Each business needs to ask itself certain crucial questions before deciding whether to outsource and how to go about it.
Companies often ask, “Can HRO work for us?” The answer is that each organization should reach a view on whether HRO is an appropriate solution, but there are certain attributes about each organization that will influence the success of any HRO deal. For example, let us look at the following questions that organizations considering HRO should ask:
• Is the company a highly decentralized organization with multiple business units and differing market requirements operating in multiple countries?
• Do those business units operate with significant autonomy?
• Does the company have a significant number of countries with low numbers (less than 200) of total employees?
• Does it have multiple legacy systems with significant customization and little or no integration?
• Does is have localized HR practices with no standardization or harmonization?
• Has it grown largely through acquisition, and are there significant remnants of pre-acquisition cultures still intact?
If the answer to all or most of these questions is yes, not only are you likely to reap the most benefits in terms of synergy, service, and cost, but also you are the most difficult type of organization, in terms of getting HRO to work successfully. However, experience has shown that it is perfectly possible to make an HRO deal work in such complex organizations, as long as you and your provider partner work hard in the following four key areas:
• Recognize the enormity of the change. All organizations, without fail, underestimate the level of change that embedding a successful HRO deal requires, given that HRO touches upon every employee and manager in the diverse and complex company. Making the deal work requires, firstly, a significant level of resources, preferably from within the organization and preferably using “high potential” managers who don’t necessarily have to be HR people. If these capabilities are not present, then the providers’ consultants or a transition partner will need to be used, often in tandem with the client team.
Secondly, the organization has to realize that HRO is not a quick fix and that the change process will take at least 18 months to two years to make any real difference to attitudes, behaviors, and acceptance of outsourced HR service delivery.
Thirdly, the organization has to be willing to “give up” customized systems and software tools, even where significant investments have been made over the years, to ensure common systems, standards, and definitions across the organization.
• Focus on the 80/20. In diverse and complex companies, the key to HRO success is to focus on driving HRO and the supporting HRIT systems to the key geographies that comprise the majority of the employee base. Current practice is to focus on countries with large numbers of employees and to keep “small” countries as they are with links into the HRIT system to gather basic HR data fields. The 80/20 rule applies, as it is very difficult to find a business case that will satisfy both client and provider and will justify the roll-out of systems and outsourced processes to these “small” countries. The law of diminishing returns rules in these cases.
• Gain the full support of business heads. Decentralized organizations that have HR managers report to their business unit heads and have no real allegiance to the HR function are difficult to manage in an outsourcing situation. The view of the business head is often, “It’s my budget, so I will organize the HR function and its activities to suit my business unit needs in my geography, and no one in corporate HR can tell me otherwise.” In such cases, it is critical to get those business unit heads and senior managers to understand the need for, and benefits of, HRO and to plan out a consistent and continuing campaign of influencing and communication.
• Be prepared to make “tough” decisions to break up traditional approaches. It is often said that asking HR managers and administrators to support HRO is like asking turkeys to vote for Thanksgiving. Roles, power, and influence will have to change to make the deal work, and HR managers’ skill sets may not be what you require in the future; therefore, they might have to be replaced. This requires some hard decisions, in particular in driving reductions in staffing and in setting up HR business partner roles, where the success rate for existing HR managers in assessment centers is around 30 percent. The SVP of HR must be prepared to make those decisions.
These four key areas are by no means the only ones that a diverse and complex organization needs to address if it is to deliver effective outsourced HR services. However, understanding these critical success factors and managing them to achieve new behaviors and capabilities will mean the difference between success and failure.