In the first of two parts, the authors examine how you can decide on centralization,standardization, and outsourcing.
The Roman Empire was based on a very simple and extraordinarily successful concept: Do not ram into people who are bigger than you. Romans were very ambitious folks, and they made sure that the bigger guys would be cut down to size before facing them. Romans then used their very disciplined war techniques on targets they knew they could take down.
Large-scale HRO can learn from this. Large deals sometimes brought way too much front line to inexperienced provider and client teams. You see, taking up a lot of processes is not bad per se. If the client and the provider have the capacity to handle the complexity and the processes are suitable, the buyer can transfer large chunks to the provider, offshore some services, and save some money. However, this “your-mess-for-less” approach alone has proven unsustainable. Providers, therefore, turned toward getting that mess in order and leveraging their scale advantage—via reengineering—but often were not able to overcome clients’ resistance.
Like the Romans, you, too, have to pick your battles carefully, which in HRO means scope choices—which processes should be outsourced and which kept
in-house, which should be standardized and automated and which ones left alone. Picking processes means figuring out which processes matter in terms of cost, which processes scale and can be optimized, which processes will benefit from the provider’s scale and performance, and which processes will not generate an uproar when changed.
We have empirical evidence that many HR processes have a clear and steep economy-of-scale behavior, but in the end whether you can leverage this to your benefit is situational; it depends on the client and the provider and what the BPO provider is able to do.
Do the assessment. Then summarize it: savings, qualitative improvement, and disruption. What is the gain attained for each one of those subprocesses for both harmonizing in-house or via business processes outsourcing? When you have done that, you will probably be able to come up with a chart that looks like this figure (left).
The white bubbles depict what you can achieve in-house (internal shared services), and the black ones show what you can get with BPO. The vertical axis represents the gain to be achieved by standardizing: What is the potential cost reduction? Are there other improvements? The horizontal axis maps the pain associated with the change: How much disruption will I get when I do this?
Under process No. 1, the internal shared services deliver insufficient gains to justify the change while BPO with only marginal additional effort and pain delivers a good tradeoff. In process No. 2, internal shared services deliver decent gains already and have substantially less painful impact than BPO would have. With process No. 3, both options are viable; BPO has more gain, but also inflicts more pain on the organization. In process No. 4, process harmonization and standardization are simply too painful, and the achievable gains do not justify them.
Rome was built neither in a day nor on good strategy alone. Therefore, in the second part, we will examine the tools needed for analysis and for service delivery.