Organisations have had to respond to the seismic shifts in the economy with the increased use of contractors, zero-hours contracts, interim resources, partnership arrangements, consultants and outsourcing to weather the storm. This process has also been mirrored in the HR world as HR directors scrutinise how to source current skills needed to deliver HR services.
Outsourcing started out as a necessity of 'doing more for less' and has increasingly become standard practice, with many organisations using outsourcing to drive efficiencies. However, before outlining why outsourcing might rise again, it is worth a quick refresher of its history and some of the lessons learned.
The birth of multi-process HR outsourcing came about in the late 1990s as part of the first wave of HR transformation, the goal of which was to spend more HR time helping to deliver organisational strategy and less HR time on administration. The tactics deployed involved tools for managers to do more people management and restructuring HR based on economies of scale. These included HR shared services and tactical outsourcing, and economies of scale with business partnering and specialist HR teams. Some of the enablers of these changes adopted ERP technology, corporate portals as well as the emergence of a multi-process HR outsourcing industry.
First wave of HRO – the early adopters
We all understood the logic of the first wave of HR outsourcing in 1999 – freeing up HR to focus on strategic aspects of the job. It is worth pointing out that outsourcing wasn't a new concept in HR, with most organisations already outsourcing their payroll as standard practice.
It was this desire for HR transformation that created ground-breaking global HR outsourcing deals, with Exult-BP and ePeopleserve (Accenture and BT).
The rationale for the 'buyer' organisations such as BP and BT was to use outsourcing to help drive transformation, including standardised HR services, reduced HR cost to serve and access to new innovations such as HR portal technology.
The thinking behind HRO vendors such as Accenture and Exult (eventually bought by AON Hewitt) was to build up a large global client portfolio and benefit from labour arbitrage by offshoring work to countries such as India. The economic case provided a client with 15–20% savings and the possibility of making a 15–20% margin over a ten-year contract.
A longer-term aim was to provide standard HR services using the same technology platform. However, the problem was that each client was taken on in a different state of standardisation, with a different configured HR system, which meant that the service was very much tailored to that organisation and couldn't easily be shared with other organisations – in other words, the antithesis of standardisation.
The results of this first wave of HR outsourcing were mixed for both client and vendor. As someone who was involved in one of the very first outsourcing projects, I found it exciting, but it caused many sleepless nights! I witnessed at first hand the trauma of moving the organisation to standardised services, HR service centres for clients and also restructuring HR with new roles such as business partners.
As David Ulrich, a professor at the University of Michigan's Ross School of Business, reflected, 'Often the first pancakes or first batch of cookies do not come out well.'
Second wave of HRO – some vendor consolidation and indigestion
The second big wave of change in HRO contracts came around 2006, including Unilever-Accenture and Johnson & Johnson-Convergys. These didn't quite deliver our dream of a standardised multi-tenant service enabling each client to benefit from new innovations either. Instead, these services offered bespoke solutions, tailored to clients' demands and meeting the particular nuances of their HR operating models. They had some success; according to industry analysts, Everest Group, the multi-process HR outsourcing market is worth about US$3.3 billion globally.
Although the HRO industry consolidated, outsourcing contracts lasting a decade were thin on the ground when organisations couldn't see where they might be themselves. Single process outsourcing went from strength to strength, such as benefits administration, recruitment process outsourcing, payroll and learning.
From my perspective working on both the client side and the vendor HRO side, there were a number of lessons learned in the first two waves of HR outsourcing.
Key questions that need to be thought through before considering outsourcing:
- How will outsourcing fit with your HR operating model and HR strategy?
- Does your organisation really have the appetite to standardise HR processes and services?
- Do you have required experience managing third parties?
My view is that cloud will have a significant impact on HR and will help HR to deliver the original goal of freeing up time to focus on strategic imperatives. And outsourcing will play a big part in that for many organisations.
Third wave of HRO – will the cloud give HRO its silver lining?
