These are lean times indeed, but clearly pitching HRO’s soft benefits will be key to winning new business.
I recently caught up with one of my favorite sourcing advisors in the industry, Lowell Williams of EquaTerra, who filled me in on the market’s activities. As he characterized it, the ALPO days are ahead of us. And I believe some of us will indeed be dining on a dog’s dinner before too long. But don’t panic, because for a lot of outsourcing service providers, it might be a gourmet kind of dog’s dinner. That’s because some believe that in these lean economic times, many companies will turn to HRO for cost-cutting measures—whether that’s through point solutions or comprehensive deals. In any case, HR executives will be under pressure to help their organizations find every iota of savings possible.
This will be a good time for HR to consider the value of outsourcing but for a different set of reasons. While cost-cutting is a noble ambition, the biggest bang for the buck is the less tangible aspect, especially in talent management. You see, HR operating cost savings as a result of outsourcing account for a small portion of the overall potential savings available to most companies, so expectations for HRO to make a significant impact on costs are probably unreal. More likely, payroll reduction will be the first life raft many stressed CEOs turn to. HRO’s cost savings might be further down the totem pole.
However, more substantive is the effect outsourcing can have on human capital, and that’s where companies can gain competitive advantages to help ride out the storm. Take recruitment, for instance. As organizations downsize, they should also consider filling the pipeline with high-potential talent for more robust times later on. Just because a hiring freeze is in effect doesn’t mean you can’t lay the groundwork now. This will help make your organization ramp up more quickly when business picks up.
For service providers, there’s no question that lean times may be ahead. Why, when there will be greater interest in outsourcing? First of all, vendors must make a clear business case to prospective clients. That means a bottom-line number that accounts for all ancillary costs, and it better be compelling. But beyond hard-dollar realities, buyers want to be assured of soft benefits such as best practices, technology upgrades, more robust self-service, and other upgrades that positively touch the rank-and-file workers.
A more problematic issue is the uncertainty many companies face in the months ahead. That means a longer sales cycle for service providers, who undoubtedly will see a protracted time to commit. Until these organization are certain of the direction business is headed—whether that’s flat or going down in flames—they may put off committing to any sizable outsourcing deal until the economic picture is clearer. Additionally, buyers will more likely strike a hard bargain, involving procurement every step of the way. And we know what happens when procurement gets involved with HRO negotiations—it inevitably invites disparate types of service providers to the table, which further prolongs the sales cycle.
I believe many will ultimately come to realize that HRO is a good deal, but it might take a while for the light to go on. In the meantime, providers will have to concede to the realities of this economy. They can, of course, help grease the wheels by making HRO’s value proposition more evident to both HR and other stakeholders involved in the decision-making. If they fail to make the case to other executives such as the VP of procurement, they’ll just be barking up the wrong tree.