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Outsourcing the HR FunctionPossibilities and Pitfalls

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©Corporate Research Forum, London, 2006

Outsourcing the HR FunctionPossibilities and Pitfalls

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Outsourcing the HR Function Possibilities and Pitfalls

Anthony HeskethCentre for Performance-Led HRLancaster University Management SchoolCorporate RResearch FForum, MMay 22006

Report ssponsored bby

Outsourcing tthe HHR FFunction Corporate RResearch FForum, 22006iii

Contents

Contents iiiAcknowledgements vIntroduction vi

1 EXECUTIVE SSUMMARY 1

2 SIZE, SSCOPE AAND WWHO’S WWHO IIN HHRO 4

2.1 Context of outsourcing 42.2 Evolution of outsourcing 42.3 Emergence of HR outsourcing 52.4 HRO providers and offerings 62.5 The HRO industry 8

3 ISSUES FFACING HHRO DDECISION-MMAKERS 10

3.1 HRO hysteria 103.2 Strategic debate over HRO 103.3 Offshoring myths 133.4 The shared services option 133.5 Transforming organisations through HRO 153.6 Criticisms of BTO 173.7 HRO risks and the HR director 19

4 SETTING TTHE BBUSINESS CCASE FFOR HHRO 21

4.1 Importance of the business case 214.2 Increased efficiencies within HR 214.3 Increased HR effectiveness 224.4 Improved strategic focus from HR 23

5 HRO DDEALS: MMAKING TTHE DDECISION 26

5.1 Decision-making context 265.2 Thinking strategically 275.3 Identify critical stakeholders 295.4 Insource or outsource? 305.5 Ensuring a return on investment 315.6 Financing the deal 31

6 HRO DDEALS: MMAKING TTHE TTRANSITION 33

6.1 People strategies for HRO 336.2 Managing your HR talent 336.3 Transparency for stakeholders 346.4 Managing the transition 34

7 MANAGING AAND MMEASURING HHRO PPERFORMANCE 36

7.1 Context of HRO performance 367.2 Performance measurement and HRO 36

Outsourcing tthe HHR FFunction Corporate RResearch FForum, 22006iv

7.3 Sample metrics 377.4 Tomorrow’s HRO metrics 387.5 Towards reflexive performance 40

8 TRENDS AAND DDIRECTIONS 44

8.1 General trends 448.2 Recommendations and future directions 45

9 HR OOUTSOURCING - TTHE CCRF OOVERVIEW 47

9.1 Why commission this report? 479.2 Outsourcing is not new 479.3 Suppliers and the HRO industry 479.4 Matching needs to solutions 489.5 HR capabilities and new roles 499.6 The shared services option 499.7 Managing internal relationships 509.8 What the new HR function will look like 509.9 Is HR outsourcing a healthy development? 519.10 Top ten recommendations for HR outsourcing 51

10 CASE SSTUDIES 53

10.1 Once more into the breach: the BT/Accenture HRO renewal 5310.2 Manufacturing excellence: the Royal Bank of Scotland’s shared services 5510.3 The people behind the science: the DuPont/Convergys mega-deal 58

REFERENCES 64

BIBLIOGRAPHY 65

Outsourcing tthe HHR FFunction Corporate RResearch FForum, 22006v

Acknowledgements

The author thanks these participating organisations.

• BBC

• BT

• Cap Gemini

• Credit Suisse

• CSC

• Deutsche Bank

• Gartner

• Ministry of Defence

• The Royal Bank of Scotland

• Standard Chartered Bank

• Hewitt

• IBM

• PA Consulting

• Royal Mail Group

• Shell

• Siemens

• Xchanging

I also thank the 28 interviewees for their part in this report. Not all who were interviewed have been cited,with several preferring to remain anonymous. The contribution of Nick Starritt, managing director of SirotaConsulting, Europe, is appreciated for his reflections on the original BP/Exult HRO deal. While much ofwhat is reported here results from the input of respondents, I should note that the usual disclaimerconcerning interpretation applies.

The enormous support offered by Andrew Kris (chairman) and Deborah Kops (now head, programplanning and development) of the Shared Services and Business Process Outsourcing Association(SBPOA), is gratefully acknowledged. Readers wishing to keep abreast of key developments in the HROworld would do well to regularly visit their web page: www.sharedxpertise.org.

The author thanks Andrew Lambert and his team at CRF for their support. The Forum’s networks are deepand wide, representing manna from Heaven for an academic used to watching the HRO industry from theoutside looking in.

I also thank my editor, Chris Ashton. His work certainly moves well beyond the capabilities I haveencountered in what are supposed to be some of the best publishing houses in the world. Thanks alsoto Louisa Mathie for work on design, Linda Breakes for layout and Artisan Studio for print and distribution.

CRF thanks HRO Today and Editor in Chief, Andy Teng, for their kind permission to publish the DuPont-Convergys case study which first appeared in the January/February 2006 issue. Visit www.hrtoday.com.We also thank Orion Partners for permission to publish Top 10 Tips for HR Outsourcing from theirforthcoming paper, Overview of HRO. See www.orionpartners.co.uk.

Outsourcing tthe HHR FFunction Corporate RResearch FForum, 22006vi

As John Sullivan noted in an article on his website (drjohnsullivan.com), CEOs are from Mars and theirdistant HR directors are from Pluto. Should you require any proof of this observation, a story is currentlydoing the rounds in the outsourcing industry. An HR director was asked by his CEO to produce a reporton the implications of outsourcing for the HR function. By the time the report was complete, the deal hadalready been signed.

Hardly surprising, then, that HR outsourcing (HRO) has been a sore point for people in HR. The subjectcarries a reputation akin to being the ‘last turkey-in-the-strategy-shop’. For many HR directors, HRO isoften something done to you - rather than a strategic business decision taken by you.

This CRF report aims to remedy such a state of affairs. In particular, it seeks to guide HR professionals intheir dialogues with executives around the key talent and human capital management decisions facingthem in the current business climate - and how HRO can shape these processes.

Key QQuestions

HR outsourcing can be framed by these questions.

• What is HRO?

• How does it vary - by type or provider offering?

• What are the strategic factors driving HRO?

• What in HR can be outsourced? What must be retained?

• How do HR directors make decisions on whether to use HRO and on which HR activities to outsource?

• How is HRO implementation best managed - both in the transition of HR services to a provider and going forward?

• How can HRO performance be evaluated for the more efficient and effective delivery of HR services - and for its

contribution to business transformation provided by the HR function?

Section TThemes

The questions above guided the content of these sections.

• Section 2 defines the relatively esoteric HRO business model and investigates the different choices from many

variations on offer from the HRO market.

• Section 3 discusses some of the issues facing HRO decision-makers as they scope the future for HR functions - and

cope with the many complexities of HRO deals.

• Section 4 examines three specific aspects of the business case for HRO - efficiency, effectiveness and strategic focus.

• Section 5 explains the key decisions around HR outsourcing, clarifies the often a long and complex process and

presents the messages that HR directors should use in boardroom discussions.

• Section 6 covers the make or break factors and risks of many HRO deals - the transitions to be made as HR service

lines are handed over to third party partners.

• Section 7 aims to make sense of how HRO performance is evaluated - and presents a new model for understanding

performance.

• Section 8 draws together the findings from research and predicts what the future for HRO might look like. Guidelines

are provided for HR practitioners, HRO providers and advisers.

Introduction

Outsourcing tthe HHR FFunction Corporate RResearch FForum, 22006vii

• Section 9 is the CRF overview on HR outsourcing, along with recommendations for members.

• Section 10 provides three case studies - the BT-Accenture HRO renewal, shared services at the Royal Bank of

Scotland and the DuPont-Convergys HRO transformation deal.

Research PProcess

Research for this report was conducted between November 2005 and April 2006 using desk researchand face-to-face interviews with 28 senior executives in the UK, US and Europe. They representeddifferent roles within HRO.

• A number of HR professionals including global HR function directors, HR chief operating officers, HR VPs and heads of

shared services, along with managing directors.

• On the provider side, interviewees included chief executive officers, managing directors, VPs of business process

outsourcing, and account leaders on some of the world's largest HRO contracts.

• The research directors from two leading advisory consultancies in the global services delivery market.

Guided by independent and objective research, this report addresses a primary concern in the HROmarket - that independent and objective data is lacking on which to base rigorous evaluation of thebusiness case for HRO and its actual performance.

Notes ffor rreaders

The content of this report is for HR practitioners familiar with the many debates about the role of the HRfunction, its performance and contribution which, we believe, can be improved through HR outsourcing.

The main parameters of HRO are defined. That said, outsourcing is an industry of complex terminologyand acronyms - added to which is an intricate and multi-faceted business model. Attempts have beenmade to simplify this.

Additional SSources

Readers wanting to explore HRO issues in more detail might look at Outsourcing for Radical Change byAccenture’s Jane Linder who contributed to this report.

Those seeking an authoritative HRO text with an emphasis on its evolution would enjoy Human ResourcesBusiness Process Outsourcing, co-written by Ed Lawler, Jac Fitz-Enz, Dave Ulrich and one of the HROindustry's founding fathers, James Madden, the former CEO of Exult - now owned by Hewitt.

Useful sources for HR shared services include How To Get Best Value From HR: The Shared Services Optionby Peter Reilly and the Royal Bank of Scotland's Tony Williams. This provides an excellent overview of theprocesses involved, with case studies. The former BPO team at PricewaterhouseCoopers provide a morecomprehensive and technical analysis in Shared Services: Adding Value to Business Units.

Academic texts are deeply theoretical and complex, drawing on transaction cost economics andinstitutional theories. Accessible articles can be found by Paul Adler in California Management Review(2004) and various outsourcing papers by Leslie Willcock and colleagues. A reference list and furtherreading appear at the end of the report.

Outsourcing tthe HHR FFunction Corporate RResearch FForum, 22006viii

Outsourcing tthe HHR FFunction Corporate RResearch FForum, 22006

This report, published in June 2006 by the Corporate Research Forum, is the first independent review ofthe development of the outsourcing market for human resources functions.

Corporate RResearch FForum

CRF is a centre of expertise in organisation development and performance. It is a membershiporganisation with over 100 large employers as members, from a wide spread of industries and both thepublic and private sectors.

CRF provides members with a variety of means of developing and sharing good practice, andcontributing to thought leadership. This includes involvement in several research projects undertakeneach year and a symposium to debate the results.

To access CRF's knowledge base, organisations need to join CRF as a corporate member. For detailssee www.crforum.co.uk.

This rreport

The principal author employed by CRF was Dr Anthony Hesketh of the University of Lancaster. Additionalcontent and editing was provided by Andrew Lambert and Chris Ashton of CRF.

The report was debated by CRF members at a symposium on 8 June 2006.

Report ssponsorship

The production of the report was sponsored on this occasion by one of CRF's members - Accenture. Notethat sponsors of CRF work have no control over the contents of CRF's publications or meetings, althoughthey may be interviewed as part of the research if relevant to the subject material. In this case, Accenturefeatures in a case study on BT, in their position as supplier.

Obtaining ccopies oof CCRF rreports

Generally, these can only be obtained by joining CRF as a member organisation. Report sponsors areallowed to distribute reports they have supported on a limited basis.

For membership enquiries please contact CRF at +44 20 7470 7104 or write to CRF at CountyMarkHouse, 50 Regent Street, London W1R 5BD, UK.


1 Executive summary

A primary concern of the HR outsourcing (HRO)market has been the lack of independent andobjective data for rigorously evaluating thebusiness case for HRO and its actualperformance.

This report is the first of its kind to bring togetherdifferent stakeholders within HRO - includingpractitioners, suppliers, academics andconsultants - to produce an independent,objective academic research project.

What HHRO iis

The increasing focus on HR's contribution to theperformance of the wider business has led tomore emphasis on cost reduction. HRO hasgrown out of this debate - from re-engineeringand cost reduction on the one hand to apotential transformational capacity on the other.

HRO is an evolving industry and can be definedas:

The purchasing by an organisation of ongoing HR

services from a third-party provider that it would

otherwise normally provide for itself.

HRO is a strategic tool aimed primarily at chiefexecutives. Though organisations may havedifferent strategies and performance models, allwill relate in some way to HRO. These caninvolve the following.

• Capability: for any organisation where there is a

need to either improve or acquire HR capability.

• Scale: providing for large organisations with 50,000

or more employees well-delivered HR administration

and services - and to justify the return on investment.

• Technology: for most organisations where

technology can be acquired and leveraged through

shared services or outsourcing.

Outsourcing varies dramatically by type, level,contract and provider.

HRO pproviders

While HRO providers may seem to offer little thatis different between them, differences do occur

in their size, culture, HRO methodology andtrack record. However, they offer their servicesin three distinct ways.

• Single-service or transactional solutions for a

particular HR activity.

• Multiple HR services as part of a large-scale deal.

• Transformational deals which radically change

the purpose and role of HR.

Three different types of providers are active inthe HRO market - pure HRO specialists,business/HR transformation firms and HRprocess technology suppliers.

Selling ppoints oof HHRO

HRO providers use these main selling points.

• Increased efficiency of HR with estimated cost

savings of up to 50%.

• Increased effectiveness of HR through operational

improvements.

• Improved strategic focus from HR on business goals.

• The role of HRO in transforming the performance of

HR and the business.

While many HRO users can point toimprovements in the first two points, evidence islacking for the impacts on strategic focus andbusiness performance. This is a major problemfor the HRO industry.

Strategic ddebates aaround HHRO

These debates are ongoing in HR outsourcingamong user - or prospective buyer -organisations, providers, HRO advisers andacademics.

• The future purpose and contribution of HR because

of the possibilities of functions being transformed, or

part-outsourced, through HRO deals.

• The strategic and management complexities of HRO

deals, especially so-called ‘mega-deals’.

• Deciding what is ‘core’ and ‘non-core’ in HR - the

critical competencies to be retained versus peripheral

activities that might be outsourced.


• The difficulty that HR has in assuming more strategic

or value adding roles after implementing HRO.

• The position of offshoring as it affects HRO decisions

and raises emotive issues such as job losses and

redeployment .

• The challenges of trying to manage HR process

delivery on a global scale and across different

cultures.

The HRO debate ultimately turns on theperceived quality of, and returns from,investments in the HR function. Thoseorganisations under pressure to reduce costsare more likely to consider outsourcing at leastpart, if not all, of their HR administration.

The ffuture oof HHR

HR itself is also locked in a debate over itsfuture. Though some organisations haveevidence that the function is an integral part ofits capability to deliver business success, manyview HR as

• over-resourced

• inefficient

• vulnerable to the cost reduction possibilities of HRO.

HR outsourcing raises questions over HR’sfuture skills, capabilities and career paths. Itsdevelopments are creating pressures forpractitioners to shift from being reactive andadministrative problem-solvers to moreproactive, value-driven ‘business partners’.

Shared sservices

Research revealed much discussion about thedefinitions and position of shared services. Forour purposes, it is defined as

the transfer or insourcing of HR services and their

resources to a separate unit within the business -

and often with a separate P&L system.

Shared services is often adopted byorganisations who are against outsourcing as amatter of principle - but still seek some of thetransformational and streamlining advantagesconnected with outsourcing. Alternatively, some organisations use sharedservices as a halfway house to prepare the

specific lines of HR they intend to outsource.

The HHRO llogic

No amount of preparation, however extensive,can safeguard outsourcing deals completely.Leaders need to clarify what their core logic isfor creating value by demonstrating thefollowing.

• How HRO can enable the organisation to meet the

requirements of its stakeholders - be they internal

(employees) or external (customers).

• How outsourcing will transform the way the HR

function works in a radical and sustainable way.

• Crucially, how transforming the HR function will

influence the planning, operations and performance

required by the business model.

Managing tthe ttransition

In some organisations, HRO is akin to changingthe engine while the plane is still in the air whichis a potentially catastrophic exercise. Theconsequences of HRO must be thought through- before agreeing a contract.

Handing over single, multiple or all HR serviceprocesses represents for many organisationstheir first experience of complex projects -project management is a critical HR capabilityfor HRO to work well.

A successful transition minimises employeeangst - but botched handovers could have long-standing repercussions on relationships withproviders, employees, other stakeholders andcorporate image.

Governance oof HHRO pperformance

Managing and measuring performance after HRoutsourcing is pivotal to the relationshipbetween HRO client and provider. Performancemeasurement in HRO traditionally concerns thefollowing.

• Efficiency: mainly through cost reductions.

• Effectiveness: through improved service outcomes

against criteria in service level agreements (SLAs).

• Transformation: indicators of deeper change at the


level of the organisation, its employees, systems -

and at intangible levels.

• Strategic governance: evaluating the management

of performance - including the decision rights, rules

and agreed management processes defined with

and before providers are engaged.

Future ddirections aand rrecommendations

Research for this report found these trends.

• Increased outsourcing of ‘higher value’ HR processes

such as recruitment.

• Increasing use of shared services models.

• Performance issues surrounding HRO deals.

• The continued evolution of e-HR activities.

• The emergence of new HR roles and competencies.

• Continuing debates over HR and HRO

measurement.

Guidelines are offered for HR practitioners, thirdparty providers and HRO advisers. In addition,CRF's position on HR outsourcing is explainedto help members come to an informed view of acrucial topic. This is supported byrecommendations.


In this section, we examine outsourcing withinthe context of wider business processoutsourcing (BPO) developments. Theinterpretations and scope of HRO arediscussed. HRO industry trends are identified -as are some leading providers and theirofferings.

2.1 Context of outsourcing

When all is said and done, more has been saidabout outsourcing than done. Nowhere has thedebate been as intense as in the HR functions ofmajor global organisations.

Unlike what many commentators might suggest- particularly those outside HR - the back officefunctions in these organisations do not amountto small beer.

• Some three trillion dollars is the latest estimate of the

value of a back office by Xchanging, a leading player

in the HRO market.

• There are good reasons for this huge figure -

organisations are intensifying their investments in

human capital management.

Despite a massive growth in the human capitalmanagement and measurement industry, thedebate over outsourcing the HR function haslargely taken place outside the HR profession. Inpart, this reflects

• the failure of HR to engage with a strategic vision to

transform itself, which is also threatening to some

functions

• consulting houses choosing to take their outsourcing

solutions and bids over the heads of HR directors to

chief executives, chief operating officers or finance

directors.

Claims and counter-claims now occur regularlybetween the HR and consulting professions asboth sides attempt to fix in the minds of theirpaymasters the justification for their strategicalternatives.

The choice for HR has been a grudging onealong a continuum from

• outsourcing various technology-intensive HR services

such as pensions and payroll to large-scale third

party providers

• to the more centralised yet devolved in-house

alternative of shared services.

HR outsourcing is far from a passing fad.According to the latest available data from theEverest Research Institute, an advisoryconsultancy, some 2.75 million HR staff arecurrently under the direct operation of an HROdeal. And, the numbers are projected to risedramatically.1

2.2 Evolution of outsourcing

Outsourcing has moved on substantially since1989 when the concept was first uttered byEastman Kodak's CEO. He announced theoutsourcing of the company's computeroperations as "lock, stock and mainframe, andfarming them out".

BP followed, stretching the concept of IToutsourcing into its financial services bytransferring accounting and settlementprocessing for off-shore oil rigs to the thenAndersen Consulting.

2 Size, scope and who’s who in HRO

Examples of outsourced HRprocesses and services

• Recruitment• Training• Payroll• Employee rrecords• Performance mmanagement• Compensation• Benefits• Expatriate rrelocation• Domestic rrepatriation• Organisation ddevelopment• HR sstrategy• Labour rrelations• Employee rrelations• Severance• Accounts ppayable• Accounts rreceivable• Time aand eexpenses• Procurement


Consulting houses realised the potential ofintegrating the specific skills of re-engineeringbusiness processes with IT.

By unbundling or scaling transactionalprocesses in business activities, labour-intensive or 'back office' administrative taskscould be executed through sophisticatedsoftware systems written by IT experts workingin firms such as Accenture, CSC, EDS, IBM, etc.

These developments led to the emergence ofbusiness process outsourcing (BPO) - and, bythe turn of this century, BPO had become a $119billion market.2 See the box below.

According to its providers,

• BPO is now radically improving business capabilities

crucial to an organisation's success factors

• business leaders appear to be in agreement -

current data from TPI estimate that contracts

awarded in 2004 alone amounted to a record annual

high of 58 billion euros.3

These achievements have been made despite ahighly circumspect position adopted by themedia, which sees outsourcing and offshoringas an opportunity for large organisations tooffload record numbers of workers.

Such have been the negative perceptions of

outsourcing and BPO that the industry hasrebranded itself as the 'global processesdelivery' industry.

2.3 Emergence of HR outsourcing

The outsourcing of HR processes emerged inthe late 1990s, pioneered by firms specialisingprimarily in IT outsourcing - although notexclusively - in the US such as ACS, EDS andAccenture.

Many transactional HR processes areoutsourced and are increasingly associated withelectronic delivery - or 'e-HR'.

Much day-to-day HR administration can now betransferred to third party providers. Payroll andbenefits is widely outsourced with organisationsbenefiting from economies of scale andpowerful Enterprise Resource Planning (ERP)solutions.

Competition among HRO providers hasdramatically reduced prices. Other advantagesfor clients include

• cost reductions

• service improvements

• upgrading technology

• being better able to respond to business change.

Origins of HRO outsourcing

HR ooutsourcing ((HRO) iis tthe aapplication oof ddifferent bbusiness mmodels aand ttechniques tto nnew fforms oof aactivities - oor pprocesses - aandradically rredesigning tthem tto ccreate ooutputs oof vvalue ffor eend uusers ssuch aas ccustomers oor eemployees.

HRO ccan bbe ttraced bback tto tthe ddefinitive wwork oof MMichael HHammer aand JJim CChampy iin Re-eengineering tthe CCorporation. Thisspawned tthe bbusiness pprocess rre-eengineering ((BPR) iindustry iin tthe 11990s.

Business pprocess ooutsourcing ((BPO) iis bbased oon tthe pprinciples oof rre-eengineering, bbut aalso ccombines tthem wwith tthe oownership aandmanagement oof pprocesses oon bbehalf oof aa cclient bby aan ooutside ((hence ooutsourcing) vvendor. TTypically,

• services aare iimproved• overheads aare rreduced • many pprocesses aare aautomated - tthus rreducing ppeople ccosts.

BPO hhas bbeen aapplied tto mmany ttransactional pprocesses tthat ccan bbe eeasily ddefined oor ''scaled' aand ttransferred tto tthird ppartyownership wwith ddeeper eexpertise tthan tthemselves. UUntil rrecently, tthe mmanagement oof IIT ssystems hhas bbeen tthe mmajor eelement oofthe ooutsourcing mmarket.

An oongoing ddebate cconcerns wwhich bbusiness pprocesses aare ''core' tto oorganisations - iin tthe ssense oof ccore ccompetencies tthat ddrivecompetitive aadvantage. AAny nnon-ccore - oor pperipheral - aactivities aare ooutsourced.


The choice for HR is whether to usecomprehensive outsourcing when many HRprocesses are 'bundled' and managed by athird party - or whether to take a more 'silo'approach. Here, specific HR activities areoutsourced to suit both function and businessneeds. Each option has advantages anddisadvantages.

HRO tterminology

It is not uncommon to find HRO being referred toas outsourcing, offshoring, BPO, BTO,nearshoring or onshoring all in the sameconversation! This point alone requires thatHRO is more carefully defined.

An all-embracing definition of HRO is difficultbut for the purposes of this report, we define itas:

The purchasing by an organisation of ongoingHR services from a third-party provider that itwould otherwise normally provide for itself.

This definition can become complex becausedifferent HR processes or services are involved,such as those shown in the box on Page 4.

A whole new lexicon and common vernacular isemerging within the HRO industry - in addition towhat is already a complex business model. Thetable here provides an overview of key termsand services.

2.4 HRO providers and offerings

Naturally, HRO providers attempt to differentiatethemselves from their competitors, mostclaiming distinctive value propositions. Theseare summarised in the table opposite. I shouldstate that this is for guidance only - it is my ownview of the market based on publicly availableinformation.

HRO providers offer their services in three ways.

• Single-service or 'transactional' solutions inwhich one particular service is transferred to a single

provider - payroll or recruitment, for example.

• Several HR services are bundled as part of a

large-scale or 'mega deal' comprising many, if not all,

HR function lines.

• 'Transformational' deals in which HR's role is

significantly changed and leveraged using

technologies and approaches that drive enterprise-

level performance.

The main HRO value proposition is simply toprovide enhanced value HR services at a lowercost - without sacrificing speed, quality andservice.

