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Four Trends That are Changing Human Resources Outsourcing

Renewals are the big news in human resources outsourcing. Mohammed Haque, Vice President & Head of Enterprise Solutions Service practice at Genpact, estimates about $40 billion in contracts will come up for renewal from 2010-2012. How buyers go about renewals is about to change.

Buyers are becoming “much more aggressive in going out and getting a look at what’s going on in the landscape,” says Rohail Khan, Executive Managing Director for ACS Total Benefits Outsourcing. He predicts the automatic sole-source renewal without a market check “is going the way of the dodo bird because organizations want more visibility to the bottom line. They want to know the value of the supplier’s contribution.”

In the past, he says renewals were typically sole source. Buyers are also hiring more third-party advisors to help them out with their renewals, he adds. “Buyers are no longer willing to assume their suppliers are providing value.”

The current economy accelerated this trend, he reports. “Buyers want to know if they are getting the right value for their money,” he explains. “Then the question becomes: ‘Are we with a partner that’s investing and innovative?’ Because today it’s not just about cost effectiveness.” Buyers, he says, want to be sure their suppliers “will be able to serve them as they move forward.”

Shifting adoption patterns: taking a more focused approach

With buyers more critically evaluating the benefits they stand to achieve from HR outsourcing, more are considering phased approaches that focus on one defined area at a time, according to Katrina Menzigian, Vice President, BPO Research, Everest Group. “These areas may be along individual process areas such as multi-country payroll, benefits, or recruitment or along categories of HR processes, transactional versus talent management,” states Menzigian.

Several factors are driving this tighter focus, including the desire to match up-front investment with pay-back benefits, the need to feel confident in supplier capabilities, and the realities of a shifting supplier landscape. In the near future, it’s conceivable that some clients will have to balance a mix of suppliers until more suppliers are able to demonstrate a broader set of compelling capabilities, she says.

The importance of global capabilities

Don Schulman, General Manager, Finance and Administration for IBM, adds that buyers facing renewal are also now asking whether they want their work “split across multiple outsourcers” or instead “want to consolidate it all together within a partnership that enables standardization across multiple locations, processes, and clients — one that has a flexible model that’s global in nature.”

Abid Ali, Head of BPO at Tata Consultancy Services, agrees global capabilities will become even more important in supplier selection. “While India has a significant advantage in delivering BPO services, customers are working with providers that have a global delivery footprint.” He says they are looking for “existing suppliers that can deliver in new markets for them rather than looking for new suppliers in those areas.”

Sue Marks, CEO of Pinstripe, says buyers with operations in 50 countries, for example, will want to select a supplier with proven capabilities in all those regions. “It is extremely important to understand the local nuances, “she explains.

Khan points out multinational companies are now asking for global benefits administration solutions. He says ACS is developing technology so that these companies can “tackle the big unknown chunk of spending they’re not aware of. We can help them understand their overall global spend.”

Process convergence

Process convergence is another trend. In the past, HR organizations viewed employee retirement and health/welfare selection decisions as separate transactions. “There weren’t a lot of connect points,” Khan points out. Today he says progressive HR managers are asking how they can make health and welfare decisions converge. He says both buyers and suppliers are trying to figure out how this will impact HR decisions going forward.

Changes in benefits administration

A fourth trend is the integration of what Khan calls “the natural adjacencies of benefits administration.” They are things like wellness, voluntary benefits, absence management, and on- and off-boarding. All have advantages for HR buyers. For example, a more efficient off-boarding process can ensure an organization doesn’t pay people longer than it should. And enterprises can minimize their healthcare costs with a wellness program to change behavior.

“Buyers want to extend the definition of HR outsourcing” to include these things, he says. In this economy, employers will not be able to give employees as many benefits as they historically have offered. “Finding ways to help employees derive benefits will absolutely be part of the HRO requirement,” Khan continues.

In addition, the current economic situation is forcing CEOs to have laser vision on their costs. HR spend is part of the selling, general, and administrative (SG&A) expenses. “Organizations are understanding the value of a wellness program. They can understand where absenteeism, which is a direct hit to their bottom line, is showing up. They will be forced to focus on solving these kinds of problems,” the ACS executive continues.

Khan posits these types of buyer challenges “will force providers to focus on innovation and investment to expand the notion of benefits administration to the natural adjacencies.”

The new preference for platforms

Marks points out early HRO buyers outsourced “bits and pieces” of the process. Now, “buyers are looking for the complete end-to-end solution where the supplier can provide the process services as well as the platform.” Adds Khan, “It’s not going to be good enough just to be an administrator and a manager of transactions.”

Haque says buyers want to outsource the complete HRO services package, which includes talent management, recruitment, learning, and development as long as the supplier has developed the core HR services like payroll, time and attendance, and workflow administration. “In the past, people outsourced the process or the platform. Now they want to outsource them together and have the supplier charge them on a per-employee per-year basis.”

Khan predicts this convergence will force providers “to be clearer and more explicit about their investment strategies and how they translate innovation into real capabilities that help buyers solve problems.” One thing is sure: “Providers can no longer milk their 15-year-old platforms.” Instead, they will have to “constantly reinvent their offer because that’s what buyers will demand.” He says this is both “a dramatic change and challenge;” suppliers not willing to invest will lose market share “because there are too many suppliers that will invest.”

Marks believes “the only way to adjust is to leverage technology to improve your efficiency and make your workload manageable.” She says the demand is greater than ever before and the technology has evolved, “so there are no more excuses.”

In her opinion, HR leaders need to step up and support their teams with “technology that addresses their need to manage the swelling pipeline of passive and active candidates and deliver the best possible candidates to those companies who are relying on them now, more than ever, for their survival.” Cloud-based services and SaaS applications can evolve the way suppliers design traditional HR services. “They can accelerate change in shared services initiatives and not just transform but revolutionize the organization when combined with HRO and RPO,” she says.

In sum, Marks says “the economic turbulence is a tremendous opportunity for HR leaders to come back in a new, more focused, and more impactful way.” She says, going forward, HR leaders will have to help their buyer organizations “garner the capability to drive the right business outcomes.” Economic modeling, corporate governance, strategic marketing — all will become part of the new HR professionals’ tool kit. “HR will become less about administration and compliance and more about executing on strategy and capability,” believes the Pinstripe CEO.

Hopefully these changes will help corporations become more profitable and employees become healthier, wealthier, and more productive.

Lessons from the Outsourcing Journal:

  • Buyers will aggressively research their options when it’s time to renew their outsourcing agreements to ensure their suppliers are providing the value and services they need.
  • Global HR benefits deals will become a reality as suppliers develop the technology to provide a centralized look.
  • HR processes will converge and no longer be separate events.
  • The definition of benefits will expand to include adjacencies like wellness and on-boarding.
  • HR buyers want both process and technology together in a seamless, end-to-end platform. This trend will force suppliers to invest in their technology so they can constantly update their offers.

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