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HR Outsourcing (HRO): Its Impact on Your Company,
Your Career, and the HR Profession
Presented by Tom Darrow
2006/2007 SHRM-Atlanta President
Principal, Talent Connections
Copyright 2005 Talent Connections. All Rights Reserved.
Agenda
HR Outsourcing Overview
Impact on Companies
Impact on HR Profession
Impact on Your Career
Selecting, Managing, and Measuring
Outsourcing Providers
: Helpful Resources
:
:
:
:
:
Copyright 2005 Talent Connections. All Rights Reserved.
What is Outsourcing?
The performance
by outside parties,
on a recurring basis,
of tasks that would
otherwise be
performed in-house.
Copyright 2005 Talent Connections. All Rights Reserved.
Other Definitions
:
:
:
:
:
In-sourcing
Off-shoring
Co-sourcing
Geo-sourcing
Outplacement
Copyright 2005 Talent Connections. All Rights Reserved.
Types of Outsourcing1
: Business Process Outsourcing
: Information Technology - 28%
: Human Resources – 16%
: Sales & Marketing – 15%
: Finance – 11%
: Administrative – 9%
: All Others – 22%
Copyright 2005 Talent Connections. All Rights Reserved.
How Common is HRO?
: 58% of companies outsource some HR
function2
: 91% of companies with $1 billion+ annual
revenues are now considering HRO3
: HRO grew 28% from second half of 2004 to
first half of 20054
100
90
80
70
60
companies that outsource some HR
function
companies with $1 billion + annual
revenues considering HRO
HRO growth from second half of 2004
to first half of 2005
50
40
30
20
10
0
companies that
outsource some HR
function
companies with $1 billion HRO growth from second
+ annual revenues
half of 2004 to first half
considering HRO
of 2005
Copyright 2005 Talent Connections. All Rights Reserved.
The HRO Market
: In next 5 years, global spending on HRO will
double – from $40 billion to $80 billion5
: From 2002 to 2004, 14% increase in large
firms that would consider HRO6
Copyright 2005 Talent Connections. All Rights Reserved.
5 Most Commonly Outsourced
HR Services7
1.
2.
3.
4.
5.
Background Checks – 73%
Employee Assistance/Counseling – 66%
FSA Administration – 67%
COBRA – 55%
Healthcare Benefits Administration – 60%
Bac kground Chec ks
Employee Assistanc e /
Counseling
FSA Administration
Series1
COBRA
Healthc are Benefits
Administration
0
10
20
30
40
50
60
70
80
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Other Types of HR Outsourcing7
: Pension Benefits Administration – 55%
: Temporary Staffing – 54%
: Retirement Benefits Administration – 47%
: Payroll & Software Services – 48%
: Recruiting, Staffing & Search
– Non-executives - 30%
– Executives - 29%
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Other Types of HR Outsourcing7
: Employee Relocation – 29%
: Training and Development – 21%
: Incentives – 19%
: HRIS & Web-based Services – 15%
: Reference Checks
: PEOs and ASOs
: Sourcing Consultants & Legal Services
: Screening & Workplace Security
: Process, Project, and Systems Management
Copyright 2005 Talent Connections. All Rights Reserved.
Least Commonly Outsourced
Functions7
:
:
:
:
Performance Management 3%
Strategic Business Planning – 4%
Policy Development/Implementation – 4%
Employee Communication Plans – 10%
Performanc e Management
Strategic Business Planning
Series1
Polic y
Development/Implementation
Employee Communic ation
Plans
0
2
4
6
8
10
Copyright 2005 Talent Connections. All Rights Reserved.
Audience Survey
: How many of you outsource part of your HR
function?
– Payroll
– Benefits
– Recruiting, Staffing, & Search
– Training
– HRIS & Web-based services
: How many of you outsource all of your HR
function?
: What led to the decision to consider
outsourcing?
Copyright 2005 Talent Connections. All Rights Reserved.
Why Outsource?
: Allow HR to focus on core competencies
: Creates strategic opportunities for HR
professionals
: Improve quality, efficiency, and effectiveness
: Relief from administrative burdens
: Reduce operating costs
Copyright 2005 Talent Connections. All Rights Reserved.