The Scope of HRO

Abridged from TPI: www.tpi.net

HRO Terminology HR Services Included

WorkforceAdministration

HRIS mmaintenance aand ccustomisation

Employee sself-sservice aand ccustomerservice ffor:

- eemployee ddata cchanges

- HHR ppolicy aand pprocedure support

Employee ddata ccapture aandmaintenance

Leave aadministration

PayrollAdministration

Labour mmanagement rreporting aandscheduling

Time aand aattendance ddata ccapture aandreporting

Gross-tto-nnet ppayroll pprocessing

Tax wwithholding aand rreporting

CompensationAdministration

Salary aand bbonus aadministration

Job cclassification

Stock ooption aand ppurchase pprograms

Executive ccompensation aand bbenefitprograms

BenefitsAdministration

Defined ccontribution pplanadministration

Defined bbenefit pplan aadministration

Health aand wwelfare pplan aadministration

Non-qqualified pplan aadministration

Claims aadjudication

Recruiting aandStaffing

Applicant ttracking

Candidate ssourcing ((internal aandexternal)

University rrelations

Executive pplacement

Global mmobility aand ddomestic rrelocation

WorkforceDevelopment

Learning aadministration, iincluding

- ccontent ddevelopment

- ccourse rregistration

Performance mmanagement

Succession pplanning


Provider Value Proposition

Accenture HHR SServices

Claims aable tto uunlock ccapabilities oof HHR tto ttransformworkforce pperformance, ddeliver sstrategic bbusinessvalue aand rreduce ccosts bby 220-440%. BBranded aas'enabling HHR tto ddeliver hhigh pperformance bbusiness.'

Major ccontracts iinthe HHR sspace wwithBT HHRO mmega-ddealrenewal, aalthoughcost ssavings aare

'not iin tthe ppublic ddomain.' NNumber 22 iin HHROmarket.

ACS

Major IITO pplayer nnow lleveraging GGlobal SServiceCentres. EEconomy oof sscale ffrom aa mmajor pprovider.Provides ''measurable rresults ffor oorganizations oofevery ssize.'Full HHRO ccontracts wwith GGM EEurope, GGoodyear

The Value Proposition of Major HRO Providers

Abridged from TPI

Provider Value Proposition

Accenture Claims aable tto uunlock ccapabilities oof HHR tto ttransformworkforce pperformance, ddeliver sstrategic bbusinessvalue aand rreduce ccosts bby 220%-440%. BBranded aas'enabling HHR tto ddeliver hhigh pperformance bbusiness.'

Evidence

Major ccontracts iin tthe HHR sspace wwith BBT HHROmega-ddeal rrenewal, aalthough ccost ssavings aare ''notin tthe ppublic ddomain.' NNumber 22 iin HHRO mmarket.

ACS Major IITO pplayer nnow lleveraging GGlobal SServiceCentres. EEconomy oof sscale ffrom aa mmajor pprovider.Provides ''measurable rresults ffor oorganisations oofevery ssize.'

Full HHRO ccontracts wwith GGM EEurope, GGoodyear(North AAmerica) aand MMotorola. CClaims ''HR iis oourcore bbusiness.'

ADP Offers ffull-sscope HHRO ffrom bbasic pprocessingthrough mmanaged sservices tto ccomprehensiveoutsourcing sservices. MMajor ppartnerships wwith SSAPand MMicrosoft.

Less fforthcoming aabout cclients, bbut ddo hhave190,000 eemployees uunder ttheir ccomprehensiveoutsourcing ssolution aand 5590,000 cclientsworldwide.

Aon HHRO Offers mmajor sstreamlining oof ccosts oopportunities.Major ccontribution llies iin ttransforming ccapability oofHR tthrough cconsulting tto sserve aall cclient wworkforces.

Major ttransactional ccontracts wwith iimpressive llist oofclients iincluding AAT&T, AAmerican EExpress, JJPMorgan, AAbbott LLaboratories aand MMotorola.

ARINSO Claims tto bbuild mmore HHR vvalue aat aa llower ccost,incorporating sspeed, qquality aand sservice. PPrimarily aatransactional pplayer. NNimble aand ffocused.

Partners wwith oother pproviders tto ddeliver ssolutions.Less fforthcoming aabout HHRO cclients.

Convergys Offers iincreased aagilty tto HHR ffunctions tthrough iitssolutions. CClaims ''a uunique ccombination oof ppeople,capability, sscale aand sspecialised kknowledge.'

The wworld's llargest HHRO ddeal ssigned wwith DDupontin NNovember 22005 wwith aa ttotal cclient vvalue oof$1.1.billion. CCovers 330 ccountries aand 118 llanguages.Expanding.

Excellerate HHRO Partnership bbetween EEDS aand TTowers PPerrin. CClaimsto bbe ''the wworld's mmost eexperienced ooutsourcingservices ccompany.' ''Knows ttechnology aand HHRprocesses bbetter tthan aanyone eelse iin tthe iindustry'

Major pplayer iin IITO mmarket pplace wwith mmajor ppublicsector ccontracts. KKey pplayer iin aarmed fforces. HHROcontracts wwith CCIBC, BBP aand BBBC. AApplication oof IITto HHR mmajor sstrength.

Fidelity Major IITO pplayer sseeking tto lleverage mmajoreconomies oof sscale. WWhole rraft oof iinnovative ee-enabled HHRIS. BBusiness mmodel bbased oon aa ttrue,multi-cclient aapproach.

HRO ccontracts wwith AABB, AAgilent, BBank oof AAmerica,Fleet BBank, GGM aand IIBM. AA mmajor IIT-eenabler oof HHRO.

Hewitt Only ‘‘pure pplay’ HHRO sspecialist bboosted bbyacquisition oof EExult iin 22002, tthe wworld's ffirst mmajorHRO pplayer. CClaims tto bbe ‘‘the HHR eexpert’ aand hhas2,300 HHR cconsulting eengagements

Market NNumber 11 wwith 337% HHRO mmarket sshare.Over 3300 HHRO cclients iincluding BBP, CCredit SSuisse,GSK, MMarriott, PPrudential aand SSafeway.

IBM Major pplayer iin IITO bbut lless sso iin HHRO aalthoughclear sstrategy tto mmove iinto HHRO ttransformationmarket wwith iits BBTO aand ‘‘On DDemand’ oofferings.Covers wwhole sspectrum oof HHR sservices wwithimpressive rresearch aand cconsulting.

Clients iinclude DDana CCorporation, PP&G, QQantas aandHSBC.

LogicaCMG Major IITO cconsultants nnow mmoving iinto ee-eenabledHRO sspace. NNot aa ssignificant HHRO pplayer aalthoughrecent mmanoeuvres ((white ppapers, ffor eexample)suggest aa sstrategy tto eexpand iin tthis aarea.

Major bback ooffice ppayroll ccontract wwith MMetropolitanPolice AAuthority.

Xchanging Wrongly pperceived aas HHRO ‘‘pure pplay’ wwhen iin ffactalso aa mmajor pplayer iin tthe ffinancial sservicesoutsourcing sspace. PPioneers oof tthe ttransformationalaspects oof ooutsourcing tto bbring aabout ‘‘radicalimprovement’ tthrough iits XXcellence mmethodology.

Major HHRO wwith BBAE SSystems - ffirst aall-ffunctionmega-ddeal iin tthe UUK. OOther HHRO cclients iincludeCompass GGroup, LLSCs, SSAAB, IIllium IInsurancetogether wwith DDeutsche BBank aand LLloyds.


Though HRO providers may seem to have littlebetween them, differences do occur in size,culture, HRO methodology and track record.

2.5 The HRO industry

Commentators tend to agree that the HROindustry has progressed through these stagesto its present state.

• Pioneering Stage: between 1998-2001, during

which General Atlantic Partners provided venture

capital for two major HRO contracts - Exult with BP

and Xchanging/BAE Systems.

• Emerging Growth and Development Stage:from 2002 to the present, featuring several mergers

and acquisitions (Mercer acquiring SynHrgy and

Hewitt acquiring Exult, for example) and partnerships

such as CSC with Aon and Towers Perrin with EDS.

The last two-and-a-half years account for around

60% of the deals of this seven-year-old industry.

• Maturity and Standardisation Stages: the future,

with multiple standards and models among a number

of legitimate suppliers who focus on transaction cost

economics to drive down HRO costs.

The extent to which HRO has, in the words ofGeoffrey Moore, "crossed the chasm"4, andmoved from an emergent to a mature businessmodel is a moot point. We return to this below.

Market SShare

There are essentially two main players in theHRO market - see the chart above.

• Hewitt is the largest provider, having acquired Exult in

2004. How far this dominance is a reflection of the

HR community's preference for this provider's sole

focus on HRO is unclear. Hewitt themselves certainly

see this as a key business driver.

• Next is Accenture, combining its IT and consulting

expertise in outsourcing. Along with Accenture HR

BPO Services, the firm might also be described as

an HRO 'pure play' - although a greater share of its

overall outsourcing portfolio comprises BPO and ITO

contracts outside HRO.

In part, these data on market share hide moresubtle differences in the scope of the HROmarket and the position of different providers.These differences are revealed in the

distribution of contracts and their total value. Forexample:

• Hewitt can claim to be responsible for 38% of the

HRO market and 34% of its total contract value

(TCV). But, according to the Everest Research

Institute in 2005, the firm has less than a quarter of

all current transactions - 23%.

• While a number of smaller providers account for just

5% of TCV, they amount to 28% of the entire HRO

industry. Arguably, therefore, market share by TCV

does not necessarily reflect market confidence.

• Nevertheless, other patterns are as predicted. The

top four providers by HRO market share (Hewitt,

Accenture, ACS and Fidelity) account for 58% of the

entire HRO workforce - 19%, 14%, 10% and 15%,

respectively.

Market SSpend

There is some debate over the extent to whichdemand for HRO has been supply-driven. Whilethis issue is discussed later, we conclude herethat the growth of HRO has undoubtedly beenstrong - as shown by the figures for AnnualisedHRO Spend opposite.

2.6 HRO methodology

Based on the business methodologies and

Source: Everest Research Institute, June 2005.

AACCSS 1111%%

FFiiddeelliittyy 77%%

EExxHHRROO 77%%

IIBBMM 55%%

AAcccceennttuurree 1155%%

All oothers

10%

Arinsco1%

ADP2%

Hewitt 338%

Convergys4%


models of providers, the HRO market can besplit into three categories.

• Pure Plays: only one major firm fits this category -

the market leader, Hewitt, who focus solely on HR

markets. Whether their market leadership is a cause

or effect of this 'pure play’ strategy is a matter of

debate.

• Transformationalists: key players here are

Accenture, IBM and Xchanging who all offer a

change model based on business transformation

outsourcing (BTO). This combines sophisticated

technology platforms with complex HR change

initiatives.

• Technology Enablers: traditional ITO providers

with major market share are now rolling out

technology-enabled HR processing products on a

massive scale. Key players in this market are ACS,

ADP and EDS - the latter via its new brand,

Excellerate HRO.

The primary justification for these differentapproaches is this business rationale - that themore efficient and effective use of financialresources to improve HR performance will, inturn, enable HR to drive better performanceacross the organisation.

Annualised HRO Spend (1998-June 2004)US$ million

Source: Everest Research Institute, 2005.

YE1998

YE1999

YE2000

YE2001

YE2002

YE2003

YE2004 E

75128

316

622

970

1,354

1,562


This section deals with some of the issues,myths and difficult decisions behind HRoutsourcing - HRO’s potential for transformingHR functions, for example. Respondents'thinking about different HRO models isprovided, as is a summary of HRO risks.

3.1 HRO hysteria

It is ironic that the majority of the 18 millionemployees served at least once a month byHRO market leader Hewitt - whether by paycheque, expense claim, car lease scheme orpension - are probably entirely unaware they arebeing serviced by the outsourcing industry.

They might be among the nine out of ten whotypically say they are satisfied with theseservices - in marked contrast to the mediaclaims of universal dissatisfaction with theconventional HR function in most organisations.As examples:

• Keith Hammond headed his now infamous Fast

Company Magazine article, 'Why We Love to Hate

HR'.5 Before long, he will, perhaps, write 'Why We

Love to Hate Outsourcing'.

• a 2005 article in HRO Today magazine concluded

that the three most frightening letters in the English

language, next to WMD, were BPO.6

• People Management rarely wastes an opportunity to

throw mud at the HRO industry. The most bizarre

story yet in 2005 claimed the global spread of MRSA

disease might be attributed to increased labour

movements associated with offshoring and

nearshoring - not a word was printed about the

potential impacts from the meteoric rise of the cheap

airlines industry!

Love it or hate it, HR outsourcing conjures upemotions - and none more so than in the HRcommunity as HRO fuels the debate about whatHR should do and deliver.

3.2 Strategic debate over HRO

Should we do away with HR? In books, articlesand on conference platforms, Dave Ulrich hasused this type of question to call for valueadding work from HR functions. He argues that

they focus too much on administration andprocess activities - and less on what they couldcontribute to business performance. Ulrich'sprescription is to refocus on 'deliverables' ratherthan 'do-ables'.

So started a trend towards the ‘strategicbusiness partner’ notion, the HR scorecard -and on to trying to understand Ulrich’s latestprescription, HR's value proposition.

Despite the fact that not all HR functions followUlrich's original model - and that part of thisremains unworkable - these developmentsbelow suggest that HR has responded toUlrich’s criticisms.

• Certain types or 'architectures' of HR are claimed to

release high value adding practices - enabling

people and organisations to improve performance.

• A vast amount of published research - Ulrich's The

HR Scorecard with colleagues Mark Huselid and

Brian Becker, for example - has identified some key

attributes of a high-performing HR architecture.

• This architecture, combined with employee

engagement practices, helps HR to unlock latent

potential in their organisations.

• HR can deploy itself in a more strategic and

consultative role through the business partner

concept - advising executives on how to align

people strategy with business strategy, among other

things.

• The belief that dispensing with HR activities and

allowing a third party to look after your 'most

important asset' - employees - is viewed by the HR

profession as effectively abdicating the

responsibilities of being a good employer. Not all

business leaders agree.

3 Issues facing HRO decision-makers

HR value proposition question

"HR iis bbeing ssplit iin hhalf. MMuch oof tthe ttraditional,administrative aand ttransactional wwork - ppayroll, bbenefitsadministration, sstaffing ppolicies, ttraining llogistics, eetc -needs tto bbe ccarried oout mmore eefficiently. MMost llarge ffirmshave eeither bbuilt sservice ccentres aand iinvested iin HHRtechnology oor ooutsourced tthese ttransactions. WWhat iis lleftafter ttransactional HHR hhas bbeen aautomated, ccentralised,eliminated oor ooutsourced?" Dave UUlrich aand NNorm SSmallwood: The

HR VValue PProposition


Underpinning these developments is the claimthat improved HR leads to improvedorganisational performance. However, thecausal linkages from HR deliverables can be sofar downstream that connections between HRand organisational performance have not beenclearly established.

Critiques oof HHR

This lack of an established and measurablecausal link between HR and organisationalperformance has led to several critiques beingtargeted at HR.

One head of shared services in financialservices pointed to the problems of ratios asindicators of quality - and some of the deeperissues behind the business case for reducingheadcount.

“If you've outsourced shared services, 1:300 is do-

able, so long as you're not a hugely diverse

organisation. The problem we had was that strategic

drivers - such as credit cards and the mortgage

business - were quite different from the retail financial

branch, corporate and business banking.

“So you end up having a high business partner to

business ratio - simply because of having to

understand the key differences, and to some extent,

the sheer geographical scale with 2,000 retail

outlets. If you're not careful you stretch people too

far.

“In a business that is quite uniform, like the Royal

Mail, although their business units are hugely diverse

geographically, what they actually do in a geography

is very similar. A postman leaving a depot in Glasgow

is the same as a postman leaving a depot and

delivering in Birmingham. In selling retail financial

services there is more of a difference. You have to

reflect the [market] you are in.”

Other critiques of HR include the following.

• Debates continue on the distinction between what is

'core' to the organisation, and what is 'peripheral'.

Many place most HR activities on the peripheral side

of the strategic fence - thereby leaving it susceptible

to cost-cutting and/or outsourcing. See the HR

Curve below.

• An over-burgeoning HR architecture represents an

uneconomic use of resources.

The HR Curve

Source: http://www.tpi.net/solutions/hr.aspx

Complexity oof IInteraction

Low

High Low

High

Val

ue AA

dded

• OOverall HHR SStrategy• IIn-BBusiness HHR• LLabor RRelations SStrategy

• CCompensation aand BBenefit PPolicy/Design• SStrategic WWorkforce PPlanning aand AAnalysis

• HHR PPolicy• LLaboor RRelations

• VVendor MManagement• CChange MManagement CConsulting

• LLearning MManagement• IIntegrated DDisability CCase MManagement

• IInternational SService PPersonnel AAdministration• RRecruitment, AAssessment aand SSelection

• TTraining AAdministration• PPolicy IInquiries aand RResolution

• RRelocation SServices• BBenefits AAdministration

• JJob PPosting• EEmployment CChanges

• PPayroll• BBenefits SSign-uup

• FForm SSubmission• EEmployee RRecord KKeeping

• HHRIS

CorporateGovernance

Services

Professional and AAdvisory

Services EmploymentServices

Transaction SServices


• There is considerable downward pressure on the

typical cost of HR per employee - estimated by

analysts to be in the region of $1,000 per FTE.

• A debate now concerns the costs of those activities

described as administrative or transactional, and

where they are located. See the diagram below,

Locating Value in the HR Function.

• Most of what HR does - and its corresponding

budget - tends to be low value process activities and

their management.

• Those activities adding the greatest value are

believed to be associated with strategy formulation

which, in turn, are relatively inexpensive.

What tthe HHRO ddebate hhinges oon

The debate over outsourcing the HR functionturns, then, on the perceived quality of, andreturns from, investment in HR. Organisationsunder pressure to reduce costs are more likelyto consider outsourcing - at least part, if not all,

of their HR administration.

This approach appears to be already well-embedded in larger organisations. Recentresearch from IDC suggests that 90% of theFortune 1000 and FTSE 100 organisations haveoutsourced certain service lines of HR.8

The thinking here is straightforward.Outsourcing the administrative tasks of the HRfunction - payroll, pensions administration, someaspects of recruitment, and so on - releasescrucial resources. It also enables these to beused for more strategic - and what is perceivedto be more value adding - activities, which mayor may not be located in HR.

This also raises important questions over thefuture of the HR profession. Career trajectoriesare becoming increasingly blurred, as HRpractitioners find themselves expected to shiftfrom being reactive and administrative problem-solvers to become more proactive, value-basedbusiness partners.

According to Emily Lawson and Jens Mueller-Oerlinghausen in The McKinsey Quarterly, 2005,Number 2.

"European companies appear to be struggling to find

HR professionals with the right mix of skills to support

business unit managers. A survey of HR directors at

Locating Value in the HR Function

Source: ADP

Time SSpent Cost pper EEe

10% $ 1140

40% $ 5520

50%

HR PPolicy && PPlanning

Compensation aand JJobsCompetencies aand CCareersIndustrial RRelationsCommunicationHealth aand SSafetyStaffing aand RRecruitmentTraining aand EEducation

Benefits aadmin.Personnel aadmin.Payroll aadmin.

$ 5540

$ 11,200

Management

Strategy

Administration

Data collection, control processing, reporting, enquiries, third parties, filing,

legal maintenance and IS

Critique: costs and HR ratios

The ccosts oof HHR ffar ooutweigh tthe bbenefits oobtained. TThecorollary oof tthis hhas bbeen aa ddramatic ddownturn iin ttheratio oof HHR sstaff tto eemployees. RRecent ddata ffrom SSaratogaInstitute eestimate tthis rratio tto bbe iin tthe rregion oof 11:71.Other fforecasts iin tthe UUS ppredict tthis tto rrise tto 11:300 ooreven 11:500.7


20 UK-based global corporations found that core HR

services, such as employee data management and

recruiting, are often poorly executed.

“The troubling gulf between the needs of the

business and the ability of HR to respond, will force

many companies to rethink their approach to the

recruitment, training and development of HR

employees."

3.3 Offshoring myths

It is worth dealing with the three major myths ofoffshoring in this discussion of HRO issues.First, the myth that offshoring is outsourcing.

• Offshoring is not outsourcing per se, but is based on

the economic theory of labour arbitrage defined as

the completion of the same task in a differentlocation where the costs are significantlycheaper.

• Offshoring may involve transferring jobs to locations

such as India, China, South Africa or the Philippines.

• But it also includes nearshoring with jobs in countries

such as Poland.

• The UK government has sought to benefit from a

'domestic' labour arbitrage where jobs located in

London are being redeployed to other regions such

as Manchester and Bristol in the wake of the

Gershon Report.

• Another HRO example is the BBC's recent

announcement that it is transferring a number of jobs

to Capita's HR centre in Belfast.

A second myth is that outsourcing causesdownsizing.

• A research report published by Deloitte in 20059

estimated that around two million jobs would be

relocated away from the US and mainland Europe to

offshore and nearshore sites - thus, in the minds of

many, associating outsourcing with major downsizing

programmes.

• Downsizing is a fact of Western organisational life as

developed economies continue to do more business

with fewer employees. Indeed, increasing productivity

of employees is government policy in many

developed states.

• Even if the figures given by Deloitte prove to be

correct, recent estimates of the impact of offshoring

pale into insignificance when compared to the heady

days of the 1990s - then, 3,100 layoffs in the US

took place daily with over 650,000 jobs lost

annually.10

The third myth is the inaccurate forecasting ofoffshore numbers.

• Recent data suggests that Deloitte have over-

estimated the rush to offshore.

• Data released by Gartner at the November 2005

HRO Annual Conference in Brussels, indicate that

only 5% of the jobs involved in all BPO contracts in

the EU were offshored.

• For HR, recent data reported in People Management

suggest that 15,000 HR jobs were offshored in

2003/2004 - with estimates of a further 200,000

jobs by 2010.11

One experienced head of shared services,talking about a previous post at a bank,suggested the debate over offshoring could bespun whichever way people want to spin it:

"We had a serious problem finding people to take

over from others and deal with complex queries.

Some are in favour and some are against, and both

tell you stories which confirm their prejudices. The

real question about offshoring for me is this - if you

have a process so simple that you can do it in India

with little training, why didn't you just automate the

process in the first place?"

There remain potential pitfalls for those usingoffshoring.

• The management and governance issues of process

delivery on the other side of the globe.

• The accusations of the mismanagement of talent,

which is, perhaps, the subject of a future report.

Readers wishing to familiarise themselves withthese issues would be well served by Vashisthaand Vashistha's The Offshore Nation: TataMcGraw Hill, 2005.

3.4 The shared services option

Many in HR view a shared services model as aprecursor to the more operationally adventurousoutsourcing model. The reverse is probablymore accurate.


Shared services is often deployed byorganisations which are against outsourcing asa matter of principle - but seek to gain some ofits transformational and streamliningadvantages. Alternatively, some use the modelas a halfway house in order to prepare thespecific lines of HR they intend to outsource.

Definitions of shared services, 'insourcing','captives', etc, are numerous, but for ourpurposes we define it as follows.

Shared services is a strategic tool using someof the benefits of outsourcing through thetransfer or insourcing of HR services and theirresources to a separate unit within thebusiness - and often with a separate P&Lsystem.

In addition to the centralisation of HR servicesare these features that mirror some of thecharacteristics of HRO.

• The 'user is the chooser', meaning that actual

services and delivery methods may not be

corporately determined but are shaped by customer

requirements - managers and employees.

• Despite the customer-driven language of shared

services, many analysts and organisations see it as a

driver for cost-cutting.

• The elimination of services duplication represents

one of the largest cost reductions delivered by

shared services.

• Like outsourcing, shared services also involves

dramatic headcount reductions as centralised

services remove the requirement of individuals being

close to the business lines they serve.

• Some see shared services as the first stage of a

step-change model in which HR is insourced to a

shared services centre in order to dramatically re-

engineer and quantify 'as is' processes and costs

before outsourcing to a third party provider.

• Shared services can even be combined with

outsourcing. Transactional services such as payroll

and pensions are outsourced to a third party, with

other HR services - perceived to be of higher value

or more sensitive - remaining ‘captive’ in internally-

owned shared services.

Shared services, therefore, clearly incorporatesmany of the operational changes associated

with HRO. While the shared services model ofinsourcing is seen as ‘internal’ andconsequently more palatable to employees andthe HR media, it still involves many of the cost-reducing features of the outsourcing model -and its potential pitfalls.

Not only do organisations risk losing crucial tacitknowledge, but they also let a third partyprovider mop up their low-hanging fruit - thequick wins or cost reductions associated withrelocating staff, streamlining and the re-engineering of HR processes. See the boxbelow.

Deciding on whether the organisation adoptsHR shared services clearly made an impressionon a number of respondents.

For Luis Rojas, chief operating officer atStandard Chartered Bank, it was a case ofcapitalising on the wider business strategy.

"Different strategies work for different companies and

insourcing was the right one for us. We have been

operating in India for over 100 years so it doesn't

seem foreign. Also, insourcing in HR was part of

Standard Chartered's bigger plan. Right now, we

have a global shared services centre in Chennai with

4,000 people, 300 of whom are in HR. So it's a

distinct compound within a bigger unit and we

leverage the same principles behind a global shared

services centre."

Picking up our silver pounds

"We ddecided tto sset uup [[the HHR SShared SServices] uunitinternally aas oopposed tto ooutsourcing bbecause wwe ddidn'tunderstand wwhat wwe hhad - aand tthe ccountries ddidn't wwantto sshare wwhat tthey hhad, aas tthey wwould llose ppower,influence aand tthe aability tto mmove iif tthey ddid sso.

