We examine how the decision-making process concerning organisations' strategic resourcing options has shifted from being the exclusive domain of HR to being a more business-led process.
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Dismantling the HR 'Empire' can be emotionally daunting. |
While HR frequently chooses the outsourcing route, the selection process often can appear to be a lottery, with the final choice of the external partner driven by preferences and prejudices rather than by objective analysis. Should you feel this is a harsh view, and that selecting an external service partner within one's own organisation is a healthy process, then perhaps a recognised global industry best practice request for proposal (RFP) is called for?
To test our observations on what is happening with HR outsourcing in Europe, we spoke with two executives who are experienced in this field; Robert Holt, head of sourcing strategy at Prudential, a UK FTSE 100 company, and Nigel Williams, head of HR in Europe for XL Services, a Fortune 300-listed global provider of insurance, reinsurance, and financial products and services.
Evaluating the risks
Holt plays a pivotal role in strategic decisions in outsourcing, working closely with the business functions to align service with the changing needs of the industry. Prudential has sent transactional services offshore to India through a joint venture relationship with ICICI Onesource.
"We decided to offshore transactional and operational activities to leverage cost savings, and gain operational efficiencies that are a function of our partner's expert capabilities to drive process whilst leveraging our existing experience in serving our customers," Holt explains.
Holt believes that sending transactional processes offshore to India is an attractive proposition in the HR field. Not only are the economics compelling, says Holt, but the processing of large volumes of low-value work is performed as well, and often better, in India. However, these activities require robust process management and strong technology to deliver such efficiency.
Earlier in 2004, global law company Baker and McKenzie's 'Insight Report' surveyed senior-level executives about the key issues facing companies. Outsourcing was identified as a "fast growth enabler offering high growth but relatively low risk." Sending services offshore also was seen as a viable option, but there were more risks to evaluate.
A recent article featured a discussion reviewing the arguments for moving more jobs offshore and the subsequent impact on morale. While there appears to be a rush by many companies in the financial services and insurance sector in the direction of Mumbai and Chennai, the what, how, and why will be different for each organisation. And critical-market share, cost reduction, or business transformation all contribute to defining the desired business outcomes.
To stay abreast of the trends and keep one eye on their industry competitors, Prudential has benchmarked HR processes and discussed with others their experience of the fuller scope of HR outsourcing. It is apparent that while there are several good HR outsourcing providers in Europe, it is rare to find one organisation that can provide complete end-to-end HR outsourcing solutions.
Adopt an end-to-end solution or wait?
As Holt says, "generally speaking they [Human Resource Outsourcers (HROs)] all have good work-flow tools and 'Six Sigma-type' process flows and IT systems, but the trend at the moment appears to be the outsourcing of components rather than the whole HR function. The question for HR directors is whether they want to be early adopters of an end-to-end solution to realise the benefits of bundling now, or take a more conservative approach and let others learn lessons first. Usually the economic case supports an 'outsource now' decision, however, the process of dismantling the HR 'Empire' is often emotionally daunting. Perhaps the real question is, "how driven is the HR department to deliver immediate shareholder value?"
HR as business partners
To hear the views of an HR stakeholder, I spoke to Head of HR Europe for XL Services Nigel Williams. He expressed a similar view, that while not all parties share the same appetite for outsourcing, it made sense to outsource and offshore transactional and operational work.
"All businesses look at ways of managing costs and reviewing business processes that can be enhanced by working in new ways," says Williams. "If a process or function can be commoditised, the chances are that it can be delivered in a more cost-efficient way. This is not limited to HR activities, but, of course, can be applied to all service functions. It is likely that similar reviews are being undertaken across the financial services and insurance sector," he says.
Williams also felt that complete end-to-end HR outsourcing will probably be one step too far for many companies. The more likely scenario will be outsourcing or co-sourcing components of HR functions, such as training and development, compensation and benefits administration, and international assignment administration. The good news for HR is that this should be seen as an opportunity, not a threat, as it lets HR professionals get closer to their businesses and become integral HR business partners rather than transactional administrators.
"To some extent, it's a leap of faith and there has to be a strong trust in your outsourcing or co-sourcing partner. It very much depends on where the organisation is in its maturity cycle and the changes occurring in the industry. The ability to be flexible and adaptable is key to being able to respond to dynamic changes in the global marketplace," says Williams.
The GMAC Global Relocation Services view is that wholesale outsourcing activities are now standard practice among many US companies, but in Europe it has not yet been universally adopted. There are more factors and nuances—the propensity to undertake any type of business process re-engineering is a cultural as well as organisational decision. Due to socio-political and cultural barriers, some European countries will take longer to follow the outsourcing trends currently showing in the US and UK.
