Multi-process HRSourcing

HRO Enters the Middle Age

As the market moves into a new era, examine how your relationship with providers is progressing. Be mindful of the growing distrust that developed in ITO’s market journey.

by Hugh McDonald

Regular readers of this column will know that the HR Buyers’ Advisory Group represents more than 60 of the world’s largest HR BPO arrangements—with a total contract value of more than $20 billion. The members of the group are experienced HRO buyer-practitioners who meet regularly to learn from each other’s experiences.

These days, the older deals among the Buyers’ Group are entering their sixth and seventh years. And as they enter mid-life, the members are contemplating how the marketspace is evolving. They look to the example of the older IT BPO market and note that it had experienced a mid-life crisis. In studying IT deals, researchers Robert Chapman and Kathleen Andrade suggested that a mid-life crisis occurs when new service requests, organization changes, and supplier growth create problems. Buyers may believe that suppliers overcharge for new or changed services and start to cut costs by lowering service levels, cutting corners on project work, or passively resisting buyer requests for continuous improvement. In response, some buyers tighten their governance and contract management processes.

The danger is that by creating so much tension and dissatisfaction, firms that were once strong supporters of IT outsourcing take the work back inside.

If HRO is to avoid the same fate, it would seem necessary for buyers and suppliers to remain committed to joint problem solving. This requires trust and transparency, as both sides must recognize the challenges and needs of the other. A recent survey by Tower Perrin reviewed by the Buyers’ Group suggested that similar pressures are beginning to be experienced by large, mature HRO buyers. Adam Johnson and John Rollins have observed that in a seasoned outsourcing partnership, almost three-quarters of the companies surveyed exercise moderate to extensive reliance on governance. The quality of the relationship has typically become more important withthe contract as the primary management tool.

After examining the experience of the first 6 or 7 years, a number of recommendations seem to make sense:
• Engage in more joint training. Buyers and supplier staff should engage in at least one major joint training exercise each year and participate in at least one day of joint planning and team building each quarter. This is especially important given the turnover that typically occurs. It would seem wise that the training also be used to improve basic communication, negotiation, mediation, or problem-solving skills. The idea is for participants to spend time getting to know one another better and adding to their confidence and skill in managing day-to-day working relationships.

• Focus on trust building. Trust between buyers and suppliers also tends to vary over time. After 6 or 7 years, there is often much room for improvement. Over the balance of the deal, the parties need to establish some new common goals to replace the initial joint goals, which were likely completed early in the life of the deal. As any marketing executive knows, completed objectives no longer motivate.

• Make some personnel changes. Many advisors have suggested that mid-life relationship challenges be turned into opportunities. That is, mature conflict between buyer and supplier should be seen as a “functional,” and in dealing with it the parties should spend extra time studying the root cause of the conflict itself. Thorough analysis may well result in ideas for personnel changes in team composition or structural changes in governance.

In fact, researchers Erin Anderson and Sandy Jap recently suggested that “close relationships are not always synonymous with good relationships.” Their premise was that sometimes the strongest characteristics of a relationship, the elements that enable and empower it, become the weak link.

To avoid this, they suggest the regular evaluation of older and comfortable relationships. They recommend the use of a succession plan to develop backups of key staff. This gives the buyer the freedom to rotate alliance liaisons and move someone new in whenever it is useful to do so.

Time will tell if the majority of HR BPO arrangements are managed well enough to avoid a mid-life crisis. To help make this happen, the buyers in the Buyers’ Advisory Group will study the experience of an earlier generation of IT buyers and consider the above and other recommendations to ride out the waves.

The next meeting of the Buyers’ Advisory Group takes place in Chicago in June. For more information, or if you have any questions, please contact us through the editors of HRO Today, or e-mail me at hugh.macdonald@rogers.blackberry.net.

Tags: Multi-process HR, Sourcing

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