"If wwe ooutsourced, wwe tthought wwe wwould llose vvalue aadd,knowledge aand iintimacy wwithin tthe bbusinesses oof SShell.As aan aanalogy, wwe ccould ppick uup tthe ssilver ppounds llyingon tthe bbeach qquicker tthan lletting HHewitt oor IIBM ddo iit!There wwere eefficiencies wwe ccould eeffect oourselves, sso wwhypay ssomeone eelse tto ddo iit?

"It iis iironic tthat iin tthe ssame mmonth wwe ddecided tto ggloballyinsource oour HHR ooffering, BBP ddecided tto ggloballyoutsource ttheirs tto EExult. TTwo ddiametrically oopposeddecisions wwere ttaken bby ttwo ssmart ccompanies, bboth wwith

smart ppeople." Lee PPatterson, GGlobal HHR SStrategy, SShell


3.5 Transforming organisationsthrough HRO

The HR profession remains deeply circumspectof the transformational debate surroundingHRO. For many, this needs to move on fromcutting costs to unlocking the transformationalpowers of outsourcing. It is here where realityfails to keep pace with the rhetoric.

• The development of business transformation

outsourcing (BTO) represents a head-on challenge to

the sceptics of the outsourcing model in general -

and of HRO in particular.

• Most HRO providers covered in Section 2 would

claim their services are transformational.

• There are, however, only two key players in the BTO

market who have wrapped their HRO offering around

the notion of BTO - Accenture and IBM.

A definition of what transformation actually is inHRO is problematic. In her book, Outsourcing forRadical Change, Accenture's Jane Linder refersto 'transformational outsourcing' as "big change,fast". She also provides a more formal definition.

Using outsourcing to achieve a rapid,sustainable, step-change improvement inenterprise-level performance.12

Linder is quick to warn off competing providerswho also claim their services aretransformational. She adopts a strong stance,worth quoting in its entirety.

"Transformational outsourcing has gained some

currency. As a result, many outsourcing vendors are

touting their work as transformational. In most cases,

it is not. And this media hype just confuses

executives about exactly what the concept means

and how it works.

"Just put the words transformational outsourcing into

an Internet search engine, and you'll find that

Compaq, Cognizant, Schlumberger, IBM global

services, Alltel, Collaboratech, Cap Gemini Ernst &

Young and others all claim they can transform their

clients' businesses through outsourcing by

implementing new technologies.

"This isn't it. Transformational outsourcing often

requires new technologies to be implemented, but

the defining factor isn't the new technology. It is the

purposeful use of outsourcing to achieve dramatic

enterprise-level change."13

This is arguably an unfair caricature of others'offerings, clearly highlighting one of the majordownsides of the HRO market - namely, themarketing activities of the consulting housesinvolved, which border on propaganda.

Rather than taking Linder's word, a quick view ofIBM's own materials reveals that they too have asimilar product. See the box.

BTO BBenefits aand CClaims

The benefits of BTO claimed by providers overconventional outsourcing are numerous.

For example, a more sophisticated and deeperlevel of 'partnering' between BTO providers andclients is asserted. It is less clear what thisadvanced level of collaboration actuallyamounts to - although BTO providers talk of bothclient and provider having "skin in the game"and of moving "beyond champagne and hottubs" to "real personal chemistry".

The idea is that if partners work closely together,each can learn from the other and forge a win-win and close working relationship - instead ofthe adversarial negotiations thought to typifymore transactional-based HRO.

We heard evidence of this from a chief operatingofficer of HR in a bank.

"We chose [our HRO services provider] because

they had a global presence which matched our own.

They were big in the HR outsourcing market, but we

had a couple of other people involved, not first, but

second and third.

IBM: what is the difference betweenBTO and BPO?

‘BTO iis uused tto eexecute llarge-sscale cchange pprojectsdesigned tto iincrease sshareholder vvalue. BBPO iis pprimarilya ttool tto ccut ccosts aand iis aapplied tto oorganisationalprocesses oon aa ppiecemeal bbasis …… AAs aa llarge sscaletransformation ttechnique, BBTO iis ddesigned tto pprovidestep cchanges tthat ccan ddeliver mmanaged ggrowth, ttogetherwith tthe aagility tto ssustain bbenefits iin tthe fface oofcompetition.’

Source: IIBM WWhite PPaper: BBusiness TTransformation OOutsourcing


"I don't think our contract was their number one

concern. It was their approach and dealings with us

in an holistic way. The way they approach it and the

people you meet during the process carries much

weight. They had a strong team, and where we

thought there might be problems, they did what was

necessary to get the A-team on board.”

There is supposed to be an increased chance ofsuccess in organisational transformation,achieved partly through third party expertise.This enables a BTO client to realise majoreconomies of scale and comparative advantagein a particular process (in this case, HR) byleveraging superior provider capabilities. Theseenhance the client's own core capabilities.

Consider this respondent’s comments.

BTO also provides instant financial and operatinggratification through accelerated 'time tobenefits' or 'speed to value' of HROinterventions. This is mainly because BTO offerslarge-scale transformation at rapid rates ofimplementation, supported by expertise inradical change management.

Consequently, BTO requires a 'bold agenda'.Without this, BTO providers claim businessleaders have little chance of realising thegroundbreaking changes they seek. They needto think outside the box.

Exactly how this service differs fromconventional outsourcing is less clear. Onepossible point of delineation between HRO andBTO lies in the provider sharing the risks of thetransformation. They are held accountable undercontract for the expected business results

produced from the alignment of people,processes and technology - in line with theclient’s service requirements.

A possible reason for a higher likelihood ofsuccess in major BTO projects may lie with theextensive senior executive sponsorship expectedby providers.

BTO is presented as the direct result of top-levelleadership in which CEOs take hands-on roles inguiding the change programme. Real life casestudies are often provided in which CEOs either

• adopt a hands-on role and drive BTO projects to

success

• or serve as examples of project failure, when they

delegate their responsibilities to a lower-level

manager with catastrophic results.

BTO deals are also financially highly innovative.They have to be. Significant levels of investmentare required to underwrite BTO projects, thusraising the level of input - both financially andemotionally - for the success of transformation.See the box opposite.

BTO differs from conventional HRO in itstackling of business critical processes. The logichere suggests that a highly skilled andmotivated business partner can drive throughimprovements more effectively than the client.

Speed is of the essence. Delayingtransformation programmes while deciding whatto keep and what to shift, not only precludesaccelerated performance but also places at riskthe entire strategic agenda.

With a focus on results has come a greateremphasis on transparency and improved control.

• Service expectations have increased, requiring tighter

contractual obligations for BTO providers.

• More transparency has been achieved simply

through BTO's capacity to provide enhanced

timeliness and accuracy in executive reporting, which

leads to stronger contractual compliance.

Arguably, the most contentious claim of BTO isits capacity to transform the culture and

"We're qquite aan aaggressive ccompany. WWe wwantthe bbest aand aare aa vvery ddemanding cclient. WWe eexpect aaservice llevel aagreement oof tthe hhighest ddegree. BBut wwealso eexpect ssome rrealistic ppushback. YYou nneed ppeoplewho've ddone iit bbefore. TThey hhave tto hhave tthe rrightpeople iin tthe rright pplaces, uunderstanding tthe cchain.

"You ddon't wwant ppeople ssaying, ''Yes, wwe ccan ddo tthis aandwe ccan ddo tthat', aand tthen, bbehind yyour bback, ssaying'There's nno wway wwe ccan ddeliver oon tthat'. II wwant ppeople ttobe hhonest aand oopen. IIt's ffine ffor tthe ssenior pplayers wwhoput ttogether tthe ddeal. BBut wwhat yyou wwant ffrom aaprovider iis tthe kknowledge oof tthe pprocess aand tthe aabilityto ssay, '''That's jjust nnot ppossible. WWe ccan't gget 999%, WWe ccan

only gget 995%'"


motivation of the HR workforce. This can beachieved though a change in mindset from abureaucratic, 'back office' mentality to what hasbeen labelled a 'front of office mindset'. This isusually associated with BTO providers whosecore business is providing a specialised servicein the HR area.

A more entrepreneurial and business-focusedmindset is claimed to prevail. It is this profoundchange that is the driving force behindenterprise transformation.

Finally, the pièce de résistance of BTO is itsunashamed focus on enterprise level results.

• Conventional HRO is viewed as offering nothing

more than respectable improvements in the costs,

service levels and support capabilities of HR

systems.

• BTO, claim providers, places unrelenting emphasis

on outcomes that shareholders and competitors can

see. Examples often promised include a doubling of

profits or the achievement of market dominance.

3.6 Criticisms of BTO

For all the noise made on account of BTO, littlesupporting evidence has found its way into thepublic domain. Although the concept isrelatively new, this has not precluded a numberof providers claiming deep, long-standingexpertise.

The jury is still out, deliberating on the results ofthe major BTO deals. This lack of certainty can

be attributed to several observations.

Lack oof ccritical mmass

The so-called HRO 'mega-deals' for outsourcingan entire HR function - BP and Exult (nowHewitt), BAE Systems/Xchanging andBT/Accenture, for example - have not reachedcritical mass. By way of definition, a lack ofcritical mass in HRO refers to

... the inability of providers to move from theone-to-one services provision associated withmajor HRO deals, to a one-to-many servicesprovision. Here, multiple clients are served byone service centre enabling the provider tocapitalise on economies of scale. This is themultiple services model.

Paul Knowles, of Siemens Business Services,made exactly this point by illustrating how one ofthe major BTO providers sought to do this butfailed. For Knowles, this model - or what some,such as Cohen & Young, refer to asMultisourcing - has yet to take off in HRO. Themain problem is what Knowles labels as 'silos'.See the box overleaf.

Consequently, BTO has not, as previouslyclaimed by Michel Janssen of Everest, "crossedthe chasm from innovative business deal topragmatic inevitability". BTO, at least in HRterms, has yet to reach a tipping point.

There are rejoinders to this observation. Majordeals appear to be back on the horizon.

• The recent announcement by DuPont of its $1.1

billion HR outsourcing contract with Convergys is an

example - see the case study in Section 10.

• So too, claim BTO advocates, is the recent renewal

of the landmark BTO deal between BT and

Accenture - see Section 10.

• The BBC has also recently outsourced the majority of

its HR services to Capita.

These deals are all the more compelling, claimsMarc Pramuk of the Outsourcing Institute,because buyers appear to have become smarter.Also, the spotlight of BTO deals has shifted fromtotal cost of ownership to total cost to serve -which takes into account all the hidden HR costs

Financial markets like outsourcing

Securing ccapital hhas bbeen mmade eeasier iin tthe mmarketsbecause oof tthe ttrend iidentified bby Business WWeek whereoutsourcing aannouncements bboost sshare pprices. IItappears bboth ffinancial mmarkets aand sshareholders llikeoutsourcing.

Partnering wwith tthe ''right' BBTO pprovider ccan eenableclients tto ccapitalise oon ttheir ppartner's bbrand iin ffinancialmarkets tto ssecure tthe nnecessary uup-ffront ccosts bborrowedagainst ffuture rresults.

The pprovider ccan aalso bbuy aassets ffrom tthe cclient aand lleasethem bback oover ttime - iimmediately rremoving aassets ffromthe bbalance ssheet aand pproducing qquick wwins tthroughimproved rreturn oon aassets.


around IT and software that plagued early HROdeals.

Lack oof vvalue aadd

Building on the points above, BTO has failed toattract more value adding processes into the HROnet. At present, it remains focused on reactive,transactional HR processes and has notacquired much in the way of transformationalservices.

This can be explained partly by the lack ofmega-deals in HRO. See the table opposite. Italso reflects the reticence of many organisationsto outsource HR service lines at the top of thevalue curve, such as assessment andperformance appraisal.

Related to the previous point, questions stillremain unanswered regarding BTO's capacity toradically transform the HR function itself. Toomuch emphasis is placed on cost andheadcount reductions - leaving many in HR toquestion where the HR expertise in BTO is?

Such HR transformation is often described in

• dramatic cost reduction terms

• or vast improvements in the number of training days

delivered

• or the reduction of days to fill vacant posts, etc.

These cost and volume metrics highlight therhetoric underpinning BTO, along with theheadline performance of the organisation itself.

The elusivity of the back office standardisation/front office customisation model

"A pprovider wwent iinto aa jjoint vventure wwith oone oof iits cclients [[a mmajor ttelecommunications ffirm] bbecause tthey tthought mmoney ccouldbe mmade oout oof tthe [[BTO] mmodel bby ggoing tto mmarket wwith tthe pproduct aand sselling iit tto oother ccustomers.

"The pproblem wwas, tthey ccouldn't sstandardise tthe pprocesses tto aa ddegree tthat aallowed tthem tto ooffer oother sservices. TThere wwas sstill ssomuch oof tthis tto ddo, iit mmade mmore ssense ffor tthe pprovider tto bbuy oout ttheir cclient ppartner - bbut tthey nnever rreached tthe ppoint wwherethey ccould uuse tthat ccentre ffor oother cclients. TThey hhave nnow wwidened tthe sservice ooffering aacross EEurope.

"Providers sstill hhaven't mmanaged tto mmove tto tthe mmultiple sservices mmodel. IIn tthe UUS, ssome ddeliver [[multisourcing] bbut tthey ddo iit iinsilos. IIt iinvolves aa ffactory oof bback ooffice aadministration. YYou nneed tto hhave

• technology ccapability• generic HHR aadministrative pprocessing ccapability • HR cconsulting eexpertise.

"Payroll aand ppensions aare pprobably tthe aareas tthat hhave bbeen mmost ssuccessful iin ooutsourcing bbecause tthey're rregulatory ddriven,there aare cclear sstandards aassociated wwith tthem aand tthere aare ggeneric ddelivery mmodels. TTherefore, yyou ccan sstandardise tthe bbackoffice aagainst ssome fform oof rregulatory fframework.

"When yyou llook tto ooutsource pprocesses tthat rrelate mmore tto tthe cculture oof tthe oorganisation - hhow yyou rrecruit, hhow yyou ttrain, wwhatsort oof tterms aand cconditions yyou ooffer, wwhether yyou ooffer fflexible bbenefits, ccareer bbreaks, mmaternity lleave, eetc - tthe aability ttostandardise tthe bback ooffice ffor mmore tthan oone cclient bbecomes mmore ccomplex bbecause yyou ddon't hhave aa sstandardised pprocess. TThecustomer iis aalso cconcerned tthat ttheir iimage, oor rrelationship wwith ttheir cclient aand ttheir eemployees, wwill bbe ddamaged iif tthey ddon'thave tthe aability tto fflex iit tto ssuit ttheir ccircumstances.

"Consequently, mmost oof tthe bbig ooutsourcers wwill llook tto ssell tthe iidea oof ''back ooffice sstandardisation aand ffront ooffice ccustomisation'.They wwill cclaim tthey ccan llook aafter yyou, rrun yyour pprocesses, aand aadapt tthem sso tthey wwill nnot bbe sseen aas XX PProvider bbut YY CCompanyService, aand sso oon. TThat mmeans yyou eend uup wwith aa ddedicated ccentre ffor tthat cclient.

"And iif yyou cconsider tthe mmarket, tthere aare ffew HHR BBPO pproviders aable tto ddemonstrate mmultiple cclient sservice ffrom oone ccentre aacrossmultiple ssilos. YYou ccan hhave aa ppayroll oor rrecruitment ccentre ffor mmultiple cclients, bbut aas ffor ggeneral HHR aadministration aacross tthedisciplines, II ccan't tthink oof aany llarge-sscale pprovider tthat pprovides tthe aadministration ffor ttwo oor tthree cclients tthrough oone ccentre.

"They ccan hhandle tthe vvolume. SSo tthey ttake oon aa PProctor && GGamble, oor aa DDuPont. BBut ccould yyou pput PProctor && GGamble aand DDuPontin tthe ssame sservice? NNobody hhas yyet ddone tthat, iin mmy oopinion. BBeing fflexible wwith ddifferent ccustomers aacross ddifferent ssilos iisproblematic. IIn tthe ffuture, II ccan ssee tthe bbigger ooutsourcers sservicing ppayroll oor ppensions ffrom oone ccentre. BBut, ggeneraladministrative ccentres wwill rremain sspecific tto tthe cclient.' Paul KKnowles, GGeneral MManager, HHR BBPO && TTransformation SServices, SSiemens BBusiness SServices


That’s because few, if any, current BTO metricsdemonstrate how the quality of HR processes -the content of training or the quality of peoplehired, for example - have improved. Or, whetherthey have delivered overall value to thebusiness.

Critics of BTO claim that too much has to betaken on trust. Said one respondent.

"I have never yet found an organisation - and HRO is

no exception - that is good at tracking performance.

You ask them, 'Two years ago you made a

commitment to make this money. Have you made it

yet?' They always seem to live in the current year

and may look back at the year's budget. But,

providers are not good at looking at year-on-year and

breaking it down to a divisional level. You have to be

specific about it in the contract."

Finally, the theory of partnership has notnecessarily stacked up in practice. According toXchanging's chief executive of HR services,Hugh Morris,

"It's all about trying to avoid having one year of love

followed by four years of trench warfare.”

HR professionals remain highly circumspect ofthe capacity of governance to maintain theclose working relationships required within aBTO project.

3.7 HRO risks and the HR director

HR outsourcing requires HR directors tounderstand and manage risks that are critical tothe organisation in general, and especially for

their functions. While perhaps the greater risk isto do nothing, HR directors need to appreciateboth the direct and knock-on effects of HRO.

Neil McEwen, in an article for HRO EuropeMagazine, cites three risks that were especiallyprevalent during the early days of HRO.

• Initial claims for potential cost reduction and

improved effectiveness were sometimes exaggerated

or unrealistic - leading to disappointment when they

were not delivered.

• People often failed to appreciate the effort required to

make HRO work - given that it affects all employees

served by HR and has a huge impact on the HR

community.

• Some companies thought that, by outsourcing an

organisational mess, they could make it someone

else's problem. However, this would boomerang

back to them when the HRO supplier experienced

the same intractable issues.

Now, the HR director faces other potentially risk-creating issues - even if the three above may nolonger apply.

• HRO inevitably involves a loss of direct control over a

number of HR activities.

• HRO will only succeed if the 'left-behind' organisation

within the business is also transformed.

• Different people with different skills doing different

things will be needed to support the outsourced

transactional piece, to influence and educate the

business and to contribute to corporate strategy.

The final risk, said McEwen, is around systems.

"Essentially, the business needs to decide whether

to own its HR IT systems or have them hosted by

the outsource provider. However, what happens to

them if the agreement breaks down? If they are

being kept in-house, can the often enormous costs

of replacing piecemeal legacy systems with an HR

ERP-type system be justified?"

McEwen notes that such risks are by no meansinsurmountable, given the right approach,controls and safeguards. He identified five keyareas on which an HR director should focusduring the deal negotiations and after HROtransition and operation.

What Organisations Will Not Outsource

Source: SBPOA/ADP HR Transformation Survey,November 2005

Total HR function 93

Employee communication 91

Assessment and performance appraisal 88

Career and succession planning 85

Compensation 82

Leave 76


• Measurement and metrics: for service levels with

'fit for purpose' metrics.

• Service management organisation: actively and

continuously managing the relationship and contract

with the provider.

• Behavioural change: recognising the scale of

change required in employee behaviour for the HRO

benefits to be realised - supported by

communication and training programmes.

• Remain realistic: do not make overblown

estimates for HRO - and don't promise anything that

you cannot deliver.

McEwen's final area of focus is to understandthat HRO is a major change both for HR and theorganisation as a whole. Even if the drive foroutsourcing is primarily initiated by the CEO, theHR director needs to stay actively involved,demonstrating ownership and leadershipthroughout. Don't let delegation turn intoabdication, he cautioned.

McEwen, N - ‘The Fab Five HRO Risks andResponses’: HRO Europe Magazine, May 2005.


In this section, we examine what needs to beconsidered to set a business case for HRO.Three themes are discussed - administrativeand overhead efficiencies, systems/processeffectiveness and an improved strategic focus.

4.1 Importance of the business case

HRO providers have focused on this order ofselling points for the business case.

• Improved strategic focus from HR on business goals.

• Increased effectiveness of HR through operational

improvements.

• Increased efficiency of HR with estimated cost

savings of up to 50%.

• Potentially, the role of HRO in transforming the

performance of the wider business - see 3.5 above.

For reasons that are not entirely clear,discussion over these attributes often takesplace in reverse - with costs to the fore. Onerespondent, who wished to remain anonymous,neatly summed up this peculiarity of the HROindustry.

"I saw some research recently that had 'reduced

costs' down at third or fourth place. That's rubbish.

It's always at the top of the list. If anybody tells you

differently, they're not telling you the real driver

behind their decision to outsource."

4.2 Increased efficiencies within HR

The efficiency gains associated with HRO canbe impressive - but how realistic they are is amatter of some debate, to which we shall returnto below. There are three main ways to deliversuch efficiencies.

First is the separation of HR administration fromits associated management and handing overthese activities to a third party. This stems fromthe 'make or buy' decision applied by Coase inthe 1930s - not just to inputs into final productsbut also to processes in corporate functions.The benefits include the following.

• Major cost reductions from vertical (dis)integration

through transaction cost economics. This term is

used for

how the market for business process serviceseffectively drives down the costs of buying,rather than in-house, HR services.

• The majority of early cost savings are immediately

realised through headcount reduction and the

transfer of remaining employees from the client

organisation to the provider.

• A combination of process re-engineering and

advanced IT systems enable significant economies

of scale in the operation and delivery of HR services.

• Greater financial control is also gained - as a

significant part of HR expenditure shifts from flexible

to variable costs.

• The increased costs associated with the 'waxing'

(hiring additional staff) and 'waning' (releasing excess

staff) of resourcing, are also transferred to the

provider.

Secondly, where HRO differs from conventionalbusiness process re-engineering is in thetransfer of control to the vendor for themanagement of HR as well as its execution. AsJim Champy, co-author of Re-engineering theCorporation puts it: "Outsourcing is more thanthrowing work over a wall". Consequently:

• major efficiencies can occur from the management of

HRO operations and performance, a combination of

which is estimated to be in the region of 90% of total

HR costs

• such efficiencies occur when the HRO provider

combines standardisation and business transaction

prices through one-to-many and many-to-many

economies of scale, brought about by the dynamics

of the HRO market for services.

Thirdly, good governance of HRO projects. This isdescribed by Linda Cohen and Allie Young inMultisourcing as

'the assignment of rights and responsibilitiesfor all decisions relating to the use andmanagement of internally and externallyprovided resources and services, enablesenhanced focus on the costs of services'.

4 Setting the business case for HRO


Suffice to say that the governance of HROprojects has laid the foundations for servicelevel agreements. Through these, the costs ofHR processes become transparent and formtargets in contractual agreements.

Fourthly, reductions can be realised from thepeople costs of HR activities - and in streamliningprocesses such as recruitment, payroll, trainingand so on. The main reasons for cost reductionshere include the following.

• Being able to control people costs gains HR respect

and credibility among senior executives and

reinforces the legitimacy of HR's seat at the table.

• Organisations going through mergers and

acquisitions and other forms of organic growth

continually need to centralise and re-integrate,

through their HRO provider, newly-acquired HR

functions and systems - costs are reduced by

eliminating duplication.

• Operating in global labour markets requires ongoing

evaluation of legislation concerning international

employment, usually provided by legal teams - it is

now a technical service supplied by many HRO

specialists.

4.3 Increased HR effectiveness

HRO providers readily point to their capabilityfor transforming the operational effectiveness ofclients' HR systems, as well as reducing theircosts. Indeed, many providers seeeffectiveness and efficiency as two sides of thesame transformational coin.

A number of operational improvements can bederived from HRO.

First, HR functions and systems evolve over timefor increased effectiveness. With evolutioncomes increased demands, leading to thesepossibilities from HRO.

• Not all HR functions have the requisite skills for their

organisation's needs. Using HRO is a way of

sourcing scarce skills - the almost universal

outsourcing in the US of 401(k) retirement plans is an

example.

• Similarly, not all HR functions and their organisations

are either capable of, or willing to meet the costs of,

sustaining the technological architectures required for

HR administration, such as SAP, ERP, etc.

• For example, the HRO deal between BAE Systems

and Xchanging involved the provider investing £100

million in the client's technology platforms to handle

new HR systems.

• Partnering with HRO providers enables clients to

source the latest IT software packages and transfer

their costs to providers who, in turn, can deliver

these packages cheaper than in-house rates.

Secondly, as HR has evolved, so too has thedemand for specialised expertise. As onerespondent in a separate survey put it:

"You outsource when someone else can do it better

than you, at less cost".14

There is a balance to be made betweendeciding which expertise to retain and invest in,against whether it should be sourced externally.Such decisions are guided by the following.

• HR is becoming an increasingly complex and

technical profession requiring specific expertise - as

in legal matters, pensions and benefits, etc. Many

HRO providers specialise in such advice.

