Copyright 2005 Talent Connections. All Rights Reserved. HR Outsourcing (HRO): Its Impact on Your Company, Your Career, and the HR Profession Presented

Copyright 2005 Talent Connections. All Rights Reserved.

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

Presented by Tom Darrow2006/2007 SHRM-Atlanta PresidentPrincipal, Talent Connections



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

0

10

20

30

40

50

60

70

80

90

100

companies thatoutsource some HR

function

companies with $1 billion+ annual revenuesconsidering HRO

HRO growth from secondhalf of 2004 to first half

of 2005

companies that outsource some HRfunction

companies with $1 billion + annualrevenues considering HRO

HRO growth from second half of 2004to 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. Background Checks – 73%2. Employee Assistance/Counseling – 66%3. FSA Administration – 67%4. COBRA – 55%5. Healthcare Benefits Administration –

60%

0 10 20 30 40 50 60 70 80

Healthcare BenefitsAdministration

COBRA

FSA Administration

Employee Assistance /Counseling

Background Checks

Series1


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%

0 2 4 6 8 10

Employee CommunicationPlans

PolicyDevelopment/Implementation

Strategic Business Planning

Performance Management

Series1


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 provider’s 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 Globalization Standardization Regionalization

Consortia Buying Mid-market

Mania Utility Model

Evolution Consolidation

and Partnering


The Future of HRO

1. Growth-Maturation of HRO market2. Increasing weight of non-cost

drivers3. “Commodization” of HR functions4. New roles for internal HR

departments5. New career opportunities for HR

professionals


The Future of HRO (cont’d)

6. Expansion of small/mid-sized HRO markets

7. Demographic changes8. Improved HRO metrics9. 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 (cont’d)

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 (cont’d)

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/HRO2003.pdf


Online Resources (cont’d)

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 (cont’d)

Outsourcing: A Guide to Selecting the Correct Business Unit…Negotiating the Contract…Maintaining 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 [email protected]

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 have’s and nice to have’s

Discuss provider with consultant, competitors, former customers/employees

Perform reference checks Determine current state of provider’s

market share Consider local vs. remote


Selecting a Provider (cont’d)

Identify provider’s recent disappointments

Determine provider’s current weaknesses

Beware of off-the-shelf solutions from vendors

Determine provider’s 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 (cont’d)

Where continuity is critical, establish long-term relationships with vendors

Review annual operating plans and major initiatives

Guidance for provider and buyer’s 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 (cont’d)

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

0 20 40 60 80 100

achieved unexpectedbenefits

achieved hoped-forbenefits

satisfied

Series1


Best Practices

Selective path toward HRO Multiple vendor relationships Combination of internal and external

strategies


Overview of Process

Outsourcing Model – Greaver, 19991. Planning2. Exploring strategic initiatives3. Analyzing costs/performance4. Selecting providers5. Negotiating terms6. Transitioning resources7. 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 (cont’d)

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 (cont’d)

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 (cont’d)

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 – (cont’d)

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 (cont’d)

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 (cont’d)

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 (cont’d)

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.

Documents

Copyright 2005 Talent Connections. All Rights Reserved. HR Outsourcing (HRO): Its Impact on Your Company, Your Career, and the HR Profession Presented