HR Outsourcing - A Primer (And Look Back)

SHRM Webcast
June 17, 2010
The HR Outsourcing Evolution

CAUTION – Mark may make this sound easy. It’s not. Electing to hand over the keys to a third-party is one of the most difficult decisions you can make. Don’t let his deep voice lull you into visions of simplicity.
Agenda
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What A Long Strange Trip It’s Been
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“Sometimes the light’s all shining on me. Other times I can barely see. Lately it occurs to me ...”
~ The Grateful Dead

The Premise (and Promise) of HR Outsourcing
“Given the surge in global mergers and acquisitions, the delayering of organisations around the globe and the increased speed of decision-making, HR is becoming more and more complex by the day. Many companies found their in-house resources and capabilities challenged in dealing with this complex situation.”
~ The Economic Times (Feb ‘02)
Internal efficiency gains are insufficient
Economies of scale will drive down costs
Retained staff can focus on strategic activities
Less customization and more standardization
Innovation will continue post go-live
Provider sustainability is a non-issue
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The Reality (For Some) Was Quite Different
“Your mess for less”
Customization prevailed
Production deadlines were missed
Scope was too aggressive
Shadow organizations emerged
Provider profitability was cut short
Third parties exited the market
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“Some providers in the past have promised clients that ‘they could have their cake and eat it, too.’ They signed contracts at low price points in the belief that they could scale up and make the deals profitable later. ‘That hasn't happened. Now there is a lot of renegotiation.’”
BLR report on speech by Christian Baader, VP BPO for SAP AG (Apr ‘08)

Yet HRO Continues to Grow… Cautiously
“From a customer perspective it became clear that the days of global multi-process HR deals are over. Customers are seeking to be better informed about what works and doesn’t work in HRO and want to understand the impact on their business strategy. This results in longer preparatory phases and a tendency to reduce the scope, size or geography of deals.”
~ Alsbridge (Apr ’10)
“The multi-process Human Resources Outsourcing (HRO) market is expected to regain traction in 2010, moving towards US$3-3.1 billion in annual contract value (ACV), driven by contract extensions and the re-emergence of new deal signings.”
~ Everest Research Institute (Mar ‘10)
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The Business Case For Change
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“When we are no longer able to change a situation, we are challenged to change ourselves.”
~ Victor Frankl

Innovation Is Extremely Important…
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“… going beyond transactional/operational work to achieve new productivity gains and/or new revenue streams … through unique, creative methods.”
~ Horses for Sources

… But Serious Challenges Exist
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Hope For The Future Remains High …
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… Because HR Must Innovate Every Single Day
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10 Steps To Successful HRO
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“The difference between failure and success is doing a thing nearly right and doing a thing exactly right.”
~ Edward Simmons

