In the second of this two-part series, here’s why you should take stock of your technological aspirations, how sourcing advisors can save you from vendor hyperbole, and the importance of getting the A-Team on your account.
In a large, multinational or global cooking pot, mix in the following: Robust process transformational and functional capabilities; a well-baked delivery methodology; a solid operating model; requisite geographic scope and scale; leading, proven HRIT systems and technical experts; “A-team” transition and delivery talent; a focus on the end-employee experience; and multi-pronged cultural alignment. Voila, you have just cooked the perfect recipe for selecting a multi-process HRO service provider.
Well, no. While all the above are key ingredients for selecting a comprehensive HRO provider, buyers, service providers, and other observers note that myriad factors come into play, not only in the initial selection process but also in the down-select and final-selection stages. For example, what are the business objectives driving your outsourcing decision? Organizational change? Business transformation? And then, what specific HR benefits are you seeking? New capabilities? Technology cost avoidance? Process improvement?
Before drilling down into down-select and final decision best practices, a couple of the above-mentioned criteria bear clarification.
• Technology. To obtain the scale, leverage, cost savings, rapid transition times, and ultimate win-win situation for both parties, buyers should be largely “technology agnostic,” even to the extent of giving up their legacy systems and migrating to the provider’s standardized platforms and systems. And there is widespread consensus among both buyers and providers on this issue.
“One of our key selection criteria was the strength of providers’ global technology platforms. We weren’t at all wedded to what we had because we had one of everything in every country. So key for us was a provider who had experience with technology, could lead us through implementing a global technology platform and, most importantly, get us to global data,” said Kathy Kostrzewa, vice president of HR service delivery, Avon Products.
Lisa Knutson, vice president of HR operations, E.W. Scripps, echoed the sentiment, stating, “First and foremost for us was the technology solution itself and whether or not it would support our overall plan in terms of how we wanted Scripps’ HR service delivery to work in the future. If the technology isn’t helpful, you won’t be able to get HR out of the administrative business.”
• Cultural Fit. This criterion has become No. 1 for final selection of a comprehensive HRO provider. But it can be, and mean, different things to different organizations. According to Robert H. Brown, research vice president, Gartner, “It can literally mean, for example, does the provider actually have the capability and credibility to deliver against the buyer’s geographic footprint? But far more important is cultural fit and alignment from a relationship standpoint. Is it an ‘us versus them’ type of culture, or are they entering into a relationship that fully acknowledges the requisite win-win scenario?” Extrapolating on the culture issue, Kostrzewa noted, “It’s all about the people. Did we think we were going to get the provider’s ‘A’ team, ‘B’ team, or ‘C’ team? Getting the ‘A’ team was another key criterion for us.”
Unequivocally, the most useful source for vetting multi-process HRO providers is third-party advisory companies.
“We definitely couldn’t have done it without our external advisor,” said Kostrzewa. “We had never done this massive outsourcing, so we had no internal skills.”
Knutson added, “Whether you’re a mid-market or a large-market buyer, and even if you’re an educated buyer, having an advisor help with the process is key.”
That is indeed the case at International Paper, one of the pioneers in comprehensive HRO. Back when it adopted HRO, sourcing advisors didn’t exist as they do today. Still, it leaned on its SAP implementation partner, with whom it had a relationship for years. According to Scott Lacy, manager of human resources operations at International Paper, the consultant helped his business quantify the HRO engagement. “They helped us research and benchmark the providers to the extent that we needed to be able to quantify the business case, double-check our thinking, and make sure we were looking at the right criteria,” he said.
Existing HRO buyer references and referrals are also extremely important, even for a company such as Scripps, which had consulted with a variety of peer companies on recruiting, time-keeping, payroll, and benefits to piece together the “story” for itself since there were no comparative comprehensive mid-market buyers to query. Gartner’s Brown also noted benchmarking firms can be valuable, especially for companies that don’t have a particularly solid front-end audit of how good their HR processes are from cost, efficiency, or service level standpoints. The HRO Buyers Group, the HROA, and other professional networking communities are also strong sources of comparative HR provider data.