There is a lot of excitement around technology as a driver for change, particularly in talent identification and development, and workforce productivity. HR continues to have challenging requirements, from finding future top sales performers to providing tools that monitor the performance of a global project team. There is now a relentless move to migrate HR systems from on-premise to SaaS (software as a service).
At the 2013 HRO Today Forum in London, Mike Ettling, Global Head of Cloud and On-Premise at SAP, commented that:
'The game-changing impact of SaaS is the fact that SaaS is melting business processes. In the past we designed our system around the process; now we have to design our process around the system.'
A great benefit of an SaaS solution is avoiding the expensive and time-consuming customisation 'fudges', for example trying to get the system to map your exact paper-based performance management process. SaaS drives process standardisation because 'you get what you are given' in terms of functionality, and then configure it for your organisation. However, you still need to persuade employees to work differently.
Cloud will force HR to become more standardised, requiring less centralised HR teams to maintain it and breathing life into the HR outsourcing market.
A new offering – business process as a service (BPaaS)
The impact of cloud technology also gives HR some attractive outsourcing options, for example, move HR processes onto a standardised SaaS platform and outsource the management of the HR technology platform and HR administration. This combined offering of business process outsourcing and software as a service has been called BPaaS, or business process as a service. BPaaS offers standardised yet highly configurable HR services, allowing organisations to standardise transactional HR processes. The rise and rise of Workday, and others such as SAP's SuccessFactors, has stimulated the HR outsourcing market with NGA HR, IBM and AON Hewitt all with HRO contracts using SaaS.
As SaaS forces HR to standardise, there is less HR administration needed, therefore the BPaaS deals so far have been smaller in size. The BPaaS model fits nicely with the new generation of agile HR operating models.
So with the potential benefits of a new generation of HR outsourcing, how might this impact future HR operating models?
Impact on HR operating models
To benefit, HR will need to learn from the past and execute a more standardised approach to the delivery of HR services.
Software ultimately has to be used by us pesky humans. Good design, robust governance, communications, training and support are always needed irrespective of the next technological breakthrough.
And with any outsourcing, the same questions need to be asked about how it fits with the HR operating model and HR strategy.
As we design a new generation of agile HR operating models, the adoption of cloud and outsourcing will pose some interesting trends to watch, including:
- SaaS will automate many HR tasks; manual HR work will be reduced substantially.
- There will be less need for HR service centres as cloud-based systems manage to support the move to self-sufficiency for managers.
- There will be a new type of HR outsourcing which develops more around business consultancy services and specialist HR advice than service centres/manual processing.
- More HR resources will be allocated to solving business problems.
The early innovators of multi-process HRO had the right idea, but perhaps at the wrong time. The conditions for multi-tenanted HR outsourcing are now possible because of cloud technology. HR will have to overcome a resistance and scepticism to outsourcing, after mixed results in the past. Whether we use cloud or on-premise ERP HR systems, the hard work required to standardise HR services across geographies and divisions will still need to be completed, but now the benefits will be worth it
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This has to be the most interesting time to be working at the intersection of HR, organisation development and technology.
Leading change in 2014 includes responding to growing markets, geographical expansion, mergers & acquisitions and cross-cultural leadership across 5 generations. The importance of effective leadership, talent management and high employee engagement has never been so great.
There is a lot of buzz around technology as a driver for change in areas such as talent identification and development and workforce productivity. Its use can span all areas of HR and management, from working out which candidates are most likely to be our top future sales performers, to providing tools that enable a manager to monitor performance of a global project team. At the same time we have massive changes in our workforce, from the rise of the freelancer economy, to skills shortages and demand for 24 X 7 collaboration.
We can be proud that HR has been a pioneer in adopting many emerging technologies such as Cloud applications like Workday, Oracle Fusion and SuccessFactors. Social Media in HR has in LinkedIn a high profile corporate leader, and the adoption of Mobile is changing the recruitment landscape. HR also has the advantage of having change management skills to ensure successful implementations.
