The next generation of HR services will demand connection of the silos.
By Erica Volini and Michael Gretczko
The past few years have been tumultuous for the HRO industry. Deals have failed, providers have exited and organizations have, often times, been left holding the bag. Many have offered predictions on the future of HRO, yet most of us are still asking: Where does this leave us now?
Starting at the Beginning
To start, we should be honest about how we got here in the first place. For almost two decades, the search has been on for how to make HR strategic. HR executives were hungry for ideas that could help them achieve this goal. They had just ridden the wave of increased efficiencies through Enterprise Resource Planning (ERP) implementations and had watched their functional peers in IT and finance successfully leverage outsourcing to transition administrative processes out of the organization. In the meantime, new providers entered the market with a set of capabilities they had developed as technology vendors, payroll and benefits processors and call center operators, and began to package these capabilities in what we now know as multi-process HRO. In summary, HRO became an easy out for a problem that many of us couldn’t figure out how to solve. And, all of us—organizations, consultants and providers alike—felt as if the time for HR transformation had finally come.
In reality, a fundamental disconnect separated what buyers needed to transform and how providers were offering to help them get there. Providers were focused on deploying their solutions, and the piece that was left over—the part that the providers did not operate—fell to the wayside. What no one realized was that this “missing piece” was a critical component to making the model work and allowing true transformation to occur.
Breaking Down the Silos
Understanding this missing piece requires an in-depth look at what HRO providers are delivering today. When we dive into traditional HRO solutions, it becomes clear that, although HRO promised to be something new, better, and different, in practice, it was simply a replacement for the way HR services were already being performed. A more efficient replacement? Sure . . . but still a replacement. As a result, everything from contracts to implementation approaches to service center structures were based on the traditional way HR services were provided—by silo. Outsourced payroll replaced in-house payroll; outsourced recruitment replaced in-house recruitment, and across the silos we went. While the similarity to the current-state made HRO an attractive option for buyers, it ended up masking the inherent issues in HR service delivery that organizations were looking to resolve. The new HRO-enabled service delivery model was still built upon silos, but instead of having an HR organization in place to address the pieces in-between the silos, the provider was there with a defined scope of services to execute against. And so the age-old debate of “the chicken or the egg” began. We were left with this question: Was HRO the issue, or was it those silos—and the lack of integration amongst them—that had prevented HR from transforming all along?
Defining the Missing Piece
In one organization’s recent experience implementing an HRO-based solution, they suffered from one consistent issue—lack of integration. Their processes and structures were so complex that the simplicity of the silos left gaps in-between. Upon reaching steady state, customers became lost in the model when questions crossed processes. Data became inaccurate when it passed through multiple systems. Metrics became meaningless because accountability was spread across the service delivery model. The challenges they looked to resolve through HRO became their biggest issues after go-live.
This organization felt that it was the provider and the outsourcing itself that caused these issues. In reality, however, the engagement of an external provider simply created an environment in which these issues became more apparent. With HR no longer in a position to connect the dots amongst the silos, the gaps that were always inherent in the model became clear. And now that organization was left to decide how to address them. While many in a similar predicament have chosen to work around their providers, experience leads me to believe that by actively engaging the providers in addressing the issues, organizations would be much better positioned to effectively resolve their integration challenges.
While the concept of integration isn’t new, making it work within an HRO environment is. Because of the contractual nature of these relationships, organizations cannot just assume that the provider will resolve issues that don’t fit neatly into their silo-based offerings. The key is to turn the concept of integration into a set of services that can be purchased and embedded into the HRO solution. I call them “HRO Integration Services” because they represent those activities that cut across HR processes and delivery tiers
Beyond where they fall in the model, integration services represent those areas that can help an organization embed flexibility in how it delivers services to its customers. These services exist to fill the gaps between silos, so—by their very nature—they should be flexible in design and customized to the organization’s needs. They are also the services that can help enable an organization to address issues before they become customer-facing. And, because of their cross-functional nature, they can add a great amount of value not only in terms of the solutions themselves, but also in their ability to provide a “common front door” to the service delivery model. This level of integration, when achieved, can help maximize the employee experience and ease the customer’s ability to navigate what is often a complex service delivery organization in the background. In summary, integration services are the glue that can hold everything together.
Because these integration services do not jump out on a provider’s typical set of offerings, it is up to both the providers and buyers to define them during the “solutioning” process. Both parties need to look for opportunities to take on administrative activities that HR is performing but do not fall within the traditional silos.
Often times, these are activities executed “on the side” and are not easily tied to an HR role—meaning that they might not be picked up in a traditional business case. An effective way I have found to identify these opportunities is to closely examine the issues inherent in the existing service delivery model to determine the root causes.
Take payroll for example. Many claim that the biggest issues with payroll result from inaccurate data. Those data inaccuracies can often be traced back to approval-based HR transactions not being executed in a timely manner or inaccurate employee master data. What I have seen organizations traditionally do is tackle these issues one-off, without putting the structure in place to address them on a proactive and collective basis. The opportunity with integration services is to empower the provider to create and implement a formal set of services (workflow or data management in this example) to address these issues head-on. The result? Assurance that the required integration is cared for and monitored; the empowerment of the provider to take on more of the end-to-end process; and the removal of administrative work from the HR organization—which is the final step in achieving a successful transformation.
Embarking on a New Approach
To embrace integration, buyers and providers need to change how they have traditionally approached outsourcing. Buyers need to challenge themselves to identify areas where HRO can help them both enhance HR capabilities and address the issues inherent in their current service delivery models. This exercise should be done upfront—before the inclusion of a provider—and should incorporate stakeholders across the organization as many processes include functions outside of HR.
In addition to identifying the services, buyers need to understand the level of service they require. This is different from Service Level Agreements (SLAs) and more about understanding the organization’s tolerance for standardization in the delivery of traditional HR services. Buyers should not underestimate this exercise, as tolerance levels can give insight to the level of integration required. Going back to our payroll example, if the customer demands 100-percent payroll accuracy, then the ability to validate and manage the upstream data becomes a critical area of focus.
Once the services are identified, translation into a measurable set of services must occur so that providers can be held accountable for the results. Finally, buyers should establish an operational governance model that reinforces the integration accountability that the provider now has and sets the stage for the continuous improvement so often lacking in HRO contracts today.
Providers, on the other hand, need to bring a new level of creativity and flexibility to their solution offerings. Providers should start the HRO conversation not with a menu of services, but rather with a set of questions designed to understand the organization’s needs. Providers also need to be realistic about what they can provide. While integration services can add to a provider’s offering, they should also challenge the provider to consider what activities they should not take on. Providers should look to create a combination of services that enable them to have the right level of control over the outcomes for which they are accountable. The more providers recognize that their success is dependent on managing integration across the service delivery model, the more success stories we will hear about HRO partnerships that work.
The good news here is that the inclusion of integration services can work for any organization. Organizations with shared services can use it as a way to supplement existing service delivery. Organizations that have already outsourced can use it to increase the effectiveness of HRO across their existing footprint. And organizations that are getting started can begin the HRO journey on the right path. Taking an integrated approach is the key to unlocking the true value of HRO.
Erica Volini is a Principal at Deloitte Consulting LLP, where Michael Gretczko is a Senior Manager, Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services