Starting in October 2002, the HRO industry—distinct from the HR generalist crowd—gathered early-adopter clients by the handful. With those early adopters now renewing their first-generation contracts, the HRO movement is wooing a larger group of later-adopters. This next wave of HRO users will differ from the first in four big ways.
When I interviewed Reg Bull of Unilever for last month’s HRO Today cover story, I was left with one big impression: Unilever is no early adopter. Their meticulous sourcing process had consumed a year. And they only started on the process when it was clear that their direct competitor—P&G—had made a success of their initiative.
When the winner of the Unilever contract had long since become apparent, the announcement was put on hold for over a quarter to make sure all the T’s were crossed and I’s dotted. An early adopter announcement, by contrast, would have been made even before the final contracts had been signed.
In fact, Unilever’s announcement signifies a break in the history of this young industry. The break is between the trend setters and the trend followers. All future mega-contracts, no matter how innovative, will be G2 deals. They will be based on a very significant base of early adopter data and experiences. And they will be much different than their predecessors, in four main ways.
First, G2 contracts will involve a clear set of commoditized transaction services and another set of value-added services involving professional-level, non-commoditized skills. The first generation contracts, by contrast, were dominated by the former, and some involved virtually no “higher level” skills. The “higher level” services, among them compensation planning, succession planning, change management, and leadership and organizational development, were reserved for the remaining HR pros on the in-house staff. As HRO pioneer and leadership guru Bob Gunn told me recently over drinks in a New York City bar, “the most sought-after skill set among enterprise-level HRO providers now and into the foreseeable future is the OD pro with multiple-client experience. That person,” Gunn insisted, “can write his own ticket.”
Another implication of this shift is that HR pros with these “higher level” skills can and should look to career options on the provider side. Indeed, with demand running high and supply running low on the provider side, higher compensation and greater security are required of the providers.
Second, many shared-services operations once thought “permanent” will be revealed to be merely a step on the way to an HRO contract. At last count, there are more than 260 HR shared-services facilities of various flavors serving the Global 1000. If you took a poll of leaders of those shared-services centers, precious few of them deny that an HRO contract is in their near- or medium-term future. In fact, many are ready and waiting to be outsourced, carved up, and cost-cut. This is a marked contrast to G1, where the shared-services people either got bought out or went lock, stock, and barrel over to the provider.
Third, the single-domain or multi-domain, non-enterprise-level HRO providers are now much more savvy than during G1 about how to protect their turf when an enterprise-level giant gobbles up their client. The payroll guys now all have interfaces to the major providers. The benefits administrators, staffing, and recruiting guys, workforce optimization, training administration, relocation, and recognition guys do, too. So G2 deals will involve a lot more voluntary and involuntary cooperation on the part of the enterprise HRO provider, since the one, two, or three-domain providers have learned how to adapt to the new world of the big-box provider.
Fourth, the role of the sourcing advisor is evolving to be less commoditizing, involve a broader selection of preferred vendors, and place more emphasis on higher-value services. That means that the scope of the newer deals is likely to be broader, the emphasis on higher-value services greater, and the involvement of the sourcing advisor longer as a result. No longer just a wham-bam-thank-you-ma’am transaction facilitation service, the sourcing advisor’s role is becoming longer and more complex … and more lucrative.
So while the provider community has some significant marketing hurdles to jump to sell to the non-early-adopter, the buyer community is realizing that HRO is more inevitable than ever. The successes of G1 have created the prospective clients of G2. And G2 buyers, without the need to be pioneers, will have fewer arrows in their backs.