• Much of the expertise once located in HR has been

Efficiency and effectiveness

"It's nno ssmall ttask ttaking oout ccost. TThat, iin iitself, sshouldallow tthe rresidual HHR ffunction tto cclaim ssome fform oofvictory iin tthe uunrelenting ppressure oof mminimising ttheorganisation's ccost bbase. AAs llong aas aan HHRO pprovider hhasdone ttheir jjob, tthat iis aall yyou ccan rreasonably eexpect. BBydoing ttheir jjob, II mmean eexamining ddiscombobulated HHRprocesses aand iintroducing ssome rrigour aand ddiscipline,scaling tthem uup aand aapplying ttechnology sso tthey ccan bbedelivered eefficiently aand eeffectively.

"HRO ssuppliers ccan tthen rreveal wwhat tthey hhave aachievedand tthe oongoing uunit ccosts tto ttheir cclients wwhile, aat tthesame ttime, pproviding tthem wwith tthe aability tto mmake ttheirHR ccosts mmore vvariable.

"So wwhat iis tthe iinternal HHR ffunction ddoing? IIt's ddevelopingpolicy, aaligning HHR iinitiatives wwith bbusiness ppriorities,helping mmanagers iidentify aand ddevelop ttalent. TThere iisevidence tthat iinternal HHR hhas iimproved, bbut II sstill sseeexamples oof iit nnot aadopting tthe ssame ccommercial rrigouras HHRO pproviders." Nick SStarritt, MManaging DDirector, SSirota CConsulting,

Europe, rreflecting oon tthe ooriginal BBP/Exult HHRO ddeal - hhe wwas GGroup VVP oof

BP’s GGlobal HHuman RResources ffunction aat tthe ttime.


lost, primarily through downsizing in the 1990s. HRO

represents a way of buying back - and keeping up

with - this expertise, at minimal cost.

• Organisations may prefer to hire the services of HRO

specialists on an intermittent basis when demand

arises - therefore minimising expensive HR

recruitment costs.

• Third party providers are arguably more objective

than internal staff when conducting, for example,

senior management evaluations.

Thirdly, time pressures are reduced. HROprovides a number of choices, including thefollowing.

• Recruitment can be of particular benefit as HR

directors often find the demand for new recruits

outstrips the time available to recruit them - with HR's

operational capacity, therefore, being stretched.

• Training is another example - providers can supply

more customised services which may be delivered

more quickly.

• Extreme demands for HR services can place

considerable pressures on HR functions - HRO

offers a viable alternative, as peak demand can be

handled more effectively.

Fourthly, vendors not only improve efficienciesbut can also deliver enhanced service becausethey specialise in different activities.

• Aligning service requirements with specialist

providers improves efficiency and also customer

satisfaction.

• Many HRO providers can deliver world class service

in niche areas that significantly improves HR service

administration - although the potential consequences

of reduced service quality through HRO should be

borne in mind.

Fifthly, HRO providers can effectively act asagents in negotiations on behalf of their clients -the delicate negotiations involved in executivelevel search, for example.

The final operational benefit of HRO is apotential reduction in the costs of liability andrisk. For example, capitalising on the shift toproviders of liabilities behind the complexissues of international legislation concerningemployment across multiple global locations.

4.4 Improved strategic focus from HR

It is one of HRO's paradoxes that where thegreatest value is seen to lie, the least evidenceis available to show it. While the business casefor the strategic contribution made by HRO iscompelling in narrative form, material evidenceis less forthcoming. This point was not lost onone global HR director who wished to remainanonymous.

"What [our HRO providers] don't do is tell you what

the key strategic deliverables to the business are.

They do it, in part, by freeing-up resources to give

you time to play with more sophisticated stuff. They

take care of the bottom half much more efficiently.

It's about upskilling your HR function and creating a

vision about what you want to do."

The arguments put forward by providers forimproved strategic focus are not helped by thecomplexity of HRO solutions, which require newthinking about the concept, formulation anddelivery of HR services. Also, innovations infinancial accounting can be used for projectedcost reductions and added value fromoperational synergies.

A major claim is HRO's capacity to improve thestrategic contribution of HR in relation to improvedbusiness performance. HRO is either:

• a reflection of HR achieving influence in the

boardroom by shifting its administrative and

contingent management roles to act in a more

consultative capacity - see the box below

• or, conversely, HR is regarded as a drain on valuable

HR: not at the boardroom table, butin the meeting

"The HHR ccommunity iin SShell iis ffacing aa ddebate tthat wwecan't ssit aat tthe ttable. OOur ffirst gglobal bbusiness wwas iinchemicals aand HHR wwas oon tthe eexecutive tteam mmakingcapital aand ppeople ddecisions. EEach oof oour eexecutive tteamsin tthe gglobal bbusiness hhas HHR rrepresentation. AAnd aatboard llevel - oour ffive ssenior ppeople - HHR aattends tthemeetings bbut iis nnot fformally oon tthe bboard. IIt's aa ttechnicalrather tthan ppractical iissue tthat tthe HHR ddirector oof SShell iisin aall tthe mmeetings.

“It's nnot tthe ssame iin oother ccompanies wwhere tthey ddecidethe HHR ffunction iisn't ccore, aand tthat tthey sshould ooutsourceHR, ffinance aand pprocurement ffunctions. IIt's aaphilosophical ddecision mmade bby CCEOs aabout wwhat iis ccore

to ttheir bbusiness.” Lee PPatterson, GGlobal HHR SStrategy, SShell


financial resources - no longer does it represent a

necessary evil, but a collection of business

processes that need to be outsourced to cheaper

alternatives.

Many executives outside HR are between thesetwo sides of the debate. Either way, HRO is thebeneficiary, acquiring many back officetransactional processes as well as morestrategic processes further up the HR valuecurve.

Part of the problem relating to the strategiccontribution of HRO lies in establishing what it isafter reducing the excesses of administrationand transactions. What value adding workremains for HR to focus on? Providers and HRpractitioners suggest these areas.

• An enhanced strategic focus will help HR better align

its function to business strategy - talent and its

supporting architecture, for example.

• Such focus introduces a more sophisticated

approach to HR in leveraging third party capabilities

to improve operational efficiencies - that may drive

both business and revenue performance.

• HR executives are released from onerous

management responsibilities to provide business

solutions for employee and customer problems.

• High-performing organisations routinely have a

disproportionate strategic emphasis on what they do

best - their core competencies - and outsource less

strategic, non-core or 'no-longer core' functions.

• HR's perceived administrative role increases the

likelihood of services being outsourced, which

explains why HRO, as a $68 billion industry, is now

the largest sub-section of the global services market

outside IT outsourcing.

A further problem is the lack of suitableevidence to indicate that HRO can impact onbusiness performance - partly because of thedifficulty HR has in assuming a strategic roleafter implementing HRO, unless it already hasthis role.

According to Luis Rojas of Standard CharteredBank, HR plays, or should play, a fundamentalrole in helping the organisation achieve itsmission.

"I faced these issues when I announced I was

moving into HR. 'Luis, what are you doing? Have you

lost your marbles, going into HR?' My response was,

'I'm moving into the most important function of the

bank', and they all laughed. For me it's very simple.

What drives business performance? It's all about

people, right? And who's focused on people? HR!

The challenge is finding the linkage [between HRM

and performance] and for this you need to move to

the next level to understand what's going on."

Eric Lesser, associate partner with the IBMInstitute for Business Value, takes this argumentfurther. He alludes to the capacity of HRoutsourcing not just to transform itself and itsoperating model, but to transform the businessmodel too.

"It's very much a strategic alliance in which the

destiny of the business and HR are intertwined. This

involves working together with a provider to find the

win-win opportunities for the business. It involves

rethinking the business model and how, through

HR's transformation, you can change it."

An underperforming HR function orunfocused business strategy?

• Research ffrom AAccenture iin 22004 rrevealed tthat 770%of cchief eexecutives aagreed HHR wwas ''very ccritical' ttocorporate sstrategy.

• A rresearch pproject ffrom MMcKinsey iin 22005 ffoundonly 11:10 eexecutives wworldwide ffelt HHR cclearlyunderstood ttheir bbusiness sstrategy.

• The sstudy ssuggested tthat tthis mmight eexplain wwhyonly 550% oof aall HHR ddirectors vview ttheir ffunctions aascritical tto tthe ssuccess oof tthe bbusiness.

• When qquestioned bby AAccenture, jjust 11:10 cchiefexecutives aand cchief ooperating oofficers wwere ssatisfiedwith tthe pperformance oof ttheir HHR ffunction. HHR mmaybe sseen aas sstrategically iimportant - bbut tthe ffunctionis ffailing tto llive uup tto pperformance eexpectations.

Business reality for HR

"When II hhear mmy eex-HHR ccolleagues ttalking aabout tthePromised LLand oor NNirvana oof bbeing hheld iin hhigh eesteem,having aa sseat aat tthe bboard ttable aand bbeing sstrategic, IIpoint oout tthat II ddon't ddeny tthat bbeing sstrategic iis oof vvalue.But II hhave yyet tto eexperience lline mmanagement aas aalwaysbeing sstrategic.

“Real llife iin bbusiness iis aa mmixture oof tthe pprosaic aandmundane aactivities - wwhich HHR wwould ccall aadministration- wwith tthose mmore eexciting, ssuch aas ccreating sstrategy aandhelping aa bbusiness eexpand aand ggrow iits aactivities." Nick

Starritt, MManaging DDirector, SSirota CConsulting, EEurope, rreflecting oon tthe

original BBP/Exult HHRO ddeal - hhe wwas GGroup VVP oof BBP’s GGlobal HHuman

Resources ffunction aat tthe ttime.


This fit between organisational strategy andinsourcing - or the ‘internal business case’ -represents a major challenge to the HROindustry, a point not lost on Stephen Randall atHewitt.

“The balance is shifting. There are more people

reaching out and asking us to talk to them about

HRO. There are some companies who are genuinely

saying that they need to find a better way of doing

this, therefore we need to look at outsourcing as a

method.

“Our biggest competitor is the internal business

case. We are seeing this more and more. It's not so

much us versus IBM or Accenture, but it's more us

versus the internal business case.

“In searching for a more sensible way of doing things

organisations look at the internal model as well as the

outsourcing model, which is the right thing to do. If

you've got the time, talent and money to do this, by

all means do it yourself. But most organisations don't

have the time, talent or money. The internal case

inevitably takes longer and often runs out of steam.”

How HR can be strategic

"At llast tthere iis tthe rrecognition tthat HHR nneeds ddata tto ffulfilits eexpressed aaspiration tto bbe mmore sstrategic. II've ssatround mmany bboardroom ttables aand II hhave nnever bbeen aata sstrategy ssession tthat ddoesn't bbegin wwith ccontext aanddata. TThis ddoesn't mmean eexecutives ddon't hhave oopinions -they hhave sstrong oopinions! BBut ddata iis tthe bbasis oon wwhichbusinesses mmake ddecisions.

“If HHR wwants tto bbe ttaken sseriously iin tterms oof hhelping aanorganisation dderive ccompetitive aadvantage, iit nneeds ddatato sshow wwhen aand wwhere iit ccan iintervene iin tthe mmatterof ttalent.

"Without ddata, aall yyou hhave iis oopinion. UUnless yyou hhavedata tto ssupport yyour oopinion, yyou wwill llose. HHavingeffective aadministration ffrom wwhich tto dderive ddata iis nnoless iimportant tto tthe HHR ffunction aas iit iis tto tthe aaccountingfunction.

"If yyou ccan ccreate aa sstrong ppeople ddatabase wwith ssmoothadministrative ssystems tto bbenefit tthe cconsumers, yyou wwillprobably dderive iinsights iinto iimportant ppeople tthemes.

“How mmany aare wwe rrecruiting? HHow mmany aare wwelosing? WWhat's tthe ssegmentation oof oour lloss? WWhat's tthecost oof oour ttraining iinitiatives? HHow ddoes ccareerdevelopment wwork? WWhat aare tthe ccover rratios ffor tthe ttopjobs iin oour oorganisation?' Nick SStarritt, MManaging DDirector, SSirota

Consulting, EEurope, rreflecting oon tthe ooriginal BBP/Exult HHRO ddeal - hhe wwas

Group VVP oof BBP’s GGlobal HHuman RResources ffunction aat tthe ttime.


This section examines the decision-makingprocess for HRO. The focus is on strategicquestions, a typology of HR transformation,involving stakeholders and some of the financialdecisions to be made.

5.1 Decision-making context

Making the decision whether to outsource or notand who to partner with, is plagued at manystages with possible pitfalls and hazards.

• There are masses of information on HRO available

from different HR analysts - supplemented by data

amounting almost to propaganda from the providers

themselves.

• The situation is further complicated by the growing

outsourcing adviser and provider markets.

• There are many HRO models are on offer.

• What seem like small differences at the outset may,

over the life of a contract, equate to millions of

dollars.

For HR professionals and CEOs, the choice ismind-boggling. And, this is not all.

Leaders face a barrage of marketing andbranding campaigns from the 'Big Six' HROplayers - it’s difficult to walk through an airportwithout seeing a well-known golfer urging you toimprove your swing to deliver high performancefor your organisation!

Such marketing hits leaders where it hurts - theiregos. Burning platforms and the compulsion toraise performance quickly or stand down, arewell understood, if unspoken, phenomena inleadership circles. The window to deliver onhigh expectations appears to be dramaticallyshrinking in time. It is difficult to over-state howtough it is staying at the boardroom table havingonce reached it.

For HR, the challenges appear positivelyHerculean. The stakes are high - and errors arecostly. And, the case for HRO is not helped bythe lack of an industry standard as to how amajor HRO deal is constructed.

In the words of one HRO adviser helping

companies put together contracts:

"The potential for Chinese whispers, gossip and

rumour in the HRO industry is unbelievable. It can be

attributed to the secrecy and complete lack of

transparency surrounding deals."

Of course, the industry is replete with advice onthe 'key decision steps', 'critical pathways' or'maxims' that 'must' be taken into account ifHRO deals are to succeed.

Why, then, would HR directors or their CEOs

• choose to initiate a major change programme that

has the potential to touch or disturb every employee

inside the organisation - yet only reduce overall

Get advice or pay later

We ccan rreach oone qquick cconclusion oon tthe HHROdecision-mmaking pprocess. WWithout aa wwell-aarticulated pplan,a ssensible ttimescale aand pplenty oof aadvice, tthe llikelihood ooffailure iis aalmost aas hhigh aas tthe uunnecessary ccosts iincurredwhen pploughing tthrough tthe pproblems tthat sshould hhavebeen ddealt wwith bbefore tthe HHRO ccontract wwas pput oout ttomarket, llet aalone ssigned.

5 HRO deals: making the decision

HRO: the last turkey in the strategyshop?

"I ddidn't rreceive ccriticism iin mmy llast ooutsourcing ccontractfrom aanyone iin HHR ggenerally, oonly ffrom ppeople iin tthebusiness. II ddon't wwant tto ggo tto sshared sservices, II wwantcontrol oover iit. TThen HHR pprofessionals sstarted ggoing ttotheir lline bboss. TThere wwas aa hhuge MMD llobby bbecausepeople tthought tthey wwere uunder tthreat. TThey tthought IIwas ggoing tto ttake aaway ttheir eempires, sso tthey bbeganfighting bback.

“I tthink mmany ppeople llike aabsolute ccontrol, yyet iin mmy vview,there iis pprobably mmore ccontrol wwith ooutsourcing tthanwith yyour oown ppeople bbecause iit's aa ccontractualrelationship.

"But, mmany eequate oownership wwith ccontrol. IIt's sstill sseen aasa bbrave mmove mmainly bbecause MMDs iin bbusiness uunits ddon'twant tto llose tthose ppeople eeither. WWe've bbeen ffighting ttodo tthis ffor ttwo yyears aand tthey've [[the bboard] ffinally ccomealong aand ssaid, ''we tthink tthis iis tthe oonly rroute'.

“So iit iis tthe ‘‘last tturkey iin tthe sstrategy sshop’. AAnd tthedriver iis tthat oour ttechnology wwill bbe oobsolete iin 118months." Tony MMcCarthy, GGroup HHR DDirector, RRoyal MMail


operating costs by around less than half of one per

cent?

• involve themselves in a process shrouded in

mystery, without a definitive standard of what an

HRO contract should look like?

The HRO industry is quick to point to the needfor every deal to be unique and to reflect clientrequirements. This has the corollary of creatingan image of HRO deals having to be tailor-made.

No amount of preparation, however extensive,can safeguard outsourcing deals completely.HRO is no different from any other businesssolution sourced with a third party. Flexibility isnot an option, but a given. Below are someexperiences of those who have taken this route.

5.2 Thinking strategically

"Being strategic and able to lead, rather than being

tactical and following, is a big ask - and is not where

most people in HR come from. You either come up

to the plate or there's no reason to be there." Nigel

Paine, HRD Director, BBC.

According to Accenture's Jane Linder,

"transformational outsourcing initiatives rarely fail - but

when they do, they fail for errors of strategy, not

execution".

This is not conveniently side-stepping theresponsibility for HRO project failure. Linderargues that leaders need to construct abusiness model - their core logic for creatingvalue - for HR to demonstrate how HRO willtransform the function so it can influencebusiness performance.

All too often, HR focuses on the budget itmanages and ignores those parts of thebusiness it can dramatically influence. See thebox above on this issue.

Cost cutting is not a 'strategy' - it is a by-productof HRO deals. But, savings obtained fromstreamlining people and processes can be re-invested in the business to drive over-archingbusiness models.

How the HR function is to be transformed is also

critical. See the typology overleaf which showshow transformation means different things todifferent businesses. Crucial here is knowingwhat kind of HR transformation the business isseeking. According to Deborah Kops, formerglobal head of transformation for DeutscheBank,

"The main reason why organisations don't get

transformation is because they don't know what to

ask for in the first place."

Peter Clarke at Hewitt believes there are twoareas of transformation.

“One is the transformation of transactional services

that are defined for the outsourcer to provide. This

focuses on moving often disparate, disconnected,

unconsolidated processes into an integrated self-

service environment - with access to on-line policies,

employee data and workforce management

information.

"The second is focused on how the outsourced HR

service is used as an enabler for transforming the

retained HR organisation - and the value it provides

to the business by supporting the overall business

strategy.

"HR must direct its retained organisation to maximise

the value of their investment in outsourcing. This

involves focusing them on what they are doing for

the company - rather than day-to-day administration.”

Here, according to Clarke, HR outsourcing

Not the budget you manage, butthe budget you influence

"You hhave tto gget tthe bbasics rright. TTake ffinancialmanagement aand ddiscipline. YYou sshould nnot ddiscussbudgets wwithout kknowing tthe nnumbers - tthat's bbasic. BButyou hhave tto hhave iit sso yyou ccan hhave tthat ddifferentconversation. IIf yyou ddon't, yyou're ggoing tto bbe bboggeddown wwith qquestions oon yyour bbudget, aabout yyourforecast aand yyou ddon't wwant tto ddo tthat. YYou wwant ttodemonstrate tthat yyou ccan mmanage yyour bbudget aandhave aa ggood hhandle oon ddriving vvalue.

"If yyou tthink aabout tthe bbudget wwe hhave, iit's ttiny iincomparison tto tthe bbudget tthat wwe iinfluence aaroundpeople aand oother iindirect ccosts. WWe ddon't ffocus oon tthebudget wwe ccontrol - bbut oon tthe rrest tthat wwe iinfluencethrough aadding vvalue. OOnce yyou hhave tthat, tthen yyoustart cchanging tthe cconversations." Luis RRojas, CCOO HHR, SStandard

Chartered BBank


releases more value from the HR organisationby

• freeing them from administrative tasks

• using business intelligence and metrics to

understand more about their workforce

• assessing what is causing workforce issues

• setting strategies and policies to optimise workforce

performance.

Four ttypes oof ttransformation

Here again the business model of theorganisation is of crucial importance. There arefour broad types of HR transformation fromHRO.

1 Embryonic

Often associated with start-ups and havingthese features.

• Off-the-shelf HR architectures to cope with the

increasing demands of their growing workforce.

• New HR systems which are primarily transactional in

nature - payroll, pensions administration, etc.

The costs of acquiring such systems areminimised by paying a 'price per drink' rate -and by keeping the costs of capability andtechnology to a minimum through leveraging thecapacity of the HRO provider's systems, peopleand expertise.

2 Enhanced

For organisations in accelerated states ofgrowth requiring

• more sophisticated HR systems and deeper

capabilities to meet diversifying demands on HR

• an emphasis on cost-minimisation

• a step-change in HR services with enhanced value-

adding processes such as recruitment, training and

development, etc.

This type of provision is a major HRO growtharea in HR services for SMEs.

3 Standardised

For under-performing organisations in need ofre-energising. HRO has a key role in revitalisingpeople, processes and systems. The emphasisis on

• streamlining and realigning HR systems - the so-

called 'low-hanging fruit'

• simultaneously conveying the need for culture

change and continuous improvement.

In such situations, HRO helps improve levels ofinformation and data analytics for decision-making.

4 Reflexive

This approach involves a radical re-engineering

HR Transformation - A Typology

Source: Anthony Hesketh

Client Strategy Business Impetus

Start-uups Growth rrequires mmore ddevelopedHR ttransactional aarchitecture

Growth More ssophisticated HHR tto mmeetemployee rrequirements

Revitalise Re-vvitalise fflagging HHR ccommunityand rreduce rreplication aand ccosts

Transformation Taking HHR tto nnext sstage tto ddeliverpeople sstrategy tto ssupport bbusinessstrategy aand aadd vvalue

HR Services Required HRO Strategy

New HHR ssystems tto pprovide sspeed,volume aand ccost-eeffective rroll oout ffornew ccapabilities

Embryonic

Deeper aand wwider HHR ccapabilitieswith ccontinued ddownward ppressureon ccosts

Enhanced

Major iimpetus oon rreducing wwaste,providing iimproved HHR aarchitectureand ssystems

Standardised

World cclass ccapability aand eexecution,matched bby sspeed, vvolume aandefficiency wwith cclear HHR vvalue pproposition

Reflexive


of critical HR processes and service lines todevelop a 'transformed mindset' and focus onHR's value proposition for the business. This isdescribed further in 7.5 below. HRO at areflexive level occurs through

• partnering with a provider of world class capabilities,

technology and expertise in HR

• evidence-based decision-making that enables HR to

assume a strategic role

• transformed HR systems facilitate the delivery of

enterprise outcomes

• the possibility of taking shared services to the next

step of outsourcing.

In summary, these four types of transformationhave fluid boundaries and are not mutuallyindependent - much will depend on theperformance of different aspects of the HRsystem at which HRO is targeted.

Indeed, it is not uncommon for organisations topartner with two third party providers. One maydeliver more standardisation of processes, witha second providing more reflexive and valueadding HR services.

Managing eexpectations

A key to developing any HRO strategy orbusiness model is to manage expectations. It isnot uncommon to hear of executives keen toensure a smooth ride for their HRO plans whooverstate cost savings or value added.Information vacuums are filled by others'expectations - and thus render a successfulHRO strategy delivery a 'failure' because ofstakeholders' inflated expectations.

Crucial here are four considerations.

• HRO objectives: clearly state these and how they

are to be achieved and measured. There should be

no 'sacred cows'. All aspects of HR should be

included until reasons emerge to remove them from

the list to outsource.

• Delivery proposition: identify the critical

capabilities required to achieve the HRO strategy and

meet stakeholder expectations - while simultaneously

rolling out services consistently and profitably.

• The business case: tightly quantify the business

case for the HRO intervention, making clear any

cost-savings or windfalls expected - and the

anticipated avenues for re-investment within HR

and/or across the business.

• The performance case: keep in mind that HR's

future performance will be more important than low

HR function headcounts or lower costs.

5.3 Identify critical stakeholders

Stakeholders must be considered. These mayinclude

• customers

• employees

• line managers

• senior management

• and possibly others - suppliers, for example.

Sourcing their views will help your organisationestablish just how good, or otherwise, the HRfunction is. For many, HRO effectively acts as a‘truth serum’ for establishing the benchmarkperformance or current 'as is' state of HR.

The support of stakeholders should not be takenfor granted. For example, sponsorship fromsenior executives is essential for HRO success.Yet, research from the Economist IntelligenceUnit suggests that an overwhelming majority ofglobal CEOs think their HR functions areunderperforming. This may be construed asevidence for major change interventions.

Nevertheless, this source also noted that only16% of over 500 CEOs felt HR was critical torealising their corporate strategy in the next year- compared to 56% for sales and marketing.15

Employees, too, are key stakeholders insuccess, as are line managers. An experiencedHRO adviser commented:

"Executives are very enthusiastic about the people

[stakeholder] issues in HRO strategies until it gets

closer to the announcement - and then they begin to

soften the strategy."

The message then, is as follows, for stakeholdermanagement.


• Clearly set out your strategy and stick to it.

• Define the role each stakeholder will play, especially

at the top.

• Think about the HRO implications for all stakeholders.

• Be transparent about the possible benefits and wider

implications of the HRO deal for all stakeholders.

• Seek the buy-in and input to the HRO strategy from

all stakeholders. Roadshows and focus groups are

useful approaches to consider.

Finally, it is crucial to set the key performanceindicators that will measure HRO providersagainst the current in-house HR service offering.Other methods of assessment can be used -activity value analysis and activity basedcosting to map and evaluate different processcosts, for example.

