The Future of Human Resource Outsourcing (HRO)

16 comments

image This week is the annual migration to New York for the HRO World Conference.  For the first time in 3 years, I have chosen to skip the conference and festivities (client work taking priority).  

With the increased chatter around HRO as a failed model, it should make for great conversation during and after the conference.  What is disappointing to me after 3 years is that HRO has failed to make any significant strides.  Providers have lacked dedication and standardization of process and service delivery and buyers have chosen to place all blame on their HR provider instead redesigning or reengineering their own structure.  All we tend to hear about are failed contracts (most recently  Starbucks and UBS).

From my viewpoint, the market is very quickly destructing itself and what will appear in 3 years will be very different than today.  So what need to happen to fix HRO?  A couple of thoughts…

1. Stop throwing everything, including the kitchen sink, into a HRO model.  It makes no sense to include areas such as talent management into an HRO model when most companies haven’t even put in place a talent management strategy (more than 50% of companies fall in that bucket based on our recent survey).   Talent management + HRO continues the recipe for disaster.

2. Get back to basics.  HRO needs to get the core right first.  That means payroll, benefits and personnel administration.  Focus on transactional excellence.  Sounds easy but I have yet to seen someone do it right in an HRO model. 

3. The market is desperate for a leader to emerge.  Leadership creates competition.  Hewitt had it for a blink of an eye but what we see today is alot of “me too” with zero innovation or standardization.  All of the providers have jumped into the deep end of the pool, forced to dogpaddle to stay afloat.  Yet, no one has proven they can actually swim.  A defined market leader will force the market to improve dramatically and competition to either step up or step out.

4. HRO needs to regain its favor.  HRO has become the internal cancer that no one want to touch.  Two years ago, HRO was nice to have on the buyer resume (just like “SAP implementation” was 10 years ago).  Due to HRO failures, HR buyers have moved on to focus on talent management.  That has (and will) continue to take favor unless HRO providers can, in the ironic words of IBM, “stop talking and start doing!”

I look forward to hearing the buzz at the conference.  Please add any thoughts or viewpoints to the comments of this post.

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  • Lisa

    Jason I just want to point out that both UBS and Starbucks reflect buyer business downturn rather than vendor failure, per se.

  • http://www.cedarcrestone.com Lexy Martin

    I’m at the show and am somewhat disappointed. Fortunately there are interesting sessions on the Health Care track. But, you might want to listen to what Fidelity is doing to focus on user interface to integrate from eBiz to TM components…if they can get UI right, they achieve user adoption.

    Personally, based on our CedarCrestone survey, I think companies are much wiser in what they are doing….less full BPO and more selective outsourcing. Perhaps some TM processes, some core HR application hosting, and thoughtful choices about people who support the processes and systems.

  • http://www.adp.com/global/globalview/ Jerome

    I could not agree more. Especially points 1, 2 and 3. I am on the Vendor side.

    The pendulum has overswung towards complexity and will find its happy medium soon – which will be Transactional “stuff”. Payroll, Personnel Admin, Time Management.

    Real HRO is what happens behind the scenes, the patient and painstaking rollout of complex payrolls country after country (which then enables an ecosystem of slightly more complex Personnel Administration, Benefits in the US etc…)

    It tends not to make the headlines, but it is happening and it is profitable. It is also global, standardised and sustainable. Vendors and clients are still learning what globalisation and outsourcing means.

    This could potentially pave the way for more comprehensive HRO one day. It’s probably 10 years away.

    This reminds me of the initial “e-everything” franzy of the pre dot-bomb era. You can’t just transform an industry – you have to wait for its gradual self-renewal.
    The small start up companies of today who adopt local HRO (and Saas) as “standard business practice” will be the global giants of tomorrow.

    They will define HRO and HRO vendors will align to that vision.

  • http://www.fersht.typepad.com Phil Fersht

    J

    Don’t you think HR would have more time / resources to focus on developing a talent management strategy once they have offloaded a lot of their administrative processes, such as payroll and benefits admin?

    Phil

  • Hr Go Forward

    You are spot on with your thoughts as far as to how to correct HR BPO. The interesting part is when you speak to prior buyers – the ones that are happy state they will never take back this work. They have free’ed themselves up to do the strat work and never want to go back – of course they are the ones that got the best deals ever so they should be happy.

    HRP BPO providers have to focus (focus…focus…focus) – they can not be Baskin Robbins with 31 flavors and 31 offers. Figure out what they are good at – double down their investment in those areas – clarify their value prop – clarify their target profile – and start building.

    For many providers – they need to realize that they should not be in Payroll. Leave that to ADP and Ceridian. They need to focus on the other areas in which these players are weak. This may includes the portal, personnel transactions, things that flow into payroll, etc.. or at the very least make sure that their value prop is different than ADP – perhaps more risk/compliance and more flexibility which is not their greatest features.

    Lastly – we need to innovate. More so than most other industries – it is almost as though people don’t want to leverage emerging technologies to better the end user. It is why players like Tata and WorkDay are going to creep up and take a share of the market – and do it to the cash cow areas of these players. If people think the current Learning departments within their companies are worth anything – they need to go out and speak with their end users. Very few think the generic content that they get pushed from old age content providers is all that useful – they want what they get at home – they want YouTube for corporate, they want social networking, they want access from any device, and many others.

    It is time to step and be counted.

  • Jason Corsello

    Phil,

    Offloading administrative processes should allow more opportunity to focus on talent management. Unfortunately, it takes time and skill. To often, companies try to re-deploy Betty Payroll into a more strategic role and skill-set issues arise.

    JC

  • http://www.fersht.typepad.com Phil Fersht

    so what about BPO?

    (Betty Payroll Outsourcing…)

    sorry… couldn’t resist that one

  • http://human-strategies.blogspot.com Gretchen

    Is the market truly “destructing” or is this just another chapter in market maturation? We’ve been through wild enthusiasm where BPO was going to change the world, and now we’re coming down the curve and realizing that BPO doesn’t apply to all processes or in every situation. The next step will be a more gradual transformation as companies clarify their expectations, and selectively outsource while the vendors take a more standards-based approach. My question is more one of timing – is BPO on a 5 year maturity cycle? 10? 20?

  • http://www.inflexionadvisors.com/blog Mark Stelzner

    Gretchen’s question is a good one. We are seeing a market entering the next stage of evolution. One could argue that this is more of a 10-year cycle given HRO experiences to date. The business drivers for outsourcing have not fundamentally changed, but the means by which CHROs elect to use outsourcing as a tool have shifted. “One throat to choke” may no longer be viable.

    Best,
    Mark

  • http://www.ceoconsultoria.com Norma

    I agree to go back to basics, you can not create commitment and coordination with a HRO model, you send out the skill hoping one day will meet quality and team work. Importantly companies all around the world are hiring employees ‘outsourced’ to avoid responsibility on benefits. This is a violation of human rights. Companies’ strategies are focused on competitiveness not ‘Responsible Competitiveness’. Everithing is cost reduction, cost reduction and at the end what is the cost benefit? Your choice….what are you doing for the world today? Have you signed the Global Compact (ONU)? Think about it.

  • Brett – Baltimore

    Companies like ADP are more than just payroll these days. They provide HR outsourcing as well.

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