Step One – Get Your House In Order
Define Your Objectives
Why are you pursuing this course of action?
What is your desired outcome?
How will success be defined?
Is this proactive or reactive?
Take Inventory
Understand the nature of your current contracts and relationships
Itemize all internal and external service providers
Meet With Internal Stakeholders
Assemble representatives from finance, IT, procurement and legal
Assess the possible impact on your clients/business units
Learn and benefit from outsourcing initiatives in other areas
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Step Two – Seek Market Intelligence
Benchmark
Assess all aspects of service delivery
Determine what market changes have occurred since last investigated
Beware of oranges disguised as apples
Leverage Advisory Firms
Do not become codependent on your advisors/consultants
Find those willing to stand next to (or behind) you
Extract every ounce of knowledge you can
Network, Network, Network
Schedule calls/meetings with your peers
Discuss lessons learned and what they’d do differently now
Attain guidance on service providers that worked (and those who didn’t)
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Step Three – Meet With Prospective Providers
Culture Matters
No two organizations are the same, so embrace your uniqueness
Assess your comfort with a provider’s philosophical market approach
Prescreen for the likelihood of a symbiotic relationship
People Matter
Did they do their homework?
Do you like your sales person?
What did you think of their overall team?
Did they pitch, do discovery or both?
Process Matters
Invite procurement (and perhaps others) to the meeting
Think about opportunity cost
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Step Four – Regroup And Reassess
Share Your Findings
If your premise for HRO still valid?
Is the market prepared to support your desired outcomes?
Is there additional work to do prior to continuation?
Were you unable to locate critical information?
Do A SWOT Analysis
Strengths and weaknesses
Opportunities and threats
Create An Accurate Project Plan
Assess resource allocation
Document time commitments
Ensure travel and expenses are preapproved
Notify all other stakeholders
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Step Five – Issue The (Dreaded) RFP
Share Your Work
Be completely transparent about your goals and objectives
Include relevant systems inventories, base case financials and all working assumptions
Bigger is not better
Embrace Market Maturity
In highly evolved segments, don’t question table stake capabilities
Emphasize quality of Q&A over quantity
Get past “Yes”
Allow For Controlled Collaboration
Give providers ample time to respond
Manage lines of communication yet share with all
Turn around Q&A very quickly
Admit mistakes early and often
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Step Six – Down Select And Site Visits
Honesty Wins The Day
Explain your logic and reasoning to providers – they deserve candid feedback
Choose no more than three (preferably two) for site visits
Don’t automatically include the incumbent
Embrace Subjectivity
Allow team members to share their emotional responses
Ask yourself if you want to work with the proposed team
This reflects your legacy – proceed with caution
Make Site Visits Meaningful
Set a tight agenda
Meet with those who own the outcome, not just the sale
Don’t let a good lunch overshadow a bad performance
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Step Seven – Speak With Real References
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Step Seven – Speak With Real References
Pay Attention To Details
Is the provided reference on the same product/release?
Are they in implementation or production?
Are they at parity in terms of complexity and scope?
What would they have done differently?
Don’t Be Afraid To Ask For More
Feel free to work your professional networks to get additional data
Ask until you get the answers you want/need
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Step Eight – Establish Governance And SLAs
This Is A Partnership
Avoid single points of failure
Assign clear roles and responsibilities and allocate dedicated staff, as appropriate
Emphasize collaboration over escalation
Service Level Agreements
Calculate the value of each SLA and assess what you’re measuring and why
Measure monthly and avoid quarterly averages
Openly discuss viable scenarios
Realize that the last thing you want is a SLA penalty payment
Benchmark And Validate
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Step Nine – Negotiation And Contracting
Buy On Best Value
Model all variable inputs and anticipated changes
Ensure the provider is engaging profitably
Have only one person negotiate pricing
Retain Outside Counsel
Offers a real-time feel for marketable terms and conditions
Compliments your general counsel staff
Has a prior body of experience negotiating to successful outcomes
Think Through The Business Implications
Term and termination
Scope and change order processes
Key personnel
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Step Ten – Innovate And Ideate
That Sick Feeling Is Normal
This is an arduous process
Be prepared for mistakes and missteps
Acknowledge your role in the process
Welcome To The New Base Case
Continuous improvement must be emphasized
Take fat out by adding scope in
Measure, study, improve… then repeat
Participate Willingly
Join the client advisory board
Attend annual events
Brief with executives
You can’t outsource accountability
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Questions And Answers
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“The important thing is to not stop questioning. Curiosity has it’s own reason for existing.”
~ Albert Einstein

Thank you!
Contact Information
Mark Stelzner
Principal, Inflexion Advisors
415-658-7460
mark.stelzner@inflexionadvisors.com
http://www.inflexionadvisors.com
http://www.twitter.com/stelzner
http://www.linkedin.com/in/markstelzner
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HR Outsourcing - A Primer (And Look Back)

by Mark Stelzner on Jun 18, 2010

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HR Outsourcing - A Primer (And Look Back) — Presentation Transcript