HR Outsourcing (HRO) : Its Impact On Your Company, Your Career, and The HR Profession

HR Outsourcing (HRO): Its Impact on Your Company, Your Career, and the HR Profession
Presented by Tom Darrow 2006/2007 SHRM-Atlanta President Principal, Talent Connections
Copyright 2005 Talent Connections. All Rights Reserved.
Agenda HR Outsourcing Overview Impact on Companies Impact on HR Profession Impact on Your Career Selecting, Managing, and Measuring Outsourcing Providers : Helpful Resources : : : : :
What is Outsourcing?
The performance by outside parties, on a recurring basis, of tasks that would otherwise be performed in-house.
Other Definitions
: : : : :
In-sourcing Off-shoring Co-sourcing Geo-sourcing Outplacement
Types of Outsourcing1 : : : : : : : Business Process Outsourcing Information Technology - 28% Human Resources 16% Sales & Marketing 15% Finance 11% Administrative 9% All Others 22%
How Common is HRO? : 58% of companies outsource some HR function2 : 91% of companies with $1 billion+ annual revenues are now considering HRO3 : HRO grew 28% from second half of 2004 to first half of 20054
100 90 80 70 60 50 40 30 20 10 0 companies that outsource some HR function companies with $1 billion HRO growth from second + annual revenues half of 2004 to first half considering HRO of 2005 companies that outsource some HR function companies with $1 billion + annual revenues considering HRO HRO growth from second half of 2004 to first half of 2005
The HRO Market : In next 5 years, global spending on HRO will double from $40 billion to $80 billion5 : From 2002 to 2004, 14% increase in large firms that would consider HRO6
5 Most Commonly Outsourced HR Services7 1. 2. 3. 4. 5. Background Checks 73% Employee Assistance/Counseling 66% FSA Administration 67% COBRA 55% Healthcare Benefits Administration 60%
Background C hecks
Employee Assistance / C ounseling
FSA Administration
Series1
C OBRA
Healthcare Benefits Administration 0 10 20 30 40 50 60 70 80
Other Types of HR Outsourcing7 : : : : : Pension Benefits Administration 55% Temporary Staffing 54% Retirement Benefits Administration 47% Payroll & Software Services 48% Recruiting, Staffing & Search Non-executives - 30% Executives - 29%
Other Types of HR Outsourcing7 : : : : : : : : : Employee Relocation 29% Training and Development 21% Incentives 19% HRIS & Web-based Services 15% Reference Checks PEOs and ASOs Sourcing Consultants & Legal Services Screening & Workplace Security Process, Project, and Systems Management
Least Commonly Outsourced Functions7 : : : : Performance Management 3% Strategic Business Planning 4% Policy Development/Implementation 4% Employee Communication Plans 10%
Performance Management
Strategic Business Planning Series1 Policy Development/Implementation
Employee C ommunication Plans
10
Audience Survey : How many of you outsource part of your HR function? Payroll Benefits Recruiting, Staffing, & Search Training HRIS & Web-based services : How many of you outsource all of your HR function? : What led to the decision to consider outsourcing?
Why Outsource? : Allow HR to focus on core competencies : Creates strategic opportunities for HR professionals : Improve quality, efficiency, and effectiveness : Relief from administrative burdens : Reduce operating costs
Other Benefits to HRO : Access to outside HR expertise : Greater diversity of HR services : Leverage vendor investments in technology rarely available to HR organization : Limit fiduciary, audit, and litigation risks and liabilities : Upgrade level of customer service : Ease time pressure demands :Better, faster, cheaper
Risks Over promise and under deliver Nonperformance of key function Cost Loss of institutional knowledge Difficulty managing vendor relationship Change in providers business or financial stability : Lack of fit with company culture : Organizational resistance or unreadiness : : : : : :
When to Outsource : High HR service delivery costs : No further investment in technology : End administration of transactions and focus on strategic work : Improve quality of HR services : Strong business case : Other business reasons
Considerations : Core Competency? : Best in Class? 1. What is your vision for your HRM business? 2. What metrics will measure progress toward vision? 3. What business outcomes are needed from the HRM aspects of the business?
Poor Reasons to Outsource : Do not outsource just because you are frustrated : Do not outsource as a last resort, just because you have tried everything else
Outsourcing Myths : Outsourcing is just a fad : Outsourcing can be kept secret from employees : Outsourcing is only for the largest companies : Messes must be fixed before outsourcing : Outsourcing is for everyone
Trends in HR Outsourcing Market

