Getting Full Business Value from HR Outsourcing 

 

Getting Full Business Value from HR Outsourcing:
Strategies for Retained HR and Change

A survey and case study analysis

By Bruce Barge, Namrata Mundhra and Hameedah Merchant, Buck Consultants, October 2007

The Scenario

Pat Clark, our fictitious HR executive, sat in her office wondering how, after so much hard work, the project could still feel so incomplete. Months of planning, vendor selection, design work and implementation had usurped a major part of her and her department’s focus to put this HR outsourcing (HRO) solution into place. Why didn’t she feel a greater sense of accomplishment?

True, HRO was likely to save her company money, and new technology and operational capabilities should make life easier for managers, employees and her HR staff. And, as expected in any project as complex as an HRO project, there had been some bumps in the road.

Pat felt that her team had followed a sound process in deciding to pursue HRO and in vendor selection. There had been long meetings about designing and implementing a solution, some very tough discussions, and a combination of high-level visioning and mind-numbing detail. But something still gnawed at her. She realized now that she had made a classic mistake: working hard for A (becoming a more efficient HR staff function through HRO) while also hoping for B (achieving an HR organization that could help drive business performance).

While improving the efficiency of the HR staff function is undoubtedly important, what Pat had really wanted was for the HRO initiative to be a catalyst that enabled HR to contribute more value to the business. But now, that goal seemed further away than she ever expected.

Survey & Case Study

Now that HRO is in its adolescence, there is increasingly a track record of what is working and what is not. A growing number of organizations have experience with HRO (or at least with benefits outsourcing), and the opportunities to understand “lessons learned” are increasing. In particular, some organizations seem to be achieving far more business impact from HRO than others.

Our purpose below is to explore these trends from the perspectives of both a survey analysis and case study. The Buck-sponsored survey was designed to gather data from companies that have outsourced some part of HR and to report their experience and results. The case study of a property-casualty insurance company engaged in HRO describes its approach and lessons learned. Together, these two sources of data provide insight into issues such as the:

The findings outlined here can help organizations interested in HRO learn from the experience of others. We believe that HRO will be one of the most important and far-reaching HR trends for the decade to come. Our findings suggest that companies have progressed in achieving value from HRO, but that leading companies are identifying a set of practices that, when implemented correctly, achieve that value faster and more fully.

Part 1: Survey Highlights
The Most Successful HRO Initiatives

Pat is not alone in expecting HRO to effect HR transformation. Buck’s February 2006 flash survey, Retained HR in a Post-Outsourcing World, revealed that many organizations succeeded in delivering strategic business value after HRO reshaped the internal HR function.

The survey examined the degree to which 85 responding organizations have outsourced a significant portion of their HR function and how the roles of retained HR professionals have evolved as a result. Respondents who have outsourced their HR function reported on the techniques and practices used to prepare the HR staff and the entire organization for the transformation and change promised by HR outsourcing.

Of the 85 participating organizations, a majority (56 percent) had fewer than 5,000 employees, with most of the remaining respondents reporting more than 10,000 full-time equivalents.

Defining High Performers

“High-performing organizations” were differentiated from other respondents. We defined these high performers based on the value realized by the outsourcing of HR delivery through significantly improved productivity or customer satisfaction.

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While we found that high performers experienced as much change in their retained HR organization as other respondents, they were much more likely to plan proactively and to integrate the HRO and retained HR designs.

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High performers invested more, across the board,
in change management and communications.
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Perhaps most significantly, high performers invested more, across the board, in change management and communications. Not surprisingly, given their greater investment, this group also reported higher effectiveness of their change management practices.

Other Findings

Survey Conclusions

It’s apparent that high- and low-performing organizations have similar goals and challenges in implementing HRO. However, survey results suggest that high-performing organizations:

Part 2: Case Study
HRO as a Service Delivery Remodel

What’s in a name? Do you call an HRO initiative an “outsourcing deal,” an “HR transformation,” “business process improvement” or something else entirely? One property-casualty insurance company chose to call it a “HR Service Delivery Remodel." As we will explain, that name says a lot about their mind-set, objectives and approach to implementing HRO.

Background

Our client, an insurer with approximately 9,000 employees in offices across the United States, had moved several years previously to a shared services structure with Centers of Excellence and an internal call center, and had also outsourced benefits administration. The result: significant change in HR, reduced costs, and new processes and organization.

As the company looked to the future, however, it recognized that these improvements were not enough. Its core business was very profitable but was not growing as fast as desired. HR’s internal customers felt that their basic service needs were well met, but they wanted HR to be more proactive in providing assistance in consulting areas such as workforce planning, change and talent development. The business wanted to further increase cost savings and decrease to nothing its capital investments in HR technology.