But at the end of the day, it’s the external advisors who deliver the most value in service provider selection. In fact, most providers are hesitant to participate in an opportunity in which an advisor is not present. Said Brad Everett, senior vice president of HR Centers of Excellence, ACS, “At least an advisor will take them through a process and the likelihood of a transaction occurring is enhanced dramatically with the presence of an advisor. An advisor is able to help them accurately put together their baseline costs and therefore, ultimately, their business case. The advisors have the knowledge of the providers’ individual capabilities and footprint to target them on real and meaningful solutions.”
Jeff Croyle, HR practice partner, TPI, explained it in these terms:, “It is not unreasonable on some of these larger deals for a provider to spend $1 million in just the pursuit, so there’s only a limited number they can chase. If the buyer doesn’t already have an existing relationship with the provider, if an advisor isn’t involved in the discussions, and if the buyer doesn’t have strong executive support or clearly articulated deal criteria, it is very easy for a provider to walk away and focus its resources on a deal it feels is more likely to be successful.”
THE DOWN-SELECT PROCESS
International Paper had a simple down-select process because when it embarked on its foray into comprehensive HRO, the pool of providers for all practical purposes consisted of just one: Exult (later acquired by Hewitt Associates in June 2004). Even today, the down-select process isn’t tremendously complex as only four or five HRO providers are capable of supporting global initiatives, and only several more offshore ones, including India-based BPO providers, have the ability to deliver on comprehensive outsourcing services.
RFIs are sometimes issued to aid in the down-select process, and on occasion upwards of 12 providers may be contacted. But this comparatively large group of providers receiving an RFI typically comes into play only when a buyer organization has existing relationships with providers that the buyer ideally wants removed from the equation. But in most cases, especially when an advisor is involved in the process, going straight to an RFP is the standard course of action. Although some companies issue RFPs to only two providers, others bring three or four into the RFP process, largely because it’s likely one may bow out for a number of reasons, and the buyer wants to make sure that it conducts due diligence and final selection with more than just one option.
Once the base case, process measurement, and up-front “audit” (defining service scope, highlighting internal process gaps, and adopting a strategy to drive the deal) are completed, the buyer can proceed to the RFP process with the down-selected service providers.
At this stage, according to Robyn Sweet, global domain leader, solution strategy and design, Hewitt Associates, buyers must closely consider their established unique and specific criteria and objectives and employ a fact-based approach to the down-select. “Which provider is in the best position to help enable you to get from point A to point B in terms of meeting your objectives?” he posed.
ACS’ Everett stated that the criteria used in the down-select is a consideration of the combination of the solution, the service and delivery model, the technologies, self-service and analytic tools with which the buyer’s employees and managers are going to interact, and price.
While the experts agree that the down-select decision should be based on the initially identified criteria and objectives, at times it will also require innovative actions. E.W. Scripps faced an unusual challenge; it needed to entice providers to respond to an RFP because its unique mid-market requirements were not something enterprise HRO providers have dealt with regularly. However, the company was eventually able to solicit six RFPs.
THE FINAL DECISION
At this final, pre-contract stage, buyers need to take a hard look at all the key factors: cultural fit, relationship approach, and fit—who do you want to do business with for the next many years, and how will you cope with the inevitable obstacles, crises, and business challenges that will emerge. Other details to focus on include robustness of the integrated process solution, key terms and conditions, and dedication to change management best practices. Although TPI’s Croyle stated that cost will always carry the most weight, with two final providers, there isn’t much of a disparity because price tends to be normalized at this stage. While one provider may offer more, if the buyer is not prepared to pay more, the decision will be based on perceived value.
EquaTerra’s executive director of HR advisory services, Lowell Williams, offered the following caution:
“Carefully vet how extensive each provider’s service offering truly is, especially when it comes to high-touch processes or those sourced to other providers in geographies in which they themselves don’t operate. If they are subcontracting major pieces, you may find yourself back in a vendor management role, whether you want to be there or not. Getting out of managing multiple vendors is one primary reason for outsourcing in HR in the first place.”
Given the complexity, magnitude, expense, and significant impact on organizations entering into comprehensive HRO deals, the senior VP of HR, CIO, CFO, and business leaders should be involved in the final decision. Additionally, there are many times in which sourcing advisors, legal counsel, and procurement resources are at the final decision table. In Avon’s case, it included its board of directors in the final decision-making.