Other Benefits to HRO
: Access to outside HR expertise
: Greater diversity of HR services
: Leverage vendor investments in technology
rarely available to HR organization
: Limit fiduciary, audit, and litigation risks and
liabilities
: Upgrade level of customer service
: Ease time pressure demands
:“Better, faster, cheaper”
Copyright 2005 Talent Connections. All Rights Reserved.
Risks
Over promise and under deliver
Nonperformance of key function
Cost
Loss of institutional knowledge
Difficulty managing vendor relationship
Change in provider’s business or financial
stability
: Lack of fit with company culture
: Organizational resistance or unreadiness
:
:
:
:
:
:
Copyright 2005 Talent Connections. All Rights Reserved.
When to Outsource
: High HR service delivery costs
: No further investment in technology
: End administration of transactions and focus
on strategic work
: Improve quality of HR services
: Strong business case
: Other business reasons
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Considerations
: Core Competency?
: Best in Class?
1. What is your vision for your HRM business?
2. What metrics will measure progress toward
vision?
3. What business outcomes are needed from
the HRM aspects of the business?
Copyright 2005 Talent Connections. All Rights Reserved.
Poor Reasons to Outsource
: Do not outsource just because you are
frustrated
: Do not outsource as a last resort, just
because you have tried everything else
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Outsourcing Myths
: Outsourcing is just a fad
: Outsourcing can be kept secret from
employees
: Outsourcing is only for the largest companies
: Messes must be fixed before outsourcing
: Outsourcing is for everyone
Copyright 2005 Talent Connections. All Rights Reserved.
Trends in HR Outsourcing Market
: Specialization
: Consortia Buying
: Globalization
: Mid-market Mania
: Standardization
: Utility Model
: Regionalization
Evolution
: Consolidation and
Partnering
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The Future of HRO
1.
2.
3.
4.
5.
Growth-Maturation of HRO market
Increasing weight of non-cost drivers
“Commodization” of HR functions
New roles for internal HR departments
New career opportunities for HR
professionals
Copyright 2005 Talent Connections. All Rights Reserved.
The Future of HRO (cont’d)
6. Expansion of small/mid-sized HRO markets
7. Demographic changes
8. Improved HRO metrics
9. Reshaping of industry
Copyright 2005 Talent Connections. All Rights Reserved.
Impact on Companies
: Employee reactions
: HR executives taking part in operational
and strategic decisions
: Elimination of bureaucracy
: Customer service improvements
Copyright 2005 Talent Connections. All Rights Reserved.
Impact on Companies (cont’d)
:
:
:
:
Growth of self-service platform
Slimming down staff
Cost savings
Model will serve to guide other
organizational functions (IT, accounting)
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Impact on HR Profession
: Internal HR at significant disadvantage in
cost per transaction
: Loss of control of key processes
: Enhanced credibility
: Strategic focus
: Decentralized structure
: Internal politics – HR as business partner
: Move to customer service culture
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Impact on HR Profession (cont’d)
: Management and Organizational
Development – big picture view
: New roles – consultant and HR strategist
: Develop competencies to remain valuable
: HR is exposed and more visible as
organizational function
: HR is far more measurable
: Align HR strategy with corporate goals
Copyright 2005 Talent Connections. All Rights Reserved.
Impact on Your Career
: Transformation – from transactional administrator
to business partner that sets strategy
: Develop competencies to negotiate and manage
vendor relationships
: Demonstrate ability to provide business solutions
for employee and customer problems
: Change bureaucratic culture
: Develop strategic expertise necessary to manage
human capital
Copyright 2005 Talent Connections. All Rights Reserved.
Impact on Your Career
:
:
:
:
:
Deliver exceptional customer service
Sharpen your skills
Build/Develop your network
Stay on top of trends and their implications
Utilize vendors now so that they can help
you later
Copyright 2005 Talent Connections. All Rights Reserved.
Online Resources
: Better Management.com –
www.bettermanagement.com
: EquaTerra – www.equaterra.com
: Everest Group - www.everestgrp.com
: HRO Today – www.hrotoday.com/org
: HR Executive – www.hrexecutive.com
: Human Capital Magazine –
www.humancapitalmag.com
:“HR Outsourcing Gaining Traction Fast” –
www.rwbaird.com/docs/YourReports/HRO2
003.pdf
Copyright 2005 Talent Connections. All Rights Reserved.
