Deciding What to Keep and What to Outsource in an HR Transaction | Article

executive questioningMany large companies agonize over whether to outsource. However, deciding to outsource was a foregone conclusion for BMO Financial Group, which opened its doors in 1817. Determining what to outsource and what to keep was the thorny question, according to Rose Patten, Head of the Office of Strategic Management for the transnational financial services company based in Toronto, Canada. BMO had to decide what functions were strategic–ones that created equity for the company–and what could be done through technology, which it could outsource. “Where do you draw the line?” she asks rhetorically.

That’s a question conservative financial institutions have to ask today. BMO now operates in an industry where “the changes are dramatic,” according to the BMO executive. Because this change is so rapid, financial services companies “can only afford to do what they are really good at. Success is all about time and money,” observes Patten, who is also executive vice president of Human Resources (HR) for BMO, which includes BMO Bank of Montreal, Canada’s first bank; Harris Bank, which is based in Chicago, Illinois; and BMO Nesbitt Burns, a Canadian investment firm.

A recent Deloitte Research study of leading global financial institutions found that intense cost pressures, lower share prices and the downturn in the economy are forcing banks, savings and loans, credit unions, and brokerage firms to look for new solutions. Outsourcing is a prominent one in helping financial institutions remain competitive.

In addition, BMO faced a challenge many banks do not: It has both Canadian and American employees, which adds an extra degree of complexity to its HR function.

For these reasons, BMO outsourced the transaction segment of its HR function to Exult, an Irvine, California outsourcing service provider, in April, 2003. The agreement is worth CDN $75 million per year over a 10-year period.

Patten says BMO outsourced its HR transaction processes because it did not want to invest the time nor the money in developing the requisite “leading edge technology.” Also, competitive pressures meant the bank was eager for a rapid implementation, something not possible if it had to develop a transaction engine itself.

Oh, by the way, Patten estimates BMO will enjoy a 20 percent savings from the services it outsourced.

Deciding What To Keep

When the BMO executive assumed responsibility for the HR function 15 months ago, she looked across BMO’s three divisions to determine the best way “to manage the human capital.” She identified four strategic areas she felt were important enough to keep at the bank. These included:

  • Talent management. This unit competes for, recruits and retains top talent.
  • Performance and compensation. This unit measures and rewards performance.
  • Equity and engagement. This unit creates and nurtures BMO’s corporate culture, which promotes equality and diversity.
  • Learning and development. This unit runs the Institute of Learning, BMO’s corporate university.

After determining what to keep, Patten placed all the HR processes from all three divisions into a fifth silo which she called “shared services.” BMO outsourced 100 percent of this unit to Exult. In addition, BMO did outsource bits and pieces from the four strategic areas. For example, it outsourced the Institute’s on-line enrollment and the administration around recruiting.

BMO had very specific parameters in selecting its service provider. Its search committee looked at the amount of money the service provider had invested in its technology to determine “how leading edge they were.” It wanted a provider with cross-border HR experience. Since many of BMO’s employees were joining the service provider, Patten says BMO “put a lot of emphasis on corporate values.” She says BMO wanted “an outsourcing partner, not just a service provider,” so similar corporate values were a must.

Exult President and COO Kevin Campbell says he believes BMO selected his company because “it was clear what our focus and core competence role was: to execute transactions. We don’t sell consulting or IT projects. We only make money executing HR transactions, which makes us highly competitive in that arena.”

The Importance of Using a Consultant

BMO hired Everest Group, the parent of Outsourcing Center, as its third-party consultant. Patten says Everest provided invaluable help in two major areas. First, the consultant helped BMO make critical decisions about what to outsource. “When we started the process, 80 percent of what we were going to outsource was clear. But we didn’t know where to draw the line in the remaining 20 percent. Everest’s due diligence process helped us do that,” Patten reports.

The consulting group was also crucial in the vetting process. “They know,” says Patten. She reports Everest’s aid was especially valuable in contract negotiations and service level agreement (SLA) requirements. “SLAs and the contract can make or break an outsourcing relationship,” she explains.

In the broader picture, the BMO/Exult transaction has significant resonance in the BPO world, according to Trey Campbell, Exult VP of Client Sales and Accounts. “Canadian banks are very risk-averse. When a major financial institution decides to outsource its HR, that decision adds validity to the concept of BPO,” he says.

Lessons from the Outsourcing Journal:

  • Global financial institutions are under cost and competitive pressures. HR departments must add strategic value, not simply process HR transactions. Outsourcing these transactions helps them compete.
  • Determining what to keep and what to outsource can be a tricky decision. A third-party consultant can help make these tough choices.
  • Using a third-party consultant helps in the supplier vetting process, including contract negations and SLAs.


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