5.4 Insource or outsource?

As discussed in Section 3, the choice betweeninsourcing and outsourcing can be an emotiveone. The decision-making process over whetherto keep HR 'captive' - in-house - or outsourcesome or all HR services requires carefulthought. Gartner recommends these fourdecision stages.16

1 'As is' services

Establishing a baseline of service criteria isessential to guide future choices and decisions.This is not easy - arguably, it is the most difficultand time-consuming part of the decisionprocess. You should evaluate:

• Service levels: existing level, service level needed

and what the business expects from insourcing and

outsourcing.

• Service cost: 'as is' costs need mapping against

expected costs, including any future costs of human

capital.

• Human capital assets: compiling an inventory of the

competencies of HR employees. You will need to

keep them informed as to why the inventory is taking

place, how it will be used and the timelines for

decisions.

• Other assets: these include both physical assets -

equipment, leases, software licences, etc - and

knowledge assets, such as process or industry best

practices.

2 External benchmarking

If establishing your 'as is' costs is your compasspoint, externally benchmarking them againstother organisations is where 'True North' lies.Without this yardstick, it is virtually impossible toaccurately decide whether your current services- be they internal or external - are doing well orpoorly.

3 Competitive advantage

A debate in boardrooms and academic circlesconcerns the competitive advantage lost orgained through HRO. This is effectively the coreversus non-core issue - or, as HR is nowdescribed in less favourable circles, 'no longercore' debate. Two contrasting points areimportant.

• Outsourcing HR is seen to represent a loss of

competitive advantage through investment in largely

transactional administration - rather than focusing on

those aspects of HR that will deliver such advantage.

Talent management and development is an example.

• Outsourcing is seen as a better deployment of

resources. If an HR system is not genuinely world

class, an organisation is giving up competitive edge.

By outsourcing HR to the best in the world, its value

is being increased - while at the same time costs are

reduced.

4 Making sense of choices

HRO has evolved. When once a simple choicewould be made between retaining HR servicesinternally or outsourcing them, different HROdemands, capabilities and models haveextended those choices:

• Insourcing - internally delivered: this is the classic in-

house HR delivery model without attempts to

standardise service delivery across different business

units or regions.

• Insourcing - shared services: an internally-owned

company with a different P&L centre offering

standardised and centralised HR services to the

whole organisation through one or several service

centres.

• Outsourcing - full service: all function lines across HR

are offered, with examples being the BAE

Systems/Xchanging and BP/Exult/Hewitt deals.

There will be a trade-off between economy of scale


and less complex management versus the scarcity

of HRO providers excelling in every aspect of HR and

the increased emphasis upon governance.

• Outsourcing - prime contractor: this model is now

widespread across ITO and is an increasing feature

of BPO deals in financial services. The option has

one prime contractor who has relationships with

multiple providers to deliver different HR services. A

variation is when the purchasing function negotiates

itself with all providers on an individual basis - this

gives more control but adds complexity and cost to

HRO deals.

• Outsourcing - joint venture: the creation by two or

more partners of a separate business entity by

combining their distinctive capabilities. An example is

the vertical expertise of Xchanging and BAE

Systems' leverage in technology to create Togethr.

The e-Peopleserve venture between BT and

Accenture is another example.

5.5 Ensuring a return on investment

As regards the different costs that will impact onHRO decisions, one respondent described thisscenario.

"Before going to the board I went to see the group

finance director, who said, 'Give me the summary'. I

responded, 'The bottom line is that if it all goes well I

can save you £3 million a year in net present value. If

it all goes wrong, it will cost £3 million a year more!'

“In a bank with a £2 billion cost base, it's really not

worth the management time and trouble. We run the

risk of entering into a partnership with somebody

who may actually increase rather than decrease the

time spent on managing the function with the

provider."

Weighing up the 'make or buy' decision requirescareful thought and, as Linda Cohen and AllieYoung of Gartner suggest, exact dollar figuresare not crucial at this stage. HR directors andcolleagues need to consider the following.

• Full costs: the dangers here are failing to recognise

the requirements of investment, the time involved in

standardisation and the additional costs of choices -

these hidden costs can erode expected cost

savings.

• Governance costs: managing the client-provider

relationship drives up costs significantly - this is

discussed further in Section 7.

• The choice process: costs involved in arriving at a

decision can be prohibitive in opportunity costs

alone. Also factored into this should be the costs of

external advisers - and, it does not pay to cut

corners on advice.

• Transition costs: these can drive up the costs of

contracts and include service interruptions and

decreases in quality resulting in underperformance,

training and knowledge transfer.

• Transfer costs: costs are also attached to physical

assets (property, leases, etc), people - movements

to new centres, for example - or the transfer of

contractual arrangements to new providers.

This issue is summarised by a senior executivein shared services at a bank.

"The fundamental issue around cost basing HRO is

that if you do a good job of creating shared services,

it is hard. Simplistically, if you're moving from an old

model [standard internally-owned HR provision] to a

new [HRO] model, you can probably take out about

40% of existing costs. With our shared services, we

achieved 35%. With VAT, HRO providers have to

improve our cost base by 17.5% just to maintain the

status quo. Banks have a different VAT rating. Any

VAT we pay on services is a net cost which cannot

be claimed back.

"So if I transferred to a provider my asset and it had

a cost base of £10 million and they did nothing to it -

simply charged it back to me at £10 million - it would

cost me £11.75 million. Effectively, the HR service

comes with a 17.5% premium. The outsourcer has

to be 17.5% better just to stand still. He then has to

make a return on capital and show me some

savings."

5.6 Financing the deal

In the words of Dick Brown, chief executive atEDS, "If you pay for a Vauxhall, don't expect aBentley". Too many organisations start with theintention of reducing their costs, and translatedownward pressure on finances into theiroriginal financing of the HRO proposition.

This is dangerous, as cutting corners in theshort term almost inevitably leads to additionalcosts in the mid to long term.

A major problem with HR is its lack of expertisein the financials underpinning HRO deals -


which is one reason why most providers bypassHR in favour of chief executives or financedirectors. This is far from satisfactory.

• HR professionals must immerse themselves in such

financial matters - see the table below for guidance.

• This will lead to a more informed grasp of the

resources required to deliver HRO services and value

propositions in relation to the business model.

• It also raises the credibility of HR directors and

colleagues among senior executives.

One HR executive in a separate survey noted,"We gain credibility with senior managementwhen we demonstrate we can manage budgetand headcount".17 This point was alluded to bymore than one of the HR directors we spoke to.

Two sets of costs need considering whendevising the HRO business case.

• Costs of options: publicly-available costs on other

contracts are unreliable because they are subject to

financial engineering - consider buying-in consulting

support at this stage, although this too, needs to be

reflected in your calculations.

• Cash flow and variable costs: HRO offers

particularly flexible options regarding cash flow and

variable costs - shifting the costs of obtaining

services from fixed to variable, enables organisations

to buy more (or fewer) services, if and when

required.

All key choices and decisions can be made withsupport from a specialist HRO advisory firm.The main ones, with their market share, arelisted above. They offer four capabilities.

• Depth of subject expertise: expertise in

outsourcing is a given. Less clear are the HRO

credentials of firms. Equaterra, Nelson Hall and TPI all

offer extensive experience in HR. The HR

Outsourcing Association (HROA) and its sister

organisation, the Shared Services and Business

Process Outsourcing Association (SBPOA) have

extensive experience, data and educational offerings.

• Experience: not all HRO deals are the same.

Consequently, the best choice is an advisory firm

with experience of different clients. They should also

understand variations between the value strategies

and propositions offered by different providers and

their outsourcing methods. Deloitte, McKinsey, AT

Kearney, Towers Perrin, Watson Wyatt, Accenture

and IBM are examples.

• Research and market data: a major attraction of

HRO advisors is their provision of benchmarking

services for costs, quality and complexity. Nelson

Hall, Gartner, TPI and Equaterra have extensive

datasets - as do Hackett and Morgan & Chambers.

• Global familiarity: advisers should be able to deal

with particular geographies and should understand

the global nature of HRO, along with its associated

management processes. Equaterra, Everest

Consulting and TPI are good examples.

HRO advisory companies - marketshare 2005

Advisor % Market

TPI 36Equaterra 20Everest 20Towers PPerrin 8Hager SStrategic 4Deloitte 4Other 8

Source: TTPI ((2005) HHRO ooutsourcing eengagements

Financing the Deal - Business Model Overview

Source: Jane Linder, Outsourcing for Radical Change, p. 90

Value Proposition • WWho aare oour sstakeholders?

• WWhat ddo wwe ooffer tthem?

• HHow ddo wwe rreach tthem?

• WWhat ddo tthey ggive uus iin return?

Delivery Proposition • HHow ddo wwe pproduce wwhat we ssell?

• HHow ddo wwe mmeet oour stakeholders nneeds?

Financial Proposition • HHow ddo wwe gget tthe resources tto ddeliver oon our ooffers?

• HHow ddo wwe mmake tthe mmostof oour ffinancial rresources

How Do We Make Money? • DDistinctive rrevenue implications?

• DDistinctive ccost iimplications?

• DDistinctive ttangible/ intangible aasset implications?


This section discusses handing over single,multiple or all HR processes which, for many,represents their first experience of HROprojects. The success factors, issues andfoundation stones of any transition process arecovered.

6.1 People strategies for HRO

The aim here is simplicity itself, described byAccenture's Jane Linder, as "giving people themeans to make their own choices".

However, the people issues inside HRO dealsare complex - and if the HR function cannotmanage its own HRO, the irony will not be loston senior executives, managers andemployees.

These considerations should be part of anytransition plan.

• View employee anxiety as a given: it is inevitable

that some employees will lose their jobs, others will

see their work change beyond recognition and some

will be relocated.

End-users of HR - other employees and their line

managers - may experience major changes in their

method of working due to structural and process

changes in HR.

• Clear people plans: such anxieties need to be

efficiently planned for and dealt with. People will

respond to HRO announcements or rumours by

asking, "What does this mean for me?" Answers

need to be in place.

All people implications, such as redundancies,

pensions, relocation packages, Transfer of

Undertakings Protection of Employment (TUPE)

conditions and career progression must be planned

carefully before the announcement of an HRO deal.

Horror stories abound in which employees havebeen outsourced with just one year to run beforetriggering their pensions - and companies notbeing ready with answers as to how such issuesshould be dealt with. If you drop this ball,employees will not forgive you.

6.2 Managing your HR talent

A crucial decision in any HRO intervention iswho goes - be they transferred to the provider,re-deployed or made redundant - and whostays. Choices for the latter are oftenoverlooked. A temptation is to transfer most ofthose connected with the HR service to beoutsourced.

But this raises the issue of who will be leftbehind to manage the interface with the HROprovider? In addition, HR and organisationsneed to think about these points.

• Retain strategic capability: it is not simply a

question of having somebody left to handle the

provider. The retained team needs to be capable of

liaising with, negotiating and managing the HRO in an

efficient and added value way - this is not an easy

task, even for well-motivated and experienced

people.

• Define your HR staff requirements: those who

remain behind should not be the 'chosen few' of

senior management. Wider role requirements and

criteria should be agreed through a transparent

process, including the key competencies needed for

the HRO - a particular mindset for, and orientation

towards, the new business, service skills and

behavioural attributes. Staff will react much better to

6 HRO deals: making the transition

The business world is changing

“Capability aand ccapacity hhave iimproved bbut eequally,expectations hhave rrisen. WWhy ddo II ssay tthat? TThe ooldemployment ddeal hhas eexpired aand hhas bbeen rreplaced bbya nnew ddeal. TThe mmanner iin wwhich HHR iis ddelivered hhaschanged aappreciably aas aa rresult oof ttechnology - aand, ttoan eextent, hhas bbecome ddepersonalised.

"Middle mmanagers iin pparticular, wwho hhave bbeensqueezed aand bburdened bby iincreasing ddemands, hhaveless ttime tto sspend wwith ttheir tteam mmembers tto ggive tthekind oof ccoaching aand sstructured ffeedback tthey pprovidedpreviously. YYet iincreasing ddemand iis aan eenduring ffeatureof mmodern llife. II tthink mmanaging aand ssupervising ppeopleis oone oof tthe mmost ddifficult tthings yyou ccan ddo. IIt's hhard ttoget mmanagers tto mmaintain ffocus aand cconcentration oonpeople ddevelopment wwhen tthere's aa llot oof ppressure." Nick

Starritt, MManaging DDirector, SSirota CConsulting, EEurope, rreflecting oon tthe

original BBP/Exult HHRO ddeal - hhe wwas GGroup VVP oof BBP’s GGlobal HHuman

Resources ffunction aat tthe ttime.


clearly stated criteria when they are made widely

available.

• Consider these key questions.

How many posts can you fill with the people you

have?

Will they require additional training?

What kinds, by whom and at what cost?

What is the timescale for selection and induction?

Andrew Kris of the Shared Services andBusiness Process Outsourcing Association(SBPOA), comments on the issues facing HROtransition.

"Change requires real HR leadership and the ability

to implement strategy. It calls for the total support of

executive management, employee buy-in, sound

technology, solid governance and education.

Education? Yes. HR transformation and operating in

this new environment demands new skills. A lack of

skills in HR is the biggest hurdle to HR transformation

and these must be re-learned."

6.3 Transparency for stakeholders

Communication should be both relevant andaccurate. This may sound obvious, but it is notuncommon for executives to avoid sensitiveissues or to be conservative with the truth at keystages.

It is better to deal with difficult issues at theoutset to avoid uncomfortable situations thatmay damage the HRO project. Consider buyingadvice from experts. Think carefully about thecontent of messages and how they will bedelivered and received.

Across the organisation, champion the businesscase by explaining why HRO is being deployedand what it means for the business, both in theshort and mid-term.

Apart from senior executives, managers,employees and representative committees asinternal stakeholders, external stakeholdersshould be considered.

• As noted above, unions need to be involved in

negotiations surrounding TUPE issues. This process

need not always be adversarial - although it often is -

if unions are invited for discussions at the earliest

stage possible.

• Your community may have more than just a passing

interest. Offshoring in particular has become a major

issue in the US - attracting the attention of politicians

and the media in particular. Plans need to be in

place to announce HRO arrangements and to cover

issues regarding the offshoring of any related posts.

• Investors also require clear messages of the strategic

intent of HRO deals - and particularly the financial

implications. While there is evidence to suggest

stock markets like outsourcing - see the box above -

it is also often a prescription offered by the business

media for ailing companies. Note that customers

react badly to negative messages of companies they

do business with.

6.4 Managing the transition

The launch of an HRO deal is a crucial eventand will also be its first activity in the publicdomain. Many issues need to be prepared for.Here are some to raise with your HRO provider:

• Select a project transition team: having already

decided who goes where, a team of trusted,

experienced and knowledgeable staff needs

selecting to liaise with the provider and manage

arising issues that typically occur during the transition

of HR services. This team should be well-resourced

and supported by senior management and key staff

Does the City like outsourcing?

According tto aa sstudy oof tthe FFTSE 1100 ccompanies bbyMorgan && CChambers, aa BBPO aanalytical aand aadvisory ffirm,the CCity cclearly eendorses ooutsourcing aannouncements.The mmain cconclusions oof tthe sstudy wwere aas ffollows.

• Strategic ooutsourcing ppositively iimpacted oon ssharevalue, wwith aa ddifference oof 55.3% aabove tthe iindividualsector aaverage aand 44.9% aabove tthe FFTSE 1100.

• Some 557% oof tthose ccompanies sshowed ppositiveimpacts, 338% wwere nnegative aand tthe rrest ((4%)showed nno ddiscernable iimpact.

• Of tthose wwith nnegative rreturns, nnone hhad aacommunications pplan tto ttell tthe mmarket tthatoutsourcing wwas ppart oof aa sstrategy wwith ssetobjectives - ccost ccutting, ffor eexample - eendorsed aandsponsored bby tthe bboard.

Source: MMorgan && CChambers, Outsourcing iin tthe FFTSE 1100: TThe DDefinitive

Study: EEpisode TTwo: IImpact oon FFinancial PPerformance.


from the HRO provider.

• Testing and phasing will be needed to ensure the

technology works before roll out of new HR systems.

Many HRO providers and advisers recommend

transferring old systems and then transforming them

- rather than installing new systems immediately. Fix

a timescale and stick to it.

• Training staff: there are many useful forms,

including work shadowing and 'buddying' between

previously transferred workers and new movers. This

helps people to quickly adapt to their roles and

understand where the new service - and their own

prospects - are heading. End-users also need

training support, particularly line managers who will

have to use the new systems.

It is worth highlighting the inevitable emotionalfactors behind staff moves. These requirecareful management. Marketing literature fromsome HRO providers hints at how work-life willbe better than with their previous employer.

Indeed, data are often used to indicate howsalaries of transferred staff increase at fasterrates than those left behind, especially in publicsector organisations were it can be as much as25%.

But a note of caution. Many employees trade-offhigher salaries for the job security of the publicsector - the very thing they can lose if theytransfer to a new employer.

Emotions run high during transitions.

• Stories of anger, bitterness and frustration.

• Individuals have to leave geographic areas and see

colleagues being made redundant.

They also have to adapt to new workingconditions and feed their tacit knowledge intothe vendor's systems that have been installed toreduce the consequences of staff having toleave. With HRO, it's emotional!


This section discusses the issues behindmanaging and measuring HRO performance.Current and future metrics are described, as isa new model for understanding performance.

7.1 Context of HRO performance

“If we don't count something, it gets ignored. If we

do count it, it gets perverted.” David Boyle, The Tyranny of

Numbers

You cannot manage what you cannot measure.To many outside the outsourcing industrylooking in, this old McKinsey mantra is alive andwell in HRO. Providers and buyers are lessconvinced, however, as anticipated results areproving elusive.

Writing in Harvard Business Review, June 2005,BPO expert, Professor Peter Davenport,predicted a world in which business processstandards would dramatically increase the leveland breadth of outsourcing and reduce theprocesses that organisations perform forthemselves.

"With objective criteria to evaluate whether a

company can save money or get better process

performance by outsourcing, it's likely that more firms

will take advantage of external capabilities,” he said.

Crucial to Davenport's analysis is the notion of a'standard' which is

... an agreed way of measuring the minimumbenchmark and impact of businessprocesses.

His thinking is being applied by HRO providersas they seek new levels of accountability andtransparency for clients to cut costs and driveimproved performance.

Yet, as we have noted throughout this report,dissatisfaction with the HRO industry andproviders is occurring because performanceclaims have not been forthcoming - at threelevels.

• The promise of major cuts in costs of up to 50%.

• Outcomes of HRO 'transformation' have yet to be

articulated, let alone delivered.

• The promise of enterprise-level results can take

several years to be realised as performance gains.

Added to these points are end-user concernsrevealed by Deloitte Consulting's benchmarkstudy of 2005, Calling a Change in the OutsourcingMarket: The Reality of the World's LargestOrganisations.

It analysed so-called 'problem HRO deals' andfound that 'customers' in these generally hadbeen poorly serviced. The study raised majorquestions about how HRO performance can bemonitored and managed.

7.2 Performance measurement andHRO

Questions need asking to see if currentapproaches to performance measurement inHRO actually help executives to monitor andmanage.

• What does good performance look like?

• At what levels of service and for which stakeholders?

• Are current HRO metrics adequate measures of

providers' actual contribution and performance?

• Which metrics drive business performance through

HRO?

7 Managing and measuring HRO performance

HRO metrics: cause or effect?

At aa rrecent hhigh-llevel mmeeting iin tthe HHRO iindustry, aanHRO aadviser ppresented ddata tto ssupport tthe cclaim tthatworld cclass oorganisations aachieved bbetter bbusiness rresultsthrough HHRO - aand ssimultaneously sspent lless oon ttheirHRO ccontracts.

The rreasoning ssupporting tthis sseemed ssound tto mmostpresent. MMeasured aagainst lliterally hhundreds oof mmetrics,those oorganisations sscoring iin tthe uupper qquartile oofperformance aand HHR sservice llines wwere aalso sspending llesson ttheir HHRO ccontracts. BBut iis tthis ''world cclassperformance' tthe rresult oof HHRO?

Might iit bbe tthat ssuch oorganisations aare mmore llikely tto rruntighter ccontracts aand ddemand hhigher pperformance llevelsfrom ttheir vvendors - aat bboth tthe iinitial ccontractnegotiation aand tthe HHRO pproject ggoing fforward - tthusdriving ddown pproject ccosts?


To recap, traditional HRO performancemanagement and measurement focuses onthree areas.

• Efficiency: represented and measured by cost

reductions.

• Effectiveness: represented by the delivery of services

against agreed criteria through service level

agreements (SLAs).

• Transformational: involves deeper change for the

organisation, its employees and systems - and at

intangible levels.

In addition, the emerging notion of HROgovernance pulls together the management ofperformance, including

• decision rights, rules and processes

• agreed management processes defined with and

before providers are engaged.

7.3 Sample metrics

Different levels and types of metrics arecurrently used in outsourcing contracts.

• Metrics for efficiency seek out economies of

scale through a combination of labour arbitrage,

process re-engineering, scaling processes on

technology systems and headcount reductions.

• Cost reductions tend to be fixed through

contractual obligations with heavy downward

pressure - they are thus highly visible and

accountable.

• Effectiveness metrics can also be contractually

set. An example is building service level increases

into SLAs as improvement targets for providers,

especially for critical services identified by clients.

However, metrics for transformationaloutsourcing are far from clear because of itsintangible elements. According to Accenture'sJane Linder,

"when the goal is business transformation, the

ultimate metric is how much value is created".

Accountability is a key concept in outsourcingmetrics, being seen as synonymous with client‘power’. As Xchanging's head of Xcellence,Bryony Moore, revealed.

"We are very much into measurement because,

having taken control of the resource away from BAE

Systems - the people who undertake the work - we

have to give back to the customer another means of

control. That means is through data, measurement

and performance statistics."

Note here Moore's distinction betweenmeasurement and performance.Transformational outsourcing uses broadly-based metrics for the financial performance ofbusiness units, and outcomes are only looselyrelated to actions. This diminishing level ofcontrol was identified by the Deloitte study as amajor source of unease among executives. But,this is precisely where new HRO metrics aretaking us.

Outcomes, nnot jjust pprocesses

Deborah Kops of Deutsche Bank explained theimportance of distinguishing between outcomesand process metrics when referring to the keyperformance management issue for BPOclients.

• Inputs focus on efficiency and/or effectiveness and

are crucial for managing HRO providers.

• Outcomes, however, represent something entirely

different. See the box overleaf.

Impacts on business performance can bemeasured through the percentage of customersretained each year, new product sales, profit percustomer, market share, and so on.

Outsourcing Metrics

Transformational(Share PPrice)

Efficiency Effectiveness(cost rreductions) (SLAs)

Strategic Governance


A major challenge for the HRO industry is howoutcomes like these, at a business level, can beattributed to HRO. Part of the problem is that toomany clients spend too little time thinking about:

• what they seek from their HRO provider

• how they will measure whether the provider delivers

what they seek.

It is not enough for potential clients to leave theanswers to their advisers or HRO provider. Thischallenge led Deborah Kops to argue for 'smartclients' or 'good customers'.

"Good [HR] customers make informed decisions -

and informed decisions ensure delivery

performance," she explains.

One experienced HRO respondent, whorequested anonymity, commented on HR'scapability to be a 'smart client' andorganisations' failure to grasp this concept.

"It's not just what you do, it's how you do it. I think

those subjective elements are difficult to put into an

SLA. Most HR functions could work more effectively.

I haven't yet found one I can honestly look at and

admire. HR thinks it has to do everything for

everybody and we rarely 'push back' - it's not in our

nature to do that. HR needs to do it. It needs to be

more assertive about what it can do and how it

contributes to the performance of the organisation.

"HR is notoriously bad at articulating where it adds

value - partly because people in HR have non-

numerical backgrounds. It's not normal to think about

cost-benefit analysis. Some decisions are made,

which, if a simple cost-benefit analysis had been

used, it would have been an easy win. They should

look at cost savings and cost benefits. But HR

doesn't do it that way. It's more a case of looking at

our three-page paper on the subject. It needs to be

much more aligned to how the business works."

One possible answer is to pass responsibility toHRO providers for identifying howtransformation is to be achieved.

Francisco D'Souza, COO of CognizantTechnology Solutions, made exactly this point toLinda Cohen and Allie Young.

"When a client specifies the work, it reduces our

ability to bring best practices to bear. If a client lets

us determine the best way to do the work for them,

that's when we can add most value."

Providers can then, more likely, deliver on thepromise of reducing HRO costs while releasingclients from management and other activities tospend more time advising the line.

The performance issue then becomes one ofgetting down to what matters. Initially, work onSLAs essentially defines responsibilities,enabling those managing performance toestablish what is important. Both buyer andHRO provider can then talk throughperformance issues.

After this comes simplification. As trust andfamiliarity with processes evolve, key metricscan be agreed, starting with six-to-ten 'supermeasures' or high level targets which then breakdown into layers of more specific metrics. It is aniterative and experiential learning process.

