BenefitsEmployee Engagement

Editor’s Note: Solving the HRO Puzzle

You can twist and you can turn, but you’ll still have to put in hard work to make outsourcing a success at your HR organization. Just avoid having to pick up all the little pieces.

by Andy Teng

Remember the Rubik’s Cube sensation that swept through the country in the early 1980s, a time when propeller heads whiled away countless hours on the
colorful puzzle? For the underachieving group of us, completing one side was plenty maddening, never mind aligning all six. For me, solving the cube sure looked a lot easier than it actually was.

A quarter-century later, I’m reminded of the mind bender when I speak to big, end-to-end HRO buyers who, like myself, misjudged a complex proposition. Although first-generation HRO is now behind us—having been passed by like roadkill whose stench lingers in our minds—there are still those tossing and turning at night because of imperfections in the second generation. And that’s raising questions about where we go in the future.

Already, we have seen the enterprise market retrench in the past two years as a reaction to issues that have plagued participants for the past five years. Buyer dissatisfaction and dismal provider profitability are recurring themes, and while some improvements have been hard-won, we’re still miles from market maturity. In other words, we’ve completed one side of the HRO cube; now it’s on to the other five.

Where to start? It looks like free-market theorists have gotten it right. Left to its own accord, the HRO industry has already headed down the right path. Buyers are increasingly opting for smaller engagements, retaining some services while outsourcing others. They are still engaging in multi-process HRO, but maybe not to the extent we saw a few years ago. That’s because they’ve adjusted their expectations about the complexities and rewards of end-to-end deals. They see limits in the market and are willing to accept them accordingly.

Providers have grown wise, as well. Pricing has stabilized, they’re more selective about clients, and they’ve pretty much built out their offerings. Many of these vendors have identified their sweet spots and, like their customers, understand that they must focus on core competencies.

In turn, sourcing advisors, who have made their own contributions through efforts such as bringing standardization to HRO, have grown more familiar with the capabilities of the marketplace. The result is better matching of need with competency, making both sides more satisfied with end results. Also worthy of note—at the risk of self-aggrandizing—is the role that industry publications such as ours have consistently played in covering the difficulties surrounding enterprise HRO, sometimes to the dismay of our advertiser-providers.

OK, now that we’ve patted ourselves on the back thoroughly, here’s the reality: Enterprise, end-to-end implementations are still more unwieldy than a two-wheeled shopping cart. One large buyer recently told me that his two-year-old deal has fallen woefully short of expectations and behind schedule, even though his organization had planned for the transformational event for years. Echoing what many other buyers have told us over the years, he said providers sell HRO as a seldom-problematic journey toward HR transformation. Had they been more realistic in setting time frames and goals, my source told me, buyers would have gone into these deals with eyes wide open and better prepared for the slog ahead.

This is partially true. It’s easy to beat up on providers—believe me, we have, and many deserve it—but the fact is until recently, even the most sophisticated providers have had trouble developing their business models, and sometimes omissions on their part are not intentional acts to mislead. Sure, some of them signed clients as springboards for launching their BPO businesses, but have you seen the recent earnings reports of some of these providers? They’ve had to suffer as much as the buyers.

What now? Market forces continue to work, so it might be a matter of time before we reach a practical equilibrium. The key is patience. HRO is still maturing. New and existing buyers need to understand the complexity and cultural changes they face when engaging outsourcing. This is slow and arduous work for client and provider alike.

Take if from me: There are no shortcuts. I once tried cheating by snapping the pieces off the Rubik’s Cube and rearranging them in their proper place. What I got was a bunch of plastic pieces. And as senior HR leaders, you don’t want to have to pick up the pieces.

Andy Teng

Tags: Benefits, Employee Engagement

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