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HRO as Part of a Multi-tower Supplier Relationship

Know what your needs are before deciding whether best-of-breed or full-service providers can best meet them.

by Michel Janssen

One of the most interesting debates in the HRO industry is the dialogue around scope boundaries. In the early days of this industry, suppliers were jockeying to include as many of the HR functions within the scope of the deal as possible. Today, this line of demarcation goes well beyond HR, with suppliers making proposals that include finance and accounting, procurement, and customer service functions among others. Obviously, different groups of suppliers are making arguments on both sides of the equation for which model is better for you. And lest you have a jaded view of suppliers, you would be right to suspect that some of these are about positioning their relative competitive position.

Which of these two schools of thought is best for your organization? One line of thought advocates the best way to go is to select a process expert, a supplier that is clearly the best of breed. Because they do HR exclusively, they live, speak, and breathe HR. They have deep domain expertise, honed from years of live-and-learn experience. When we bring a supplier to one of our clients, these teams often have a clear advantage by leveraging their focused HR expertise.

The newest school of thought prefers to add HR to other non-core BPO processes and then outsource all of the company’s back-office processes to one supplier. The story here is that it is important to think about an integrated administrative back office and view the problems in a more holistic manner. If you are a company going global, the issue is more about becoming global than it is around specific HR, F&A, or procurement processes. To these buyers, the benefits of outsourcing everything to one supplier outweigh the disadvantages of having the supplier less knowledgeable in the HR arena.

The second school is making its presence felt. The first multi-tower deals were signed in 2001. Since then, there have been 10 multi-tower deals that also meet the Everest definition of full-service HRO. Accenture and IBM have 66 percent of the multi-tower deals in terms of total contract value (TCV), which was $5 billion as of September 2005. In addition, ACS, Capgemini, ExcellerateHRO (EDS), and Xchanging all have established offerings to deliver to a multi-tower solution.

The million-dollar question is: Do multi-tower deals provide the leverage they promise? Do their advantages outweigh the benefit of having a best-of-breed provider handling your HR?

A look at the value propositions reveals no clear answer. Systems and process expertise are the hallmarks of successful HRO. The value proposition of finance and accounting outsourcing revolves around labor arbitrage and accounting expertise. If you look at procurement outsourcing, the value proposition centers around the corporate spend. Each value proposition is distinctly different and seemingly unrelated.

Under a best-of-breed strategy, this puts more focus on the individual characteristics of each outsourcing process; appeals to individual process/executive owners who are more in control of picking their outsourcing partner; is less complex to govern; and pays more attention to individual processes.

A multi-tower, single-supplier strategy has advantages. It creates an environment that enables a more holistic transformation; allows a top-down CEO/CFO-driven initiative to happen more quickly; and provides scale for the 10,000 to 25,000-employee companies that make the deal financially more attractive to Tier-1 suppliers.

However, there is risk in putting all your outsourcing eggs in one basket, and you may end up paying more for your outsourcing services because you’ve eliminated competition in each tower. Finally, you may have to make compromises in your HR delivery decisions to accommodate other BPO processes.

So why are buyers spending their hard-earned money signing multi-tower contracts? I suspect the CEO and CFO want to remove as much overhead as possible in a single stroke. They need the global presence and the size of the multi-tower players like Accenture and IBM, and they like the efficiency of “one throat to choke.”

Which way is the best way to go? There is chocolate and vanilla ice cream because not everyone likes the same flavor. The answer is to know exactly what you need so you can select the best option for you.

Tags: Benefits, Contributors, Engaged Workforce

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