Underestimating the complexities of the deal is a common mistake. Here are four points for making it work. Keep in mind the 80/20 rule when dealing with geographies and never forget to win the buy-in of the business heads.
Companies often ask: “Can HRO work for us?” The answer is that each organization should reach a view on whether this is an appropriate solution for it, but there are certain attributes about an organization that will influence the success of any deal. Let’s look at the following questions when considering HRO.
- Are you a highly decentralized organization with multiple business units and differing market requirements operating in multiple countries?
- Do those business units operate with significant autonomy?
- Do you have a significant number of countries with low numbers (less than 200) of total employees?
- Do you have multiple legacy systems with significant customization and little or no integration?
- Do you have localized HR practices with no standardization or harmonization?
- Have you grown largely through acquisition, and are there significant remnants of pre-acquisition cultures still intact?
If the answer to all or most of these questions is yes, you are likely to benefit the most from an HRO deal in terms of synergy, service, and cost, but you are also the most difficult type of organization to deliver services to. However, experience has shown that it is perfectly possible to make an HRO deal work in such complex organizations, provided you and your provider partner work hard in the following key areas.
• Recognize the enormity of the change. All organizations, without fail, underestimate the level of change an HRO deal requires, given that it touches every employee and manager. Making the deal work requires, firstly, a significant level of resources, preferably from within the organization and preferably using “high potential” managers who don’t necessarily have to be HR people.
Secondly, the organization has to realize that HRO is not a quick fix and that the change process will take at least 18 months to two years to make any real difference to attitudes, behaviors, and acceptance of outsourced service.
Thirdly, the organization has to be willing to “give up” customized systems and software tools, even where significant investments have been made over the years to ensure common systems, standards, and definitions across the organization.
• Focus on the 80/20. In diverse and complex companies, the key to success in HRO is to focus on driving the deal and the supporting HRIT systems to key geographies that comprise the majority of employees. The current practice is to focus on countries with large numbers of employees and to keep “small” countries as they are with links into the HRIT system to gather basic HR data fields. The 80/20 rule applies, as it is very difficult to find a business case that will satisfy both client and provider and justify the rollout of systems and outsourced processes to these “small” countries. The law of diminishing returns rules in these cases.
• Get the full support of business heads. Decentralized organizations where HR managers report to their business unit heads and have no real allegiance to the HR function are difficult to manage in an outsourcing situation. The view of the business head is often, “It’s my budget, so I will organize the HR function and its activities to suit my business unit needs in my geography, and no one in corporate HR can tell me otherwise.” In such cases it is critical to get those business unit heads and senior managers to understand the need for, and benefits of, HRO and to plan out a consistent and continuing campaign of influencing and communication.
• Be prepared to make “tough” decisions to break up traditional approaches. It is often said that asking HR managers and administrators to support HRO is like asking turkeys to vote for Thanksgiving. Power and influence will have to change to make the deal work, and HR managers’ skill sets may well not be what the company needs in the future. This requires some hard decisions, in particular in driving reductions in HR staffing and in setting up HR business partner roles, where the success rate for existing HR managers in assessment centers is around 30 percent. The SVP of HR must be prepared to make those decisions.
These key areas are not the only ones that a diverse and complex organization needs to address to effectively implement HRO. However, understanding these critical success factors and managing them to achieve new behaviors and capabilities will mean the difference between success and failure.