Multi-process HRSourcing

A Collective Voice

By sharing their wins and losses in HRO, the Buyers Group will benefit from a smarter, more efficient marketplace.

by Andy Teng

International Paper’s Mark Azzarello wants you to sit in his seat and get the feel of the road—the bumps, the curves, the speed. And he wants you behind the wheel of many other big HRO contracts as well. He wants you to get the full, stereophonic experience—what it feels like to be one of the largest HRO customers on the planet. It’s the closest thing the HRO industry has to a jumbo-jet flight simulator.

Azzarello heads up the HR BPO Buyers Advisory Board, informally known as the Buyers Group. Few HRO professionals have heard of it, and it doesn’t have much of a structure. There are no official officers in the group, it operates without a budget, and meetings so far have been held at the offices of one of the volunteer members. Despite this unceremonious approach, the Buyers Group may be one of the most important organizations to the growing outsourcing industry to date. You see, the Buyers Group represents the biggest HRO buyers around the world, and members collectively purchase billions of dollars in services each year. So when it voices a burning issue, plenty of ears perk up.

You probably haven’t heard of the group for several reasons: it’s somewhat new, having first started in May of 2004; its members—HR executives at household-name companies—have opted to keep a low profile on the group; and it’s a members-only organizations that allows entry only if the employer meets the following criteria: it must outsource at least six HR processes to a single vendor; have at least 10,000 employees; have already signed an outsourcing contract; and be willing to participate in the group and a periodical survey to gauge buyer experience. Unlike the other well-known industry group, the HRO Association (HROA), the Buyers Group shuns vendor participation at its semi-annual meetings (more on this shortly) and has respectfully declined offers to be “co-located” with organizations such as HROA or HR Technology, preferring instead to maintain its independence.

Whether you are on the buyer, provider, or advisor side of the HRO table, there is good reason why the group is important to you. As a buyer organization, its collective knowledge is unsurpassed. With some 70 global companies expected to have joined by this month, the Buyers Group reflects just about every major BPO contract ever signed with a few exceptions. What that means is the members are familiar with just about every successful and not so successful element of HR outsourcing. They can tell you about all the headaches that keep them up at night as easily as they can share the wins outsourcing has brought to their organizations. For buyers and potential buyers outside the group, Azzarello and friends can impart years of knowledge unavailable elsewhere—valuable lessons that can help employers avoid missteps that many of its members have experienced up-close-and-personal.

And while the group officially includes no providers, its teachings may be just as valuable to vendors as buyers. Whether on the topic of delivery quality, pricing, or just about anything else, vendors are apt to listen. The same is true for BPO advisors, who have a limited, albeit growing role within the organization.

“Our overall objective is to make this a better market. Our mutual success is tied to each other,” said Azzarello, who pointed out the group’s goals in forming were to accelerate market change and help providers improve service delivery. “I don’t think we would have taken steps to move our focus from just information sharing to market influencer if we didn’t think we had that ability to influence the market.”

Azzarello said the group has framed four fundamental goals: sharing information among buyers; relaying their concerns to providers to develop better service delivery; assisting buyers to be more effective at procuring HRO; and exerting influence on the broader HRO industry. All of these, he said, are aimed at shoring up an HRO industry not quite mature yet.

AN HISTORICAL PERSPECTIVE
To understand why the group came about, rewind to HRO’s formative years. At the turn of the millennium, BPO was hardly the widely recognized acronym that today widely rolls off the tongues of many HR leaders. For early adopters such as International Paper, AT&T, Lockheed Martin, and a handful of others, HRO was a road to savings fraught with potholes. Back then, the concept was great, but execution was not. Both buyers and providers weren’t nearly as proficient at making HRO work as they are today. In fact, some of the first wave of enterprise-wide HRO buyers sought each other out to trade war stories and brainstorm fixes for their outsourcing woes. It was a way for HR leaders to realize that their problems weren’t unique.

“One of the things we did early on was to reach out to other companies and say, ‘Let’s network,’” recalled Linda Merritt, the HR director at AT&T, an early pioneer in enterprise HRO. “HR people naturally gravitate to sharing information … We very much said, ‘Why should we be in the dark?’ From our very first summit, there was so much commonality of experience.”

Like Merritt, other members of the Buyers Group also yearned to hear from their counterparts, especially as the deals transitioned from the honeymoon to the bickering-spouse phase. Warren Pfister, the director of HR customer services at defense contractor Lockheed Martin, recalled being concerned that his company was unique in having a myriad of problems with its HRO provider and had second thoughts about its vendor selection.