: Specialization : Consortia Buying
: Globalization
: Standardization : Regionalization
: Mid-market Mania
: Utility Model
Evolution : Consolidation and Partnering
The Future of HRO 1. 2. 3. 4. 5. Growth-Maturation of HRO market Increasing weight of non-cost drivers Commodization of HR functions New roles for internal HR departments New career opportunities for HR professionals
The Future of HRO (contd) 6. Expansion of small/mid-sized HRO markets 7. Demographic changes 8. Improved HRO metrics 9. Reshaping of industry
Impact on Companies : Employee reactions : HR executives taking part in operational and strategic decisions : Elimination of bureaucracy : Customer service improvements
Impact on Companies (contd) : : : : Growth of self-service platform Slimming down staff Cost savings Model will serve to guide other organizational functions (IT, accounting)
Impact on HR Profession
: Internal HR at significant disadvantage in cost per transaction : Loss of control of key processes : Enhanced credibility : Strategic focus : Decentralized structure : Internal politics HR as business partner : Move to customer service culture
Impact on HR Profession (contd) : Management and Organizational Development big picture view : New roles consultant and HR strategist : Develop competencies to remain valuable : HR is exposed and more visible as organizational function : HR is far more measurable : Align HR strategy with corporate goals
Impact on Your Career

: Transformation from transactional administrator to business partner that sets strategy : Develop competencies to negotiate and manage vendor relationships : Demonstrate ability to provide business solutions for employee and customer problems : Change bureaucratic culture : Develop strategic expertise necessary to manage human capital
Impact on Your Career : : : : : Deliver exceptional customer service Sharpen your skills Build/Develop your network Stay on top of trends and their implications Utilize vendors now so that they can help you later
Online Resources
: Better Management.com www.bettermanagement.com : EquaTerra www.equaterra.com : Everest Group - www.everestgrp.com : HRO Today www.hrotoday.com/org : HR Executive www.hrexecutive.com : Human Capital Magazine www.humancapitalmag.com :HR Outsourcing Gaining Traction Fast www.rwbaird.com/docs/YourReports/HRO2 003.pdf
Online Resources (contd) : Nelson Hall www.nelson-hall.com : Outsourcing Center www.outsourcing-research.com : Outsourcing Institute www.outsourcing.com : Outsourcing Suppliers www.outsourcing-suppliers.com : The Outsourcing Management Zone www.theoutsourcerzone.com/law.htm
Books : The HR Scorecard: Linking People, Strategy, and Performance by Becker, Huselid, and Ulrich (2001) : Strategic Outsourcing: A Structured Approach to Outsourcing Decisions and Initiatives by Greaver (1999) : Out of Site: An Inside Look at HR Outsourcing by Beaman (2004 )
Books (contd) : Outsourcing: A Guide to Selecting the Correct Business UnitNegotiating the ContractMaintaining Control of the Process by Bragg (1998) : The Challenge of Outsourcing Human Resources by Vanson (2004) : Outsourcing Human Resource Functions: Strategies for Providing Enhanced HR Services at Lower Costs by Cook (1999)
Professional Organizations : Human Resources Outsourcing Association www.hroassociation.org : HR.com www.hr.com : International Association of HR Information www.ihrim.org : Shared Services & BPO Association www.sharedxpertise.org : SHRM National www.shrm.org Outsourcing Forum www.shrm.org/outsourcing/
QUESTIONS?
THANK YOU!
Tom Darrow TomDarrow@talentconnections.net www.talentconnections.net
Selection Process : : : : : RFI request for information RFP request for proposal Site visit Create and use scoring tools Top 3 potential providers deliver presentation
Selecting a Provider : Identify must haves and nice to haves : Discuss provider with consultant, competitors, former customers/employees : Perform reference checks : Determine current state of providers market share : Consider local vs. remote
Selecting a Provider (contd) : Identify providers recent disappointments : Determine providers current weaknesses : Beware of off-the-shelf solutions from vendors : Determine providers current workload and capacity
Selection Criteria : : : : : : : : : Proven track record Cost of vendor services Service level guarantees Flexible contract options Cost savings guarantees Recommendations from other companies Compatible corporate culture HR process expertise Leading technology
Transitioning Resources : Launch period between selection and implementation : Approximately 90 days : Time of learning in order to gain mutual understanding of company and processes : Communication and project management are key : Slowly turn over control as you transition resources : Cannot measure results until end of this period
Managing the Provider Who should manage the provider? : CFO : Head of HR : Other HR individuals
Managing the Provider : Establish performance targets and set expectations up front : Determine priorities and communicate them to vendor : Establish reporting relationships up front : Provide forum and timing for discussion of issues : Anticipate and plan for conflict resolution arbitrate when it occurs : Ongoing ownership, involvement, supervision
