A wholehearted embrace of the “O” word is what’s needed to get HRO back on track.
The concept of slimming down bloated HR administrative areas, providing a more rigorous framework for HR process standards, acquiring updated service delivery platforms, and enabling a more strategic view of the management of human capital should be a no-brainer. However, to many in the HR profession, it has been seen as abhorrent. When will HR professionals stop taking pot shots at HRO?
HRO’s PEANUT GALLERY
Outsourcing is delivering cost savings and productivity improvements in a number of general and administrative (G&A) areas, including HR, F&A, procurement, and IT. Yet all too often, when CEOs, CFOs, or sourcing advisors point out that the HR function may be over-staffed, not sufficiently automated or standardized, and—most importantly—not giving the organization the optimal level of workforce performance that a professional third party can provide, the response is frequently dismissed by HR.
A growing number of HR chiefs have realized that their company was going to outsource HR anyway and embraced the process to help shape the benefits resulting from the HR transformation process. These executives realized the change wasn’t going to be a walk in the park and worked hard with their internal governance and change management teams and treated their service provider as a strategic partner to make the process an effective and positive one.
Sadly, too many HR managers have resisted HRO vehemently and used the media and even Wall Street to throw the HRO process under the bus.
In contrast, there isn’t nearly the level of CIOs complaining about their ITO provider and demanding they do everything in-house; nor are there CMOs complaining that their customer-care service provider is costing them business; and few CFOs complain that their F&A provider is messing up the accounts. Yet this happens all too often in HR.
Sales, IT, finance, and many other units are all crucial business functions, but their leaders realize the realities of operating in a highly competitive global economy. Yet, we see HR managers blaming everyone but themselves for perceived failures of HRO.
To clarify a few myths being perpetuated in this blame game: First, we have only seen two companies out of 150 full-scope HRO buyers take their HR back in-house. One did so because it downsized so considerably that HRO was no longer economically viable, and the other did so for reasons other than poor service provider performance.
Second, HR professionals who accuse service providers and consultants of over-selling HRO are largely off the mark. Nearly every HRO deal that has gone live to date has achieved target levels of cost savings at comparable performance levels. What these naysayers are really saying is “we don’t like being held accountable,” even though their peers in sales, marketing, finance, and IT have faced the same scrutiny for years.
THE REAL STORY
The reason why multi-billion-dollar HRO providers incurred early financial losses in this business is straightforward: technology and service delivery investments were needed to complete their infrastructure. With 57 percent of HRO contracts having been signed in the past two years, and with a typical engagement having a 24-month implementation cycle, roughly half of all contracts are still not yet live. This factor will correct itself shortly.
Companies with mature business functions that undergo a well-structured and well-thought-out outsourcing deal rarely experience major problems beyond early transition issues. Very few have said they would go back to the way they were.
Several early HRO deals failed to produce initial savings promised because HR resisted the change. Keep in mind that many deals are still in their
The HRO market slowed in 2006 in part is because service providers have been more selective about taking on clients, who they know are going to embrace HRO in the right manner. As a result, the current wave of HRO deals is not going to be nearly as exposed and problematic as the earlier wave.
Like any mature business function, the “O” word takes time to be accepted. HR has taken longer than most to realize that this is the reality of today’s economy and that it is time to hold their hands up and be held accountable like everyone else.