In my last post, I described a framework that we use to help us identify and categorize different HR outsourcing models.

In this post, we will briefly describe the different categories of HR outsourcing models – illustrated in the model by the “boxes.” 

Let’s start in the lower left corner of the framework and work our way “up.”

“Single Process HRO”

This is the most prevalent model of outsourcing in the industry – and not coincidently – the oldest form.

It is also the most intuitive model.  When we talk about the types of HR Outsourcing solutions that get lumped in this category, examples that come to mind are:

• Payroll outsourcing – the outsourcing of the gross-to-net, tax calculation / filing, disbursments, check production, etc.
• 401k administration – most of you (if not all of you) have a 401k plan provided by and administered by a 3rd party
• H&W administration outsourcing – the process of supporting open enrollment, life event changes and eligibility for H&W administration
• Executive recruiting – yes, this is a form of outsourcing – sourcing executive talent.

What are the common themes that run through all of these solutions?  Simplistically, these are transactional oriented solutions where a provider is able to create scale and therefore provide cost savings to their clients.

Normally to implement these solutions there is not “a lot” of change management required to be successful.  Yes, there is “some” change management (there always is when you outsource a process), but in relative terms, there isn’t “as much” change management required as some of the other models of outsourcing. 

“Bundled Process” Outsourcing Solutions

The “bundled process” outsourcing solution is usually where you outsource two or more processes that are tied together.

Think about Recruiting Process Outsourcing (also referred to as “RPO”).  This has become one of the “hot topics” in the industry.  Recruiting might be viewed by some as a “single process” – however it is really multiple processes strung together:

• Creating / Approving a Requisition
• Sourcing candidates
• Selecting candidates
• Onboarding new hires

Another example is Total Benefits Outsourcing (“TBO” in the industry).  TBO is when an organization outsources the administration of their benefit plans to one third party. 

In these cases we see the following themes:

• Organizations are often not making the outsourcing decision for cost reasons only.
• There is more change management required than if you outsource a “single process” such as payroll.

This change element is important.  Think about, for example, recruiting outsourcing.  In a true RPO model, hiring managers will be forced to change their behavior and the processes they traditionally have used to hire their teams.  There is significant change required there!

“Multi-process HR Outsourcing” Solutions

We have three other HR Outsourcing models left to cover.  These three are “cousins” of each other, so we will discuss these together.

All of these have one common theme – they all encompass an organization outsourcing all (or most) administrative functions of HR. 

There are three different models here:

a) “Lift and Shift” model – this model is when a vendor “re-badges” personnel from employer to provider.  It is an “old” model for comprehensive HR outsourcing.  In the early days of multi-process HR Outsourcing we saw many organizations experienced in IT outsourcing (such as IBM and ACS) attempt to use this model in the HR world.  Simply put, in this model an organization “re-badges” their people, systems and facilities supporting the current HR environment.  They are all “inherited” by the vendor who then has to make operational changes and investments to create their margin. 

b) “One-to-Many” model – this model is utilized by certain vendors who believe in a “one size fits all” delivery model.  These vendors, such as ADP and Ceridian create multi-tenant systems that accommodate multiple clients.  They treat HR transactions as they would payroll…with very little room for flexibility in their processes. 

c) “Transformational” model – for a large, complex organization, this is the most common “multi-process” outsourcing solution today.  In this model, vendors “transform” the clients environment, build new systems and support their clients using individually configured systems. 

Each of these three models has increasing levels of change management required in order to be successful. 

In part 3 of 3 of this series, we will examine some trends in the industry and how organizations should evaluate these different alternative models.  Where are we seeing most organizations looking to procure services today? How do (and should) organizations make the decision about which model they should explore?

Until next time…

This will be the first in a series of posts that will provide our readers with my perspective of the HR Outsourcing market

Today are many, many forms of HR Outsourcing.  You can look at almost any discipline of the HR function and find some form of an outsourcing solution.  That’s a blessing and a curse, because the result of this is that it makes decision making difficult and deciphering the marketing messages and the press coverage confusing. 