Managing the Provider (contd) : Where continuity is critical, establish longterm relationships with vendors : Review annual operating plans and major initiatives : Guidance for provider and buyers managers oversight : Require competitive bidding for outsourced service at regular intervals : Review contract terms and suggest changes as needed
Managing the Process : Look beyond initial cost savings and track affect on employee satisfaction and organizational performance : Ensure senior management buy-in and involvement : Reinforce/reward through incentives : Focus on quality first, cost second : Test outsourcing with specific function before expanding
Managing the Process (contd) : Facilitate feedback from internal HR team : Manage resistance from internal HR team and company at large (communication is key) : Anticipate and manage culture change : Develop staff members to effectively manage vendor relationships
Measuring Performance : Insist on accurate and frequent status reporting by vendors : Demand immediate notification when problems arise : Metrics are key Quantitative terms Incorporate multiple time periods
Measuring Success
: Internal metrics: effectiveness, efficiency, quality, productivity : External metrics: revenues, expenses, market share, customer relations, quality productivity
Typical Problems : Lack of measurement 88% of large business require metrics8 Only 41% of mid-sized companies stipulate metrics in contracts8 : Rush into autonomy too soon : Unrealistic expectations and goals : Outsourcing for the wrong reasons : Overly focused on cost savings : Lack of communication : Difficulties managing vendor : Employee resistance
Success Factors Preparation is paramount Be a knowledgeable buyer Realistic goals and expectations Strategic vision Consider permanence of outsourcing - costs involved in switching outsourcing vendors or ending HRO : Find the right vendor : : : : :
Satisfaction Recent survey of 129 large companies representing 2 million employees9: : 89% satisfied with outsourcing arrangement : 85% achieved hoped-for benefits : Additional 20% achieved unexpected benefits
satisfied
achieved hoped-for benefits
Series1
achieved unexpected benefits
20
40
60
80
100
Best Practices : Selective path toward HRO : Multiple vendor relationships : Combination of internal and external strategies
Overview of Process Outsourcing Model Greaver, 1999 1. Planning 2. Exploring strategic initiatives 3. Analyzing costs/performance 4. Selecting providers 5. Negotiating terms 6. Transitioning resources 7. Managing relationships
Planning : Prepare HR Develop and communicate new HR strategy Define new roles and responsibilities Restructure HR Hire new employees to fill skill gaps Provide training for employees in new roles
Planning (contd) : Prepare Organization Develop HR strategy within overall organizational strategy Communication plan : Resolve issue of whose payroll individuals are now on Are HR employees actually employees of provider? Does head of HR work for company or provider?
Exploring Strategic Initiatives

: Assessment Self examination SWOT of department Organizational scan : Define opportunities and benefits : Build the business case consider all costs and impacts on organization : All functions that are not core competencies should be considered for HRO nothing is sacred : Consider the driver behind HRO decision
Analyzing Cost/Performance : Understand market trends and competitive position : Identify goals and objectives : Determine added value : Gather baseline HR costs and metrics : Compare current HR operations to benchmarks : Determine which processes have highest strategic importance and add most value
Identifying a Provider : : : : : Referrals/Networking Newspapers and Magazines (HRO Today) Internet Mailings Professional Association Lists
Negotiating Terms :Good contracts make good partners : Maintain heat of competition during negotiation : Reasonable, but clearly established, expectations : Well-documented deliverables regarding every aspect of deal : Attorney involvement
Specifications of Contract : Contract Duration Exact beginning and ending dates Financial penalties for early termination : Parties to the Contract Allow for additions or deletions (in case of acquisitions or divestitures) Require vendor to name all subcontractors and give you right of approval for those introduced later
Specifications (contd) : Services Performed Specify all functions to be provided Outline all support services Ensure escalation process and dispute governance included : Performance Standards Tweak standard performance guarantees Reinforce performance guarantees through at-risk fees
Specifications (contd) : : : : : : : Hold-Harmless Statement Fees Data Security Communication Review Contingency Plans Audits Final Contract Review
Articles : Adler, Paul S. 2003. The HR Outsourcing Decision. MIT/Sloan Management Review. Fall 2003 : Gelman, Lisa & David Dell. 2002. HR Outsourcing Trends Study. New York: The Conference Board. : Goldsmith, Neal M. 2003. Outsourcing Trends. The Conference Board, July 2003. : Holincheck, James. 2003. Deciding to Insource or Outsource Human Resources. Gartner Research, 28 February 2003.
Footnotes 1. Offshore IT Outsourcing

