Continuous improvement is a must for outsourcing to maintain momentum in the marketplace.
Here’s a potential trend the industry should be thinking about: backsliding. How many adopters of HRO together with its surrogates—shared services and off-shoring—have begun to wonder whether they did the right thing or that when it comes to renewal of an outsourcing contract should they at least factor in in-sourcing as an option?
Considering that the question is not how many have actually taken their personnel admin back in house but how many have seriously thought about it, the answer is of course impossible to know. General noise about the subject can be attributed to renegotiation posturing or the musings of a buyer on a particularly bad day when not in the frame of mind to finely balance pros and cons.
However, there have been some high-profile insourcing moves in IT, and HRO has been arguably an IT-led outsourcing phenomenon. Even where piqued, HR directors would dispute the idea that their initiative was “led” by someone else. Still, most would have to admit that technology was a massive component of the deal, and it’s no coincidence that many key outsourcing companies are IT providers.
Additionally some service companies have been re-evaluating offshore call centers—one bank even advertised proudly at Heathrow Airport that its customers aren’t asked to call them. So if companies are reconsidering their IT and call-center choices, it shouldn’t be hard to imagine them reconsidering HRO.
Everyone who has outsourced HR has worried about the loss of control. When a problem first occurs, the buyer remembers that in-house HR made mistakes too, but when the problems persist, no end of frustration kicks in, not least because the HR manager is trapped with all the responsibility and none of the control.
It is the same with services or especially changes to services. Where prior to outsourcing, adding a payroll run meant remembering at the coffee machine to ask the payroll manager to do it, post outsourcing it means formally logging the request at some point before you know it’s necessary to add the run.
Such examples of control and flexibility are operational, but the principle applies equally to strategic business change. The increasing speed with which companies grow, contract, or shift facilities and priorities in global markets poses a significant challenge to the outsourcing industry, including HRO. It raises questions about what place the profit goals of a third-party should play in inhibiting service or speed, or raise the question of whether the goals of providers and a buyer trying to move quickly and efficiently are the same.
There was a time, not so long ago, when HRO seemed to be about costs and strategic transformation. Restructuring goals like centralization, standardization, process redesign, and labor arbitrage seemed easier to attain through a provider. Sometimes HR technology also seemed easier to purchase through an HR service contract. Worries about control and flexibility were shelved in deference to savings, but it was a trade-off. The deep-seated desire for control and flexibility never went away.
Strategic HR transformation has also in some instances been a trade-off between desired service and related costs. Pragmatic buyers know standardized, offshore shared services are not going to offer the kind of service preferred by employees but they were intended to cost less.
The problem for all such trade-offs is when expectations change. In simple cases, where savings are not realized or the service is hopeless, it’s easy to see how buyers might bring services in-house. A sane manager will insist on recovering control where there are persistent problems.
However, the same thing could occur in problem-free HRO contracts where savings are achieved, because even when expectations are met, the trade-offs concerning control, flexibility, and service don’t disappear, and if all other things become equal they will start bouncing back.
Forgetting where one started and that forever wanting more is a natural human response that among family members might be considered ingratitude, in business this attitude is admired as continuous improvement or raising the bar. At this time, the momentum remains with outsourcing, but if HRO continues to rely on the cost argument to the detriment of customers’ desires to maximize flexibility, service, and their own capricious need for control, there is a good chance buyers may be sent exploring alternative delivery options. Having one’s cake and eating it is, after all, a long-standing customer prerogative. HRO
