When we spoke with service providers about their observations and predictions regarding new impacts on outsourcing in 2009, two of them brought to light some developments in the area of human resources. Over the past decade, the HR outsourcing (HRO) and talent management outsourcing road has taken several turns. There are big turns coming up in 2009, which will impact many of the decision frameworks, business processes, and value proposition in these areas. At the risk of using an overused term in the outsourcing industry, we're at the beginning of a paradigm shift.
We spoke with two providers at the forefront of this shift -- Fidelity HR Services and Oracle -- and share their predictions and insights regarding factors that will be game changers in the value proposition for outsourced HR and talent management.
"More than ever before, we're seeing a real increase in the challenge of attracting and retaining the workforce," states Arthur Mazor, senior vice president, Offering Management & Marketing, Fidelity HR Services. Along with the challenge comes companies requesting that HRO service providers offer access to tools and "actionable analytics that are configurable for the manager level and allow a greater connection across processes" so that managers can use the information and take action to attract, recruit, develop, and retain employees.
Companies recognize that it's becoming much more difficult to attract the right kind of talent that will be successful in certain roles. Mazor says clients are "absolutely clamoring" for providers to help them predict that success at a better rate so that they are able to recruit those individuals and be faster at getting them into position and more productive. He adds that "rich workforce intelligence in analytics is expensive and difficult to do in one-off kinds of client engagements" and thus has been pushed out of scope in recent years.
Siloed information. Todd Caylor, a global BPO human capital management solution architect at Oracle, says, "We find that when people talk about talent management, it's often about performance or recruitment; they rarely mean a holistic view of the talent suite." Talent management, for instance, also includes such processes as learning and compensation.
Oracle prefers not to refer to "recruiting" because it infers external efforts only and effective talent management necessitates sourcing from both internal and external sources. Matthew Bialock, also a global BPO human capital management solution architect with Oracle, says the further difficulty with such a term is that it focuses on a siloed function and data. "Talent management is a set of integrated business processes," he explains.
Companies need to understand not just the source for the most candidates but more importantly the source of their top performers. "They can't do that if recruitment sits as a siloed function. The information needs to be integrated with performance management," states Bialock.
The number-one weapon in the talent wars impacting today's workforce is retention. If companies only look outside to fill jobs that become vacant rather than promoting from within, they don't show opportunity within the organization, which impacts retention. An integrated process involving information about performance and learning is necessary to identify high performers to promote.
"It's difficult to find those correlations when the information is functionally siloed," says Mazor at Fidelity.
"There's a big disconnect in silos of data if the weapon is retention," says Caylor at Oracle. "If you're focused only on performance, for example, do you even know if your turnover is of high potentials, high performers, or if you're turning over low performers that need to be weeded out?" Since winning the talent wars means success at retention efforts, an integrated process also facilitates building talent with learning tools and also ensuring they are compensated well enough to stay.
Caylor cites another example of the benefit of an integrated process enabling sourcing and retention. An employee may indicate a desire for an assignment for two years and a preference for five countries. The company's sourcing effort would look first internally, and managers would have a global view of where there is a high-performing individual who could move into a role and be ready on day one.
Bialock explains another synergy from an integrated process. A performance appraisal can be linked to the integrated learning tools; then the appraisal would automatically identify an employee's knowledge gaps and suggest the right learning that would deliver those skill sets to the individual.
Integrated suite for talent management. Oracle has developed a complete talent management suite (an "integrated stack") across both of its platforms: Oracle E-Business and PeopleSoft. Caylor says the solution -- now available to outsourcing service providers -- has a significant advantage in that it's integrated back to the core HR processes of payroll, benefits, etc., thus eliminating the need for custom interface work. The integrated solution leverages synergies in managing the information and delivers value back to the provider's client.
Going forward, providers can offer end-to-end PeopleSoft or Oracle E-Business solutions instead of buyers having to get the services from four or five providers. Outsourcing talent management processes in this manner can enable companies to quickly change their siloed operating model, enabling significant competitive advantages.