www.offshoreitsourcing.com/Pages/outousrcing_statistics.asp
2. 2004 SHRM Human Resource Outsourcing Survey 3. Human Resource Outsourcing Association citing the Yankee Group 4. Fidelity Investments Fidelity Building Its Share in HR Outsourcing Market by Matt Ackermann; American Banker; July 19, 2005 5. Human Resources Outsourcing Association citing the Yankee Group
Footnotes (contd) 6. Human Resources Outsourcing Association Conference Board Report
7. According to the 2004 SHRM Human Resource Outsourcing Survey

8. Outsourcing Comes to the Middle Market by Bob Violino SHRM HR Outsourcing Forum 9. Survey from Hewitt Associates Press Release April 18, 2005 HR Outsourcing Continues to Boom as Organizations Gain Experience and Reap Benefits
Sources : Anonymous. HR Outsourcing: Success Steps to Observe for Your Company. HR Focus, September 2003. : Anonymous. Planning to Outsource. HR Focus, May 2004. : Ackermann, Matt. Fidelity Building Its Share in HR Outsourcing Market. American Banker, July 19, 2005. : Greer, C., Youngblood, S., & Gray, D. Human Resource Management Outsourcing: The Make or Buy Decision. Strategic Human Resource Management. Southwestern, 2002.
Sources (contd) : Grensing-Pophal, Lin. Outsourcing Performance Management: Is It Right for You? SHRM HR Outsourcing Forum, August 2005 : Hewitt News and Information April 18, 2005 Press Release - HR Outsourcing Continues to Boom as Organizations Gain Experience and Reap Benefits : Henneman, Todd. Measuring the True Benefit of Human Resources Outsourcing Workforce Management. July 2005
Sources (contd)
: HRO Today Magazine July 2005/August 2005, May 2005, January/February 2005, December 2004, October 2004 : Human Resources Outsourcing Association Certification Course - Outsourcing as an HR Strategy : Landberg, Steven. Effectively Utilizing Recruitment Outsourcing: Lessons Learned From Early Users. SHRM White Paper, August 2005 : Miller, Stephen. SHRM 2005 Conference & Exposition: HR Outsourcing: All the Way? June 2005
Sources (contd) : SHRM Special Expertise Panels 2005 Trends Report HR Consulting/Outsourcing : Violino, Bob. Outsourcing Comes to the Middle Market. SHRM HR Outsourcing Forum, August 2005 : Watson Wyatt HR Outsourcing: Finding the Optimal Mix 2005 HR Technology Trends Survey. : Weatherly, Leslie A. HR Outsourcing: Reaping Strategic Value for Your Organization. 2005 SHRM Research Quarterly.

HR Outsourcing (HRO) : Its Impact On Your Company, Your Career, and The HR Profession

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HR Outsourcing (HRO): Its Impact on Your Company, Your Career, and the HR Profession

Presented by Tom Darrow 2006/2007 SHRM-Atlanta President Principal, Talent Connections

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

In-sourcing Off-shoring Co-sourcing Geo-sourcing Outplacement

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Employee Assistance / C ounseling

Healthcare Benefits Administration 0 10 20 30 40 50 60 70 80

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Strategic Business Planning Series1 Policy Development/Implementation

Employee C ommunication Plans

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Trends in HR Outsourcing Market

Evolution : Consolidation and Partnering

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Impact on Your Career

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Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

achieved hoped-for benefits

achieved unexpected benefits

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.

Copyright 2005 Talent Connections. All Rights Reserved.