Survey results from European insiders highlight challenges and opportunities for HRO across the globe.
by Yvette Cameron
What’s bugging the Europeans? Apparently many of same things that have been plaguing the Americans. Last fall the European chapter of the Human Resources Outsourcing Association (HROA Europe) coordinated a targeted research project1 across about 35 influential industry insiders (advisors, buyers, and service providers) to explore some of the successes and challenges associated with large-scale HRO in Europe. Several broad themes were revealed, three of which are introduced below. While European-specific challenges were cited within each area, the resulting focus areas for improved HRO are decidedly global in nature.
Adopt greater levels of standardization. There is a clear preference among buyers to move away from the risks of the old “lift and shift” mentality to reliance upon provider-driven technology choices. Buyers indicated, however, that these technology choices must ensure strong use of standards: standard deployments, standard business processes, and deployment of best practices.
In one example, a buyer expressed his concern that cost reductions from labor arbitrage (offshoring) would not be sustainable because the provider had thrown resources at processes that were neither standardized nor optimized. (And in fact, doesn’t the recent Satyam implosion point out the risks of relying solely on labor arbitrage for cost
reductions?) Standardization doesn’t mean one size fits all, however. Many surveyed buyers cited a desire to conduct business with HRO providers who leveraged technology and resources to enable global practices and business insights while meeting the local requirements and common practices of many smaller countries.
For their part, it was clear that service providers have been reaping the lessons of the past, enforcing more standardized approaches to ensure scalability and repeatability and developing more standardized platforms. (TCS, for example, has launched a BPO platform division and is building a standardized global HR and payroll platform.) Buyers recognized that changes to their own processes are necessary to achieve the desired results. Said one buyer: “Sometimes we think technology will help solve all of our HR evils, but it’s not true. If we have fundamentally wrong processes from the start, and we’re trying to adapt technology to our wrong processes, then we will fail regardless of technology or service delivery approach.”
Create more realistic business cases. The survey revealed a fundamental challenge in measuring the success of HRO initiatives: HR baselines are often wrong, sometimes significantly. Buyers need to understand the current baseline of the services they’re outsourcing, not just the people costs but the total current costs of the function including desktop costs and third-party supplier costs. Buyers also need a perspective on current quality as well as a view of future requirements. Research revealed the following on baselines:
- Service providers consistently had a worse perspective on a business case than did the customer;
- While on average the baseline accuracy is within +/- 10 percent, in some countries it varied by more than 25 percent;
- Accuracy depends on process maturity. Accuracy in areas such as payroll is generally within +/- 5 to 10 percent, while others such as recruiting and learning experience can have a deviation of 25 percent or more.
With very few exceptions, advisors, buyers, and providers indicated that internal HR measures were anecdotal, error-prone, or nonexistent—adding greater risk to the business case.
Take more care with service level agreements (SLAs) and governance. Drilling down with both buyers and service providers, we found tremendous efficiencies in SLAs but also significant concern over whether the right things were measured. It is evident that governance shouldn’t be about just looking at last months’ service levels—greens and reds. There is a place for that, but the relationship must be much more dynamic. It should focus on continuous improvement and where to go next. It’s here that the technology vendor should be engaged to keep the “what’s feasible” conversation in the forefront.
Partnering for the future. Overall, participants shared the same sentiment: relationships win the game. All stakeholders indicated that a commitment to partnership—working collaboratively in a true business partnership rather than the typical client/vendor (or master/slave!) contractual engagement—is a key to long-term success.
1This research was carried out on behalf of the HROA by members from SAP and PA Consulting Group. Results from the survey referenced in this article will be available from www.hroaeurope.com or www.hroassociation.org in early 2009.