GMAC also believes that each organisation will have its unique reasons for making decisions on outsourcing, and while cost appears to be the major business driver, there is also a desire to achieve accelerated business transformation—especially where organisations have a complex, matrix organisation that is structured on both geographic and product lines.
Call it co-sourcing
Outsourcing and its next generation construct—sending services offshore—appear to be here to stay. At GMAC, we prefer to use the term 'co-sourcing,' because it reflects more accurately what clients are really looking for: the efficient transition of their internationally mobile population from one location to another.
While some companies are averse to using external consultants, others find that it is difficult to continuously maintain strategic expertise in all of the core HR functions, and that outsourcing and consulting options enable them to achieve more business—and employee—transformation by retaining ownership of the whole process without being fixated with the delivery of all HR services. In some cases, so much change is going on, that to achieve the organisational objectives, partnering with external organisations is a good way of successfully reaching the desired business outcomes.
Managing HR outsourcing relationships
In all HR outsourcing relationships, regardless of whether the outsourced service is recruitment, benefits administration, or learning and development interventions, the key to success must be based on six points:
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board-level ownership and sponsorship;
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business outcomes;
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clear expectations from the relationship;
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clear lines of communication;
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clear accountabilities; and
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complete life-cycle management of the relationship.
The impact on HR and other back-office functions is becoming more dramatic—where HROs offer a broader suite of HR services, HR personnel who remain in the organisation have to adapt to new competencies and role sets involving higher value, added activities, or strategic management of the new supplier relationships. The challenge facing HR executives is how to determine what is central and what could be managed more cost-optimally by a service partner.
The impact on mobility in Europe
In the European mobility market significant changes are occurring on both sides of the fence. On the company side, increasingly organisations are either dipping their toes into the water to see what co-sourcing options are available to them with a global mobility partner, or taking the decision to go for an immediate bidding situation with a request for proposal (RFP) of global mobility services. The latest GMAC GRS-sponsored Global Relocation Trends Survey 2003-2004 identified the availability of specialised expertise through outsourcing as being a primary 'want' of 95 percent of respondents.
While HROs offer large-scale transactional and operational solutions based on process and technology platforms, the climate in the field of global mobility indicates a need for more bespoke co-sourcing. It still can be configured either regionally or globally. Indeed, the same business drivers are there: cost savings, process improvement, and enhanced risk management at employee and corporate levels.
So what are the drawbacks of large scale HR outsourcing? The people and policy process interactions within the arena of global mobility require specialised expertise that cannot immediately be offered consistently within the 'call-centre' environments of Eastern Europe, India, and China, because of the need to manage people and other relocation issues that require higher competencies and the need for some 'management' decisions.
As discussed earlier, for large-scale offshore ventures to work there must be a level of harmonised transactions that require tightly defined operational parameters such as data processing. Unfortunately, requests for policy exceptions are not easy to manage in this way.
Eastern Europe
Off shoring is becoming a popular choice with many companies, but is India the exclusive home for the creation of such resources? As the EU expands, more and more service centres are being established in Eastern Europe. While salaries and costs remain attractive, and there is a plentiful supply of graduate and local talent – many of the so-called migrant workers have not wanted to move to Western Europe, preferring to live and work within their own prospering countries – companies are considering the relocation of back-office functions. When choosing a location, companies typically look at political stability, economic stability, supply of intellectual resources, and ease of access by corporate executives to the location.
Mobility services such as school finding and home-finding are probably safe harbours for local country service delivery, but this does not have to be executed by the local HR company officer, who "likes taking out new expatriates to look at accommodations"— better to leave it to the experts…
Where does this leave HR outsourcing in Europe?
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There is evidence of large-scale HRO activity.
Commoditised services: both transactional and operational are likely to be deployed outside of the organisation.
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Outsourcing is not going to be a unilateral solution and will depend on the unique organisational culture and maturity cycle in outsourcing.
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More consolidation of the big HRO players—such as the Hewitt-Exult tie-up in 2004—is likely.
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Bespoke and niche service that require more management processing will be more difficult to put into transactional offshore centres but will continue to be co-sourced with specialists such as global mobility organisations.
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Organisations that have bought services could be market entrants, if, for instance, they have existing products or services that have synergies with the services they currently purchase—an example could be a global software company could move into tax processing.
Clearly the outsourcing industry is gathering momentum, and the next decade will see changes in the way that global companies operate their back-office and front-office processes. As both providers and buyers become more sophisticated in their dealings in this area, it will only serve to create wealth and new jobs, overriding current fears that this new business phenomenon will erode careers and employment.
August 2005
John Rason is the director, global business development, EMEA region for GMAC Global Relocation Services (GMAC GRS), London, England.
Reprinted with permission of Worldwide ERC®, from the March 2005 issue of MOBILITY.
Subject: HR outsourcing, HR outsourcing in Europe. outsourcin
