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Excerpt--The Future of Human Resource Management

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Edited by Mike Losey, Sue Meisinger, and Dave Ulrich

2005, 400 pages, Hardcover

ISBN: 0471677914

SHRMStore Item #: 61.15001

Order from SHRMStore or call (800) 444-5006.


By Miram M. Graddick-Weir

Human resources outsourcing (HRO) is one of the fastest growing business process outsourcing segments. The growth rate between 1999 and 2004 was 32 percent, and the current market opportunity is over $60 billion -- with a 30 percent future growth rate (Dataquest, Inc.). Many companies are outsourcing discrete services such as benefits enrollment, or blended services (entire processes such as the employment process). A few are adopting the full HRO model which consists of outsourcing a broad range of HR functions. The reasons for outsourcing are well documented; organizations hope to achieve significant cost savings, greater efficiency, increased value creation, and better leverage of capital investments in HR systems; create career opportunities for HR employees; and enable HR to focus on more strategic activities.

The AT&T Experience

AT&T negotiated a seven-year outsourcing engagement across a broad range of HR functions in 2002. Strategy and policy for all HR functions, the HR partner role, and functions that are deemed strategic were not a part of the outsourcing deal. Thus far, we have achieved the cost reduction targets, maintained service levels, and jointly managed several successful large-scale projects (e.g., the rollout of a new market-based compensation system); meanwhile, customer satisfaction results continue to improve. In this chapter—with two years’ experience behind us and collaboration with other firms who have outsourced significant functions -- we describe the lessons learned on this journey. The purpose is to summarize the key lessons learned from the outsourcing experience and to discuss the new strategic role for HR in today’s competitive and rapidly challenging business environment.

What We Have Learned

Although we have learned much about outsourcing, there continue to be more lessons to learn. The following section describes a few of our most significant discoveries.

1. Operational Excellence in Employee Transactions
Transaction processing related to employees is critical to any organization. Line managers are basically agnostic to where these services are performed as long as they are accurate and user-friendly. In negotiating any outsourcing deal, HR must never forget that it is ultimately accountable for the quality, accuracy, and speed of employee-related services. If these services are not done correctly, HR will not become a value-added strategic partner. While obtaining significant cost reductions is important to any deal, it is equally important to select a partner with whom you have the greatest alignment around maintaining operational excellence both during and after the transition.

2. Relationships Matter
Many of us have learned that it is impossible to get all the terms and conditions right when you first close the deal. Therefore, you need people on both sides who value the partnership and who are fully committed to its ongoing success. When aspects of the contract need to be revisited, each party must be willing to offer creative, win-win solutions to resolve issues. Individuals who harbor ill feelings about the deal, or who never wanted it to happen in the first place, should not be assigned to manage the ongoing relationship. Select a partner who does not view the engagement simply as a legal and contractual relationship, but who values the partnership and is always committed to honoring the spirit of the deal.

3. Moving People into the Deal Has Advantages and Inherent Risks
Moving skilled people into the deal can enhance your ability to have a seamless transition during the cutover, which is key to making it transparent to line managers. Initial troubleshooting, communication, and understanding of the business are greatly improved. Also, if the outsourcer successfully grows its outsourcing business, people have greater career opportunities to develop their skills by transitioning to other projects over time. The inherent risk of moving the people with the deal is that you do not always get a fresh perspective when evaluating potential process improvements. It is crucial to jointly consider how functions are staffed to ensure an infusion of breakthrough ideas and not just incremental improvements.

4. Contract Management Is Key to Controlling
Ongoing Costs and Managing the Overall Relationship It is important to manage ongoing costs, ensure service levels are met, and have a single place where issues and problems can be escalated and resolved quickly. It is critical to set up a strong governance model and contract management team within HR. This team should ensure that any new requests are appropriate for inclusion, monitor compliance with the terms and conditions of the deal (including service levels), and serve as a point of escalation. We have been extremely disciplined about filtering any new work through this organization to ensure costs do not creep up and mitigate the initial savings. The size of this group depends on the deal; however, it must be adequately sized at the beginning of the transaction to handle the workload. The group can always be adjusted downward over time.

We have summarized the three keys to success as follows:

1. Tenets: Both sides must have a common vision, guiding principles that define the spirit of the deal, cultural compatibility, and trust.

2. Teamwork: Strong partnering and collaboration are essential at many levels.

3. Tenacity: It is necessary to overcome the many obstacles that surface along the way and to navigate through change, complexity, and uncertainty.

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