At the HR Change & Transformation 2014 Conference, we will hear from speakers who will showcase HR innovation happening in their organisations. Speakers from different industries and sectors will share their insight and expertise in Leadership, Change & Culture, from identifying talent to developing and integrating a new generation of leaders. Effective change management is a blend of the right change strategy combined with getting the small things right. We will hear examples of how different organisations have achieved this.
We are also at an HR Strategy crossroads, where many of our HR strategies are undergoing radical change. Some of them were developed 50 years ago, when business and society were very different to how they are now. In addition, the set of external drivers which moved us to the HR operating models of the 90s are changing fast, so now is a good time to re-assess. Many current HR operating models are not fit for the future given the transformational change going on in our economy and workplace.
In some organisations, HR needs to transform itself first before it can lead change and transform organisations. In our Talent & Transformation stream, we will hear examples of how organisations have transformed HR to delivery business goals. HR Transformation is not really about HR. Although HR is the focus, the outcome is about improving People Management in organisations. HR is well positioned at the crux of workforce, productivity and human beings. HR Transformation is really about “Workforce Transformation” with HR making the rallying call. With new agile HR operating models, we need to think about what skills capabilities HR will need for better performance Management and business integration.
For successful HR Transformation, the trick is for HR to empower managers, in Technology, Tools & Insight. We will hear about the rise of Mobile, Social and Gamification and the benefits of Analytics in HR. Fundamentally, HR does not yet need Big Data; it needs Big Questions. What problems do we need to solve in HR? We will hear from speakers who have solved business problems using analytics and a new set of tools.
Over time, Software-as-a-Service will make us standardise our HR processes – because we will have to use the systems as they are, not configure them to our existing processes.
This is an important time in the history of people management with the convergence of technology innovation, workforce demographics and economic restructuring.
In 2014, we are too busy to care about being invited to the top table. We now have an opportunity to create our own table and invite who we want!
This conference will showcase many examples of HR innovation
some of which you will adopt in the future. Enjoy the sharing and let us know what examples of HR innovation you will be speaking about in 2015.
I am chairing one of the streams at this event and will also be facilitating a Pre-Conference Workshop “7 Steps to Transform HR” – a pragmatic and practical approach to transformation using strategies that have worked with real HR case studies. A 10% discount code is available for our HR Transformer Blog readers, CT14AS9. Be great to see you there! #HRCT14
HR Transformation Director
Glass Bead Consulting
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Will ‘HR in the Cloud’ kill the HR Outsourcing industry ?
Or, are the claims of the HR Technology industry in ‘Cloud Cuckoo Land’ ?
In Aristrophanes play, ‘The Birds’, written in 414 BC, “Cloud Cuckoo Land” was an unrealistically idealistic state where everything is perfect.
In our 2013 HR play, Ms HR Vendor helps the trusting Ms HR Director erect a perfect HR operating model in the clouds.
For HR Directors, this has the appeal of ‘killing two birds with one stone’.
Firstly outsource chunks of your HR services on a standardised platform. Secondly, hand over responsibility for your HR systems to the same vendor.
Will SaaS melt HR processes ?
At the recent 2013 HRO Today Forum
, in London, Mike Ettling
, former CEO of largest global HR Outsourcing company, NGA HR,
commented that the demand for HRO will decrease over the next few years. In Mike’s view this is because :-
“In the last 2 years we have seen the phenomenal rise of enterprise ready SaaS solutions in the HR industry. The game changing impact of SaaS is the fact that SaaS is melting Business Processes.
In the past we designed our system around the process, now we have to design our process around the system. There will be less scope for customisation.”
From this perspective, there will be less HR work in general and less outsourced work. Not a good signal for the growth of the HRO industry.
HR SaaS – Practical Lessons from HR Buyers
In a separate session, Julie Fernandez from analysts ISG
, provided some insights from HR Buyers, typically clients with > 10,000 employees.