“Within Lockheed Martin, when we were having difficulty with customer satisfaction in the beginning, the immediate thought was: everyone out there was doing better,” he recalled.

It was this concern—later proved unfounded because many other deals were worse off—that led many members of the Buyers Group to reach out for an empathetic ear, but the buyers needed help to organize. In stepped Towers Perrin, the Stamford, CT-based consulting and advisory firm, who at the time had no stake in provider ExcellerateHRO, which is majority-owned by EDS. Towers Perrin was aware that research on the effectiveness of outsourcing was conducted by industry promoters, detractors, and providers. It thought that independent research guided by buyers could be helpful to the marketplace and would helpTowers Perrin position itself as provider of HR effectiveness consulting services. Clearly, it struck a chord with the buyers, but it also found that non-disclosure restrictions in their HRO contracts limited their ability to get the information they needed to improve. The buyers needed a legal end run.

“They had no way to share knowledge or build knowledge and moreover, they had no voice, no way to influence the industry,” recalled David Rhodes, a principal at Towers Perrin and the pivotal figure who helped to launch the group. Even today, the members are prohibited from sharing specific performance and contractual data with each other, but they can exchange non-proprietary information that falls outside contractual boundaries.

Furthermore, Buyers Group members participate in an annual study conducted by Towers Perrin to measure HRO effectiveness. Blind data collected from the members enable buyers and others in the industry to better understand the strengths and shortcomings of outsourcing. (See sidebar on latest study results.)

The role of Towers Perrin has been pivotal to the group’s organization. Meetings so far have been held at its offices, and most of the planning is performed by the consulting company’s staffers. Under its guidance, the ranks of the Buyers Group has swelled from a few dozen companies to an anticipated 70 by this month. Rhodes conceded that the group has gained so much critical mass that it may be ready to stand on its own as an association representing buyers only.

It’s taken a little time, however, for the buyers to figure out exactly what the organization’s role is and how to achieve their goals. A few bumps in the road helped the group refine its operating procedures, including making the decision to exclude vendor participation. Why, you might ask, in this age of intimate business partnerships, would the group not involve providers at the semi-annual meetings if they are the very same people it hopes to sway? Shouldn’t providers have a voice in all of this? Yes, say members, but just not in their forum.

“The first meeting didn’t go well. In fact, it was an unmitigated disaster,” said Rhodes, who recounted the group’s inaugural meeting in May 2004, which included representatives from several top provider firms. While the session was intended to engage the providers in solving major issues, Rhodes said the provider representatives refused to “own up” to problems that customers experienced. “In their defense, these leaders were not those involved in direct delivery and may not have been the best fit,” He said.

That experience led the group to ban provider involvement at future meetings. Group leaders say the decision was based on several factors. Their presence at the first meeting was so counter-productive, members said, that it would hinder the group’s progress. Secondly, the buyers said they enjoy an open environment at the meetings, and having vendors there would disrupt a free and frank discussion of issues. Additionally, group leaders say they don’t want the organization to appear to be under the sway of any particular vendor, so barring all of them proved the only viable approach.

“The dialogue is immensely frank. If there is a strength to this group, it is the candor shown in these meetings,” Rhodes added. “It is very much a problem-solving environment.”

Still, excluding providers seems at odds with one of the groups’ basic goals: influencing providers so they deliver better service. But for Azzarello and colleagues, they are reaching out to vendors in other ways.

“Those of us on the (executive) board are communicating to individual providers,” said Azzarello. Others pointed out that they’ve been invited to participate in vendor user groups as well speak at vendor gatherings and other industry conferences and events. Azzarello stressed that even though vendors are denied participation at the meetings, they still receive feedback from the group’s members. He also believes the group might reconsider the ban under more tightly controlled conditions at some point in the future—just not now.

INTERNAL TRANSFORMATION
The group’s focus isn’t just on providers; much of their effort is on developing internal tools, metrics, and a better understanding of effective HRO model. After all, HRO is about internal transformation and not the shortcomings of providers. The group doesn’t just pin blame on vendors; rather members recognize their own inadequacies, and acknowledging change among the buyers is necessary as well as within the provider community.

“We need to communicate our needs to the vendors,” said AT&T’s Merritt, adding that the group’s goal is to not just “drive the lowest transactional costs but also to enrich the transactional process and finding a cost point that’s a win-win for all of us. It benefits all of us for them (providers) to be a viable community.”