So, in this post, we’ll focus on describing a framework for understanding various HR Outsourcing models.  I’ll follow-up with at least two other posts that will describe:

• Categories of HR outsourcing and their strategic impact;  and
• Keys to success in selecting an HR outsourcing model.

Our Framework

We developed a model that helps our clients categorize and review different HR outsourcing models.  We have found that this graphic helps many clients place the different HR outsourcing solutions in context.    This model is shown below (you can click on the image to see it). 

This post will focus on explaining the two "Y-axes" of the chart. 

We’ll look at each of the “boxes” within the model in future posts. 

The Two Y-Axes

When we began constructing this model, we looked at 2 key factors that drive success of clients who implement various outsourcing models  We encourage clients to look at these success factors when they consider outsourcing a process:

• Business drivers behind the outsourcing decision
• An organization’s readiness for change

Let’s look at each of these. 

Business Drivers

This is a very broad category of criteria that organizations must examine when they consider outsourcing a process. 

Broadly we ask clients whether their outsourcing decision is based on reducing cost or based on a broader strategic imperative. 

To the extent there are business drivers, mandates or initiatives that are beyond cost, we move up the axis.

I understand that this is an awfully broad statement, but think of it this way.

Is the outsourcing initiative under consideration because your CEO said “we have to change the way we do business?” or did your HR director say “we have to find ways to cut 10% of our costs?”

Illustrative of  the “upper end” of this spectrum are two clients I’ve worked with:

• In one instance, a company reports on the status of their HR outsourcing initiative to the Board of Directors.  This is a client where they were interested in transforming the way they do business internally, not just within HR, but across all the functions of the company.  In other words, a very strategic initiative.
• Another client has grown through acquisitions.  As part of their latest round of Wall Street analyst presentations they highlight their initiative to standardize their processes across the disparate businesses and are considering outsourcing functions as one means to this end.  This is a very strategic initiative that they highlight to the Wall Street analyst community.   

There are many reasons why you might be on the upper end of the “business strategy” axis. 

On the other end of the spectrum is cost. Are you trying to exclusively reduce your cost?  Then you are probably on this end of the spectrum.

There’s no “magic formula” here…we simply find this a helpful way to help challenge our clients to think about the business drivers behind their decision to outsource an HR process. 

Organizational Readiness for Change

This axis speaks to the need for an organization thinking about outsourcing to insure that they think about how ready they are for change and how well positioned they are to drive that change. 

Questions we usually will ask a company include:

• Do you have strong governance models in place throughout the organization?
• Do you have a strong business case for the change that people believe in and will get behind?
• Do you have strong executive support for these initiatives (see Board of Directors above!)?

To the extent that organizations can answer these (among other) questions “yes” we would argue they are higher up this spectrum and more capable of supporting the change that is required in order to be successful at broader outsourcing initiatives. 

To the extent that they cannot answer these “yes” we would argue that organizations should view themselves on the “lower end” of the scale. 

Ok, Peter, that’s great (I can hear you saying that now).  So what?

Well, in our next post, I’ll come back to this model and discuss the “categories” of HR outsourcing (each of those boxes in our model).  We will use this framework to help you think about which outsourcing model will drive the most success given your business drivers and readiness to drive change. 

More to come…

I will spend more time on this subject over the next few weeks...but there have been supposed "industry experts" who have hypothesized the death of broad based global HR Outsourcing deals.  This speculation has been based partially on the very public demise of the HRO deals between Convergys and Starbucks and UBS and ACS.

So, just when you are about to call the industry "dead," here's a press release from IBM announcing a significant deal with Bristol-Myers Squibb. 

I'll be writing much more about my perspective on the HR outsourcing industry over the course of the next few weeks and months, but suffice it to say, the industry is not dead.  It may have slowed, but the industry still has a heartbeat...

There’s a well known model in the world of Knowledge Management that says analyzed data leads to information.  Knowledge is then created through the use of information. 

There was an interesting article yesterday in the Wall Street Journal entitled:  Web Spending Tools Help in Tight Times that illustrates this point. 

The article was about how web-based services are helping organizations better manage their spending – specifically around raw materials and supplies. 

The article states:

PPG discovered it was spending more than $10 million on electrical goods and services from more than 307 suppliers in the U.S. and Canada, says James Polak, PPG director of general purchasing.