7.4 Tomorrow's HRO metrics

What, then, might tomorrow's HRO metrics looklike? What will they seek to capture? How canwe be sure of their accuracy?

Measure outcomes, not justprocesses

Processes aare ooften mmeasured bby mmetrics wwhich rrelate iinpart tto eefficiency aand eeffectiveness. EExamples mmightinclude ttotal nnumber oof ttraining ddays, tthe nnumber oof ddaysit ttakes tto rresolve aa ppension qquery, oor tthe llevel oof aaccuracywhen ppaying nnew eemployees.

But iit iis ooutcomes tthat mmatter, aas tthey aare pparamount ttothe ssuccessful ssetting oof pperformance ggoals. EExamplesinclude cchanges iin HHR ppractice, oor iidentifying llevels oofdifferentiation iin vvalue ggenerated bby kkey HHR pprocesses.

Processes aand ooutcomes aare, iin eeffect, ttwo ssides oof tthesame pperformance mmanagement ccoin.

• Processes aare rrepresented bby tthe mmeasurement oofparticular sservice llevels, bby aan HHRO pprovider, aat aanagreed ccost.

• Outcomes aare mmeasured ffor iimpacts oon ttheorganisation's pperformance - sstages iin bbusinesschange oor iidentifying tthe kkey HHR ppractices tthatdemonstrably iimpact oon bbusiness pperformance, fforexample.


These were questions raised by respondents -clients, providers and advisers - during theresearch.

One thing was clear from their responses.HRO's impact on performance is certainly morecomplex than the simple input-output modelsused to explain impacts of outsourcing and HRin the past. A consensus on what new HROmetrics should attempt to measure, and how,has yet to emerge.

In what follows, we present a new way ofunderstanding the ‘black box’ into which inputsare made and outputs are hypothesised.

Key to understanding the new HRO metrics isthe distinction between transactional andtransformational processes. This is an importantissue.

Transactional sservice

This is represented primarily by behaviour withclear lines of sight to process outcomes whichare highly tangible - and consequently, easilyquantifiable. They can be measured withstraightforward analytics.

Examples might include the number of rings toanswer a telephone call, the number of days ittakes to resolve a pension query or the numberrequired to fill a vacant post. Costs can easily beattributed to many transactional level services.This is the bread and butter of SLAs.

Two significant measurement problems face theHRO industry and its providers.

• Causality: that which can be counted does not

always count, Einstein taught us. And not everything

that counts can be counted. The HRO industry has

largely overlooked this important distinction, focusing

more on trends rather than results - on what HRO

does, rather than on what HRO delivers.

• Method of measurement: part of the problem lies

in the observation made by Galileo when referring to

our tendency to look for what we have lost in places

where we can see - rather than searching places

where the lost item might be. Looking for a bunch of

keys under a light is an example. In short, do we

have the right metrics with which to measure the

performance of HRO?

The HRO industry's response to these problemshas been to largely ignore the issue ofarticulating transformation. A definition isessential if potential clients are to grasp thenettle of HRO performance.

Transformational iimpact

What does transformation in practice actuallymean?

• It lies deep in the experiences of individuals and

teams working in HRO projects.

• It brings together underlying patterns of behaviour

and activities.

HRO versus internal HR: how do thecosts stack up?

HRO cclearly hhas aa ssuccess sstory iin tthe mmaking. RRecentdata eestimates tthat tthe ccost oof HHR pper eemployee iin ttheworld's llargest oorganisations iis aaround $$1,000 pperannum.

According tto rrecent ddata ppublished bby tthe EEverestResearch IInstitute, iin ooutsourced HHR ffunctions ttheaverage ccost iin 22004 oof HHR pper ffull ttime eemployee(measured aacross 665 ppossible ttransactions) ffell bby 220% iinsmall eenterprises (($1,003 tto $$740), aand bby aa mmassive 335%in llarger oorganisations (($673 tto $$397).

How ddo yyour HHR ccosts ccompare?

What does transformation look like?The BT view

"You nneed tto bbe cclear aabout tthe bbenefits tto bbe dderived. IIsit ccost? IIs iit sservice? IIs iit ssomething lless ttangible ssuch aasfreeing HHR rresources tto bbe uupgraded? UUsually, iifadministration iis ooutsourced, tthe rresources lleft bbehindare nnot ccapable oof pperforming tthe hhigher ffunctioningrole eexpected oof tthem. BBe ssure oof wwhat yyou're ddoing aandwhy yyou're ddoing iit; mmake ssure iit's rright aand ttest iit." Alex

Wilson, GGroup HHR DDirector, BBT

What does transformation look like? TheCSC view

"Transformation iis uusually aassociated wwith tthe ttechnicaljourney CCSC hhas tto ffulfil - wwhat iis tthe ‘‘Target TTechnicalSolution’ wwe hhave ccommitted tto? WWhen wwe ttake oon aanaccount, wwe ggo tthrough aa sshort ttransition pprocess -making ssure ppayroll iis iin oorder aand ssetting uup sservice llevelmeasurements, eetc. TThen wwe mmove oon tto wwhat oourinternal ppeople ccall ttransformation - bbut wwhat II ccall ttheimplementation oof oour TTarget TTechnical SSolution. WWe aarecommitted tto, aand ccontracted tto, cclient-ssidetransformation aas wwell." Guy HHaines, CCEO, EEMEA, CCSC


• Ultimately, it shapes the mindsets and cultures of

those who deliver services.

Influencing these represents both the challengeand attraction of HRO for two executives whohave led outsourcing projects. See the box onthe previous page.

Not everybody is convinced, however. As oneleading HR director active in the HRO industrysuggested, when asked to comment on theclaims of transformation made by the HROindustry,

"They're all trying to sell something and you have to

have a sense of reality on it!"

Interpretations oof ttransformation

The reality is that transformation means differentthings to different people. During the research,at least three interpretations of transformationwere voiced.

1 Standardisation and control

This involves dramatically reducing costs and,consequently, improving the internal standing ofHR at board level - along with standardising HRprocesses/systems and freeing retained HRstaff to focus more on strategic activities.

The challenges here lie in establishing whatretained HR seeks to achieve with its newstrategic agenda. This is a challenge not just forHRO, but also for HR itself.

2 Commercial consciousness

One HR director stated, somewhat facetiously,that bringing in outside providers "raisessignificantly the gene pool in HR". Othersreferred to it as introducing a moreentrepreneurial spirit into the HR function,listening more closely to its customers, andresponding to business and operational

demands in the line.

A lack of proactivity was lamented - and wasseen more widely as a major developmentalcomplication facing HRO and HR.

3 Enhanced capability

This is the deepening (knowledge) andwidening (expansion) of capability in HR. Aparticular emphasis is on aligning capabilitywith new HR service lines and the deliveryrequirements that new systems and operationalpractices require.

But the question still remains as to how HROenables such transformation to take place. Toanswer this, we need a new way of explainingthe interplay between HRO and organisations'HR systems.

7.5 Towards reflexive performance

Reflexive performance is a way of thinking abouthow we interpret the relationships, linkages andinteractions between HR interventions(activities, processes, systems), and outcomes.These are the results of reflexive performancewhether measured by metrics, financials orother forms such as engagement. See theReflexive HRO model opposite.

As much of what HR does cannot easily bemeasured, the key word in reflexive thinking is'interpretation'. We have to interpret what wethink the impacts of HR, and HRO, might be.

• How might we define and then measure transformed

service, people or processes?

• We have data from measuring efficiency and

effectiveness, but what do HRO providers and their

clients do to achieve such results?

We have already defined three points of thediamond in the model. To summarise.

• Business value creation: the top-level enterprise

performance - as well as share price, other financial

proxies may be used at business unit or even team

level.

• Efficiency: the cost reductions associated with

streamlining HR - improved services, headcount

reductions, etc.

"You wwant tto llock iin aan aannual rreduction iinoperating ccosts. YYou wwant tto llower tthe ttime ooverhead oofshared sservices iin tterms oof HHR ddistraction. TThe cchallengeis tto aavoid tthe ffuture iinvestment tto kkeep tthe sserviceimproving. TThese wwere oour kkey ddrivers: gget tthe ccostreductions ddown, hhave aa sservice tthat wwasn't ccontinuallyon eeverybody's aagenda aand aavoid sspending mmoremoney." John QQuinn, MMinistry oof DDefence, oon hhis pprevious oorganisation.


• Effectiveness: agreed SLA outcomes - providing

three qualified interview candidates for each opening,

processing invoices within 72 hours of receipt, etc.

These three points are standard for the industry.The challenge lies in understanding how HROtransforms the HR function's ability to add valueto the wider business activities - that is, thefourth point of the diamond, reflexivetransformation.

Three features of the model help us grasp sucha contribution from HRO:

• Reflexive systems: actual HR activities and

processes - what gets done.

• Reflexive architecture: People and methodologies

to execute HR processes - how HR gets done.

• Reflexive performance: moving beyond

efficiencies and effectiveness to understand and

attribute linkages for how HR systems and

architectures impact on performance at

organisational, people and process levels.

Reflexive ssystems

Reflexive systems capture the work andorientations of individuals engaged in actual HRactivities. They are reflexive because theycannot simply be executed. They are enacted,which involves interpreting how best to performthem - how to provide assessment feedback orthe programming design of an HR portal, forexample.

HR processes for service delivery are based inopen systems - that is, they can influence otherprocesses and people and, in turn, beinfluenced by them. For example, a 'peopleportal' may be easy to use by one employee orwith difficulty by another. See the box below fora systems example.

In addition:

• Systems combine activities - other HR tasks,

processes, structures, etc - which in turn are shaped

by other combinations such as rules, resources, IT

software and so on.

• Reflexive systems act transfactually - that is,

sometimes their impact is present and active. At

other times, certain attributes - knowledge, for

example - is present but inactive. This distinction is

crucial in understanding how different combinations

interacting in reflexive systems may or may not

'enable' - as opposed to 'cause' - particular

outcomes.

• Certain HRO interventions work well in some places

and not in others because of the different actors

involved, the situations or structures in which they

find themselves, and the nature of the combinations

in play.

• Reflexive systems can, in part, be measured for both

cost reductions and SLA outcomes. To understand

how such outcomes are generated requires deeper

Reflexive HRO: A Model

Business Value Creation(Share PPrice)

Reflexive Architecture

Transactional

Efficiency Effectiveness(Cost Reductions) (SLA Delivery)

Transformational

Reflexive System Reflexive Performance

Reflexive Transformation(Value AAdding)

Source: Adapted from Anthony Hesketh (2005) AddingValue Beyond Measure (Warwick: AGR)

Tangibleand

Operational

Causal

Enabling

Intangibleand

Systemic

Reflexive systems: four boxes

According tto JJohn QQuinn oof tthe MMinistry oof DDefence, HHRprocess ttransformation eequates tto ffour bboxes - aand aallfour hhave tto bbe rright.

• Shared sservices oor ooutsourcing wwith tthe rrighttechnology.

• High llevel sstrategy tteam ffor ddirection aand sstrategy. • Business ppartners tto ddrive tthe ddelivery oof sstrategy. • Managing eemployees eeffectively aat lline aand wwork

area llevels.


level reflexivity (interpretation, understanding and

expertise) of the HR processes, management tools

and technology used to enable their achievement,

and the responses of those employed. This is not a

straightforward task.

• Reflexive HRO is not a 'drag-and-drop' approach to

change management. One has to be able to grasp

the deeper levels of change and their implementation

in different contexts - this is why some HRO

providers are preferred, or 'fit', with certain clients,

and not with others.

Reflexive aarchitecture

This is based on Ram Charan's notion of ‘socialarchitecture’, or the collective ways in whichpeople work together to support the businessmodel.

Reflexive architecture extends suchcollaboration through a more disciplinedapproach to evaluation - and not justmeasurement - which features critical reflectionon how well processes are working and how thedesired changes can be introduced. See thebox below.

Note these points on reflexive architecture.

• Many of its tools are not unique or even new. But

when the different operating tools of HR activities

(reflexive systems) are brought together, they can

change the human side of performance. Reflexive

architecture, therefore, brings about change in

people's service or commercial orientation through

their behaviour, beliefs, social interactions and the

nature of their decision-making.

• HR processes are tightly mapped and articulated

through a client/HRO provider partnership - to

underpin performance and cultural change.

• Reflexive architecture can partly be shaped by

tangibles such as budgets, the work environment,

the availability of technology, etc. But, its

transformational capacity comes mainly from

intangibles at a systemic or cultural level - mindsets,

behavioural models, for example.

• Crucial to shaping reflexive architecture are the

different methodologies used by HRO providers. For

example,

- Xchanging seeks to transform reflexive systems

through their Xcellence methodology, instilled by key

values.

- CSC does so through its Target Technical

Solutions.

- Capgemini's approach to transformational change

is through a 'service oriented enterprise' (SOE).

Key to these systems is the reflexivity of the

individuals involved and how both reflexive systems

and reflexive architectures are combined to transform

HR service activities.

Certain combinations within reflexivearchitectures may trigger particulartransactional results or outcomes in efficienciesand effectiveness - these may or may notreplicate across different organisations.Essentially, unlike conventional models ofchange - where a universal and causal model ofchange is inferred - HRO transformation isfacilitated more by 'complementary' reflexivearchitectures, as in a cultural and technical fitbetween the HRO provider and client.

Reflexive pperformance

This is the mechanism through which reflexivesystems and architectures are brought togetherto achieve enterprise-level results articulated inan HRO contract.

• It is not simply about high-level metrics, such as

revenues, service margins, and process delivery.

Reflexive performance measurement is also

complemented by quantifiable statements describing

different 'organisational states' - employees are

satisfied with the quality of service from a service

centre interaction, for example.

• Reflexive performance focuses, or re-focuses,

client/provider discussions of transformation because

Reflexive architecture: people andexecution

"In eevery ppart oof mmy ccareer ffor tthe llast 220 yyears, tthecommon tthread hhas bbeen ppeople. WWhether iintechnology, ffinance oor ooperations, iif yyou hhave aanindividual pplaying tto ttheir sstrengths aand ttalent, tthey wwillbe eengaged, rrecognised aand rrewarded - aand yyou ccanclimb mmountains.

“HR iis aa ggreat ffunction iif iit ccan eenable tthe oorganisation ttoachieve iits sstrategic iintent. TThe ddifferentiator ddoes nnotcome ffrom ppeople aand sstrategy - iit ccomes ffrom ppeopleand eexecution. WWhere ccompanies ccan mmake aa ddifferenceis wwhen ppeople aare eengaged aand eexecuting bbetter tthananybody eelse." Luis RRojas, CCOO HHR, SStandard CChartered BBank


they use the same criteria. Although anecdotal and

qualitative information remain crucial, they are judged

against their 'contribution' to the transformational

template agreed by the two parties. Statements

include 'how much are our people focused on

customers?' or 'are we getting employees to follow

the HR practices we want?' See the box for provider

and client comments.

In short, reflexive performance is aboutdiscovering what Charan refers to as 'toll gates'- the right combinations of HR practices andprocesses which are understood to be crucial tothe successful completion of any HR serviceprocess. This is not just a case of grasping thewhat, but explaining the why and how.

Luis Rojas, chief operating officer, HR, atStandard Chartered Bank has a clear view of thenext level for HRO and reflexive performance.

The nnext llevel

"So what's next? How do we gain the nextbenefit? Shifting from financial value to value interms of capability, scalability, technology,quality of services or a range of differentfactors? Doing this could enable us to declare,'We've now moved on to the next generation ofachievement'.

“It's not about efficiency. It's about taking HR tothe next level. The reflexive model may notapply to everybody - I do emphasise that. But, ifyou look at what we do, HR has moved up thevalue chain. It used to be very simple, verytransactional in nature - even the relationshipitself was just transactional. Over the years it haschanged.

“An example is the SSC, a unit that handlesinternational mobility for the whole group. It's nottransactional, it's relationship management.Plus, they're becoming more proactive. Nowthey say, 'Here are some analytics aroundexpatriates' or 'here's the cost globally forexpatriates'. From this single source of HR data,we now have information about linkagesbetween expatriates, performance managementcosts and attrition.

“They have taken the activity to another level -it's more about anticipating and adding value.It's not just following orders.

"Each year, investment is required to reach thenext level. Eventually, the next level will becomeharder and harder to reach. Improvements canbe in quality, technology, efficiency, unit costs ora combination of factors. It's all about scale andvolume."

Reflexive performance: combiningarchitecture and analytics

'"You nneed tto ffocus oon eenabling tthe wworkforce sso aas ttomaximise yyour iinvestment. TThis iinvolves ffocusing tthemon tthe jjob tthey aare ddoing ffor tthe ccompany, aand nnot oover-involving tthem iin aadministration. IIn tthis wway, yyou rreleasemore vvalue ffrom yyour ppeople. UUse bbusiness iintelligenceand mmetrics ffor tthem tto uunderstand mmore aabout ttheirwork aand wwhat's ccausing aany wworkforce iissues - ssuch aashow tthey aachieve bbetter pperformance tthrough ccertainpractices. IIt's aall aabout uunderstanding yyour wworkforce aandhow iit wworks." Peter CClarke, VVP, HHewitt

Reflexive performance: the importantbeats the urgent

"What's tthe rrole ffor HHR? IIt's nnot ddriven ssolely bby ccost oorefficiency ffactors. IIt's aalso aabout mmaking ssure HHR pplays aadifferent rrole iin tthe bbusiness. IIf ppeople aare pperforming aanumber oof ddifferent ttasks - aand tthose ttasks rrange ffrom tthestrategic tto tthe ttactical, tto tthe rreactive tto ttransactional -the uurgent wwill aalways bbeat tthe iimportant.

"You aare nnot aable tto iidentify aand ccreate tthe sspacenecessary tto hhave cconversations tthat aare mmore iimportantand sstrategic iin nnature. HHR ccan nnow hhave vvery ddifferentconversations wwith tthe bbusinesses, eexecutives aand llinemanagers aabout wwhat's iimportant tto tthem ffrom aabusiness ppoint oof vview." Luis RRojas, CCOO HHR, SStandard CChartered

Bank


8.1 General trends

A sea change has taken place in the delivery ofHR services. Over 90% of the Fortune 1000 andFTSE 100 constituents outsource major parts oftheir back office transactional services. Theprimary drivers here are cost - and an ability tospend more time focusing on strategic issues ofimportance to the business as a whole.

Patterns iin HHRO

Patterns in the development of HRO further upthe HR value curve are less clear-cut. However,there are indications.

• The so-called HRO 'mega-deal', in which an entire

HR function is outsourced, has defied predictions of

both its demise and acceleration. Large-scale

contracts do continue to be signed (Capita and

BBC, Convergys and DuPont) and renewed

(Accenture and BT) - with rumours rife of other FTSE

100 companies following suit.

• Increased outsourcing is occurring in higher value HR

processes such as training and development, and

recruitment. Confidence in HRO is growing.

• The majority of HRO deals are motivated by cost

reductions, and most contracts have achieved or

even surpassed such targets. The trend of HRO

under-performance has perhaps been overstated,

although there is evidence of 'problem deals' in the

market.

The rrise oof sshared sservices

• Increasing numbers of organisations are using a

shared services model to centralise and manage HR

services, streamline headcount and reduce costs.

• There is evidence to suggest that some HR directors

view the shared services route as a stepping-stone

to future HRO. Insourcing enables organisations to

redeem their own cost savings rather than handing

them to a third party provider.

• However, as the HRO business model evolves and

the procurement process shortens to become less

expensive, some may well considering moving

straight to HRO deals.

HRO ccontracts

Negotiating tailored HRO arrangements with theprovider is crucial. These are the general trendsin HRO contracts.

• Contracts often last between five and seven years,

with various clauses for performance or evaluation

built in at three-to-five years.

• It takes between 6-24 months from preparing the

HRO business model to actual procurement.

• Most organisations invest in advisers to help them

select appropriate candidates for shortlisting, initiate

requests for proposals (RFP) submissions and use

benchmarking.

• Governance is emerging as a key area, particularly at

due diligence, as buyers seek to establish clauses

for under-performance and/or changing business

conditions.

• The majority of organisations put together a bespoke

team to deal with the outsourcing provider(s), and to

plan for transition and implementation.

• Research suggests the majority of CEOs and CFOs

are also involved in early contractual negotiations but

then tend to remove themselves from transitioning

and implementation.

• The HR director or equivalent and their team have a

vital role to play in scoping HRO deals. Specific roles

include:

- establishing 'as is' costs

8 Trends and directions

Good practice HR

"Good ppractice HHR iis nnow aadopting wweb-bbased ssolutions,communications aand aadministration ffor ttheir eemployees.This iis tthe mmyHR vversion oof HHR. IIt eenables iindividuals ttomanage eeveryday ttransactions, ssuch aas cchanging ttheiraddress, ttogether wwith mmore eenticing aand aappealingoperations, ssuch aas mmodelling oone's ffuture ppension,applying ffor aa jjob oon lline, aand oobtaining iinformationabout tterms aand cconditions.

"All tthis wwas kkicked ooff iin BBP ssome yyears aago aand nnow hhaswidespread aacknowledgement wwith mmany ccompaniesadopting ttheir oown sstyle oof mmyHR ddelivery. HHR rreceiveslittle ccredit ffor tthat bbut hhas uundeniably iimproved aacrossthe ppiece iin tthe UUS aand tthe UUK." Nick SStarritt, MManaging DDirector,

Sirota CConsulting, EEurope, rreflecting oon tthe ooriginal BBP/Exult HHRO ddeal - hhe

was GGroup VVP oof BBP’s GGlobal HHuman RResources ffunction aat tthe ttime.


- mapping existing HR provision

- reviewing the HR market

- benchmarking services

- ensuring the buy-in of internal HR staff and other

employees

- handling HRO announcement queries.

Performance oof HHRO ddeals

There is a well-established consulting worldoffering evaluation services for existing HROdeals and benchmarking facilities. However:

• Most of the data available is heavily engineered, with

more difficult issues embargoed by both clients and

their vendors.

• Although countless metrics are now used, the

majority focus on cost reduction activities that drive

the efficiency and effectiveness of HR.

• Fewer are available on how HRO transforms the HR

function, or the extent to which its own

improvements contribute to enterprise level targets.

8.2 Recommendations and futuredirections

There are general recommendations for each ofthe major stakeholders in the HRO market.

1 For HR

• Articulate how the HR function can change through

HRO to enable the business - not just the function -

to achieve its business goals.

• Show how HR can become financially and

commercially fluent in order to drive through required

culture change, improved performance and

evaluation.

• Be a smart, reflexive client.

2 For providers

• Clarify your HR capability and seek to engage with

the HR function and its mission.

• Work with the capability already available in-house.

• Be transparent and accountable over the value you

bring to your client's HR function and the wider

business.

• Be a smart, reflexive partner.

3 For advisers

• Cease to rely on trends in favour of actual

performance of HRO.

• Although benchmarking and cost reduction metrics

are important, the future of HRO relies on whether it

can deliver transformation to those clients who

genuinely require HR change.

• Encourage smart, reflexive clients and providers.

These are some predicted trends affecting theHRO market.

The cchanging nnature oof HHR

• The relationship between individuals and their

organisations will become increasingly transitional,

raising the need for good management of talent

issues inside and outside HR. Talent is increasingly

marketable and transferable in very fluid labour

markets.

e-HHR

• HR will continue to evolve into new forms of delivery,

particularly at transactional levels. E-enabled HR

systems make it easier for large organisations to shift

responsibilities for managing HR transactions onto

managers and employees through sophisticated

technology platforms.

• A rise in the demand side of HR services will occur,

with managers and employees pulling information

and services from the HRO provider. Increasing

volumes of life-event HR advice - pensions, for

example - delivered in real time will put pressure on

service levels and provision.

The HHR iin HHRO: nnew HHR ccompetencies

• New HR competencies will be required to deal with

changing delivery propositions, most notably in

- service specific skills - designing technical

architecture, HRIS management, etc

- business skills - understanding business

practices; commercial awareness; management

data/analytics; managing change; planning, mapping

and prioritising administration; project management;

customer focus and communication.

- behavioural skills - creativity, innovation, results

focus, coaching, delegation, developing colleagues,


strategic awareness, influencing and negotiating

skills, conflict resolution, adaptability and

entrepreneurialism.

Demand for, and performance against, theseskill sets will be an important part of clients'decisions to hire HRO providers or not. Analyticsand benchmarking will drive new levels ofaccountability, transparency and competenceamong HRO providers.

The ((mis)management oof HHR ttalent?

A recent McKinsey survey highlighted thedearth of HR talent. This raises two issues.

• The transformation of the HR profession. Not

everyone wants to be a strategic HR partner,

focusing exclusively on value-adding processes and

strategy.

• Not all HR talent will be able to fulfil this role. An audit

of HR talent is essential if organisations are to

understand their existing requirements - and the

levels of investment required to move forward target

states.

New rroles

A range of new positions is increasinglycommon in large organisations.

• The HRO business partner: an extension of the

HR business partner acting as the HR director's

right-hand person.

• The COO - or chief outsourcing officer: mainly

responsible for ongoing HRO operations and

performance management - along with contract

renewal, tendering, new contracts, major transition

programmes, etc.