Online Resources (cont’d)
: Nelson Hall – www.nelson-hall.com
: Outsourcing Center –
www.outsourcing-research.com
: Outsourcing Institute – www.outsourcing.com
: Outsourcing Suppliers –
www.outsourcing-suppliers.com
: The Outsourcing Management Zone –
www.theoutsourcerzone.com/law.htm
Copyright 2005 Talent Connections. All Rights Reserved.
Books
: The HR Scorecard: Linking People, Strategy,
and Performance by Becker, Huselid, and
Ulrich (2001)
: Strategic Outsourcing: A Structured
Approach to Outsourcing Decisions and
Initiatives by Greaver (1999)
: Out of Site: An Inside Look at HR
Outsourcing by Beaman (2004 )
Copyright 2005 Talent Connections. All Rights Reserved.
Books (cont’d)
: Outsourcing: A Guide to Selecting the Correct
Business Unit…Negotiating the
Contract…Maintaining Control of the Process
by Bragg (1998)
: The Challenge of Outsourcing Human
Resources by Vanson (2004)
: Outsourcing Human Resource Functions:
Strategies for Providing Enhanced HR Services
at Lower Costs by Cook (1999)
Copyright 2005 Talent Connections. All Rights Reserved.
Professional Organizations
: Human Resources Outsourcing
Association – www.hroassociation.org
: HR.com – www.hr.com
: International Association of HR Information –
www.ihrim.org
: Shared Services & BPO Association –
www.sharedxpertise.org
: SHRM National – www.shrm.org
– Outsourcing Forum –
www.shrm.org/outsourcing/
Copyright 2005 Talent Connections. All Rights Reserved.
QUESTIONS?
Copyright 2005 Talent Connections. All Rights Reserved.
THANK YOU!
Tom Darrow
[email protected]
www.talentconnections.net
Copyright 2005 Talent Connections. All Rights Reserved.
Selection Process
: RFI – request for information
: RFP – request for proposal
: Site visit
: Create and use scoring tools
: Top 3 potential providers deliver
presentation
Copyright 2005 Talent Connections. All Rights Reserved.
Selecting a Provider
: Identify must have’s and nice to have’s
: Discuss provider with consultant,
competitors, former customers/employees
: Perform reference checks
: Determine current state of provider’s
market share
: Consider local vs. remote
Copyright 2005 Talent Connections. All Rights Reserved.
Selecting a Provider (cont’d)
: Identify provider’s recent disappointments
: Determine provider’s current weaknesses
: Beware of off-the-shelf solutions
from vendors
: Determine provider’s current workload
and capacity
Copyright 2005 Talent Connections. All Rights Reserved.
Selection Criteria
:
:
:
:
:
:
:
:
:
Proven track record
Cost of vendor services
Service level guarantees
Flexible contract options
Cost savings guarantees
Recommendations from other companies
Compatible corporate culture
HR process expertise
Leading technology
Copyright 2005 Talent Connections. All Rights Reserved.
Transitioning Resources
: Launch period between selection and
implementation
: Approximately 90 days
: Time of learning in order to gain mutual
understanding of company and processes
: Communication and project management
are key
: Slowly turn over control as you transition
resources
: Cannot measure results until end of
this period
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Managing the Provider
Who should manage the provider?
: CFO
: Head of HR
: Other HR individuals
Copyright 2005 Talent Connections. All Rights Reserved.
Managing the Provider
: Establish performance targets and set
expectations up front
: Determine priorities and communicate them
to vendor
: Establish reporting relationships up front
: Provide forum and timing for discussion of
issues
: Anticipate and plan for conflict resolution –
arbitrate when it occurs
: Ongoing ownership, involvement, supervision
Copyright 2005 Talent Connections. All Rights Reserved.
Managing the Provider (cont’d)
: Where continuity is critical, establish longterm relationships with vendors
: Review annual operating plans and major
initiatives
: Guidance for provider and buyer’s managers’
oversight
: Require competitive bidding for outsourced
service at regular intervals
: Review contract terms and suggest changes
as needed
Copyright 2005 Talent Connections. All Rights Reserved.
Managing the Process
: Look beyond initial cost savings and track
affect on employee satisfaction and
organizational performance
: Ensure senior management buy-in and
involvement
: Reinforce/reward through incentives
: Focus on quality first, cost second
: Test outsourcing with specific function
before expanding
Copyright 2005 Talent Connections. All Rights Reserved.