After learning how much it was spending and where, PPG negotiated better contracts by funneling more business to fewer vendors. It whittled down its suppliers to six and has achieved 15% savings in costs since 2003, Mr. Polak says.

Other companies are going through similar exercises in an effort to weather rising prices and control costs amid a turbulent economy. Many are turning to Web-based services to better track where their money goes, what areas they may have overlooked, and how they can wield their buying power more efficiently.

PPG took the data about its spending and turned it into knowledge that they acted on and as a result had a positive impact on their business. 

Further illustrating this concept the writer cites a case where:

Diebold realized it was buying supplies across the world from multiple subsidiaries of the same company, but it didn't know it because each unit had a different name.

Armed with this information, the North Canton, Ohio, company sought better prices and cut these costs by about 11%...

Again, a case of taking data, creating information and turning it into actionable knowledge that in turn added significant value (in the form of cost cutting) to the business. 

“So what?” you might ask. 

I believe that this same thinking and analysis should be applied to the HR function and specifically HR vendor management and strategic procurement. 

Think about it.  There are likely hundreds of vendors that support your global HR organization…from recruiters to payroll providers to outsourced administration providers to consultants to learning providers to compensation benchmarking service providers to systems providers (and the list goes on and on). 

As an HR function we must do a much better job of maintaining basic data about our vendors – all of them - globally:  Who are our vendors? How much do we pay them? Where do we pay them? What services do they provide?  What service levels are they accountable to deliver? When does their contract expire?

Just having this basic data will create opportunities for us to create actionable knowledge as we can look for opportunities to help our businesses by reducing costs and rationalizing our vendor spend.  This is the result of taking data and turning it into information. 

I know that there are many obstacles to collecting this data.  I’ve heard many of them…

• “We don’t have time to go get it”
• “We don’t know how to go get it”
• “The buying decisions are made in the _______, so we can’t impact their decision” (where ________ is “business unit” or “country” or “region”)
• “I can get it today, but it will change tomorrow, so what’s the use?”
• “How do I know I can drive costs out if I go get this data?”

My reaction to these statements (especially the last one) is to challenge you to ask whether you can not afford to get this data?  (look at the examples from the article!)

Remember, data is the first step.  Once you have this data, you can then build information and ultimately knowledge that will help your organization drive the business results it expects of you. 

Selfishly, we at HighRoads feel we have a web-based solution that will help you collect, manage, and analyze this data, not just once, but on an on-going basis.  We can help you efficiently collect the data, analyze it, create information and ultimately actionable knowledge.   Many of our clients do this with great success. 

Regardless, whether you utilize our solution or not, capturing, analyzing and interpreting the data to create information and then ultimately working towards actionable knowledge will result in quick and lasting impact on your business.   

Welcome to “HR Vendor Veritas”

Perhaps you might be asking, “What exactly is Veritas?”

Well, the quick answer is that the definition of “Veritas” is simply “truth.” 

The longer answer is provided by wikipedia (which is a terrific resource to understand the meaning or history of terms that we don’t run into on a day to day basis). 

Interestingly, Wikipedia begins its definition of “veritas” with:

“In Roman Mythology, Veritas was the goddess of truth”

Ok, quit snickering, because those of you that know me know that I do not have the anatomic parts to be a goddess.

So, I’d rather focus on the second part of the wikipedia definition that says:

“Veritas is also the name given to the Roman virtue of truthfulness, which was considered one of the main virtues any good Roman should have possessed.”

This provides a much better focal point for us to talk about the purpose and intent of our blog – which is to provide insight into the “truths” of the HR Vendor space.

We’ve seen a lot of growth in the HR vendor industry over the past decade and an explosion of acronyms to support it.  Think about it…a decade ago there were payroll vendors and HR systems.  Today there’s a literal alphabet soup of vendor categories including: BPO, HRO, TBO, TRO, RPO, TMS, LMS, KPO, ERP…

Our objective is to provide some perspective on the “truths” in this confusing market.  We look forward to your comments and dialogue as we begin the search for the “veritas” in this ever-changing market.

I'll be back here soon.

Until then, have a good one.

Peter