• HRO associate: represented by the increasing

numbers of HR professionals transferred to HRO

providers from clients. Together with the skill sets

above, associates will also need

- ongoing development aligned with the provider's

changing and evolving demands from different clients

- career management and new career paths,

supported by agreed criteria for career enhancement

and possible moves between the service provider

and retained HR functions.

HRO sstrategy

Strategy formulation is a complex process.Attention should be given to the following.

• Absolute clarity surrounding the decision to

outsource. This includes what - and what not - to

outsource, why and how. This is the client's

responsibility not the provider's, who will inflate HRO

costs for such an additional service. Your HRO

provider cannot give you the precise service you

want unless you know precisely what it is you want

delivering.

• There is a commercial risk connected with a weakly

articulated HRO strategy. The decision to use HRO

must be accompanied by a clear statement advising

investors how it will drive enterprise performance.

• Senior management buy-in should be ensured from

the start - this may be the first driver of HRO.

• End-to-end performance management is crucial. Be

clear on the expected performance gains, how they

will be delivered and, ultimately, how performance will

be measured.

• An appropriate governance system should be used

which sets the parameters for responsibility at senior

levels in an HRO relationship.

• Communicate with employees at the outset

concerning any HR outsourcing decisions. This

applies not just to those working inside the function

but also to its end users.

The mmeasurement ddebate

HRO's gift to the HR function is the level oftransparency it brings to the cost and valueaspects of its work. It is crucial, however, thatHRO does not render HR aware of the cost ofeverything and the value of nothing.

A focus on perception, SLAs and costreductions needs to evolve into new ways ofunderstanding - and capturing the benefitsbrought about by - how transforming peopleand HR services benefits the enterprise and allkey stakeholders.


In this section, Andrew Lambert, whocommissioned this report for CRF, puts thesprawling topic of HR outsourcing intoperspective. He provides guidelines on trends,providers, solutions, options and HROrelationships - along with the implications for HRfunctions.

9.1 Why commission this report?

Outsourcing has become a topic of growingheat within the HR community in recent years. Aburgeoning market has emerged which is, asyet, quite immature in respect of large-scaleoutsourcing. The business and HR mediaregularly focus on the subject and dedicatedmagazines are published.

There's evidently considerable apprehensionand suspicion about HR outsourcing (HRO),particularly in the HR community, about thesekinds of issues.

• Its benefits and consequences.

• The robustness of the proposition.

• Whether the reasons for considering major

outsourcing are clear.

• An impression that HRO is supplier-led, rather than

demand-led.

And there's the language. Providers andadvocates of HR outsourcing have obscured thesubject with terms that value complexity overclarity - and heap acronym on acronym. Thisongoing flow of terminology and concepts canappear impenetrable to the uninitiated.

CRF decided to invite Anthony Hesketh, anindependent academic specialising in this field,to review developments, identify trends andrecommend useful practices. Our aim is toenable CRF members to make better decisionsand manage any outsourcing processes moreeffectively after reading this report.

9.2 Outsourcing is not new

It has always been common practice fororganisations to use suppliers to support whatthey do - as have personnel or HR functions for

training, pensions support, recruitment, and soon. So why the fuss about HR outsourcing?

What's new is the scale of HRO now beingundertaken or promoted. As our author pointsout, most budget and activity in 'traditional' HRdepartments is still devoted to what is broadlydescribed as 'administration' - and it is theseparts of HR that are most susceptible to beingoutsourced, aided by advances in technology.

9.3 Suppliers and the HRO industry

As the IT outsourcing market matured, serviceproviders looked for new growth areas. HR wasidentified as an outsourcing market. Why?

• HR was seen as the function most needing a

business case for improvement and cost saving.

• Administrative and information services became the

target for providers to offer better technology and

economies of scale.

The author’s interviews reflect familiarcomments about HR being a soft targetbecause of its perceived weaknesses.

For some time, through various reports, CRF hasexamined these in depth and proposed positiveways for HR specialists to improve theirfunction's reputation. See especially the CRFPublishing report, The Future of HR: Creating a Fitfor Purpose Function.

There are good reasons for caution inconsidering the claims of providers.

• HRO is a very young 'industry' - much

experimentation is underway and track records are

just being established.

• A strong sense of 'hustle' and hype is apparent, with

specialist media and trade conferences at times

displaying almost evangelical fervour in favour of

outsourcing. A community of interests is united in

seeking to profit from HRO - and the key players all

know each other.

• A 'bandwagon' effect is in motion, with organisations

sometimes considering HR outsourcing simply

because others are doing it.

9 HR outsourcing - the CRF overview


• The most 'buzz' occurs around the 'mega-deal' -

large-scale outsourcing. Here, suppliers potentially

make most money, and the claims of cost-reduction

are ostensibly greatest. Inevitably, it pays then to

promote this benefit - which also happens to be

where the client risks are also greatest.

• The baited hook of cost-reduction encourages

providers to see the key HRO decision-makers as

CEOs, chief operating officers and finance heads

more than HR directors. The issues of value and

stakeholder benefit become lost in the process - and

there is also a suspicion of 'divide and rule' as a

sales tactic.

• Little hard data is evident as yet to quantify the value

for stakeholders - independent and clear evaluation

is proving elusive.

• A major mismatch potentially exists between the

pace of change in organisations and the kind of

long-term deals that providers seek. Even in a five-

to-seven year period, organisations may change

structure and strategy significantly, through organic

growth, mergers and acquisitions and joint ventures -

or because of shifts in technology and global

markets.

• Informed advice is in short supply. As this report

points out, the HRO industry does include

consultants offering such assistance. Here, too, it is

incumbent on the client to source well.

CRF argues that it would be wise for the HROindustry to attend to its own reputation, given thepoints above. In our view, providers may need tobe seen to concentrate on articulating andachieving lasting benefits for all types ofstakeholder, to avoid HRO being characterisedby impressions of sharp sales talk but long-termregrets.

9.4 Matching needs to solutions

Start by knowing what you currently have interms of resource and service levels to agreeinternally on what to aim for in future - and,therefore, what suppliers should deliver. Justestablishing this base position can be quite atest in time and skill.

Equally challenging can be getting internalstakeholders to agree on their futureexpectations, and thus needs.

On the other hand, this provides a great

opportunity to remove unnecessary duplication,complexity and low value activity.

This report provides many pointers for matchingneeds to possible solutions. Here are the mostimportant ones.

• A thorough and independent review of needs -

including all stakeholders and a future needs focus -

should precede any HRO decision. (The RBS case

study provides a good example of what to do.)

• Intended goals from stakeholder consultation should

clarify a range of benefits, not just save money -

evaluation needs to be robust in measuring whether

these benefits are realised.

• Be clear about the different types, levels and areas

for outsourcing. Selective outsourcing is a useful way

of building expertise, learning about the supplier

market - and who does what best.

• Generally, the most advantage from a large

outsourcing deal occurs when significant

improvements in administration quality and

technology investment can be gained.

• Do not use an outsourcing provider to fill any gaps in

needs assessment - nor as sticky tape to improve

HR practice in your organisation

A real issue is what will benefit the organisation,not necessarily the HR function. Ask yourselfthese questions before initiating outsourcingdiscussions.

• What will benefit the deployment of people

resources?

• What will help people to be truly productive and give

of their best, develop their strengths, win their

commitment etc?

• Is the current HR agenda based on a clear

assessment of both strategic needs and stakeholder

satisfaction goals?

• How will the tensions between these potentially

conflicting needs be managed?

The message here is clear. A searching reviewof both organisation and HR choices is critical toavoid a piecemeal, ill-conceived, and fractiousapproach to HRO.

Finally, enter any contractual arrangements withcare - and with an eye on the risks. Appreciate


the possible dangers of having to rely on too fewsuppliers. Contracts should cover targets,benefits or outcomes, the consequences if theyare not delivered, renegotiation terms and exitclauses.

Meanwhile, a cautionary note for providers. Inpractice it is not in your long-term interests to beseen to be too powerful. It is easy for poison toenter a relationship, hard to extract it. That's badfor new business, as it's also easy for word toget out.

9.5 HR capabilities and new roles

The author echoes important recommendationsfrom CRF's work over recent years on HR'scapabilities and roles.

• Measurement and evaluation: a historically weak

area for HR, the need is to evaluate both people

management and the performance of the HR

function.

• Management of technology: these capabilities

are essential for understanding HR service

outsourcing - and to participate in high level

discussions within the organisation and with

prospective providers.

• Project management: any major outsourcing

project will require a high level of competence here,

especially in managing implementation internally and

the change that HRO always brings.

• Supplier management: although there are many

good client-supplier relationships in HR, it is fair to

say that suppliers of all types can provide war stories

of poor capability, experience and continuity - and,

too often, clients provide an unclear purpose and

objectives.

This report makes it clear that new roles andskills need to be defined and developed toensure that supplier contracts are entered intowisely - but also actively to manage what maybe a relationship of strategic and stock-priceimportance. For instance

• to improve HR's metrics ability, skills from outside

HR's traditional area can be sourced internally -

statisticians, finance, IT and consulting, for example

• managing significant supplier relationships effectively

will require purchasing experience, a deep

understanding of supplier markets, and being able to

get the best out of business partners.

New roles to support HRO will typically coverprocurement, contract management, serviceanalysis, and internal customer relations. Note,however,

• levels of expertise will not be easy to acquire or

develop quickly

• if new people are hired, they will need time to master

the internal HRO context

• new roles and job types have to be clarified and

communicated to all stakeholders.

Staff being transferred under an HROagreement will need to get used to new ways ofworking - typically with greater emphasis onservice and performance. Selection anddevelopment processes should be used asearly as possible to ensure that both theprovider and the client have a motivated andcapable group of transferees.

As the author points out, important changes inshaping HR careers, skill-sets and working inter-relationships - from HR business partners tocontract managers - can be expected.

This is against a background of doubts aboutthe extent of talent within the HR function to stepup to new opportunities. 'HR talentmanagement' must incorporate smart ways ofattracting smart people from varied functionalbackgrounds. This requires integratedrecruitment and development - and acting inadvance, not arrears.

9.6 The shared services option

As the report shows, organisations can opt toprovide services more efficiently by applying ashared services model to some or all of what areincluded in the concept of 'services' - and thenchoose whether or not to outsource theremainder.

Some large organisations have by nowaccumulated a degree of experience indesigning and managing this 'insourcing'approach. However, note these points.

• Many of the same precautions apply as in any


outsourcing contract - for example, thorough analysis

of needs and capabilities needs doing before

designing new structures and processes.

• Unless there are tangible benefits for the

organisation, managers and employees, shared

services could be a waste of time and resources.

• Shared services may serve as a stepping stone

towards outsourcing - and in theory it can. However,

new investment in systems and ways of doing things

will mean that, probably for several years, it is unlikely

to be attractive to an outsourcer to take over -

financially or operationally - given that their systems

are likely to be different.

• Simply moving to a shared services model does not

necessarily result in HR staff becoming as focused

on internal customer needs as is desirable - in

comparison, say, with the transition they would have

to make if employed by an outsourcing provider. See

the RBS case for some pertinent comments on this

point.

9.7 Managing internal relationships

This is a significant issue. Much time tends to bedevoted to 'the deal' and its potential cost-savings. Ensuring all stakeholders are identifiedand appropriately communicated with at eachstep of the HRO process attracts rather lessattention.

• Early on, internal customers may well be suspicious

that intended changes are not really designed with

their interests at heart - nor will they be involved in

measuring success. The organisation's choices and

reasons for choosing outsourcing need clarifying.

Their support is more likely if they feel involved.

• Those directly affected, such as HR staff, will

naturally be fearful for their future - keeping and

motivating the best will be affected by how the rest

are treated.

• Other suppliers may also be similarly fearful - be

clear about how best to manage those relationships

in the organisation's long-term interests.

• The attitudes and perceptions of 'peripheral'

stakeholders should not be neglected - customers,

unions, pensioners, alumni, employee families and,

potentially, local communities and local/national

government.

An outsourcing project of any scale should havea robust communication and relationship

management plan. Underinvestment here canfatally undermine the changes. Act early tocreate understanding and build involvement.

Relationship management activity will intensifyduring any transition process. The way it isundertaken will

• be observed and felt most acutely by those involved

• create the understandings, expectations and

atmosphere that will govern what follows.

If off-shoring is involved, the preconceptions,attitudes and behaviours of existingstakeholders requires expert management.Meanwhile, the off-shored staff will want to feelpart of the organisation and to empathise withend-clients - whether they are working as part ofa shared services structure or an outsourcedentity.

9.8 What the new HR function willlook like

The report rightly weaves in the issue of how HRfunctional transformation should be handled.The transformation plan should precede theplan to outsource, and shape the latter, to avoidthe accusation "we've got the solution, nowwhat's the question?”

Where a significant outsourcing is undertaken,time in modelling the new HR function andunderstanding how it will work best should beinvested. Success in a slimmed down functionwill likely depend on having really capablepeople in a relatively small number of keypositions. Much will be at risk without these inplace.

With a relatively lean structure - and a verydifferent ratio of HR staff to employees -attitudes and behaviours will need to adapt,within HR and among its customers.

Time will be spent more on shaping policy andinfluencing leadership, as day-to-day advice formanagers and employees is likely to beavailable from the supplier. The latter should, ofcourse, be endeavouring to ensure that itsservice feels as 'internal' to the customer aspossible, and can be measured on this.


We know there can be pressures from linemanagers to creep back towards the 'hand-holding' service they may have been used to inthe past. Some in HR may indeed be willing todo this. Where line managers feel they are beingasked to fill a gap in HR administration, attitudesto service centres - insourced or outsourced -can be negative from the start.

This underlines the importance of investment inline manager understanding and capabilitiesalong with transforming HR - given that it is theline that actually has prime responsibility formanaging people.

A question we posed at the outset concernedthe core functions of HR that should be retained.There are clear answers.

• People or human capital strategy.

• Organisational policies.

• Recruitment and selection decisions.

• Employee relations.

• Pay and bargaining decisions.

• Talent management.

• Exit decisions.

While service providers may make advisory andsupport contributions in many of these areas,the organisation itself must visibly takeresponsibility - health and safety is an example.

Furthermore, it is the chief executive, togetherwith business heads, who are ultimatelyresponsible for all the areas above. Personnel orHR should, in principle, only provide specialistknowledge and day-to-day support.

In the lean HR function, top management willhave support from HR's strategic and businesspartners, preferably as full participants of themanagement team.

Business partners in turn need to obtain valuefrom the support and advisory services they donot necessarily 'own' in the old functional sense.Strategic partners - the HR director orequivalent - must ensure that the whole HRarchitecture delivers value.

All in all, it is critical for both organisationalleaders and HR to be clear about the essentialcore competencies to enable the effectivemanagement of human capital.

9.9 Is HR outsourcing a healthydevelopment?

CRF would say yes, overall, but with thesecautionary notes.

• Clients need to be wise and well-prepared - we

hope this report points them in the right direction.

• Providers need to be collectively careful that the

reputation of the new HRO industry does not

become tarnished.

• Internal customers need to be communicated with

continuously from start to finish about what will

happen, what has been achieved and why what has

occurred is better. They need to feel supported, not

taken for granted.

As the author stresses, hard data indicatingdegrees of success is not yet openly available,although there are some positive signs.However, much depends on the judgement andskill of those involved on each side of thecontract - and that cannot be regulated. Caveatemptor applies!

9.10 Top ten recommendations for HRoutsourcing

To conclude, here is a useful checklist ofrecommendations included in a soon-to-bepublished overview of HRO by Orion Partners,an independent consultancy advising on HRoutsourcing decisions and management. Seewww.orionpartners.co.uk.

Before an organisation embarks on outsourcingits HR function, it should have:

• identified how outsourcing fits with strategic

objectives

• agreed which core strategic competencies must be

kept in-house and what can safely be outsourced

• identified a complete view of internal HR service

delivery costs, the main cost drivers and the potential

savings and investment

• assessed internal outsourcing and explored how


shared services might deliver the same benefits but

with greater retained control

• identified the technological challenges and solutions

around outsourcing - have the costs of running and

retiring legacy systems been calculated accurately,

for example?

• developed a clear view of the capabilities and

reputation of each of the main outsourcing providers

• standardised and simplified processes and

procedures prior to considering outsourcing

• discussed in detail the concept of outsourcing with

customers (employees and business managers) and

other key stakeholders in the organisation

• defined the key success measures that will be used

to judge the performance of the outsource provider

and the structure of the deal

• considered the history of the organisation in terms of

managing complex transition processes - is there the

organisational will to see an outsourcing initiative

through to completion?


10.1 Once more into the breach: theBT/Accenture HRO renewal18

Introduction

The announcement in February 2005 of thecontract renewal for the HRO deal between BTand Accenture was a significant moment in theindustry. Not only did the deal represent ashining endorsement for the HRO industry as awhole, it also reflected a significant escalation ofthe outsourcing process across BT's entireglobal offering.

Not surprisingly, Accenture themselves see thisdeal as a major endorsement of their product:

"BT took a bold step some five years ago. The re-

signing of the agreement ... and its extension to 44

countries outside the UK not only vindicated that

original decision but is also a clear demonstration of

the value that full-scope HR outsourcing can deliver.

It is a massive boost for the industry." David Clinton,

Former Managing Director, Accenture HR BPO Services

The Yankee Group agreed.

"BT is ahead of the game. The company has clearly

benefited from its earlier experiences from HR BPO.

Signing a decade-long deal with Accenture validates

their choice of supplier, and also the business and

operational benefits they have received from

choosing the HR BPO path." Yankee Group, February 2005

The ddeal

Details of the new contract involve further costsavings for BT. Accenture HR BPO Services nowserves all 102,000 BT employees globally,compared to the previous deal's total of 87,000.All 182,000 former BT employees remain underthe same aegis with significant developments inthe re-engineering of BT's HR traffic.

For BT, the journey to outsourcing began in 1990when 14,500 HR professionals served 250,000employees. There were 26 separate HRsystems, 30 telephone helplines and more than26 physical sites - each aligned to 26 separategeographic districts. By 1991, the company had

reduced HR's transactional lines from 26 to ninekey sites. Its own in-house shared servicesmodel was rolled out in 1992, elevating this towhat BT describe as an 'internal trading model'.

By 1997, BT was well-positioned to initiate whatwas seen as a highly innovative strategic movefor HR - the outsourcing of transactionalservices. The aim was simple: to liberate HRprofessionals from day-to-day functional tasksfor them to focus on operational and strategicissues.

In August 2000, the company stepped into theHRO market, signing the flagship deal withAccenture and simultaneously launchingePeopleserve. This was a new 50/50 jointventure between the two parties to offer theirunique combination of HR and technologyexpertise to third party clients.

BT and Accenture worked together to form a full,end-to-end HR solution covering the typicalemployee lifecycle - training, performance,reward, employee relations, safety, health, andexit. A total of 1,100 staff were transferred intoAccenture.

At this time, any plans to incorporate their entireand quickly expanding global offering into HROwere put on hold due to the rapid acquisitionsBT were engaged in at the time. There wereearly problems, as employee relations and HRpolicy director, Joe McDavid, explained.

"We were persuading people on both sides that we

had a commercial, rather than some sort of artificial,

relationship. The service wasn't bad and the costs

reduced slightly, but the venture didn't deliver the

benefits we expected. As a result, we decided to sell

our half of the joint venture [ePeopleserve] to

Accenture. After that, the quality of the service we

received and the quality of the relationship really

started to improve."19

The focus then shifted to delivering enhancedservice and relationship management to BT'semployees. By April 2004, the companies werelocked in discussions about a new andexpanded contract, reaching agreement inJanuary 2005. BT certainly had every intention

10 Case studies


of making Accenture work hard for the contractrenewal.

"We did a lot of internal work on producing a detailed

80-page statement of requirements to prepare for a

possible ITT [invitation to tender] to other vendors.

We spoke with all the players in this space and

some of the newer ones with ambitions. We

explained what we were looking for and talked about

the savings and service levels we wanted on a global

basis. We then commissioned an external

benchmarking study to line up the players."20

For their part, Accenture were keen to avoid thecontract going out to tender. Frantic discussionstook place as the provider attempted to hit thestretching cost reductions and service levels BTexpected, to prevent progression to the ITTstage.

BT fully acknowledged the provider's highproject performance to date - a point not lost onDuncan Mears, director for Accenture HR BPOServices:

"On our side was the fact that our customer

satisfaction surveys were exceptional, in the high 80s

and 90s. Our KPIs were very strong and in excess of

our expectations. Meanwhile, our SLAs over the

course of the five-year agreement with BT were

'green' in all key areas. The benchmarking activity

that BT undertook showed that in the majority of

areas, we were among the best in terms of

performance, quality, and service, with the lowest

position in price."21

The rresults

Crucially, BT's decision to renew with Accenturewas based on results, not promises. AlexWilson, global HR director identified three mainreasons why Accenture HR BPO Services wereawarded the renewal.

"One, they have improved the reputation of the

function. Two, they've improved service levels and

taken out cost which, in mid-contract, is always a

great idea! If you're an HR director and your provider

informs you that 'We can do something to help', it

may give them a win in terms of performance - but it

also gives me a win by improving my margins during

the life of the contract. Thirdly, taking on the front-line

case handling frees your business partners for

different types of discussions and interaction with the

line.”

The data are certainly impressive.

• Handling customer enquiries for so-called 'Tier 0'

(intranet-based for information, eHR, transactions and

setting up of customer cases, etc), and 'Tier 1'

(Service Centre-based for answering queries,

transactions and setting up of customer cases),

accounted in 2000-2005 for 80% of all

engagements with employees, line managers and

business units.

• Today, Tiers 0 and 1 account for nearly 90% of all

customer enquiries, enabling HR to deal with more

complicated case resolutions (Tier 2) and deeper

policy and strategy issues across the business (Tier

3).

• In short, more time is available for retained business

partners to focus on value adding work.

Of course, there will always be questions fromoutsiders regarding the extent to which HROcuts into the bone of HR's capability toundertake talent management and serviceeffectiveness for the client organisation.

For Wilson, this simply meant thinking about notwhat the business needed in terms of HRservices, but what it wanted.

"They gave us more than enough evidence about

what could be done to hit the cost reductions we

were seeking if we made certain assumptions and

changed the nature. It meant taking away Rolls

Royce services and becoming more like a Jaguar in

a number of HR activities. It meant taking the work

away from the UK. They offered us a whole series of

different options."

For Accenture's part, and contrary to much ofthe negative media on HRO, the provider beganto listen to what BT really wanted and thenattempted to fulfil the company's expectations.

"We provided highly skilled people with strong and

dedicated HR backgrounds, who also understood

the telecommunications business, to articulate and

transact with BT in a language of understanding their

strategy. This team developed a new set of products

and services that enabled BT to accelerate its HR

agenda, implementing new products and


performance management systems services, new

reward processes, learning programmes and

reporting programmes. BT realised that Accenture

was a company that could continue to drive this

agenda and HR innovation through the next decade."

Duncan Mears, Director, Accenture HR BPO Services

Of course, the journey is still far from finishedand BT continues to seek improvements in theirservices and costs as part of the new deal.

Key for Wilson is an inverted emphasis in whichvalue creation and business transformationremain top of the agenda for BT, but AccentureHR BPO Services have, as the main driver oftheir agenda, the value for money BT seeks.

"One of the board directors commented on how the

HR function has progressed. As an analogy: if a

successful journey is travelling from London to

Edinburgh, we're probably around Leeds and

possibly York, but by no means are we near the end.

This is not a complete exercise for us in terms of

upskilling the function.

“We have a vision. We are tracking activities and

cost, looking at the core capabilities we need, in

combination with administration handled by

Accenture, and driving this through."

Learning ooutcomes

When asked to reflect on the key decisions inassessing any major HRO deal, Wilson pointedto three.

First, you have decide what it is you want toachieve.

"You need to be clear about the benefits to be

derived. Is it cost? Is it service? Is it something less

tangible such as freeing HR resources to be

upgraded? Usually, if administration is outsourced,

the resources left behind are not capable of

performing the higher functioning role expected of

them. Be sure of what you're doing and why you're

doing it; make sure it's right and test it."

Second, comes alignment.

"Make sure you have some alignment within your

organisation. Then, if you then have the time and

opportunity, think about outsourcing in one go.

Alternatively, you may want to consider creating your

own shared services model which would reduce

some of the cost before outsourcing. In this way, you

gain initial benefits which can be supplemented by

your provider.

"Another view, if you have a disparate function, is to

accept that a five or six year contract would give

away more margin than you would like, but will get

you there in one go. You gain efficiencies with the

external group - especially if they have their own

system that you can capitalise on when you have

none of your own or if you have disparate systems

that are outmoded. I know of one big FTSE 100

company thinking about doing this simply because

they have a disparate system."

And thirdly, be a good client - and offer clarityabout what you seek and how you intend tomeasure the returns:

"If you do outsource, be clear about the services and

processes you are outsourcing, have them marked

and defined and have a clear service level. If you're

not specific about what you're doing, what the

processes look like - if you don't map it and tightly

specify it - your provider could say, 'We didn't

understand. If you want to do that, it's going to cost

more money'.”