Amongst the trends and themes I picked up from Julie, were :-
- HR Buyers are cautious, ‘letting the dust settle’ on SaaS providers as they review their current HR Operating Models and future needs.
- The rise and rise of Workday has actually breathed life into the HRO market – NGA HR, IBM and AON Hewitt are implementing or have HRO contracts using Workday software.
- HRO Buyers want both SaaS and services together, however are not willing to lose portal, chat, contact centre solutions that have been developed over last 10 years. Expect HRO providers to develop solutions in this space.
- There is a 15-20% HRO penetration level for orgs with >10,000 employees and there has been more new buyers in last 8 months than previous 2 or 3 years
- According to ISG, it seems HRO is not dead yet and in fact SaaS will actually stimulate market.
One of the HRO vendors told me that the Workday (SaaS) HRO deals are certainly smaller in size, which does tend to support Mike’s view on the impact of SaaS – it does reduce the HR work required.
Are the claims of the HR Technology industry in ‘Cloud Cuckoo Land’ ?
It is natural to have some healthy scepticism about the claims of the HR Technology providers on the latest generation of HR systems. (especially if you’ve had as many sleepless nights as me working on Transformation Programmes over the last 20 years!).
Haven’t we heard these promises from the HR Technology industry before ? The claims are remarkably similar to the promise of ERP systems back in the 1990s.
That the new generation of software will be rolled out to willing managers enabling them to be more productive, more self-sufficient and will help them manage their teams more efficiently.
Did the technology deliver the promises? Well generally, no.
Part of the problem is that the software ultimately has to be used by those pesky human beings. So we need good communications, training and support.
Isn’t SaaS or HR in the Cloud, just the ‘next wave’ of HR systems I hear you say? We expect better functionality and usability in each new release, and HR Directors or managers don’t really care where the servers are located.
What is it about SaaS in particular that will drive such process standardisation compared to just another release of software ? We still need to persuade employees to work differently.
One of the great benefits of going with a SaaS solution is we do not have the expensive and time-consuming customisation fudges.
You get what you are given in terms of functionality and then configure for your organisation. There will be a need to use the system provided for your HR Processes, and so there will still be change management required. This will reduce the HR Service cycle times and the HR administration support needed - which is all good news as these savings can be spent on more value add activities.
Is SaaS a catalyst for more or less HRO ?
In my opinion, The 'size of the pie' will decrease (not as much as tech firms say) but the HRO slice will increase
In other words, there will be less work overall due to the benefits of implementing standard process, however, the proportion of work outsourced will stay the same or increase.
The drivers for RPO and HR Outsourcing will still be there. Standard software will make transitions easier with consistent service levels – increasing the appeal of outsourcing.
marketing machine will get to your Board and you will need to have worked out your plan.
So as the 2013 HRO Today Forum
ended, the HRO industry could be heard to mutter a collective breath of relief and echo Mark Twain,
"The reports of my death have been greatly exaggerated".
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The HR Outsourcing industry is alive and kicking.
I am particularly looking forward to the panel discussion “From Transactional to Transformational, Next Generation of Outsourcing” representing Buyers (David Mason RBS, Richard King Procter & Gamble) and HR Vendors (Mike Ettling, former CEO NGA HR, and Hew Williams from Capita).
For the Buyers of HR Services, there is strong demand from organisations who want :-
• Standardised HR Services
• Reduced Cost to Serve
• Access to innovative workplace tools and technology
• The business benefits of Big Data
From my experience as someone who has sat on both sides of the Outsourcing fence, there are challenges facing HR Directors when considering whether to outsource, they are broadly categorised as :
Internal – the readiness of your organisation to embark on a big change
External – finding a suitable partner who can deliver your requirements now and in the future.
So if you are thinking of outsourcing one or more HR processes, here are 6 key questions to help you avoid the pitfalls.
