Enterprise HRO: The First Decade. Our CEO will once again engender controversy with straight talk about what is and is not working in HRO.
by Elliot Clark
In 2003, I wrote an article for HRO Today in which I argued that the difference between a fad and a trend in business is the quality of service. That first article was about RPO, but today I look at enterprise HRO. In some aspects, this may be the most important column I have ever written. We must all adapt to the realities of the space as it exists or we become anachronistic. To paraphrase Lee Iacocca, you lead, follow, or become largely irrelevant. As we approach the 10th anniversary of the enterprise HRO phenomenon, we need to ask ourselves about its trend line.
On December 9, 1999, headlines exploded with the news of the deal between Exult and British Petroleum. Almost all HR processes were included in a new form of BPO. Many new deals followed, and enterprise HRO was born. The HROA defines enterprise HRO as any deal in which more than six processes are in scope and in which 15,000 or more employees are covered. In the past 10 years we have seen many deals come and some go. We have seen much ink and analysis, pro and con.
We need to examine the realities. If you are a chief HR officer looking at the HR model of your organization—I have talked with many—you care less about outsourced versus retained organizations than you do about operational delivery on a cost-effective basis. For our CHRO readers, however, the history of outcomes is important, and the current trajectory of trend lines is undeniable.
First, enterprise HRO is not HRO. Single-process HRO such at total benefit outsourcing (TBO), learning business process outsourcing (LBPO), and recruitment process outsourcing (RPO), payroll, relocation, recognition, etc. are very successful and growing at a very healthy rate in each subset of the market. Enterprise HRO has seen four deals globally announced in the past year. Of those, rumors abound about issues with each of them, and one was terminated for reasons unrelated to the service platform but cancelled nonetheless.
The industry talks about first-generation deals and, to be fair, they were poorly priced and conceived. Unfortunately, while the second-generation deals were better planned and transformational work was done in advance of implementation, the providers are not making money in enterprise HRO. To wit, see the financial results from Hewitt, Convergys, ACS, and the recent pull back from enterprise HRO by Hewitt and Fidelity. These are all good companies with great commitment to service. They just cannot find the formula for consistent enterprise HRO success. Enterprise HRO has viability issues on the sell side and the buy side.
Troubled outcomes, remediation processes, hemorrhaging financials, and mixed buyer sentiment make the future of enterprise HRO murky at best. One of the reasons why single-process outsourcing is flourishing is that HR departments are moving to the best-in-breed model of selective outsourcing and setting up program management offices to manage multiple vendors. The future of HRO may be more linked to thinking of HRO as relating to single process and HR operations rather than the acronym’s close association to the early enterprise deals. Some of these HR outsourcing providers even eschew the word “outsourcing” and think of themselves as HR service providers.
The force of the market is implacable and cannot be stopped or diverted and must be respected. I do not mean that enterprise HRO is a dying business, but growth is at best flat line and the model needs vast improvement to, once again, be a growth business. And, right now the growth trends are favoring single process HRO.