10.2 Manufacturing excellence: theRoyal Bank of Scotland's sharedservices22

Introduction

The award winning shared services HR'manufacturing' at RBS is held up by many as analternative to HRO. Neil Roden's appointment asHR director in January 1998 was a key triggerfor change.

Although Roden found an HR department with ahigh reputation within the business, weaknesseswere apparent in its lack of centralisation, aninability to contribute to the management ofstrategic or value adding issues, and a desire toimprove customer service - but with no clearstrategy as to how to attain it.

Chrysalis

Roden and his team set about building anagenda for change in which senior managers


were asked to outline their future hopes andaspirations for the development of the HRfunction. It soon became apparent that twodrivers underpinned the desire for change.

• Deliver high quality services, with a strong focus on

getting the basics right and delivering significant cost

reductions.

• Signal a shift in culture and activity away from

transactional HR administration to more value-added

roles with optimum performance.

Project Chrysalis, as it became known, set out tocentralise HR activities in order to releasesignificant cost reductions. The first exercisewas to evaluate the current or 'as is' HR offeringin RBS. This revealed the following.

• The work of the HR function was broken down into

18 activities, each comprising between four and

seven tasks.

• A team of over 200 HR employees completed a

four-week study of their own processes, forming an

'activity dictionary' which was evaluated by different

HR managers before being signed off.

• This activity dictionary revealed that 60% of HR's

activities were administrative, 25% advisory, and up

to 15% viewed as 'value-adding' or business

'partnering'.

• A problem was a lack of uniform data and metrics to

evaluate the performance of HR across the key

activities identified.

The shared services strategy involved somebold steps.

• To reduce the administration activity of HR by 25%

and replace it with more strategic activities.

• A shift to higher value adding work including new

work roles - openness to change, relationship-

building skills, good diagnostic skills, etc - and

strategic work, such as facilitating business change

programmes and coaching senior business unit

leaders.

• In all, six competencies were identified for future

development.

- Diagnostic and advisory skills.

- Managerial skills.

- Communication and influencing skills.

- Enhancing professionalism.

- Value delivery focus.

- Change and implementation skills.

• Less than 10% of the existing HR staff had the ability

to immediately step into the 'business partner' role.

Crucially, up to a third of HR employees were seen

as incapable of making the transition to a new

consulting role. This latter group were to be

redeployed into the shared services function as they

had the right transactional skillset such as

supervisory skills, workflow and operations

management, etc.

Combining sshared sservices wwith ooutsourcing

A number of HR processes - flexible benefitsscheme, maternity processing, referencing, HRpolicy and procedural information and keymanagement information reports, for example -were all outsourced to Hewitt.

RBS's logic was to use an external providerwhose skills and technology could convincesceptical end-users within the business of thepotential value of centralising HR. Moreover,given the relatively higher investment intechnology by third party providers, RBS couldeffectively reduce its capital outlay whilesimultaneously improving service quality.

Hewitt have since delivered severalimprovements working in partnership with RBS'sshared services - not least a new questionnaireestablishing why potential recruits turn down joboffers from RBS. In addition, training is providedby Hewitt for all their employees working on thecontract specifically relating to the bank incustomer service and reporting accuracy.

HRdirect, a call centre facility outsourced toHewitt, has not only won awards, but hasenabled technology to dramatically reduce theadministrative burden on the HR team.

Outcomes

The shared services facility has helped thebusiness step up from serving 22,000employees at the Royal Bank of Scotland to atotal employee base of 120,000 across differentbrands including NatWest, Direct Line, UlsterBank and different retail networks. In short.


• Shared services now offers a single point of

accountability for HR transactions and processes.

• A new rigour has been applied to management and

measurement. Real indicators are now in place for

performance, quality, efficiency and productivity -

with customer feedback and continuous

improvement.

• Full realisation of significant efficiency savings.

Commenting on the achievements of the sharedservices function at RBS, Tony Williams andPeter Reilly observed.

"The bottom line is that there is no single measure to

prove the success or otherwise of shared services.

What is needed is the faith to see the job through

and create a single centre of excellence for all HR

'manufacturing' activity for the Group - and to review

the benefits at the end of the process, not halfway

through."23

The process of change has not stopped there.Indeed, RBS itself maintains a constant eye onthe feasibility of HRO, although at present itremains doubtful. This was pointed out by itscurrent head of shared services, BrianMcClaren.

"You never say never. Currently, we would need to

be convinced of a provider's capability to absorb and

deal with the scale of our operations. We're serving

120,000 staff in numerous countries, recruiting

25,000 people a year from 165,000 applications.

That's the scale of what we do.

"I've yet to see a provider on a scale that means we

would not absorb too much of their business. But

there are elements of HR that we will continue to

examine. Every three years, we test the market.

There's no fundamental disbelief underlying why we

are not taking that route. We simply haven't seen the

market mature to the degree expected."

When asked to articulate what would, in hisopinion, convince RBS to consider HRO,McClaren pointed to the double-edged sword ofcombining volume with complexity.

"We haven't seen evidence of dealing with scale and

complexity. We have a multi-brand strategy. We

have eight business divisions running 48 brands!

Nobody has yet offered a service for such volume.

They would have to deal with all the intricacies of our

different brands in terms of language, paper, etc.

"The challenge is scale and multi-branding. But it will

happen one day. The Proctor & Gamble and IBM

deal involves scale and multi-branding and we've

been watching them closely. I think it's possible, but

not yet. They are more experienced globally than we

are.”

Nevertheless, the Bank continues to makeincreasing demands on service quality of HRshared services. Costs have been reduced andservices have been improved. For McClaren,the next challenge is developing a commercialmindset within HR services provision.

"We're now at an interesting crossroads with shared

services. With efficiency, shared services is still

getting a tick in the box. But the challenges in the

business now revolve around questions of how

much better the service actually is. It's not about

efficiencies anymore. It's about how you transform

the services of HR."

The ffuture oof sshared sservices

But for many, a main attraction of outsourcinglies in its ability to dramatically change themindset of employees. This involves breakingthem out of their routines and forcing them tofocus on the customer.

McClaren conceded that the shared servicesmodel does not provide employees with thesame commercial edge of fully-blown HRO.

"We're keen on commercialisation internally and

outsourcing moves people in this direction. It's only

words to people in shared services. They don't

understand 'commercialisation' or 'Who's the

customer?' They need to move to an environment

where they are genuinely commercial. How do you

encourage people to think, 'I might lose my job here

if I'm not commercial?'

“Of all the arguments for outsourcing, this is the one

I'd major on. We're doing a lot at RBS about serving

the customer but you don't get that edge with an

internal services provider."

RBS continues to drive a commercial andentrepreneurial spirit into the HR sharedservices mindset.

"We have culture change programmes. We try to

encourage our people to think about engagement.


For example, the person they are dealing with on the

phone may be beginning their career. They need to

be dealt with end-to-end. I'm not sure we have the

edge as we may have with outsourcing. But I think

we have 85% of it and this narrows the point of

differentiation to outsourcing.

“Outsourcing for us has to be 20% more efficient

before we can consider it. They have to be 20%

more efficient and they have to have that edge. I

think we're more efficient. We can always

supplement this with culture change programmes.

The issue turns on whether the edge is worth it."

The extent to which shared services can evolvefrom the functional silos to offer services thatcan optimise business processes and drivevalue remains one of the central questions of theHRO debate at RBS.

10.3 The people behind the science:the DuPont/Convergys mega-deal

Introduction

When chemical giant DuPont set out totransform its HR model, calling in a serviceprovider wasn't its only choice. But afterweighing all the options, HR leaders realisedoutsourcing was their best - and that set inmotion a $1.1 billion, 13-year deal that has theentire industry paying attention.

This case study is written by Andy Teng, editorin chief at HRO Today, whose magazine firstpublished the article in the January/February2006 issue.

'The Miracle of Science' might be Wilmington,Delaware-based DuPont's slogan, but thesedays it's the strategic value of people whichgarners the attention of the global chemicalgiant. That's because in November 2005, itentered into one of the largest multi-tower HRoutsourcing deals ever. The company's decisionto spend $1.1 billion over the next 13 years willsurely become a remarkable chapter in the bookon HRO.

The ddeal

Partnering with Cincinnati-based Convergys -which in 2005 also landed another whale-size

account in Whirlpool - DuPont essentially threweverything at it, except the proverbial kitchensink. It contracted the provider to take over

• organisation and employee development

• workforce planning and deployment

• compensation management

• benefits administration

• payroll

• integrated health services

• recruiting

• employee and labour relations

• HR process support administration

• work environment support

• performance management

• employee data management

• vendor management

• HR consultative services.

DuPont said it expects the accord will help thecompany cut HR costs by 20%, with savingsreaching 30% after five years. The companydeclined to say how many layoffs will result fromthe agreement.

The deal will surely shake up the 200-year-oldcompany, a well-recognised corporate namewith a pro-worker image.

While the Convergys deal is not the first timeDuPont has dabbled with HRO - companyofficials say they have outsourced various

DuPont Background

Few ccorporate nnames rreach mmore cconsumers aaroundthe wworld tthan DDuPont. IIts pproducts iinclude eeverythingfrom TTyvek ((used aas pprotective wwrap oon hhomes aand aasgowns iin tthe ooperating ttheatre) tto ppaint aand ccoatings(applied oon ccars, bbuildings, aand mmany oother ggoods) ttowell-kknown CCorian aand TTeflon bbrands ffound iin mmostkitchens.

Posting 22004 ssales oof $$27.3 bbillion, DDuPont ooperates iinmore tthan 770 ccountries, eemploying oover 660,000 ppeople.

With aa vvast nnetwork oof HHR pprocesses tto mmanage iitsenormous wworkforce, iit wwas nno ssurprise tthat DDuPont'sHRO ddeal wwas sso ssizeable.


functions over the past decade - this accord isby far the most sweeping in its history.

But to hear Jim Borel tell it, this is not a taleabout outsourcing. A tall and striking figure, thesenior vice president of HR said outsourcing isjust one component of DuPont's HRtransformation.

The goal, he emphasised, is to simplify,standardise, and automate HR processes sothat employees spend less effort onadministrative and more on strategic functions.Also, the company wants to providemanagement, at any level, with transparentdata, so as to make better decisions. Said Borel:

"It's not just about outsourcing. It's about our HR

transformation and putting in place what it takes for

HR capabilities to help businesses win. Part of that is

standardising and simplifying processes, part is the

automation, and the final part is the partnership with

Convergys to help us through the journey. It's all

about helping DuPont's businesses win."

Reasons tto ooutsource

Winning is something DuPont has not been ableto do recently. In January 2006, the companyagain issued earnings warnings after failing tomeet analyst expectations. This occurred afterthe company missed targets in 2005 as well.

Some of those analysts have publicly called forthe company to more aggressively cut costs inorder to help revitalise earnings - which havebeen ruffled in the past year by higher rawmaterial costs and production disruptions as aresult of the two major US hurricanes.

A renewed focus on profits may be one reasonwhy management is squarely behind theoutsourcing push. Cutting costs at a time ofweak earnings makes sense, but companyofficials say savings is only part of the reason.

Besides, added Ernie Lareau - a director inDuPont's HR department and one of the keyarchitects behind the outsourcing deal - thecompany had other alternatives to achieve thesavings. These options included the following.

• Transforming internally.

• Establishing a provider business.

• Further expanding a shared services centre in Spain.

So, even though outsourcing holds the promiseof savings, so did other choices.

Lareau explained that the real issue was thevalue DuPont would gain from a partner,someone who was going to

• help with the transformation requirements

• take a fragmented set of processes from around the

world and simplify and standardise them

• implement them globally on SAP HCM (human

capital management software).

"Most people can give you competitive pricing,"he said. "The real differentiator is who will be ourtransformation partner - and have they the skillsand capabilities to take us where we want togo?"

Planning ffor HHR ttransformation

Enabling DuPont's HR department to transformitself is no small task. Its 60,000 employees,speaking scores of different languages, pose aformidable challenge - how to standardise andsimplify all those processes in more than 70countries while remaining receptive to theirneeds?

Moreover, with a corporate history of 200 years,cultural shifts are akin to a sea change. It's aproblem management realised from thebeginning.

So, to plan for the transformation, Borel, Lareauand their team did what every good managerdoes to build a case for change - they collectedmasses of data in a highly disciplined manner.The campaign was applied with Six Sigmarigour and helped the team to listen to, analyseand understand the needs of the employees.

Gathering external benchmarks, examining bestpractices and weighing all the options gave HRleaders a clearer roadmap of the paths availablefor reaching the company's lofty goal ofsimplification, standardisation, and automation.It also helped executives better understand whytransformation was necessary.


Problems tto aaddress

What the HR team found was an organisationmired in transactional services. According toLareau, the company operated in a verytraditional model, with only about 10% of HR'senergy fixed on policy and strategy - most of thetime, it dealt with administrative andtransactional issues.

What senior leaders wanted instead were clearHR processes that provided critical data forDuPont to better manage its human capital tomeet business needs.

For instance, Lareau pointed out, if the companyplans to expand its business in China by apredetermined amount, HR should knowaverage revenues per sales employee for thatmarket. Armed with this data, it can better targetthe ideal number of workers to hire, to enablethe business reach its sales goals in thebudgeted timeframe.

"Our problem was how to get to [a state] where our

people are driving policy-setting activities and

strategically supporting the businesses. How do we

get our HR leaders, with our business teams, to

understand what the business needs are - and then

give them access to the data to provide strategic

support in the area of people or human capital

management?

"We were expecting our leadership to focus on

policy and strategy planning to support the

businesses, with minimal effort on the administrative

service-delivery aspect."

Two-yyear rroll oout eeffort

Most companies that have embarked on theHRO journey understand that these are thesame questions posed in the past. For DuPont,however, the answer didn't come as easily.Because of the massive scale of itstransformation - the company said it would taketwo years to implement the outsourcing accord- there were many more considerations as itweighed its options.

HR leaders took comfort from its sharedservices centre in Spain emerging as a model itcould emulate on a global scale. The centrebegan operations some three years ago

(planning started five years ago), and itssuccess showed that DuPont was capable ofachieving realignment on its own.

Still, the burning question remained - did thecompany want to tackle transformation on itsown or with the help of a partner? Managementwent back to the basics.

"One of our considerations was, 'Would we consider

doing this and becoming a provider?' We quickly

concluded that it was not core to DuPont and we

would not go there," Lareau recalled.

He added that the company decided to

"test the marketplace and find out if there were other

people able to provide DuPont with the services and

capabilities which would allow us to focus our

resources on higher priority items within the

corporation."

Borel said that two key factors stood out in thedecision to outsource.

• Leveraging the knowledge of an experienced

provider who has worked with multinationals.

• Reducing the execution risks.

"Having somebody who has been through the

experience with a number companies would be a

huge help.”

Contrary to perception, DuPont's decision toembrace outsourcing did not signal a shift inculture. With some services already outsourcedover the past decade, HR had already dealt withthird parties. Doing so on such a massive scaleonly integrated those services under theauspices of Convergys.

Furthermore, the decision to automate wouldgive employees the same self-service tools,regardless of whether it was implementedinternally or externally.

Even in instances when employees needed the'high touch' of an HR specialist, a seamlesstransition to a service provider would ensure thatworkers received the same attention as they didunder the old model.


Selecting tthe HHRO ppartner

So it became clear that the company was betteroff with outside help. But when you outsource onthe scale of DuPont, even vetting the candidatescan be a lengthy process. After examining thekey players in the market, the company sent outrequests for information (RsFI) to 16 top-tierproviders in the fall of 2004.

The field then narrowed to nine, with somepartnering and others realising they were out oftheir league.

The company further narrowed its selection tofour and asked those to submit request forproposals (RFPs). It didn't announce theselection of Convergys until November 2005 -about a year after it began the selectionprocess.

Myriad factors were considered in the selectionprocess, and diligence was needed to ensureDuPont chose the right partner. The companyalso looked to the expertise of EquaTerra as itssourcing advisor.

Borel said that choosing the right partner wascritical to a successful outsourcing effortbecause the biggest risk, he cautioned, ismaking the wrong choice and creating a badly-fitting structure.

"The partnership should be an extension of the

company ... and that's going to be a key part of

service delivery.”

Another dominant concern is how the partnerswill handle change management, perhaps themost critical component in implementation.DuPont's HR leaders say a lot of effort will gointo making sure the organisation is ready forchange at each stage of the process.

However, they also point out that having anexperienced provider instils confidence -though much of the burden falls on the client toensure a seamless transition, Lareau said.

"We spent a tremendous amount of time building the

governance processes. We identified them all,

mapped them, and placed individuals as process

owners to manage the various processes with

Convergys and with our [employees].”

HRO mmarket aand pprovider ccapabilities

Although Borel and Lareau say Convergysstood out among the providers and that they arecomfortable with their selection, they also pointout that the outsourcing market is still playingcatch-up to client needs, especially those oflarge multinationals.

They contended that no major provider candeliver all services in all geographies - andservicing a company such as DuPont will stretchcapabilities.

Even Convergys did not have everything thatDuPont needed for its transformation. In fact, theprovider partnered with Deloitte Consulting -one of the original 16 suitors - to ensure asmooth transition. It looked to Deloitte for dataporting expertise.

Convergys' shortcomings, though, are notunique, Borel noted.

"A partner that has absolutely everything, all around

the world, already in place and proven, just does not

exist.”

So how do buyers reconcile a provider's skillsgap with their own needs? Convergys, Borelpointed out, assuaged his fears with a provenability to adapt and grow. As a buyer, he wantsassurances that the partner can anticipate hisgrowing and emerging needs. Convergys' trackrecord of acquisitions - as well as its recent winswith large, DuPont-like companies - alleviatedsome of those concerns.

Indeed, Convergys has aggressively sought tofill the gaps in its capabilities, said KarenBowman, president of the company's EmployeeCare business. For instance,

• in 2004, the company acquired an Asian business to

establish a presence in one of the world's fastest

growing markets

• in 2005, it purchased a San Francisco-based talent

management business to further bolster its offerings.

Bowman said Convergys' experience is notunique and that across the board majorproviders are choosing distinct marketsegments in which to invest. They understand


that large customers now expect providers tooffer a broad spectrum of services - and morebuyers will only look for vendors that can meetall their needs.

"I think companies like DuPont are looking for a

holistic, integrated provider who can provide the

majority of services being outsourced.”

Another reason why the company choseConvergys was for its strong SAP capabilities,Lareau said. DuPont had already madesignificant investments in SAP for its own ERPsystem, so the question of platform was settledby the time RFPs were issued.

Beyond assuring buyers that their contractedneeds and metrics will be met, HRO vendors areincreasingly being asked to provide value-added intangibles which, while hard to define,help solidify a partnership.

In DuPont's case, this was no different. Boreldescribed these requirements as anything that"helps DuPont to win", and other buyers mayhave a similarly nebulous definition.

For instance, having a cultural alignment buildstrust on both sides, but how can this beexpressed in a contract?

Often, offering services and performance abovecontractual obligations defines the value-adds,but Lareau pointed out that Convergys' data-rich, solution-oriented processes are a completematch for DuPont's own approach. "It was justone more merit for the Cincinnati company," hesaid.

Future ssteps

As they look ahead, Borel and Lareau say theyare confident that the HR transformation projectwill be worth the effort. While risks accompanyeach step of the roll out over the next two years,the rewards will bring DuPont into a new era - atime when HR will become more strategic than itis today and when business leaders turn to thedepartment for input on business growth. SaidBorel:

"We wanted to be able to do more and be better,

but we were hamstrung because we didn't have

good data or integrated processes. We're in the

process of designing that future state.

"We don't have robust processes around strategic

workforce planning, so that has to be done. And part

of that is making sure business leaders understand

the potential value that they haven't experienced

before."

And if DuPont can reach all those goals over thenext few years - under the watchful eyes of theindustry - it will be able to get back on tracktowards winning and focusing on its corebusiness of developing the miracles of science.

Lessons ffrom tthe HHRO mmarket

When DuPont HR director, Ernest Lareau, anexpert in HR processes, began consideringoutsourcing options, he had a comprehensiveunderstanding of the marketplace - or at leasthe thought he did.

As the company moved closer to clinching adeal with provider, Convergys, Lareau said herealised that DuPont was actually establishingitself as a leader, and not a follower, of HROpractices.

"I had been following the BPO market for about five

years in prior assignments, so I had a view of what

was state of the art in the industry. We thought we

were jumping into the middle of it, but then

discovered we were at the leading edge. It was an

interesting perspective."

Lareau's experience might have been eye-opening, but it also speaks volumes about thematurity of HRO - providers are playing catch-up to the demands of super-size clients. Even asthe provider community touts its capabilities andservices, some buyers are discovering thatmarket hype sometimes overshadows reality.

"I believe the industry has professed itself to be

further forward than it really is - at least with the 16

providers we had dealings with.”

Still, he noted, many are building theinfrastructure necessary to canvass as much oftheir clients' needs as possible. And withproviders such as Convergys willing to shore upgaps, they are helping to put large clients atease.


"When you consider all the processes of aglobal environment in a legal entity structure thatDuPont provides, it is probably one of thelargest, most complex challenges the industry isfacing. But we think [Convergys] is up to thechallenge."


1. These data, and much more, are availablefrom the Everest Institute's home page:http://www.everestresearchinstitute.com/

2. Seehttp://www.everestresearchinstitute.com/

3. See http://www.tpi.net

4. Moore, G. - Crossing the Chasm: Marketingand Selling Hi-Tech Products to MainstreamCustomers: Harper Business, 2002

5. Hammonds, K - 'Why We Love To HateHR': Fast Company Magazine, 97, August 2005

6. HRO Today, January/February 2005.

7. For example, see Davis, S - 'Is This TheEnd of HR?' in M Effron, R Gandossy and MGoldsmith (eds) Human Resources in the 21stCentury: Wiley, 2003

8. See http://www.idc.com/

9. Calling a Change in the Outsourcing Market:The Realities of the World’s Largest Organizations:Deloitte Consulting, 2005

10. Greer, C R, Youngblood, S A and Gray, D A- 'Human Resource Management Outsourcing:The Make or buy Decision': Academy ofManagement Executive, Vol 13, 85-96, 1999

11. People Management, 26th January 2006, pp36-7, CIPD

12. Linder, J - Outsourcing for Radical Change: ABold Approach to Enterprise Transformation:Amacom, p 28, 2004

13. Ibid

14. Greer, C R, Youngblood, S A and Gray, D A- op cit

15. CEO Briefing: Corporate Priorities for 2006 andBeyond: Economist Intelligence Unit, 2006

16. For a deeper examination of these issues,see Cohen, L and Young, A - Multisourcing:

Moving Beyound Outsourcing to Achieve Growthand Agility: Harvard Business School Press,2005

17. Greer, C R, Youngblood, S A and Gray, D A- op cit

18. This case study is based on an interviewby the author with Alex Wilson, Group HRDirector of BT. Additional data and quotes havebeen obtained from a combination of pressreleases and HRO media.

19. See 'Second Time Around': HRO Europe,Spring 2005.

20. Ibid

21. Ibid

22. This case study is based on in interview bythe author with Brian McLaren, Head of SharedServices for The Royal Bank of Scotland.Additional material has been used from varioussources, especially the book by the formerhead of shared services at RBS, Tony Williams,with Peter Reilly - How To Get Best Value FromHR: The Shared Services Option: Gower, 2003

23. Reilly, P and Williams, T - How To Get BestValue From HR: The Shared Services Option:Gower, 2003

References


Adler, P - 'Making the HR OutsourcingDecision': MIT Sloan Management Review, Fall,pp 53-59, 2003

CIPD - HR Outsourcing: The Key Decisions:Executive Briefing, CIPD, 2005

CIPD - ‘The Guide to HR Outsourcing’ in PeopleManagement Supplement, February 2006, CIPD

Cohen, L and Young, A - Multisourcing: MovingBeyond Outsourcing to Achieve Growth and Agility:Harvard Business School Press, 2005

M Effron, R Gandossy and M Goldsmith (eds) -Human Resources in the 21st Century: Wiley,2003

Greer, C R, Youngblood, S A and Gray, D A -'Human Resource Management Outsourcing:The Make or Buy Decision' in Academy ofManagement Executive, Vol 13, pp 85-96, 1999

Hammer, M and Champy, J - Re-engineering theCorporation: A Manifesto for Business Revolution:Harper, 1993

Lacity, M and Willcocks, L - Global InformationTechnology Outsourcing: In Search of BusinessAdvantage: Wiley, 2001

Lawler, E, Ulrich, D, Fitz-Enz, J and Madden, J- Human Resources Business ProcessOutsourcing: Transforming How HR Gets Its WorkDone: Jossey Bass, 2004

Linder, J - Outsourcing for Radical Change: ABold Approach to Enterprise Transformation:Amacom, 2004

Reilly, P and Williams, T - How To Get BestValue From HR: The Shared Services Option:Gower, 2003

Ulrich, D and Smallwood, N - The HR ValueProposition: Harvard Business School Press,2005

Vashistha, A and Vashistha, A - The OffshoreNation: Tata McGraw Hill, 2005

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