Last month the BPO Outsourcing Journal launched a new series entitled “Outsourcing the Enterprise.” Last month I discussed the overall operational strategy to outsourcing the enterprise, which is the fastest growing area of BPO outsourcing. Companies have to take a hard look at their businesses to determine which business tasks deserve their talent and capital. Then, they must systematically outsource the rest.
How do you do that? For the next few months, I’ll be zeroing in on individual business processes that are commonly outsourced. This month I’ll discuss an important trend in Human Resources (HR) outsourcing: outsourcing the entire process to a single service provider.
Historically, most companies cut their teeth on outsourcing by divesting the IT process. But HR was not far behind; it is one of the oldest processes companies outsourced. For most companies, HR is a critical but non-core activity; employers were glad to hand over the payroll function with its complex and ever changing regulations to a professional service provider. Today, HR outsourcing is the most advanced area of BPO.
The complexities of benefits administration made this segment of the process the next area companies wanted to outsource. During the 1990s, companies began feeling comfortable handing over their benefits administration to capable service providers. Until the rise of the Internet, HR outsourcing was pretty much synonymous with payroll and benefits administration.
Moving from HR Processing to HR BPO
Denise Pelham, senior director, portfolio management with the Operations Solutions line of business for EDS, a Plano, Texas-based BPO service provider, calls this kind of niche or function outsourcing “HR processing.”
As the popularity of the World Wide Web grew as fast as “Spider-Man’s” record-shattering box office gross, employees wanted a Web-based self-serve option. Most companies didn’t have the technical expertise to build the automated HR self-serve technology themselves. Because of time to market pressures, outsourcing was the best option to get the job done quickly and well.
At this junction–when the world was changing fast–many companies took the opportunity to look at the bigger picture and reassess their HR stance. HR traditionally has been an under-invested, poorly performing process.
Now, for the first time, there were capable and experienced suppliers who could take over the entire service side of the HR process. These service providers utilize transaction engines and have process expertise. As Pelham puts it, companies can now outsource “the people, the process and the technology.” She labels this all encompassing outsourcing “HR BPO.”
David Clinton, the managing partner of e-peopleserve, an Accenture company headquartered in London, England that provides HR BPO, agrees. “Many enterprises already contract out some of their HR functions – payroll, benefits or recruiting. Now, it appears, they are looking for a more controlled, strategic way of managing HR costs. They are looking for the best total value in HR and that means they want three things. They want to yield their HR transaction duties so they can focus on their core business. They want to pay the lowest possible price not only for HR services but also for HR technology. And finally, they want to get the best strategic advice from a partner who will be there every step of the way and will be accountable for producing real long-term savings,” he reports.
Focusing On HR Events
HR BPO now looks at HR through the prism of events. For example, having a baby or joining the company are major HR events. When new employees sign on, they have to fill out federal payroll forms, make benefits choices and deal with security for keys and a parking place, often at a different place. “This took a lot of time and was not productive,” points out Pelham.
In event-focused BPO, the new employee simply fills out all the requisite information once and, taking advantage of workflow engines, the system distributes the information to the appropriate departments throughout the enterprise. Technology streamlines the process. Pelham points out both the employee and the manager “don’t have to deal with all those functional layers.” In addition, there is better data integrity. Bob, Bobby, Rob and Robert are all one person; in the past, payroll often had one name and security another. “HR BPO is changing the dynamic from the front office,” she says.
Supplier Leverage Points
The new breed of HR BPO suppliers can effect this change because they have leverage points that make outsourcing the entire process attractive. These include:
- A transaction engine that provides economies of scale.
- Aggregated purchasing power for benefits and relocation packages.
- Reengineering process expertise.
- Proven technology for self-serve HR administration.
- A compressed time to market. Having done this before, these suppliers can get the technology up and running much faster than companies can do it themselves.
- Lower migration costs for the buyer since the supplier doesn’t have to reinvent the wheel.
- Employees with expertise who can provide more attentive service.
The result: better, richer offerings and happier employees – all at a lower cost. Clinton of e-peopleserve says recent market research indicates that the next big wave in business process outsourcing is in human resources. “But our experience with customers tell us something even more significant. HR outsourcing about to explode. Customers are looking to hand off their entire HR functions to a single qualified provider,” he says.
I agree. In my opinion, outsourcing the entire HR process is a profound value proposition. It is currently transforming the HR industry as we know it. Over the next few years I anticipate 25 percent of global 2000 companies will opt for HR BPO using a single integrator.
Lessons from the Outsourcing Journal
- Slices of the HR process like payroll and benefits administration were the first BPO processes to be outsourced. But companies just outsourced discrete niche parts of the processes.
- HR BPO involves outsourcing the entire management of the processes as well as the technology and the people.
- Web-based HR event-based processing allows the employee to fill in the information once. Then, the technology distributes the info to the appropriate departments and managers’ desktops.
- Improved data integrity supports better reporting and analysis capability.
- In the next few years, 25 percent of the largest corporations will outsource their entire HR process to a single service provider.