The increasing number of success stories of companies using outsourcing to gain competitive advantage and increase shareholder value has sparked a growing quest among enterprises for best practice tips on structuring the outsourcing initiative as well as managing the ongoing relationship. We asked leading HRO firms for advice on three questions; here are their recommendations.
Q: What are the top success factors to incorporate into the contractual and relationship structure to avoid the pain of having to switch providers?
Steve Bohannon, President, EDS HR Business Process Outsourcing: The structure of an HR outsourcing relationship, and ultimately the contract, is an outcome of much that goes before it. Success emanates from the hard work that goes into creating a positive relationship with open communication.
- Alignment of Goals: What makes that foundation work is the alignment between provider and client around their mutual understanding of the value proposition. The client's clarity of thought around what it is seeking in an HR outsourcing agreement is absolutely critical. Those goals need to be understood at many levels within the organization. Secondly, it's equally important that the provider has clarity around its ability to deliver on that value proposition.
- Open Communication: Once goals and value propositions are understood, it is important to merge them through open, honest communication steeped in realistic expectations around how things are going to work. The structure of the relationship must reflect realistic expectations about economic returns, levels of services, and transitions.
- Governance Structure: A key element of the contract is the governance structure. A model with the following four committees, made up of client and provider members, helps ensure that the relationship honors the spirit and letter of the contract. The Executive Steering Committee guides the overall process, making sure that both parties adhere to the principals of the relationship. The Operating Committee is responsible for day-to-day success of service delivery and the economics of the contract. The Projects Committee focuses on the projects that require attention away from the day-to-day operations. The Incidents Committee manages issues and creates process to quickly deal with any problems.
Ultimately, it is the ability to communicate openly at all levels in a complex relationship that is the key success factor.
Q: If a buyer takes a phased approach to HRO, just "dipping its toes" into the waters at first and later adding more scope, does this strategy erode the value/ROI it can achieve?
Diane Shelgren, Chief Operation Officer, North America, Accenture HR Services: Generally more scope equals more value/ROI. However, the degree to which this is true depends on what is initially outsourced, how much technology investment is required, and whether all the work is done by one provider or a number of third party providers. If the first phase of outsourcing has significant scope, some technology components, and is outsourced to one party, adding scope at a later date can easily be done while maintaining or enhancing the ROI. If the buyer outsources only one or two functions initially and they go to different third party providers, pulling together a service delivery model for maximum ROI becomes more challenging.
Any organization that considers buying in phases should also consider the fact that there may be duplication of costs for such things as implementation and software customization and/or interfaces. Buyers must also consider the transition process, which is one of the most important factors in setting up a successful outsourcing operation. The transition process takes care of properly preparing the people, processes, and technology being outsourced, but it also focuses on what is retained to make sure nothing goes undone. If this work is done by different providers, the outcome may not result in the most efficient or effective practices.
The buyer really needs to consider their organization's culture and risk tolerance to make a decision about phasing in outsourcing. A phased approach will not likely deliver the most value in the shortest time, but in some organizations, this is the only way to get outsourcing started.
Q: What skill sets should the buyer enterprise ensure its retained HR staff has?
Mr. Lynn Blodgett, Group President of ACS Commercial Solutions: An organization should ensure that its retained human resources professionals possess superior skills in strategy, policy, and employee relations. ACS' end-to-end approach enables our clients to concentrate on establishing their HR strategy and becoming more effective business partners.
Retained HR professionals should also possess or develop governance and partner negotiation skills. Governance involves retained HR professionals working side by side with the new service provider; this requires careful planning and communication between both parties. The HR professionals will be exposed to a new environment where more advance planning and project management skills are needed, an environment where scheduled project status meetings, weekly and/or monthly reports, and frequent interaction between the retained HR governance team and the ACS leader are essential.
Governance also requires the retained HR team to interpret service level agreements and communicate them to client management and employee teams. Foster an environment of open communication. We encourage retained HR professionals to discuss all HR issues with us and provide us with constructive feedback so that we may continuously improve our service to them.
Gary Budzinski, President, Human Resources Outsourcing, Aon Consulting: In order to ensure a successful outsourcing relationship, the buyer organization must retain employees with very specific skill sets who also have the ability to work with the outsourcing supplier. The buyer's retained organization needs to have contract and project management capabilities to maintain strategy and formulate policy decisions.
The buyer organization must also retain some level of business unit interaction. There also must be alignment with the employee satisfaction required to maintain the day-to-day interaction to ensure the statement of work is being carried out according to the contract. In addition, the buyer organization must retain subject matter expertise, with experts for strategy, policy, and process redesign within the key functions that have been outsourced.
Kevin Campbell, President and COO, Exult: One of the main advantages of outsourcing is that it allows the retained HR organization to multiply its ability to focus on actions that provide strategic value to their companies. To prepare the HR team for the post-outsourcing world, we believe clients need to concentrate on these four competencies: HR Business Partner:The HR organization must have an understanding of the human capital implications of business strategies. As an HR partner with the business, the team must know how to deliver the HR solutions to support business results. This means developing sourcing strategies for hard-to-find skills, maintaining and planning for an aging workforce, developing compensation programs tied to business outcomes, etc.
- HR Program Architect: Since the client retains responsibility for the high-level design of HR programs to attract and retain key talent, they need the specialized skills that create programs that deliver on HR strategies. These are mostly in the areas of compensation, benefits, performance management, organizational development, and talent/succession planning.
- Outsourcing Relationship Manager: These individuals partner with the outsourcer's account team on a day-to-day basis to oversee the outsourcer's performance and manage any service issues and escalations. Working proactively with the outsourcer's account team, these individuals plan the future direction of the relationship -- scope changes, service level enhancements, joint projects and initiatives, etc. They also serve as the conduit for the relationship for the rest of their organization - coaching people how to most effectively interact with the outsourcer, directing traffic to the right channels, reminding the organization of the strategic reasons and the economic and service benefits that motivated the outsourcing decision in the first place.
- Employee/Manager Relations Specialists: These individuals handle sensitive, individual HR-related issues such as sexual harassment, discrimination, unlawful dismissal, etc. The client needs to retain responsibility for the company position on these kinds of matters. The outsourcer can help by providing administrative services based exclusively on company-scripted FAQs and knowledge base materials, and by documenting cases in a rigorous manner. Unionized clients will also need to retain labor relations specialists that have the collective bargaining expertise to develop and execute bargaining strategies.