Managing the Process (cont’d)
: Facilitate feedback from internal HR team
: Manage resistance from internal HR team and
company at large (communication is key)
: Anticipate and manage culture change
: Develop staff members to effectively manage
vendor relationships
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Measuring Performance
: Insist on accurate and frequent status
reporting by vendors
: Demand immediate notification when
problems arise
: Metrics are key
– Quantitative terms
– Incorporate multiple time periods
Copyright 2005 Talent Connections. All Rights Reserved.
Measuring Success
: Internal metrics: effectiveness, efficiency,
quality, productivity
: External metrics: revenues, expenses,
market share, customer relations, quality
productivity
Copyright 2005 Talent Connections. All Rights Reserved.
Typical Problems
: Lack of measurement
– 88% of large business require metrics8
– Only 41% of mid-sized companies
stipulate metrics in contracts8
: Rush into autonomy too soon
: Unrealistic expectations and goals
: Outsourcing for the wrong reasons
: Overly focused on cost savings
: Lack of communication
: Difficulties managing vendor
: Employee resistance
Copyright 2005 Talent Connections. All Rights Reserved.
Success Factors
Preparation is paramount
Be a knowledgeable buyer
Realistic goals and expectations
Strategic vision
Consider permanence of outsourcing - costs
involved in switching outsourcing vendors or
ending HRO
: Find the right vendor
:
:
:
:
:
Copyright 2005 Talent Connections. All Rights Reserved.
Satisfaction
Recent survey of 129 large companies
representing 2 million employees9:
: 89% satisfied with outsourcing arrangement
: 85% achieved hoped-for benefits
: Additional 20% achieved unexpected benefits
satisfied
ac hieved hoped- for
benefits
Series1
ac hieved unexpec ted
benefits
0
20
40
60
80
100
Copyright 2005 Talent Connections. All Rights Reserved.
Best Practices
: Selective path toward HRO
: Multiple vendor relationships
: Combination of internal and external
strategies
Copyright 2005 Talent Connections. All Rights Reserved.
Overview of Process
Outsourcing Model – Greaver, 1999
1. Planning
2. Exploring strategic initiatives
3. Analyzing costs/performance
4. Selecting providers
5. Negotiating terms
6. Transitioning resources
7. Managing relationships
Copyright 2005 Talent Connections. All Rights Reserved.
Planning
: Prepare HR
– Develop and communicate new HR
strategy
– Define new roles and responsibilities
– Restructure HR
– Hire new employees to fill skill gaps
– Provide training for employees in new
roles
Copyright 2005 Talent Connections. All Rights Reserved.
Planning (cont’d)
: Prepare Organization
– Develop HR strategy within overall
organizational strategy
– Communication plan
: Resolve issue of whose payroll individuals
are now on
– Are HR employees actually employees
of provider?
– Does head of HR work for company or
provider?
Copyright 2005 Talent Connections. All Rights Reserved.
Exploring Strategic Initiatives
: Assessment
– Self examination
– SWOT of department
– Organizational scan
: Define opportunities and benefits
: Build the business case – consider all costs and
impacts on organization
: All functions that are not core competencies
should be considered for HRO – nothing is sacred
: Consider the driver behind HRO decision
Copyright 2005 Talent Connections. All Rights Reserved.
Analyzing Cost/Performance
: Understand market trends and competitive
position
: Identify goals and objectives
: Determine added value
: Gather baseline HR costs and metrics
: Compare current HR operations to
benchmarks
: Determine which processes have highest
strategic importance and add most value
Copyright 2005 Talent Connections. All Rights Reserved.
Identifying a Provider
:
:
:
:
:
Referrals/Networking
Newspapers and Magazines (HRO Today)
Internet
Mailings
Professional Association Lists
Copyright 2005 Talent Connections. All Rights Reserved.
Negotiating Terms
:“Good contracts make good partners”
: Maintain heat of competition during
negotiation
: Reasonable, but clearly established,
expectations
: Well-documented deliverables regarding
every aspect of deal
: Attorney involvement
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Specifications of Contract
: Contract Duration
– Exact beginning and ending dates
– Financial penalties for early termination
: Parties to the Contract
– Allow for additions or deletions (in case
of acquisitions or divestitures)
– Require vendor to name all
subcontractors and give you right of
approval for those introduced later
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Specifications (cont’d)
: Services Performed
– Specify all functions to be provided
– Outline all support services
– Ensure escalation process and dispute
governance included
: Performance Standards
– Tweak standard performance
guarantees
– Reinforce performance guarantees
through at-risk fees
Copyright 2005 Talent Connections. All Rights Reserved.
