6 Key Questions to Ask before HR Outsourcing

HR Outsource - from HR Transformer Blog
 
 
 
 
 
 
 
 
 
 
 
The HR Outsourcing industry is alive and kicking.  
 
Last year we highlighted the Most Important HR Outsourcing Contracts of the last 2 Years,  which highlighted large contracts and renewals in South America and Europe.  Next week I will be attending the 2013 HRO Today Forum, in London, where I expect to hear news of new contracts and developments in the world of HR Outsourcing.
 
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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