That’s precisely why the Buyers Group is establishing itself as an important industry resource. By sharing their collective transformational knowledge, the group is sure to benefit not only its current members but also future ones as well. The trickle-down effect is not limited to the large employers, either. It will most certainly aid the development of the mid-market, which, while still in its infancy, can learn from the best practices of the Fortune 500. And by helping providers hone their competencies, they pass on improved service delivery.

To do this, the group’s meetings have served as intensive workshops in which participants discuss solutions to common problems. The sharing of their HRO experience, brainstorming ideas, and examining issues such as benchmarks and service-level agreements (SLAs) are typical of the discussions that go on. Their work is further bolstered by Towers Perrin’s research, which continues to evolve as the group expands.

For some buyers, membership has already paid off. Lockheed Martin’s Pfister said two of the meetings that featured discussions on renewal trends provided him valuable insight. In presentations from outsourcing advisory firms EquaTerra and Everest Group, the guest consultants gave Pfister a better understanding of industry developments.

“I was able to get some insight into the fact that certain people (clients) had just left my vendor (ACS) so my vendor was very motivated not to lose us,” he said, adding that participation in the Buyers Group also helped him realize the importance of using an advisor and the right strategies for renewing Lockheed Martin’s contract, which originally signed its deal in 2000.

Other members have also leveraged the group’s broad-base knowledge. Rhodes pointed out that one member whose outsourced recruiting was in trouble recently broadcasted an SOS to buyers of the 12 largest RPO deals. The buyer was able to obtain valuable information from its colleagues to help address his problems. Rhodes added that while the group can’t share specific information—both positive and negative—they can discuss useful approaches to common issues.

Azzarello said the group hopes to actively raise its profile so others can learn from the members’ transformation journey. At the same time, it plans to disseminate what it has learned to providers as well to make them aware of buyer expectations. Some, including Azzarello and Pfister, have addressed their vendors individually. In the future, more members are likely to carry on the missionary work. The outreach is involved, but the group says the rewards will be well worth the effort.

Michel Janssen, the president of supplier solutions for the Everest Group and a speaker at one meeting, said the group will help solidify what has been a fragmented industry. “At the end of the day, the buyers will come to the conclusion that this is about buying services,” he said. “Instead of shaping these services deal by deal, they can shape them collectively.”

And as they do, the Buyers Group will certainly cause some palpitation in a market that so far hasn’t had a single voice representing the biggest global buyers. With the organization firmly established and its goals clear, expect the group to make that voice reverberate throughout the industry for what it hopes to be the common good.

As Facilitator, Towers Perrin Tallies Customer Satisfaction

When Towers Perrin set out to help organize the Buyers Group, little did principal David Rhodes think it would grow to such a sizable entity. What began as an informal gathering of a few dozen big buyers has now transformed into a group representing most of the enterprise-wide HRO customers today. With an anticipated membership of around 70 companies, the group, indeed, has gained growing momentum.

“The idea evolved from an idea modeled after SHRM (the Society for Human Resource Management),” Rhodes recalled.

Although Towers Perrin remains a volunteer facilitator for the group’s activities—it receives no payment—the company benefits from the access it enjoys to the world’s biggest HRO buyers. And it has leveraged that access to compile an annual survey to gauge buyer satisfaction and vendor performance.

The latest survey was released in October, and findings were eyebrow-raising indeed. Confirming that neither employers or vendors have perfected the art of HRO, the study solicited responses of nearly 80 percent of large-scale enterprise deals.

Rhodes noted that members of the Buyers Group have all agreed to participate in the study, and because the organization encompasses the overwhelming majority of contracted buyers, the research is the most comprehensive to date.

Since the first study was released in 2004, its scope has grown significantly, he noted, to the point that it has become “unruly.” He pointed out that this year the firm plans to release the results in three parts: client satisfaction drivers; the impact of outsourcing on overall HR effectiveness; and risk management. The results of the first survey are expected to be released in May, while the second is scheduled for September; the final part is slated for November.

Rhodes pointed out that a number of other organizations are also collecting data, and it’s clear that buyers and vendors alike will benefit from the feedback. The key, he added, is to ensure that data is kept blind to protect the privacy of users. To download a copy of the report, visit http:// www.towersperrin.com/hrservices and search for “HRO effectiveness.”

Tags: Multi-process HR, Sourcing

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