Specifications (cont’d)
: Hold-Harmless Statement
: Fees
: Data Security
: Communication Review
: Contingency Plans
: Audits
: Final Contract Review
Copyright 2005 Talent Connections. All Rights Reserved.
Articles
: Adler, Paul S. 2003. “The HR Outsourcing
Decision.” MIT/Sloan Management Review.
Fall 2003
: Gelman, Lisa & David Dell. 2002. “HR
Outsourcing Trends Study.” New York: The
Conference Board.
: Goldsmith, Neal M. 2003. “Outsourcing
Trends.” The Conference Board, July 2003.
: Holincheck, James. 2003. “Deciding to
Insource or Outsource Human Resources.”
Gartner Research, 28 February 2003.
Copyright 2005 Talent Connections. All Rights Reserved.
Footnotes
1. Offshore IT Outsourcing –
www.offshoreitsourcing.com/Pages/outousrcing_statistics.asp
2. 2004 SHRM Human Resource Outsourcing
Survey
3. Human Resource Outsourcing Association –
citing the Yankee Group
4. Fidelity Investments – “Fidelity Building Its
Share in HR Outsourcing Market” by Matt
Ackermann; American Banker; July 19, 2005
5. Human Resources Outsourcing Association –
citing the Yankee Group
Copyright 2005 Talent Connections. All Rights Reserved.
Footnotes – (cont’d)
6. Human Resources Outsourcing Association Conference Board Report
7. According to the 2004 SHRM Human
Resource Outsourcing Survey
8. “Outsourcing Comes to the Middle Market”
by Bob Violino – SHRM HR Outsourcing Forum
9. Survey from Hewitt Associates Press Release
April 18, 2005 “HR Outsourcing Continues to
Boom as Organizations Gain Experience and
Reap Benefits”
Copyright 2005 Talent Connections. All Rights Reserved.
Sources
: Anonymous. “HR Outsourcing: Success Steps
to Observe for Your Company.” HR Focus,
September 2003.
: Anonymous. “Planning to Outsource.”
HR Focus, May 2004.
: Ackermann, Matt. “Fidelity Building Its Share
in HR Outsourcing Market.” American Banker,
July 19, 2005.
: Greer, C., Youngblood, S., & Gray, D. “Human
Resource Management Outsourcing: The Make
or Buy Decision.” Strategic Human Resource
Management. Southwestern, 2002.
Copyright 2005 Talent Connections. All Rights Reserved.
Sources (cont’d)
: Grensing-Pophal, Lin. “Outsourcing
Performance Management: Is It Right for
You?” SHRM HR Outsourcing Forum,
August 2005
: Hewitt News and Information – April 18, 2005
Press Release - “HR Outsourcing Continues to
Boom as Organizations Gain Experience and
Reap Benefits”
: Henneman, Todd. “Measuring the True
Benefit of Human Resources Outsourcing”
Workforce Management. July 2005
Copyright 2005 Talent Connections. All Rights Reserved.
Sources (cont’d)
: HRO Today Magazine – July 2005/August 2005,
May 2005, January/February 2005, December 2004,
October 2004
: Human Resources Outsourcing Association
Certification Course - “Outsourcing as an HR
Strategy”
: Landberg, Steven. “Effectively Utilizing Recruitment
Outsourcing: Lessons Learned From Early Users.”
SHRM White Paper, August 2005
: Miller, Stephen. “SHRM 2005 Conference &
Exposition: HR Outsourcing: All the Way?”
June 2005
Copyright 2005 Talent Connections. All Rights Reserved.
Sources (cont’d)
: SHRM Special Expertise Panels 2005 Trends
Report – HR Consulting/Outsourcing
: Violino, Bob. “Outsourcing Comes to the
Middle Market.” SHRM HR Outsourcing
Forum, August 2005
: Watson Wyatt “HR Outsourcing: Finding the
Optimal Mix – 2005 HR Technology Trends
Survey.”
: Weatherly, Leslie A. “HR Outsourcing:
Reaping Strategic Value for Your
Organization.” 2005 SHRM Research
Quarterly.
Copyright 2005 Talent Connections. All Rights Reserved.