HRO 3.0: Defining Success for Next Generation HR Outsourcing (HRO)
With business leaders looking to reduce overheads, being able to justify the HR team’s time and resources is more important than ever. Reporting & analytics are crucial to demonstrate HR’s value to the business and technology has a leading role in creating transparency and improving efficiency.
However, with a multitude of technology and deployment options available, choosing the best approach is difficult. The average HR Director wants a global view of his workforce, as well as in-depth local knowledge and expertise. HR outsourcing aims to solve many of these challenges and promises many of the benefits HR leaders want – and need – in volatile times: variable cost models, economies of scale, integrated technology made available globally, risk mitigation, and constant innovation.
HRO has been the subject of significant transformation. It has, a decade in, most critically transformed the HR profession by enabling HR leaders to offload transactional tasks and focus on business value. In the next decade, this focus on business value looks set to continue, however, to know where we are going, it is important to understand and acknowledge both the defects, and successes of the past.
HRO: the road to maturity
According to Gartner’s latest MarketScope for Comprehensive HR BPO, the HR business process outsourcing” market is on the cusp of moving from adolescence to early maturity on the Hype Cycle”. HRO has come a long way since BP created the first HR outsourcing contract at the start of the millennium.
The Growth Years
By the late nineties, David Ulrich has applied the HR service delivery model which achieved for HR Outsourcing what Henry Ford did for the automobile industry at the start of the 20th century. The Ulrich model confirmed that HR professionals must create practises to make employees more competitive, not more comfortable. This model triggered massive transformation in the HR world.
‘HRO 2.0’ addressed many of the shortfalls of the previous generation of HRO contracts, processes were thoroughly mapped out and aligned; transition plans were established; service level agreements matured and internal HR systems were scrutinised prior to transition. However, there were still challenging transition processes and aligning systems across a number of countries was cumbersome, technologies failed to scale, and standardisation got lost in the scuffle. It was a difficult adolescence.
From zero to HeRO: The Third Generation
Enter the HR 3.0 and, with it, a technology-inspired view of HR outsourcing. Parallel to the advent of the HRO industry, two major IT trends took centre stage. The first was the rise of software as a service [SaaS], allowing standardised yet configurable software on a ‘pay as you go’ model via the internet. The second was the consumerisation of IT, where users, including employees, managers and professionals in HRO, took over the driver’s seat of technology innovation, demanding usability, ubiquity, simplicity, and mobility.
These broader IT trends provided the fixed HR 2.0 needed: speed, scalable technology platforms, and user centric design. Both the emerging industry trends and the shortcomings of early HRO 2.0 deals pointed out the importance of an integrated, multi-tenant technology foundation.
The industry also saw its first wave of renewals, or re-contracting, of major deals. In addition, corporate procurement departments had gained significant experience in negotiating outsourcing contracts, resulting in more educated buyers.
The next stage in process automation is business process utility (BPU), eliminating manual intervention from key HR processes such as payroll. HRO witnesses the fastest adoption of BPU services, when compared with the rest of the BPO market. BPU is essentially a pre-built solution designed for scalable, one to many delivery which is delivered as a cloud-based offering. Current HR BPU offerings are tried, true and tested, focusing on a user-centric design.
Back end processing is still at the core of HRO, but it is also hinged on superior self-service for employees, managers, HR business partners and service centre professionals. These four groups can now work together, each with its own role-based view on people data. What’s more, advanced knowledge management solutions provide additional self-service options through electronic storage of policies and employee records. It all adds up to consistently high satisfaction amongst users, which, in turn, translates to high user adoption rates. HR is finally getting the attention it deserves.
It is however, still crucial to get the basics right – HR administration, workforce, payroll etc – and then ‘grow as you go’ into value added processes. Start at the core, and then move into more complex areas. We see a continuum of HR services appear to meet evolving HR needs and requirements; organisations today can choose to deploy HR technology OnPremise, host it in a single tenant environment, deploy it on a multi-tenant shared platform, and once on the platform, add BPO-type, involving HR service centres worldwide. Some define it as Hybrid HR, others as HR as you like it.
Unfortunately the notion of widespread industry standardisation is still largely absent in HR. Standardised HR services and processes, including payroll, would mean increased process automation and world employ a flexible ‘fit-to-standard’ approach. Rather than starting from a blank sheet of paper, a step by step approach is applied, allowing configuration by ‘switching’ parameters on and off. The end result: faster implementation, more flexible deployment, better overall process control, and transformation phases that demonstrate success right from the start.
What is driving the way forward?
Organisations are looking for the best of all worlds: improved performance and innovation in HR process management, but at the lowest possible cost. But, from our experience, the question of innovation nearly always comes to the fore and takes precedence, even in deals structured to deliver at the lowest possible cost.
Gartner’s latest MarketScope for Comprehensive HR BPO also suggests that “in addition to innovations around talent management, health and welfare benefits administration, global HR needs, and swiftly developing utilization of mobile phone platforms, look for more of the standardized, SaaS-enabled "hybrid" comprehensive services to continue to alter the dynamics of the HR BPO market and drive innovation for the foreseeable future.”
Smart organisations keep investing, even in the down turn, to improve efficiency. Because areas like talent management, reporting, and performance have become even more critical to company success, HR needs to weigh the available options very carefully, understanding that different companies will require different delivery models. However, now more than ever, companies need an HR function that is strategic and visionary, one that will lead them. Having the right delivery model will demonstrate and enhance HR’s value to management and the rest of the organisation.