Demonstrating the value of HRO on the business through an integrated platform. Cost-containment efforts are more effective when fewer systems are cobbled together.
HRO is coming of age. One illustrative indicator is growth in multi-process HRO. In its latest annual report, the Everest Group found that especially for larger companies the typical transaction scope is seven HR functions and growing. Combine this trend with the upcoming wave of contract renewals (which typically add processes to scope), and we can understand that the market is ready to see incremental deals with increased scope—even if the new total contract value (TCV) shrinks.
As companies get out of their comfort zone of a few transactional processes and move toward more knowledge-intensive processes, some new questions arise:
• How can I ensure my extended HR organization works seamlessly?
• Will I be able to fully integrate what’s outsourced with what is retained?
• How can I control cost, risk, and quality when more processes move outside my company boundaries?
Before getting into answering these questions in detail, let’s take a step back and remember that varying service delivery models are a lever to improving
HR functionality as a business partner. This means operating at lower costs but also achieving higher process quality and flexibility. Are these objectives irreconcilable?
There are different ways that organization redesign can be achieved. Process and technology redesign need to go hand-in-hand, or you end up with limited leverage from automation and integration or a massive change management problem. HR is under pressure to reduce transaction costs, so having all your HCM processes run on the same platform ensures maximization of economies of scale and improves visibility for HR.
The second step is to establish a better link to business results. This tells us how investments made in the workforce are connected to specific indicators of operating and financial performance. For example, having the information consolidated seamlessly across various functional areas (benefits, compensation, talent management, etc.) is vital to understanding the impact and effect of HR on the whole company.
Thirdly, HR organizations leverage technology to prepare for the future. With people accounting for the largest single operating expense, the ability to plan and prepare for the needs of tomorrow as well as the ability to quickly on-board today helps organizations.
So how do you make sure that multi-process outsourcing helps these HR objectives?
HR’s mission is best served by consolidated, real-time information of high quality business processes at a low cost, regardless of whether this comes from outsourced or in-house systems. A system landscape of multiple, scattered point solutions will be more costly (separate licenses, cumbersome integration, multiple upgrades, different skill sets, higher exit cost), while associated risks are equally multiplied by the number of different solutions deployed. There are countless potential integration points between outsourced and retained processes.
Integration determines how successfully HR functions are outsourced and contribute to the department’s goals. It bridges organizational boundaries and makes your service provider a part of the extended enterprise. When this occurs, no one in your organization will even notice that a business process is run externally. So, while the value of integration is clear, cost is sometimes underestimated.
Different platforms need to be synched, and this generates IT costs as well as handover costs between various organizations and functions. Even more viciously this creates “opportunity costs” as process synergies across functions are reduced. Additionally, designing separate systems has an impact on the quality of the design itself—it is unlikely that the HRO provider or customer will really be able to know all systems well enough to fully leverage them.
“Interfacing” is not “integrating.” You can use interfaces to relay all sorts of data. While an interfaced landscape might provide all necessary data, it will not provide smooth and seamless process integration. You may have lots of data but very little information.
The risk of scarce integration, therefore, is to end up with glossy silos whose aggregate functionalities are grossly underused. This problem is particularly important for HR directors. One tenet of senior management is that the aggregate value of all organizational parts is higher than the sum of each. Do not allow multi-process outsourcing to trigger organizational disintegration that destroys this value.