1. How will outsourcing fit with your future HR Operating Model and HR Strategy?
In my recent keynote speech on the Future of HR Operating models
, I outlined some of the technological and workforce drivers that will influence how we manage people in the future, such as, the rise of freelancers, our ageing workforce and the demand for more mobile services.
Before spending money on technology and external services – it is worth reviewing your overall operating model and HR service catalogue – which are essential to running the business (e.g. Payroll, Recruitment) and which might not be worth the effort (e.g. Performance Management) ?
Also review the capabilities you will need within your organisation (Analytics, Change Management, Vendor Management, HR Strategy) moving forwards and which are fine outside.
Any outsourced HR services need to be flexible enough to support your future HR Strategy, whether the focus is on improving workforce productivity or developing new talent.
2. How mature is your HR process or service?
Making an honest assessment of the maturity of the service you want to outsource is an important step to help determine if you are dealing with a ‘broken’ service, or one that only requires fine-tuning to your customer’s needs.
There are lots of lessons learned from trying to outsource broken processes to a 3rd party, and in reality this works only in certain circumstances. It is critical to understand and be clear on why the process is broken in the first place, which is usually a function of people, process and technology.
If you plan to transform the service as you migrate it outside the organisation, then allow for the extra time and resources for additional change management.
On the other scale, if you know pretty much how much it costs to deliver the service, what the customers think of it, and have some control of your service levels – then it is a much easier equation.
3. What is your ability to manage third parties?
Some organisations are historically very good at managing third parties, there is a strong procurement team, you have a track record of building good service relationships, and in return receive a good service. Other organisations have less experience, and are simply more comfortable managing everything in house.
Before you move to a strategic partnership, look at the capability you have in your organisation. Do you outsource other services in IT, Finance and Marketing? What procurement support is available? Do you have a standard contracts and governance models you can utilise?
4. What is your organisation’s appetite for change?
Whether the service you want to outsource is broken, brilliant or doesn’t yet exist – what you are planning involves a significant change. Work out the change impact on employees, managers and whether there is appetite for changing the way people work. If this follows on from a painful technology implementation – think about the best timing.
5. Could HR Outsourcing in the Cloud work for you?
Regardless if you call this service ‘BPaaS
’ or ‘HRO in the Cloud
’ – there are some clear benefits and pitfalls with this outsourcing option. For HR Directors, this has the potential for killing two birds with one stone.
Firstly outsource chunks of your HR processes on a standardised platform.
Secondly, while you are doing it, outsource the management of your HR Technology platform, therefore avoiding the cost and hassle of keeping up to date with the latest HR Technology.
We are currently at an interesting time in the development of HR Technology, and the delivery of HR services are interwoven.
Take a look at my recent summary of HR Technology trends in Big Data, Robots and Cycle Paths
including the end of the HR enterprise software era. Speaking of the future, this brings us to the final point…
6. Where will your vendor be in 5 years?
In our article the “HR Outsourcing – The challenge of picking winners
”, we mentioned that you need to look at the market longer-term. The last thing you want is to persuade the board to outsource some HR and possibly HR Systems – and then for your vendor to be taken over. At worse the vendor leaves that part of the HR Services market, at best, they are distracted for years and your service dips.
With plenty of mergers and acquisitions expected in the future, it is important to have a view on who is going to be in the HRO business in 5-10 years’ time, and which technology platforms will be leading edge and even offer you competitive advantage.
You pays your money (and you take your chances).
So there are 6 questions to start with to avoid dropping sauce on your tie. There are plenty of others, but let me know if you have any questions about HR Outsourcing
, the benefits, the pitfalls, the market or share your own questions with us.
I’m really looking forward to the HRO Today Forum
, it will be great to see some familiar faces to swap notes, but for those that can’t make it, check out my coverage for what promises to be an engaging event. Follow me on Twitter @AndySpence
and tweets next week on the twitter hashtag #HROToday
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