The Impact of HR Outsourcing on
the HR Profession
Based on a Report from the SHRM
Outsourcing/Consulting Panel
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Definitions
• Outsourcing—transferring of a business process to an external provider
• Offshoring—outsourcing of an operation to a firm with principal base of operations
outside the country
• Insourcing—transfer of an outsourced activity to an internal department of a
company to be run and managed by employees
• Sole-sourcing—outsourcing all processes in the HR life cycle to a single provider
• HRO—standard market term for the group HR related outsourced processes
• BPO—standard market term for business processes outsourced be they HR or other
business related
• SLAs—contracted service level agreements outlining performance expected in terms
of availability, cost and quality
• Due diligence—the process of conveying the operational information to third parties
and vice versa
• Transition—moving from a current model to a new model
• Transformation—transitioning from a current model with significant change in the
new model, usually improved processes
• Integrated outsourcing--combining vendors to achieve an outsourced solution using
more than one vendor
• RFI/RFP—request for information and request for proposal, first steps with vendors
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What is HR Outsourcing?
• HR Outsourcing manages the • After outsourcing, companies
people, processes and typically retain “Strategic HR”
systems for: duties inside
– Employee Life Cycle
Administration – HR policy
– Compliance
– Communications – Organization development
– Recruiting And Selection
– Training – Deployment of the right
– Compensation people to the right jobs
– Benefits Administration
– Stock Administration – Human capital decisions
– Safety affecting financial results
– Pension
Each HRO provider claims to offer cost savings &
– Payroll service improvements in delivering processes.
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Trends
• Continued Growth/Maturation • Small/Mid-Sized HR
of HR outsourcing outsourcing markets will
• Increasing Weight of Non-cost expand
Factors as Decision Drivers • Demographic Changes will up
• “Commodization” of Many HR Outsourcing’s appeal
functions continues • Demand for Improved HR
• Development of New Roles for metrics
internal HR Departments • Consolidation, Competition,
• Emphasis on New Career Sole Sourcing Reshape
Opportunities for Professionals Industry
• Outsourcing Failures will
cause Re-evaluation of
Decisions
HRO is an accepted management practice and an
opportunity to be embraced.
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Career Implications
• Developing use of third party • Building integrated business
providers as strategic business process solutions no matter
options size
• Using the power of others as • Fitting technology appropriate
leverage for expanding to the workforce skill base
expertise • Learning to apply quantitative
• Chance to reorder focus and data as decision drivers
priorities • Relying on performance of one
• Evolving accountabilities for to many providers
growing human capital value • Expanding the profile of risk
• Defining new jobs and job management
descriptions
HR has the opportunity to shape how they respond
to the demands being received.
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Trend: Continued Growth/Maturation of HR Outsourcing
Implies: Developing use of third parties as strategic business options
HR Transactions--Moving to More • Running HR as a business,
Broad Base HR
proving returns
• Selective decisions for service
$80 billion:
50% of all HR delivery modules, fragmented
work
or integrated
• Protection and governance of
company data and property
$8 billion • Managing the performance of
others
1998 2000 2002 2004 2006 2008 2010
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Trend: Increasing Weight of Non-cost Factors as Decision Drivers
Implies: Using power of others as leverage for expanding expertise
Conference Board Study 2004
Top Execs Desire • Building strategic drivers for
•Cost actions aligning with core
•Capital Avoidance missions
•Maximize Resources • Aligning HR key activities to
•Service Improvement
products and services
Line Managers Desire outcomes
•Cost • Heightened focus on people
•Service Improvement
management practices and
•Meet Changing Needs
•Maximize Resources
workforce development
• HR management challenge to
HR Leadership Desire
sustain achievements and
•Service Improvement
grow future options with
•Cost
•Maximize Resources providers
•Meet Changing Needs
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Trend: “Commodization” of many HR functions continues
Implies: The more HR activities and tasks become a commodity, the
greater emphasis on price and the more likely they will be outsourced
• Transactional HR activities are • The organization’s reliance on
unbundled into discrete and loyalty to its HR department
components weakens as activities are
• Information technology allows commoditized. HR must now
these components to be digitized compete with external sources
• Web-based HR applications and price becomes a critical
enhance the processing of decision making criteria.
digitized content and allow • In this environment, transactional
multiple worksite collaboration activities will increasingly go to
• As transactional HR activities the most efficient or least costly.
