ContributorsMulti-process HRSourcing

Do You Know Who Your Outsourcing Partner Is?

Unraveling the seams of recnet M&A activity.

by Curtis S. Morgan

The last six months have brought us the acquisition of Exult by Hewitt, the merger of Towers Perrins outsourcing business into EDS, and now the announced purchase of Mellon Human Resources [the authors employer] by ACS. Many smaller deals are announced each month. This ongoing activity reflects both an increase in scale and scope of services for the acquirers and a fundamental change in their focus. Are there patterns common to these mergers and acquisitions, and can we discern preferences in the provider or client space for the changing provider landscape? Its clear from the Towers/EDS and Mellon/ACS deals that technology players are entering the benefits space with the acquisition of a consulting rooted partner. What other conclusions can be drawn from these and other deals?

 

CONSULTING VERSUS TRANSACTIONAL

The transactional HRO business is a difficult business and quite different from the HR consulting business from which it originated. Among other things, the margins in outsourcing are lower and its transactional focus is challenging in ways different from traditional consulting. Client expectations are typically based on transactional excellence, which is measurable in a way that consulting expertise rarely is. Even though the majority of transactions are executed flawlessly, vendor managers at clients necessarily focus on the few that go wrong. After a few years, when clients memories of their in-house solutions have faded, the vendor/client relationship that replaced those solutions can deteriorate solely into error-monitoring exercises if not well managed. Contrast this with the typical consulting/client relationship in which advice is often situational and the implementation process entails continuous changes to adapt to evolving circumstances. Black-and-white evaluations are not generally applied to these situations. It is easy to see why many consultants find the challenges of outsourcing to be too much to bear.

 

CONSULTING VERSUS PROCESS EXCELLENCE

Consultants analytical and problem-solving skills remain invaluable to clients when dealing with changes in plan design, regulatory requirements, technology implementations, and employee communications. But perhaps consultants promises to derive valuable information from transaction trends and administrative data has yet to be realized or has been overstated. Thus, an underlying question in this migration to transaction and technology providers is whether the consultants promises to provide consultative outsourcing and to help transition HR professionals into strategic roles have been realized. Conversely, success in administrative e-businesses requires processes designed to be easily and repetitively executed; tools designed to meet users diverse needs; reliable, scalable, and adaptable technology; and global solutions and resources to meet client expectations of 24/7 support and declining costs. Technology and sourcing missteps can be incredibly expensive and can quickly cause dissatisfaction. Over the years, budgeting at traditional consulting firms has become gun shy when it comes to these required investments.

 

WHICH ARE THE MOST SUCCESSFUL?

The investment in outsourcing platforms can be overwhelming especially if it fails to deliver returns. The benefits industry has spent hundreds of millions of dollars on outsourcing with varying degrees of success. Is the recent spate of mergers and acquisitions indicative of which organizations have the business skills to most effectively invest in process and automation technology? The reliability and repeatability required for highvolume transactions, coupled with the efficiencies demanded by the pricing environment, make successful investment the keystone of financial success in outsourcing. This is where technological excellence and technology players global pricing efficiencies can add value to the consultative approach. The approach understands the human aspect of technology interactions and can bring the skills required to communicate with employees and affect change. The success or failure of these new combinations will depend on the execution and communication of the message to current and future clients. The acquirers all have significant histories of success in growing these businesses. As the old proverb goes: The only constant is change.   

Tags: Contributors, Multi-process HR, Sourcing

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