Pondering organizational structure and skill gaps will better help companies implement their HRO strategies.
By Cynthia DeFidelto
In our initial article in this four-part series, we focused on the seismic cultural impact of outsourcing and the importance of establishing a good, workable governance model. Now we focus on how companies can design and build the ideal retained HR organization, including aligning employees with the new business model, overcoming staffing challenges, and maintaining high levels of engagement throughout the often-unpredictable, always-emotional transition period.
Clearly, the HR function will look and act differently after outsourcing. For companies shifting to an outsourced HR business model, the most effective way to achieve the ideal future state defined as a high-quality service experience that is cost effective, efficient, and allows HR to focus on strategy over deliveryâ¯is to begin with the end in mind.
Visualizing what the HR organization will look like following outsourcing means comparing what HR should be doing with what it is doing, what results are needed, and how behaviors and actions must change.
A thorough, internally focused activity analysis can address fundamental questions about where the organization is headed and with what purpose. It is one of the quickest and surest ways to develop a high-level implementation roadmap—to measure both the size and potential complexity of a move to outsource parts of HR. The activity analysis will help HR refine its vision of the future state, particularly:
- What are we taking out of today’s organization and shifting to the vendor?
- What are the key success factors, change barriers and change enablers?
- Where and what are the major gaps between the current and desired future state?
- How will HR roles and responsibilities change in the new order?
- Do we have the right people in the right places with the right skills, given the shifts we are asking HR to make?
- Where does this leave us in terms of retaining, retraining, or replacing existing staff?
New Skills Requirements
HRO provides both the opportunity and the need to redefine future HR roles, particularly those of the HR generalist. In the new structure, as generalists shift to a more strategic and less operational mindset, companies place a premium on employees with project/contract management skills, financial/analytical abilities, and the capacity to act as an agent of change. The longer list of needed new skills includes:
- Conflict resolution and employee relations abilities, especially sensitivity to the significant cultural changes that outsourcing involves;
- Understanding needs and defining requirements;
- Leadership and the ability to influence;
- Managing expectations, outcomes, and relationships;
- The ability to set realistic goals, have the “hard” conversations, and deliver the tough messages;
- Communicating internally to a variety of audiences and externally to service providers;
- “Marketing” the program internally; and
- Taking ownership and accepting accountability.
Most importantly, good managers in the retained HR organization must know how to manage the anxiety that naturally occurs in HR as outsourcing initiatives develop and progress.
Rethinking HR Roles
In any discussion of changing HR roles and responsibilities following outsourcing, much of the initial focus falls on HR operations managers, but HR generalists and specialists are significantly affected as well.
- HR generalists (aka business partners) are the HR reps who service line businesses. They tend to be the most heavily affected by the decision to outsource HR.
- HR specialists (aka centers of excellence) are the experts in HR functional areas.
- HR operations managers are individuals who “own” and manage the client-vendor outsourcing relationship.
It’s clear that the world of the retained HR staff is far more challenging in a post-outsourcing setting. So just how capable is the average HR generalist to move seamlessly from his current job responsibilities into the redesigned job role? And how concerned should companies on the verge of outsourcing HR services be?
Results of a Towers Perrin HRO study paint a somewhat bleak picture. Fully half of respondents in that survey felt that their retained HR generalists needed retraining to a great or very great extent, with another 46 percent indicating some retraining needs. Only four percent indicated very little need in this area (Figure 1).
Click here to see Figure 1.
Figure 2 from a related Towers Perrin survey shows precisely where generalists’ skills are lacking. It’s a picture that has not changed substantially over the years. In only one of the 10 skill sets measured in this study—relationship management—did a majority of respondents rate their generalists as having substantial competence. Scores were particularly low for the three skills arguably most critical to effecting behavioral change: acting as a change agent, strategic thinking, and managing large-scale projects. Just fewer than one fifth of respondents felt their generalists had substantial capabilities in these areas.
Click here to see Figure 2.
The need for improvement is undeniable. But if there is any good news here, it’s that those needs are quite
specific and they are remediableâ¯either through company-sponsored retaining/retraining programs or by replacing existing employees with individuals who already possess these skills.
