ALTERNATIVE OUTSOURCING MODELS: THE GOOD, THE BAD, AND THE UGLY.
By Luca Segantini (previously published in HRO Today magazine)
Here are four paths that you may find awaiting your organization when you consider outsourcing as an option to improve the efficiency of your HR processes.
When HR executives answer a survey and state that gyes, we are outsourcing HR processes,h in a majority of cases they mean they are relying on individual vendors to manage specific functions in which they are recognized experts. Payroll or relocation services are typical examples.
The advantages to niche outsourcing are the ability to leverage top-class competencies in a specific area. Outsourcing providers have built their own tested processes, the ability to host the environment for their specialty, and access to economies of scale by running these functions for multiple companies from the same platform. This arrangement allows the HR department to focus on other internal processes. It also provides employees with access to a wider base of programs (usually Web-based) and choices when fulfilling requests. The negative side of this arrangement is the obvious increase of vendor management issues for the organization. For employees, there is a lack of consistency, as they are directed to different Web sites with different layouts, logins, and passwords for each HR function, which may result in more calls to and burden upon the HR department as well as frustration with services. Niche solutions also tend to be country-specific and not global, so although cost reductions are achieved, the potential for savings is not maximized.
This model requires a comprehensive study of operations, looking at process efficiencies, global standards, and opportunities for cost savings. Although an HR consultant usually has a high level of knowledge based on their experience in the HR field, the consulting model tends to point toward outsourcing as the solution. The consultant may or may not have HRO delivery capabilities, but in all cases the process of selecting a partner is somewhat narrower than if handled internally. Overall, this approach saves time and may help shift the responsibility of the final choice, but it does not allow for different options to be researched and judged objectively.
In this case, the driver for outsourcing is the need to upgrade an existing outdated HR management system. There are two alternatives: either choosing an application service provider (ASP) managed internally, or selecting a full-service outsourcer. In the first case, the long-term effect will depend on how closely the ASP fits with the organizationfs internal processes. Although at first glance, ASPs may seem the more affordable option because they are standard packages, in the long-run, they may actually amplify the need for change within HR and ultimately not deliver cost savings. The second alternative, a full-service outsourcer, may have technical strength, but may lack in competence or understanding of business process needs. The outcome may be an excellent technological solution that still may not meet the organizationfs needs.
The fourth option is end-to-end outsourcing, which is based on the organization and the provider working together to design the ideal model, taking into account key processes in need of improvement, current and desired states, and a solution to meet the companyfs business needs. The success of this model depends on how the transfer of both knowledge and people to the outsourcer is managed. An additional advantage is that a single vendor handles not only all outsourced processes, but also all relationships with niche service providers. This allows for a holistic view of the organizationfs needs and the creation of a positive relationship between the two entities. It is, of course, more time consuming and does not allow quick wins or short-term savings.
Unfortunately, selecting the right model and managing all the activities described above may still not be sufficient to ensure a successful outsourcing deployment. A substantial degree of employee buy-in and close cooperation between the vendor and the client is required. In the HR environment, traditional painful points in the change management process include:
Cultural fit between the client (often a large, slow-moving, highly political organization) and the vendor (likely a fast-moving, technology intensive company)
General employee readiness to accept third-party administration of key HR services
HR employee readiness to support outsourced delivery and accept new roles and responsibilities, often within the contracted outsourcer.
The most important thing in your HR transformation journey is the understanding that you are not alone. Leading HRO resources, such as this magazine and organizations such as the SBPOA, with their newly launched SBPOA University (targeting executives of large corporations), can help.