Multi-process HRSourcing

The Unfulfilled Promise of HRO

Buyers’ Group gauges HR professionals’ view of outsourcing and gets an earful about the added burden of managing HRO deals.

by Mark M. Azzarello, Cynthia DeFidelto

As HRO activity continues to grow dramatically at both the upper and lower ends of the market, many early pioneers of HRO are now in the process of renegotiating their maturing service agreements, even as a growing number of mid-market companies are testing the waters of outsourcing. But results from a recently compiled study undertaken by Towers Perrin, in association with the HR BPO Buyers’ Advisory Board, show that strategic transformation among early adopters has fallen short of expectations.

The unofficial promise of outsourcing has always been that it would allow the retained HR organization time to refocus on the strategic work it has always wanted to do and earn its long-coveted “seat at the table.” The reality is that if companies were expecting outsourcing to be a transformative experience, most were disappointed. The data show that nothing is automatic; outsourcing alone is no guarantee of transformation and the achievement of strategic value.

The findings were from the second of a two-part proprietary study to measure the state of HRO effectiveness. This module targeted three distinct audiences within Buyers’ Group member companies, all of whom were materially impacted by HRO. Those
surveyed included:

  • HR generalists–reps who service line businesses;
  • HR specialists–experts in HR functional areas (e.g., benefits, compensation, staffing, employee relations, technology); and
  • HR operations managers–those who “own” and manage the relationship between their organization and their service provider.

The primary objective of phase II was to measure the impact of large-scale, multi-process outsourcing on overall HR effectiveness, particularly on the retained HR organization. What made this portion unique was the fact that for the first time in our three-plus years of studying this market, we extended the research to generalists and specialists in the retained function and limited participation to only those who had been in their current job pre- and post-HRO and could speak from firsthand experience about good and bad changes.

Because this survey module was only sent to those Buyers’ Group member companies with at least 12 months of experience following full HRO implementation, just 19 companies were eligible to participate; 17 responded, and their answers were revealing.

For HR generalists, outsourcing’s promises remain largely unfulfilled. They say outsourcing has not resulted in substantial improvement in most factors important to them. Rather than being freed of responsibility for transaction and administrative problems, many are investing more time and resources on implementation and change management. A positive change was being able to focus more attention on getting to better know the businesses they serve.
For HR specialists, the results were slightly better. They also said the promise of outsourcing was largely unmet. Of particular frustration was the fact that HRO required too much time to manage.

HR operations managers were more pessimistic. Surprisingly, they were also less positive about the overall progress of the outsourcing goals from an operational perspective.

Creating a Transformation Index

One of the most intriguing findings of our latest research involved the issue of just how much a company should transform itself before shifting HR responsibilities to an outsourcer. Study results clearly show that companies that put the most effort into transformation first register the greatest overall satisfaction post-outsourcing. It also showed that it might not be necessary—or even prudent from an ROI perspective—for companies to completely transform. In fact, moderation may actually be the best course. Carefully selecting where to invest time and effort in pre-outsourcing transformation appears to speed the shift from administrative to strategic work, build the required new competencies to effect this shift, and yield higher levels of satisfaction.

In these cases, ROI may actually be highest at a point somewhere between zero transformation and full transformation. Towers Perrin and the Buyers’ Group are actively developing a transformation index to identify the point on the transformation continuum where transformation value is the greatest.
For more information about the HRO Buyers’ Group or our latest marketplace research, contact Cindy DeFidelto at cynthia.defidelto@towersperrin.com.

Tags: Multi-process HR, Sourcing

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