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In the Aftermath of Outsourcing

Following outsourcing, the retained organization and its staff are expected to be more strategic. Make no mistake, there will be winners and losers, and not everyone is capable of adapting to change. Here’s how to help the rest make the leap.

by Andy Teng

Now that the cheese has been moved, how are you going to navigate the maze? That’s probably the question many HR leaders ask themselves post-outsourcing. Sure, the transformation was a rough ride, but an even more formidable task—certainly a longer journey—is helping the retained HR staff become more strategic in their purpose. Even with the best change management in place, there will be begrudging supporters, naysayers, and some casualties, so what is an HR leader to do in the HRO age?

To be sure, the focus on outsourcing is shifting away from a pure cost play to being a strategic tool that enables employers to better focus on their business. Sure, making a business case for HRO remains a critical factor in the decision-making, but studies show that it’s not the only one, and other considerations come in play. For instance, in its 2005 survey of the largest buyers of HRO, Towers Perrin found that 37 percent outsourced to reduce costs, but 23 percent wanted to free up HR to focus on more strategic issues—a close second. Service improvement was the third-leading reason at 14 percent.

But transforming HR to be a strategic center—whether to improve retention of key personnel, aid in the company’s expansion plans, or contribute in other non-transactional ways—is a foreign concept to many long-time HR professionals who only have processing on the brain. In the post-outsourcing era, the retained organization will need to become more analytical, agile, and adaptive to react to shifting market conditions. Those who can successfully follow along stand to prosper, but HR professionals incapable of change will find themselves out in the cold and possibly out of a job.

“We discovered that one-third to 40 percent had to leave the firm or leave HR and find other employment, or they just recognized that they had plateaued and couldn’t move onto the next level,” said Hugh MacDonald, vice president of operations and knowledge management at banking giant CIBC. One of the first enterprise buyers of HRO, CIBC began its transformation with the establishment of shared services, followed by outsourcing in 2001. MacDonald said he learned that refocusing HR is not an easy—and sometimes not a pretty—task. Many retained HR personnel simply can’t figure out their new role once they are relieved of transactional services. While this should be viewed as an opportunity for broadening their skills, many spend their time resisting or failing to comprehend these new expectations, he said.

“In this day of political correctness, it’s nice to believe everyone has something to offer, but the reality is not everyone has wisdom,” he added.

That outlook is reflected in Towers Perrin’s study, which showed that while most buyers were satisfied with meeting their immediate goals of cost savings, few had met heir wish to become more strategic. Whether this was the result of HR being incapable of becoming more strategic on its own or that it lacks the talent and resources is unclear, but one thing for sure is that the retained HR professionals need better skills.

NEW WAY OF THINKING

Being able to quickly resolve errors on a paycheck or changing an employee’s insurance plan is old hat to most HR generalists, but ask them about the organization’s sales and marketing functions, finance and accounting-related issues, or even operational relationships and you might hear a pin drop. The truth is that employees who have worked in human resources their entire careers are in for a jolt as the organization transitions to outsourced ser-
vices. Not only are they expected to perform a new set of tasks, but some must don a vendor-management hat as well to ensure their service providers perform to expectations. In addition, employers increasingly are seeking workers who have business sense, understand their core markets, can deliver important data to management, and put all of this in context. According to industry observers, these skills don’t develop naturally and require effort by both employer and employee. But once they have made the transition, HR becomes much more effective, they say.

What kinds of skill are involved exactly? Anything that helps align HR with the business goals of leaders, said Dave Ferio, the director of the HR management graduate program at Rutgers University in New Brunswick, NJ. A well-recognized school for HR studies, Rutgers is increasingly focusing its curriculum on preparing students for a more strategic role through outsourcing and other transformational tools. In fact, the university has structured its program around four cornerstones: HR strategy; the use of decision tools; HR applications; and context. Courses include “HR Decision Making: Accessing Data for Decisions,” “Developing Human Capital,” and “Designing and Implementing Human Capital Strategies in an Era of Change.”

Ferio said the school began to tailor its coursework in the late 1990s around the dynamics that accompany outsourcing and HR transformation in anticipation of the new skills demanded of workers. By helping HR to align with the business objectives of the rest of the organization, HR professionals elevate their value to the entire organization.

“That alignment increases shareholder value,” he said. “In the courses that I’ve taught, that’s been a theme that’s come up, and we have addressed those issues. They [students] want to get the most current skills and future skills.”

One area the school stresses is the use of measurement tools and data, which have long resided on the radar screens of HR executives but remained underutilized because of transactional demands. Ask a group of HR managers if they performed much benchmarking and analysis before outsourcing, and you might get a lot of blank stares. Immediately post-outsourcing, the same group might have a different set of expressions—including bewilderment because they’re not sure what to make of the data or how to use it.

Moreover, the question of whether they are measuring really useful data—useful at least to business leaders—remains unanswered. Some HR leaders say this is where the retained organization can become truly strategic: capturing information that will affect the long-term goals of the company. To do that, there must be a shift in focus.

“You need to sit down and understand the business, market, and business needs,” said Linda Merritt, an HR director at AT&T, also one of the first big buyers of end-to-end HRO. She pointed out that outsourcing can be revealing for HR executives because it gives them an undistorted peak into their department. Also, it’s a time when organizations can reassess how HR people are deployed.

“Stripping away the administrative function, through an internal shared services or outsourcing, frees up time and resources, but it does not automatically make HR strategic,” Merritt noted. “Do you have the right people in the right roles? Not everyone wants to or is suited to making the re-skilling journey to become strategic HR business partners.”