HR’s leaders, therefore, set out to engage in further HR outsourcing, which they ultimately named the Service Delivery Remodel (SDR). The choice of name is significant for at least three reasons:

Positioning SDR

The HRO solution included a new HR portal, several new technology applications--such as an applicant tracking system, increased manager and employee self-service, a new compensation planning tool, a new time and attendance system--and the transfer of call center responsibilities and technology maintenance to the vendor.

SDR required that the joint client/vendor team implement many new processes, tools and responsibilities. A Steering Committee made up of senior client and vendor executives oversaw the project. A business case, showing the investments and returns expected, was approved.

There was also a significant redesign of the retained HR generalist organization. Previously, these generalists had supported all types of HR activities, including administration, delivery, employee relations, staffing, training delivery and, when possible, strategic consulting to the business. Now, however, the new technology and self-service capabilities from SDR allowed for fewer generalists focused on higher-value activities for the business. In addition, a new staffing organization was created that focused solely on the recruiting-related activities for which the generalists were no longer responsible.

Because of the significant changes involved, SDR also required upfront and ongoing stakeholder communication and change management. There were many stakeholders affected by SDR, including senior executives, HR employees, line managers, employees, other external vendors and a host of people involved in the project itself. SDR employed a change and communication plan, with dedicated resources, to help ensure the stakeholders’ understanding and readiness.

Implementation

SDR was implemented by a large client/vendor project team led by a Project Management Office (PMO). The PMO was responsible for the overall project plan and for project coordination and execution. Under the PMO was a set of work-stream teams responsible for areas such as portal, staffing, and time and attendance. Each team was tasked with implementing the following methodology: plan, discover, design, develop, test, deploy and evaluate.

A separate but related effort was needed to implement the new HR generalist organization. This included a redesign of the future roles and competencies, as well as evaluation of the incumbent staff based on location, skills and past performance.

Some staff were reassigned or terminated, and both severance and retention approaches were used to achieve the desired workforce. Ongoing communication, orientation and training helped prepare staff for their new roles, processes, tools and relationships.

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Both severance and retention approaches were used
to achieve the desired workforce. Ongoing
communication, orientation and training helped
prepare staff for their new roles.
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Integrating change management and communication activities into the overall project plan helped make stakeholders aware of, and involved in, the implementation. Examples of these activities include:

Throughout, the dedicated change resources served as the glue, making sure that stakeholders’ needs were met and that work-streams were coordinated toward the broader business goals.

Lessons Learned

For this organization, the lessons are ongoing as HRO is implemented and adjustments are made. Its past experience with HR change has raised awareness and helped it to improve the approach for design, coordination and change.

Some of the key lessons learned may seem obvious but, unfortunately, they are violated in many HRO implementations. For that reason, we reiterate them here.

Summary/Recommendations

A similar pattern emerges from both the survey findings and case study experience: HR organizations that use HRO as a catalyst for broader transformation appear to achieve superior results. These organizations recognize that HRO is a complex and significant change intervention. Therefore, they seek to maximize its business impact by integrating it with the design of the retained HR organization and under the umbrella of increasing business value from HR.

We believe that increased business value, not just cost reduction, should be the primary objective of every HRO initiative. HRO should accelerate progress toward more effective Centers of Excellence that provide better policies and programs and proactive advice to the business. HRO should help the HR business partner (or generalist) staff to focus more resources on the crucial change and talent issues that drive competitive success of the business.

And we believe that HRO should be a component integrated within a larger HR strategy that is closely tied to the overall business direction.

The alternative is to act like our fictitious HR executive, Pat Clark, who was working toward A (efficiency) while also hoping to achieve B (transformation). While everyone respects the value of cost reduction and efficient HR administration, we encourage organizations to aim even higher to realize the full potential of HRO as a catalyst for transformation and broader business value.

© Buck Consultants LLC. All rights reserved.

This article is adapted and reposted with permission from Buck Consultants, an ACS company. It originally appeared in insightout, a publication from Buck Consultants' thought leaders.

Dr. Bruce Barge is the managing director of Buck's human resource management practice in Orange County, Calif., and helps clients achieve business results related to HR effectiveness, talent and change. Namrata Mundhra is a director in Buck’s human resource management practice in San Francisco and consults on HR strategy, HR transformation and HR effectiveness projects. Hameedah Merchant is a senior consultant in Buck’s human resource management practice in San Francisco. She advises clients on HR strategy/transformation and change management initiatives.

Related Articles:

Designing Retained HR to Complement Outsourcing , SHRM Online HR Outsourcing Focus Area, June 2006

So You Want To Be Strategic? What Next? , SHRM Online HR Outsourcing Focus Area, June 2006

Slide Presentation: The Impact of HR Outsourcing on the HR Profession , SHRM Online HR Outsourcing Focus Area, June 2006

Best Outsourcing Relationships Become 'Alliances,' Formalize Conflict Management , SHRM Online HR Outsourcing Focus Area, March 2006

How Will HR Outsourcing Affect Your Career? , SHRM Online HR Outsourcing Focus Area, October 2005

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