Where HR services have been—and where they’re headed.
By Debbie Bolla
Looking back 10 years, strategy, expertise, and innovation weren’t major parts of HRO contracts—or even the mindsets behind them. Cost savings was top of mind, and HR executives looking to get in the game wanted a third-party provider to take over their noncore business processes (a.k.a., the administrative headaches). But it certainly wasn’t smooth sailing from the get-go.
The pioneering deal of the industry—BP and Exult (now Aon Hewitt)—didn’t set a leading example. Exult perhaps bit off more than it could chew, having to deliver payroll, severance, benefits, and mobility services for some 100,000 BP employees worldwide. The not-so-successful engagement eventually changed the HRO mentality from a “lift and shift” type of model to “your mess or less.”
It was one complicated deal, and many of the other first-generation deals weren’t any different. They were too large, and providers were making promises that were nearly impossible to keep. However, the fault lay with both the buyers and the providers. “Unfortunately, intentions were a bit ahead of capabilities in both buyers and providers and in technology,” notes NelsonHall Research Manager Linda Merritt.
While the first years did give hurt HRO’s image to an extent, they didn’t deter it from growing. “Luckily for the industry, most clients and service providers fought through the issues, the losses, the changes in scope, and even changes in providers, to stay with HRO,” Merritt says.
We’ve Come a Long Way, Baby
“We have gone from the ‘galactic HR outsourcing deals’ of the 2000 to 2006 time period to a series of ‘process optimization deals’ during 2007 to 2011,” explains Rohail Khan, group president of HR outsourcing and solutions at Xerox. “Today in 2012 we are driving a clear focus on ‘HR transformation’ that is based on an outcome orientation.”
As an earlier adopter of HRO, Lisa Knutson learned first-hand how the industry adapted to the buyers’ needs. “Ten years ago, it was all about large-scale BPO deals with large contracts and multifunctions,” says the chief administrative officer for The E.W. Scripps Company. “Now you see smaller contracts in terms of scope of processes—only three or four—then buyers turn to best-in-breed providers for other services. We were going to do everything through one vendor, and over time that didn’t materialize as best in class. Five years ago, we knew that outsourcing did transactional functions well, and best in breed was better for things like talent management and compensation planning tools.”
Michael Beygelman, president of Adecco RPO, North America (and a columnist for this magazine) paints a similar picture of the industry. “Today, HRO is a marketplace of vendors who offer best-in-class, standalone HR solutions, since most buying HR organizations no longer have an appetite to outsource all of their HR functions,” he explains. “While some companies still have interest in exploring multi-process HRO, they are the exceptions as are vendors who offer one-stop shopping HRO services. The market will come to rest where it is today—a plethora of one-off HR services that clients can buy a la carte or in bundles.”