Impact of complexity in large employers' HRO deals
Mazor at Fidelity HR Services brings to light another change in HRO in the coming year. The complexity of HRO deals that providers encountered with large employers over the past couple of years has led buyers to change their expectations and providers to change their strategies.
Though the approach in the past has been to implement a great degree of customization for large organizations, both clients and providers have learned that such a degree of customization was not beneficial to either of them. "Companies are now taking a closer look at how best to adopt enterprise-wide HRO," says Mazor. "We'll see them starting with smaller scope and also having a greater willingness to align process and technology with the provider's predefined configuration options."
Such options will still meet complex business needs but will be based on proven standards and capabilities rather than a custom solution of taking over and transforming a client's technology and processes.
The Gen Y impact. What's emerging now, according to Mazor, is a heavy focus on how providers will deliver services. This is increasingly important because of the change of demographics in the workforce due to the emergence of Generation Y (people born between 1982 and 1994). "For example, Gen Y workers demand new technologies and social networks as a way of getting their jobs done," he states. "Their service preferences are different from the preferences of others in the workforce whether baby boomers approaching retirement or even Gen X (born between 1965 and 1981), who as large groups didn't grow up on the Web as Gen Y has."
As a result, HRO providers can no longer service all employees in the same one-size-fits-all manner anymore; they must deliver services in a way that allows a greater degree of personalization. This necessitates having standards that allow for efficient operations and effective services but includes the capability to optimize the processes beyond the standardization.
"This allows providers to bring clear choices and increased quality for the employees and allows flexibility," says Mazor. "The HRO industry has experienced a pendulum swing from a lot of custom one-off arrangements to a strict focus on standards and now to a series of options that meet clients' needs."
But it's not an unlimited set of options, and the service is based on proven process design and operating models. This allows the provider to focus on value-added services, such as the actionable analytics described earlier. "These are the capabilities that HRO providers should be investing in," Mazor says.
Look for HRO providers not only making these kinds of investments but also having the consulting capability to help an employer design the analytics and interpret the information necessary to bring meaningful change and competitive advantage to the organization.
Getting off on the right foot. Joanne Wisniewski, vice president, Client Solutions & Offering Support at Fidelity, says too many companies initiated large, complex HRO deals in the past couple of years the same way they structured deals for benefits administration. "You can't outsource complex deals, or arrangements across the globe, in a big-bang approach. Those large deals have ended up getting scaled back," she explains.
The industry has learned a lot of lessons from such deals. On big, complex deals, the buyer must work with a sourcing advisory firm, she says. The delivery model is complicated, and there's a lot of up-front homework and knowledge required for large deals. Another lesson: Buyers now need to take a phased approach and determine what needs to be delivered in the first two years, then what to add in year three and year four. Buyers also need to ensure that their organizations can digest all of the change and that the provider's service model can deliver.
Down the road
Bialock at Oracle predicts another turn in the road for HRO deals. Some providers are already talking to Oracle about expanding the HRO end-to-end solution to finance and accounting outsourcing and also front-ending it with procurement. "They want to know how feasible it is to evolve down that road. We think there's a high probability that you will see some providers going down that road in the next three to five years."
Lessons from the Outsourcing Journal:
- Enterprise-wide HRO deals over the past few years have involved a significant amount of customization of the solution and thus have not been beneficial for the services providers or the buyers. Going forward, buyers will need to undertake HRO by starting with smaller scope; taking a phased approach toward what their providers will need to deliver each year of the arrangement, rather than a big-bang implementation; and be willing to align process and technology with the provider's predefined options.
- It is becoming more difficult to attract and retain the kind of talent that will be successful in certain roles. Buyers need to select service providers that have solution analytics and capabilities to predict an employee's success at a better, faster rate and develop them for internal career advancement.
- To ensure companies can recognize their top performers and take steps to retain them, buyers and providers need to treat talent management as integrated business processes, providing a holistic view of an individual rather than siloed functional information (such as recruitment, training, and compensation) that is not integrated.