Without doubt, HRO leads to staff reduction, but additional cuts may be required post outsourcing to truly make the department strategic and efficient. There isn’t room for everyone, so for the one-third to 40 percent of staff that MacDonald said can’t adjust to HR’s new role, they won’t have a place in HR.

THE EMPLOYER’S ROLE
But what’s the employer’s role in all of this? Does it have an obligation through its change management efforts to help staff acquire these new skills? And where can workers go to learn? Are some blessed with this innate business sense while others, regardless of how much training they receive, will never fit into a strategic HR? And what is the role of the providers, who play a large role in helping clients during the transition? How can they help retool the retained workers?

MacDonald said the employer indeed has an obligation to help retrain the retained HR staff, but it must do so selectively.

“There are some people who don’t have the talent or experience to be strategic,” he said. “Look at someone who would fight it [outsourcing]. The question you have to ask is, are they fighting it because they are scared? If they have talent, let’s take them through a change process. Or are they fighting it because they don’t get it and they don’t have the attributes. You have to do a little bit of diagnosis.”

But even after employees have been identified to stay in HR, whose job is it to train and refocus? Is a smaller HR department capable of implementing such an extensive program or can it look elsewhere for assistance?

Matt DeLuca, a lecturer at Baruch College in New York City who also helped to design an outsourcing certification program at New York University in 2002, said employers have a myriad of traditional resources such as continuing education courses, internal programs, associations such as the Society for Human Resource Management (SHRM), and even service providers to turn to for change management help. He said like any profession, HR requires its practitioners to continually adapt and learn in a changing environment. While outsourcing is a more recent phenomenon, there is no reason why HR professionals can’t take on new skills in its wake.

“If they [HR professionals] want to be effective, plan on growing and learning for the rest of their professional careers. If they don’t, they are doomed to failure,” DeLuca said.

He lamented the fact that academic leaders haven’t fully grasped the impact of outsourcing and that universities aren’t doing enough to prepare HR professionals entering the field. In part, he said, that stems from the immaturity of the market.

“A big frustration for academics is that outsourcing is so new that they don’t know what works and what doesn’t,” he added.

ON THE FRONT LINES
Perhaps no one has more of a front-row seat to HRO than providers, but to what extent can vendors teach their customers about becoming more strategic? According to a few large providers, they, too, have a duty—albeit limited—to help clients find a strategic role for their retained employees.

Despite all the talk about change management in the transformation process, buyers rarely address this aspect adequately, according to Kathryn Kelly, vice president of strategy and growth for provider ExcellerateHRO. They simply are too busy grappling with all the other changes taking place to focus much attention on the internal group, she said.

“I have rarely been in a situation where an employer has focused an appropriate amount of attention on the retained organization. That’s because they are trying to wrap their arms around this transformation,” she said. “This is hard work. Transformation is hard work. Change is hard work. We’re in our infancy in our industry, so we are all learning.”

Kelly said there are four keys to a successful retained organization: HR needs to determinewhat type of organization it wants to be post- outsourcing; embrace vendor management, partnerships, and governance; make difficult decisions about human capital—who goes and who stays; and determine whether shadow organizations that are not officially a part of HR but performs some of its functions should remain or be dissolved.

While Kelly sees the strategic HR transformation as a joint effort undertaken by both buyers and providers, others see it largely as a client journey that providers can assist in.

John Gibson, senior vice president of Employee Care operations at Convergys, said by removing the transactional hurdle HR faces every day, the organization can focus on big-picture strategies, which has also led to some executive hand-wringing. He offered up his main keys to success: an internal leader driving and championing change; and engaging business leaders to the new outsourced model, which enables the retained organization to focus on value-added activities.

He said as organizations embark on the transformational journey, they will come to see that they already have the manpower and talent to make HR more crucial to the entire business. Gibson said retained organizations often ponder how they can procure the new skills needed to become more strategic, but the truth is that many already have the right people. And when transactional shackles are gone, they are able to make meaningful contributions such as business-imperative data and transforming cost centers into profit generators.

“I think a lot of strategic skills exist in organizations. They just don’t have time to leverage it,” he said, citing one customer that has been able to launch seven strategic HR initiative since it began outsourcing. “In that case, they had more people who were operationally focused. They had the people and they had the talent. Now they have the time.”

Gibson said providers can help clients better define their new strategic role in the post-outsourcing era in a supportive role. While vendors have more experience than their clients in the outsourcing journey, companies such as Convergys can’t determine for a customer how it should be more strategic. Some wishes are common—improving talent management and workforce productivity, for example—but other goals are as diverse as the buyer pool, he said.

Beyond a supportive role, provider companies may one day become the training ground for tomorrow’s HR executives. As outsourcing makes greater inroads, providers will also attract young talent who opt for the diverse experience an HRO vendor may offer over the traditional corporate route.

CIBC’s MacDonald likened this scenario to those of law firms and accounting practices—where many leaders in those fields cut their teeth at provider firms before moving onto a staff position with a buyer. “The employees [of providers] are going to be their customers in the future,” he added.

As HRO gains momentum among both large employers and the mid-market, HR departments everywhere can expect a sea change in the days ahead. Sure, shifting the administrative and transactional work will require upfront legwork, but the tougher challenge will surface after the dust settles. Only then will HR organizations confront the really tough question: how can my HR group become truly strategic to the organization.

Tags: Engaged Workforce, Learning

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