become commoditized, In-house HR professionals will
product/service differentiation is have to compete with vendors or
increasingly based on price concentrate on activities that are
less likely to be commoditized
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Trend: Development of New Roles for internal HR Departments
Implies: Evolving accountabilities for growing Human Capital Value
“Total Value
SystemStaffing
Accountabilities”
New internal • Supply chain management
Models
skills
System • Change management and
Economies of
Lower Scale communications skills
Administrative • Project management skills
Cost
Vendor • Relationship Management
Performance
internal and external
• Measuring performance of
Optimal Use of providers
Human Capital
Strategic
Value Add
Effective Comp &
Ben & Talent
Management
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Trend: Emphasis on New Career Opportunities for Professionals
Implies: Defining new Jobs and Job Descriptions
Business Alignment • Broader base of opportunities
Vendor Relations
Sourcing in providers to learn HR
Transformation content
Skill Building
Knowledge Transfer • Cross flow of employment
between providers and
companies
Inside • Provider data and knowledge
brought to fulfill strategic
Outside mission
Analytics • Opportunity for multi-client,
Webmasters
Discipline Expertise multi industry base of
Process Solutions knowledge
Best Practices
Customer Responders
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Trend: Small/Mid-Sized HR outsourcing markets will expand
Implies: Building integrated business process solutions no matter size
2 Million Small • Effective use of technology
Businesses:
Payroll, not HR drives efficiencies and value
ADP, Ceridian, added services
Paychex
• Cultural adaptations accepting
2,000 Mid Cap Companies:
Full HR low touch alternatives
HR is stretched today • Partnerships for economies of
Underinvestment in
HRIS scale
Clients ready to accept
“normative solution”
• Generalist small company HR
Fortune 500:
role to significantly change
Full HR
HR is good today
Hewitt, IBM,
Accenture, Arinso,
Fidelity, ACS, etc
Clients demand
customized solutions
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Trend: Demographic Changes will up Outsourcing’s appeal
Implies: Fitting technology appropriate to the workforce skill base
• Recruiting is more strategic
War For Talent than ever and more difficult
• Access to HR tools is as close
HRO as any computer
• Less personal and low touch
Declining services become the norm
Math and Science
Studies • HROs are the largest
recruiters for HR talent
Lower Immigration • Transition for retiring workforce
Lower birth rates 1980s-90s
• Facing the challenge with
workers who are not IT
Boomers Retirements
Global Labor with Market Talent Shortage connected in their jobs
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Trend: Demand for Improved HR metrics
Implies: Learning to apply quantitative data as decision drivers
HR, Operating Leaders,
Project Teams • Service level agreements
• Return on investments
analysis
Source Data • Value realization techniques
• Human Capital Value
accounting
Global Data
Base • Cash flow, capital investments,
non-cash items accounting
• Moving from provider of
services to accountability for
business performance
Remote Data Mgmt
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Trend: Consolidation, Competition, Sole Sourcing Reshape Industry
Implies: Relying on performance of one to many providers
• ACS buys Mellon • Managing redundant systems
• EDS joint venture with Towers • Contingency Planning
Perrin • Crisis Management
• Hewitt buys Exult • Supply Chain disruptions
• IBM sells HR services units to • Optimization decisions on
Fidelity number and scope of services
• Oracle buys PeopleSoft • Monitoring financial and
ongoing viability of vendors
“Between January 1993 and October 2003,
a total of 509 HR Outsourcing transactions • Health-check on work climate
were recorded with 30% of those disclosing at providers
value that aggregate to a total of $14.4
billion.” (Mergers & Acquisitions Group,
Robert W. Baird & Co.)
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Trend: Outsourcing Failures will cause Re-evaluation of Decisions
Implies: Expanding the profile of Risk Management
Project Mgmt.
HR Managers as Risk Managers
y ? Risk Factors*
h
Change Mgmt. W •Loss of Institutional knowledge
n d
Performance Mgmt.d
a •Lack of internal staff/capability
a ile •Difficulty managing vendor relationships
t F
ha •Mismatch of cultures
W •Security of databases with providers
•Lack of vendor knowledge of industry
Contracting •Sarbanes-Oxley Compliance
•Financial stability of chosen vendor
Ho
Negotiation
w
•Organizational resistance
M
ROI Analysis
uc
•Security of transaction in multi-client env.
h
•Unpredictable costs
$$
$$
•Cost/benefits not realized
?
Source: Adapted from Bajpai, N., J., Arora, R., & Khurana, H. (2004, June). Global services sourcing: Issues of cost and quality [CGSD Working Paper No.16}, 2005 SHRM
Research Quarterly 3rd Quarter, page 6.
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Building Blocks of the Future
• Strategic Sourcing--Integrate HR Operations
between supply partners and technology
solutions
• Effective Technology--Build the infrastructure
with efficient fit for purpose technology
• Access to Data--Create innovative reporting
and strategic advice linked with business
performance metrics
• HR Excellence--Grow competencies and
capabilities of HR team
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Learning from the Journey
• Can’t wait for everyone to be “happy”
• We are problem solvers for the organization
• Lots of people have advice but go with those who deliver
• From challenge and debate comes progress
• Details and data are the foundation of good execution
• It’s broken so we better start fixing
• There is a war for the best HR people
• Successful performance is proportional to the amount of change
• Belief in death is self-fulfilling
• Align and support the business leaders who are creating success
• Have the commitment and passion to put your job on the line
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Our Future
ADD VALUE
KNOWLEDGE TRANSFER AND RELATONSHIPS
STRATEGIC ALIGNMENT
PERFORMANCE AND REWARDS
CHANGE PROJECTS
OPERATING WITH SKILLS OUTSIDE
DIFFERENT HR COMPETENCIES
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