If internal HR can change its dogmatic ways, is there a future for the HRO provider?
by Paul Davies
From apes, to Homo sapiens, to who knows what, evolution is relentless. It weeds out the maladapted, offers opportunities to the versatile, and ensures that no species can, whatever its perceived superiority, grow complacent.
Though the business world is littered with the bones of those who fatally forgot this fact, outsourcing has, up until the global meltdown, had a reasonable spell, evolving from primordial origins in temping and catering to scale the cerebral heights of enterprise solutions and full-scope, transformational HRO.
But, while HRO has been elbowing out a perch on the Darwinian tree of evolving business life, the fat, global species of HR that it has been displacing has provided poor competition. Slow, inflexible, and tied to fixed locations, it was in a poor condition to resist the abrasive newcomer in the first place and is now perhaps already staring at its own extinction.
Or perhaps not.
It’s quite conceivable that the prehistoric, indigenous species may be evolving too. After all, the model used by providers can be adapted to an internal approach, and traditional companies have been offshoring work for some years without outsourcing.
Even without making dramatic technological or location changes, the lumbering dinosaurs of HR have been organizing administrative work to national centers and pulling site resources into central teams that work over the telephone rather than face to face.
They have also been dragging errant divisions into the global process space, convincing rabidly independent HR managers that “global standards” don’t just apply to product and branding strategies but also encompass HR systems and processes.
Often the cost benefit is restricted to productivity alone rather than the combination of productivity and labor arbitrage offered by HRO providers, but even here the incumbent species is evolving.
Two-tier wage structures have been around for a while and companies have long sought to shed higher-paid, long-serving employees through early retirement programs while retaining lower-paid, shorter service employees. In some traditional industries, the cost differential can be 30 percent to 40 percent.
Additionally, where centralized administration and query handling can be located in lower-cost areas of the same company, regional pay arbitrage can be exploited without outsourcing or even offshoring.
The internal restructuring is rarely accompanied by the case management and automatic processing technology one would typically see in an outsourced operation, but species don’t have to evolve along exactly the same lines. What’s important is whether they are adapting successfully to the changing environment.
One recent example suggesting that traditional HR may still avoid extinction occurred in one of the most unlikely places: old style, “closed shop” unionism.
The Irish company in question, beset by labor costs that were 50 percent higher than those of competitors and working practices that dated back to 1970s agreements, decided to outsource about half of its workforce.
At the ninth hour, just after the successful provider had been identified, the union made a bid of its own. It involved replacing the current 18 grades with five broad classifications and having five incremental salary steps in each new classification instead of the 22 that existed in most current grades. The proposed pay was 40 percent lower than where it is currently and in line with that of competitors. Additionally, overtime rates, shift premiums, working time, and working practices were all to be brought in line with the competition, and employees were asked to voluntarily move to the new arrangements.
While the proposal itself was jaw-dropping enough, the fact that 80 percent of employees volunteered for the new employment contract was mind boggling. Of course, the sweetener that made it all possible was that each volunteer had to be made redundant on a lottery-size package before he/she could be rehired on the new terms. However, in the European environment where workers would have had to transfer to the provider on their current terms and conditions anyway, the financials made sense.
It’s not the kind of deal to roll back the outsourcing revolution, but it does show that traditional social partnerships can deliver innovative solutions. After all, this was not just a pay cut; it was a wholesale, long-term resetting of the rules for the current workforce and was achieved voluntarily.
The beauty of evolution is exactly this propensity to throw up the perfect adaptation to an external challenge. And it doesn’t matter that this particular solution might not represent that adaptation. The point is that traditional HR is still alive and evolving. If it ever manages to permanently match outsourcing providers’ costs, how will the providers evolve to stay in existence?