Don’t Work in a Vacuum
Even when you have a good idea of where you are and where you’re headed, getting there still can be a challenge. And unlike other internal change management processes, this one involves an outside party—the outsourcer—that adds to the complexity. Plus, there will always be something we refer to as the “tension factor,” the predictable anxiety among all employees: “Do I have a job in the redesigned organization?” and “If so, what will that job be?”
Outsourcing can affect almost every employee within HR. And their reactions can be positive or negative. But what’s certain is that how the change is managed will set expectations for the future of HR. It will also influence employees’ level of engagement on the job, as well as their commitment going forward. Fortunately, there are ways to manage the change process so that it is not only not a negative experience but actually becomes a positive experience for impacted employees.
There are any number of approaches to designing the new HR organization. At one extreme, the “purist” approach takes a top-down, strictly pragmatic view of what the organization should look like, irrespective of current HR staff, their backgrounds, and abilities. At the other extreme, a bottom-up approach starts with an assessment of existing staff and develops the new paradigm based largely on existing staff skills and experience.
Not surprisingly, neither of these extremes is ideal. Some balance of the two should be sought. The point of the comparison here is to highlight the importance of taking an “outside the box” look at your current employee population before making a final decision on organization structure or staffing. Apart from their HR skills and experience, consider these questions:
- What are current employees’ general abilities?
- What kind of morale are they likely to bring to the new organization?
- What is their work ethic? Is it a “can do” attitude?
When it comes to the success of outsourcing, some of these “softer” aspects of your workforce can be just as important as their technical skills. Don’t ignore them. If you plan with your people in mind, not only is process design likely to be better but from a change management perspective, you’ll likely experience better adoption of the new business model.
Among senior leaders, one major concern regarding a move to outsource HR services is that the change will cause employee engagement levels to decline, and performanceâ¯both individual and organizationalâ¯to suffer. But contrary to popular belief, periods of large-scale transition are not necessarily a disengagement issue. In fact, they can be highly engaging for employees, depending on how they are handled.
One sure way to maintain employee engagement on the job is to invite their active participation in the change process from the beginning. And this is by no means limited to HR generalists. HR specialists and COEs, line-of-business clients, and even outsourcers can play an active role. Workshops and focus groups are especially useful venues where employers can road test different outsourcing scenarios, and affected employees can respond to questions such as:
- What would you need to do this?
- What would you need to learn?
When they are involved early in the change process, employees who will be part of the retained HR organization have the enviable opportunity to contribute to the design of their new role. And in the process, employers have the opportunity to explain firsthand and in a collegial setting their rationale for change and why some HR processes can no longer continue to be done as they had been. Workshop discussions can also increase employee “line of sight,”â¯the likelihood that members of the retained HR organization will understand their new role within the context of the broader strategic objectives of the organization.
In the early planning for outsourcing, there is always a great deal of discussion around the importance of metrics not just involving the relatively easy-to-measure operational output such as throughput speed and accuracyâ¯but also about some of the more elusive measures of service delivery such as service quality, employee productivity and engagement levels, management effectiveness, and client satisfaction.
While all of these measures are important, in reality the metrics issue is frequently deferred to a later time, pending resolution of the more critical operational issues. And this is understandable because:
- Measurement is difficult.
- There aren’t a lot of benchmark standards to compare with.
- Measurement means accountability, and HR already has enough to worry about.
Interpreting findings can be tricky. For example, if an employee registers dissatisfaction with an outsourced employee benefits call center, is that because call center service is poor? Or is it because benefit levels have been reduced and caller dissatisfaction is really directed at the employer and not at call center performance?
Responsibility for employee engagement levels and many other common metrics is not just HR’s. Responsibility is shared by others outside HRâ¯managers and senior leaders being just one example. We don’t know enough about measurement and responsibility at this point to be able to use metrics to assign accountability and improve results. Value driver analyses and key performance indicators (KPIs) are beginning to shed more light on the subject. But it continues to be a cause-and-effect conundrum that will require greater analysis and understanding to be successful.
Cynthia DeFidelto is a principal in Towers Perrin’s HR Function Effectiveness practice. She leads HR transformation engagments for global organizations, and is the leader of Towers Perrin’s regular study of HR outsourcing effectiveness.