From the days of the dot-com boom to a newly configured present, human resources outsourcing has evolved, but consistent innovation is vital to its success.
Mark Stelzner, consultant for human resources innovation and principal of the San Francisco-based Inflexion Advisors, recently shared what the industry has learned from its mistakes and offered advice on how to leverage the best from human resources outsourcing.
In the early 2000s, what Stelzner jokingly referred to as the “dot-bomb” era, many companies explored the practicality of handing off a majority of human resources needs to an outside provider. Companies thought outsourcing would boost efficiency because providers would follow a standard.
However, this worked only in theory, Stelzner said during a Society for Human Resource Management (SHRM) webcast titled “The HR Outsourcing Evolution.” Firms pushed for customization, he explained. “Large organizations are kind of like Burger King—they want it their way,” he said.
As a result, providers missed production deadlines and profitability suffered. Some providers couldn't afford to stay in the business.
What the industry has learned is that it’s best for providers to focus on one activity, whether it be recruitment or payroll processing, and complete what are known as “single-process contracts,” Stelzner said.
Today, the HR outsourcing market continues to grow; $3 billion globally in annual contract value is predicted for 2010 alone, according to Stelzner.
The Case for Change
Innovation is key to HR outsourcing, Stelzner said.
Companies are grappling with the recession, increased globalization, the cost of health care, pressure to grow efficiently and a rising number of free-agent employees.
But the biggest barriers to innovation involve people, Stelzner explained. “It’s frankly the inability of team members on both sides of the table to break through effectively,” Stelzner said. “Keep that in mind as you’re thinking through governance, as you're thinking through how you budget and establish staffing and how you're going to work effectively with your HR service provider.”
A plan is critical to successful HR outsourcing, Stelzner explained. He laid out 10 steps to help companies achieve this:
1. Get your house in order. Assess the health of your plan constantly. Meet with and learn from internal stakeholders from across the business.
2. Seek market intelligence. “Work your networks with SHRM,” Stelzner advised.
3. Meet prospective providers. It’s better for everyone if a provider knows early that it won't fit, Stelzner said.
4. Regroup and reassess. Create an accurate project plan, Stelzner said.
5. Keep the request for proposals simple. Focus on 50 good questions that allow for narrative and creativity.
6. Narrow your selections and make site visits. Avoid sales pitches.
7. Grill references on what they would like to share.
8. Establish governance and service level agreements. Avoid providers unwilling to do monthly assessments.
9. Make sure the provider is engaging profitably as you weigh your contract. Hire outside counsel that specializes in this area.
10. Innovate and ideate. Network with your providers. “Do this because you can’t outsource accountability,” Stelzner said.
Melanie Eversley is a freelance writer based in Maryland.
Glossary of Outsourcing Terms, SHRM HR Disciplines, November 2007
Negotiating HR Outsourcing Contracts: Service-Level and Pricing Issues, SHRM HR Disciplines, May 2005
Resolving Disputes and Terminating Vendor Contracts, SHRM HR Disciplines, November 2007View the complete webcast