintenance and upgrades remain the responsibility of the client, so the outsourcer needs to make allowances for supporting the business processes that depend on the client’s technology changes. If the client changes the technology often, the outsourcing company must follow suit. On the other hand, if the client doesn’t change the technology, the outsourcing company is limited in its ability to reengineer processes.
The “lift-and-shift” model is an option in which the client has an existing ERP, and the support of the technology and the business process is turned over to the outsourcing company. The company assumes support for the client’s current core technology with the possibility of integrating it with additional software. This model offers an easier transition and the opportunity to enhance functionality in a more economical manner, depending on the outsourcing company’s capabilities.
But it doesn’t change the fact that the core ERP application must continue to be maintained. The shifting of responsibility that occurs with the application maintenance and support is the more critical factor, not the lifting and shifting of the infrastructure. Cost plays less of a role in this decision because most data centers run on comparable operating costs. Infrastructure strategy along with split responsibilities for change management is more critical in this decision.
Another emerging model is the “transform-then-transfer” approach, in which there is a complete transition of all technology to the proprietary solutions of the outsourcing company. With this model, more intelligence becomes lodged in the self-service applications, and the need for the ERP capabilities lessens. However, to make this significant transition is more costly and complex.
Combining the best of the “lift-and-shift” and the “transform-then-transfer” strategies, the “transfer-then-transform” approach has become a preferred solution for clients with an existing ERP. Initially, this is a “lift and shift” of the client’s technology to the outsourcing company, with predefined transition plans to “transform” to the company’s technology platform and strategy.
The key to a comprehensive outsourcing decision must include not only an understanding of the business operating model during the life of the contract and beyond, but there also must include a similar understanding of the technology strategy offered by the outsourcing company as it relates to costs, risks, exit strategies, and technology changes for a multi-year horizon.
Before any choice is made regarding an organization’s HR outsourcing initiatives, a decision must be made to determine what option will best support its future plans regarding technology. Although technology is often “behind the scenes,” it should be top-of-mind when selecting an HR outsourcing strategy.