Multi-process HRSourcing

What’s Hot—What’s Next

Global solutions, single processes, and SaaS shifts will all require attention in 2010.
 
 
By Stan Lepeak
 

 
The human resources outsourcing (HRO) market is continuing to grow and evolve. Less common today are the large, multi-process deals that characterized the market several years ago. This is mostly a good thing, because those deals proved difficult for HRO buyers and their service providers to consummate and manage successfully and profitably.
 
 
This does not imply that HRO demand has lessened or that buyers no longer view HRO as a key tool to enable both strategic and operational improvements to HR operations. Demand for smaller deals (in terms of geographic scope, number of business units, etc.) and focused on core HR processes such as payroll, HR IT (information technology/systems), and benefits administration remain robust. This trend illustrates a growing preference by HR groups for a more pragmatic and incremental approach to HRO. Buyers may still eventually get to the same place in their use of HRO, but will do so in a more iterative and less painful manner.
 
 
So what does the market hold for HRO in 2010? EquaTerra conducts a quarterly global pulse survey that assesses trends in the global BPO and ITO markets. The results from the most recent pulse survey were in January. This quarter’s pulse assesses both the levels and nature of HRO demand in the market and also identifies the top market trends that are expected in 2010.
 
 
Relative to HRO demand by process area, trending was similar in 4Q09 to that of recent quarters. Payroll outsourcing represented the strongest area of demand, followed by HR IT (information technology/systems), and benefits administration. The EquaTerra Pulse tends to focus on multi-process HRO engagements, but trending is similar in terms of demand for one and two process efforts, with payroll and benefits administration being top areas of demand. Demand for recruitment process outsourcing (RPO) continues to grow, though more commonly today as a single process outsourcing initiative.
 
 
Looking to the balance of 2010 and beyond, two of the most important outsourcing (including HRO) trends to watch for are the continued expansion of global or offshore outsourcing and the rise of software as a service (SaaS) as a complement, and increasingly an alternative, to traditional HRO. 
 
 
Several factors are contributing to increased HRO buyer interest in global sourcing. One is the extreme cost cutting pressures that HR groups have been under for the past two years as a result of economic conditions. The lure of potential costs savings from shifting HR work to lower cost markets is increasingly too great to pass up, even if there are concerns about offshore outsourcing. Second, the diversity and quality of the global supply of HRO services is steadily improving. Service providers have gained experience and improved the quality of their HR service offerings, more service providers are viably competing for the HR business, and the range of potential locations from which to source services continues to grow. This increased geographic diversity can provide better language and cultural affinities for users. Third, buyers overall have become more experienced and sophisticated in their abilities to source and manage global efforts.
Perhaps even more so than global sourcing, SaaS will influence how organizations access and consume HR services from third party providers. There are many reasons why SaaS is appealing to both HR groups and IT professionals.
 
 
• Lower upfront investment costs compared to traditional HR and enterprise software systems and a rental (operating cost vs. capital investment) model for funding the investment.
 
• Greater ease and faster speed of deployment of more turnkey solutions that combine the underlying IT platform with the software applications and some support services.
 
• Greater (or at least newer) functionality provided by new products and from vendors focused on supporting a relatively narrow set of requirements as opposed to more encompassing enterprise suites.
 
• Continual and less burdensome upgrade processes through the elimination of the traditional upgrade cycle, with major upgrades under the SaaS model occurring much more frequently (quarterly or twice yearly vs. every few years) and with less burden placed on the user organization.
 
 
While HR SaaS benefits are compelling, there are other countervailing factors prospective buyers must account for when considering SaaS investments. At this stage of maturity (or immaturity), SaaS is not for the faint of heart. Like comprehensive HRO a decade ago, SaaS as an industry is in the early stages. As a result, there are several issues prospective buyers must consider:
 
 
• Support requirements above and beyond what the SaaS vendor or internal IT can provide;
 
• HRO provider reaction to a customer-supplied SaaS solution (to the extent there is an incumbent HRO provider in place);
 
• Integration requirements back into retained HR IT or other corporate systems; and
 
• Technical and related issues inherent to the SaaS model such as multi-tenancy, data privacy, and security.
 

Buyers must also recognize and account for the fact that the HR SaaS vendor market is still evolving and will invariably go through growing pains and consolidation.
There are common situations that lead HR groups to favor an HR SaaS model over the traditional internal and external solution options. The following represent some of these situations.
 
• Global human resource management system (HRMS). In this situation HR buyers are typically looking for a rapidly deployable solution to provide global HRMS capabilities. This is often driven by exasperation with inadequate global reporting capabilities (e.g., Where’s the talent? Who to fire/not fire?) or because of merger and acquisition or divestiture activities, both common in today’s market.
 
• Recruiting. HR buyers focused on recruiting are typically looking for new and better software to support the recruiting function but do not have the budget, resources, or appetite to implement a full-blown recruiting software solution. The SaaS solution might represent the first dedicated recruiting application installed, or replace earlier deployed, but under performing, systems.
 
• Learning management. HR buyers focused on learning management are typically looking for software to support the talent management function without the challenge of implementing a full-blown talent management solution. This is similar to the situation with recruiting. Additionally, learning management is a process area that was commonly included in early multi-process HR outsourcing deals. Unfortunately for both buyers and service providers, it has proven difficult to successfully deploy and manage cost-effective learning management solutions, so buyers are now looking for alternatives to the traditional outsourced model.
 
• Global HRMS and payroll. This is an extension to the first example cited with the additional dimension of adding a payroll service as part of the solution. Benefits administration is another HR process area commonly bundled with HRMS.
 
 
These examples highlight the type of scenarios in which HR groups should consider the SaaS alternative. This holds true for larger global organizations, divisions, or business within these firms, or for smaller and mid-market organizations where SaaS offerings have made the greatest in-roads to date.
 
 
Beyond just lower cost and more rapidly deployable solutions than traditional enterprise software or HRO models, HR groups must think strategically about where their cumulative SaaS investments will take them. Investing in multiple HR SaaS solutions across the organization, like any best-of-breed scenario, looks great on paper but can prove costly and complicated to manage in the longer term. The benefits gained from individual SaaS investments can get lost when rolled up to the corporate level, and the true costs and complexities of integration, support, training, and user and vendor management are taken into account. This is the reason that integrated commercial enterprise software systems grew in popularity in the first place. These considerations should drive the development of a corporate HR SaaS strategy harmonized with HRO and enterprise software strategies.
 
 
Another certainty is that the growth and consolidation of the HR SaaS solution providers markets will accelerate. It is critical that buyers account for this in their SaaS strategies and tactics. Over time, more HR software will become available via the SaaS model. Leading HR SaaS providers will expand their service offerings and in some cases start to look more like traditional business process outsourcing service providers (albeit ones with much more standardized offerings and that will not acquire client assets). HRO service providers will make greater use of more standardized and turnkey SaaS applications and solutions, leveraging, partnering with, and acquiring pure play SaaS providers. This evolution will create some new winners and losers in the HR enterprise software, SaaS, and outsourcing markets.
 
 
HRO, increasingly globally delivered, and HR SaaS will continue to increase in importance as tools that HR professionals use to improve the efficiency and effectiveness of HR operations and enable the HR group to deliver more strategic value to their organizations. The challenge is both to determine when and where to apply them and how to execute and manage them effectively. This should be a top priority on the HR strategic agenda for 2010. 
 
 
 
 
 

 

Tags: Multi-process HR, Sourcing

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