BenefitsEngaged Workforce

The HRO Provider’s Dilemma

In determining whether they take on a deal, HRO’s vendors are examining the motivation, complexity, and will power of their clients. Unlike in years’ past, the providers have grown more diligent when weighing deals.

by Neil McEwen

As the multi-process HRO market matures, the major HR outsourcing providers are showing more discretion over the opportunities they pursue and the ones they turn down. They have learned painful lessons from some of the early deals where they encountered severe problems with complex transitions, unanticipated process and technical problems, unmet expectations, and huge time and cost overruns that have led to margin pressures and client relationship breakdowns.

So, from a provider perspective, and for the education of potential HR outsourcing clients, here are some of the factors that would cause an HRO provider to “just say no” and walk away from a potential deal.

• Motivation. The first question any provider needs to ask is, What is the driving motivation for the HRO initiative? If the key motivator is cost reduction, as part of a general attack on costs, or through a record of poor performance, then that should cause alarm bells to ring. The consequence of a total focus on cost reduction is to treat the provider as a commodity supplier and an easy target for “macho” procurement behavior. The provider is driven hard to give more for less, service quality is a low priority, and transformation of the retained HR function—a pre-requisite for outsourcing success—is not on the client agenda.

This results in the classic lift-and-shift approach or “Let’s throw our mess over the wall and get an HRO provider to deal with it.” Inevitably, the provider will struggle with “broken” and non-standard processes that no one has the will to fix, and perceptions of service will fall even farther. The outcome will be a strained relationship and a deal that is fundamentally unprofitable. Significantly, most of the major HRO providers will no longer entertain the lift-and-shift approach.

• Complexity. The ideal HRO client is a relatively homogeneous organization with a critical mass of employees in all major locations, who are computer literate and have access to terminals and, therefore, will easily adopt manager and employee self-service. Decentralized organizations—made up from various acquisitions, driven by relatively autonomous business units operating in different markets with different needs, and employing small numbers of employees in a large number of countries—are the most difficult types of organizations to make HRO work. However, particularly in Europe, this is the profile of many multinational companies.

Making a success of outsourcing in these organizations is perfectly possible, but both provider and client need to be realistic about what they can actually provide, where they can serve, and for whom. There is usually no viable business case for multi-process service delivery in countries with no critical mass of employees, other than for global processes focused on executives and for basic HR data fields.

• Will. Along a motive, an assessment of the client’s “will” to outsource is vital. Providers need to know where the drive to outsource is coming from and to get answers to the following questions.

• Is the initiative being driven by the board and C-suite?
• Are business units mandated to participate?
• Is there critical mass of unwavering support?
• Have business unit and senior line managers been educated in the benefits from HRO and the changes in responsibility for which they will have to shoulder and have future communications with unions or works councils been anticipated?

Additionally, providers have to assess the client culture and decision-making style and be clear on the process for making an outsourcing decision.
Organizations driven by consensus decision-making styles are notoriously difficult to pin down and, in my experience, several deals have floundered at the last minute because a particular business unit unilaterally withdrew from the process or there was no one willing or able to make the final decision when hundreds of millions of dollars are at stake.

Providers have become more adept at analyzing these factors of motivation, complexity, and will and “just saying no” to potential clients before they have to deploy resources and incur significant costs. However clients are still some way behind in their thinking and are often surprised and disappointed when they are turned down. They and their advisors need to take a realistic view about the potential for a successful outsourcing deal and engage in some self-examination before embarking on what is a long, arduous, and costly process.

Tags: Benefits, Engaged Workforce

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