Improving people strategy execution through HR outsourcing | Orion Partners

01 The next generation orion-partners.comORIONTransforming HR

The next generationHow to transform your HR Services team into a strategic force

Improving people strategy execution through HR outsourcingOctober 2011

01 Improving people strategy execution through HR outsourcing

Contents

Contents� 01

About�this�paper� 02

Executive�summary� 03

Introduction� 04

HRO�market�overview� 05

Strategic�opportunities�of�HRO� 07

Best�practices�for�HR�outsourcing� 10

The�role�of�technology� 13

Case�study:�Logica�and�Ahold� 15

Conclusion� 16


About this paper

This white paper was authored by Simon Constance, Partner at Orion Partners LLP. Simon leads the Infrastructure practice at Orion Partners, focusing on shared services, business partnering, outsourcing and offshoring. He has worked on some of the largest HRO contracts agreed to date, and advises clients, government bodies, and suppliers on partnerships that have shaped the HRO market in Europe and beyond. He regularly writes and speaks on HR strategy and transformation and has published a number of books including Transforming HR (2003) and HR Business Partners (2005).

About Orion Partners

Orion Partners are leading advisors in HR transformation, the creation and execution of Talent strategies to achieve measurable business results. Our goal is to help HR teams lift their game to the strategic level now demanded of our profession, and to help HR organisations develop the programmes, resources and capabilities needed to deliver these measurable business results.

With our extensive research into what makes HR teams tick, along with our closeness to the markets for HRO, we’ve helped many organisations construct the best approach to delivering their HR services.

We believe HR Services can be so much more than a processing factory. With the data it collects and the touch points it has, it can provide valuable business intelligence to inform strategic debate and help organisations be more in touch, more nimble and more flexible. To realise these benefits, we help to:

• Integrate HR Services into wider operating models

• Advise on sourcing from strategy to implementation

• Improve the performance of shared services

• Optimise the use of technology

• Advise on off-shoring

For more information about Orion Partners please visit www.orion-partners.com.

About this paper


HR�outsourcing�has�changed�in�the�past�five�years,�moving�from�a�purely�tactical,�cost-cutting�exercise�to�become�a�source�of�strategic�support�and�competitive�advantage.�As�the�HR�outsourcing�market�expands�and�fragments,�HR�Directors�must�make�informed�decisions�about�which�provider�to�select,�how�to�make�the�most�of�the�services�they�offer�and�how�best�to�integrate�HROs�with�the�services�that�remain�in-house.

This�white�paper�outlines�the�strategic�opportunities�afforded�by�an�intelligent�approach�to�HR�outsourcing�and�offers�some�guidance�to�HR�Directors�in�choosing�the�right�provider�for�their�organisation’s�needs.

Executive summary


HR outsourcing has come a long way since its beginnings in the 1990s. Once viewed purely as a cost-cutting exercise, HRO is now better thought of as a strategic investment that can actively support the organisation in its pursuit of business goals.

The HRO industry has fragmented as it has matured. In addition to the big multi-process outsourcers, there are now many providers offering specialist services in areas such as recruitment, learning, workforce mobility and employee relations. The benefits go far beyond cost-cutting, with HRO providers delivering skills, resources, tools and insights that complement those of their client organisations.

The breadth of services offered makes it critical for organisations to choose the right provider for their needs, particularly as contracts tend to be long-term. A lot can change in the five to ten years of a typical contract, and organisations must be sure their chosen HRO partner can support that change.

This white paper is intended to act as a guide for HR Directors in organisations currently considering outsourcing all or part of their HR operations. It will review the options currently available; explore some of the strategic benefits of outsourcing that HR Directors may not have considered; examine the current and future role of technology in HR outsourcing strategy; and provide recommendations for gaining the most value from the relationship with the chosen outsourcing provider.

Finally, a number of case studies have been used to illustrate how many of the recommendations outlined in the paper are working - or will work - in practice at HRO provider Logica. In particular we cite two of Logica’s major clients; KPN and Ahold.

Introduction


For many, the term ‘outsourcing’ may conjure up visions of monolithic, multi-year, multi-million dollar BPO contracts, signed in the name of cost-cutting and transactional process efficiency. Very often in the early days, once the initial cost reductions had been delivered, there was little left to gain from the relationship other than ‘business as usual.’ As a result, many executives have become sceptical of the scale of the benefit offered by outsourcing.

In the past few years, however, the HR outsourcing industry has matured and redefined itself to address the evolving needs of large organisations. Today’s HRO market is much more diverse and flexible than in the past, enabling businesses to make very fine-grained decisions about what to outsource and what to keep in-house.

The industry still includes a number of large, long-established multi-process HR outsourcing (MHRO) providers who manage multiple operations on behalf of their clients. However, more recent market entrants include smaller, specialist providers who focus on doing just one process very well, such as recruitment process outsourcing (RPO) and learning process outsourcing (LPO). Specialist providers have also emerged to manage niche processes such as workforce mobility, compensation & benefits, and employee relations.

HRO market overview

Niche specialists Payroll and employee admin Major multi-process

Aon Hewitt

Accenture

IBM

Capita

Logica

Northgate Arinso

ACS, A Xerox Company

ADP

Pattersons

TCS

Ceridian

Alexander Mann, RPO

Kelly OGC, RPO

Kenexa, RPO

Raytheon, Learning

NIIT, Learning

Sco

pe

Major vendors in the European HRO Markets


While some providers still focus on purely transactional services, many now offer strategic consultancy based on their research, global market knowledge and sophisticated analytics capabilities. In the RPO sector for example, the types of service offered range from the transactional (tracking CVs and sending candidate letters) to the highly strategic, including global workforce planning, identifying talent gaps, and helping to establish talent management strategy.

Some providers also offer state-of-the-art technologies that can help the HR function to be more effective and play a more strategic role in the organisation at a time when internal budget for HRIT is hard to come by. As professionals have become used to using social networking services and mobile apps to organise their personal lives, so they expect to be able to use the same kind of functionality to organise their work lives and career. A number of HRO providers have invested in social, Cloud-based and mobile-enabled systems and can thus offer capabilities that the business is unable, or unwilling, to implement internally.

The use of workforce analytics to drive strategic decision-making is another key service. Providers have introduced sophisticated business intelligence technologies and an underlying technological infrastructure that enables the integration and aggregation of HR data for real-time analysis. This allows for strategic modelling and the kind of analytics that contribute to the shaping of business strategy.

The breadth and depth of HR outsourcing services available means HR Directors need to weigh any outsourcing decision very carefully, to ensure they are selecting the right provider – or combination of providers – for the business’s current and future needs. The right provider can deliver much more than cost reduction. The next section will explore some of the additional strategic opportunities that HRO can deliver, and provide some guidance on how to maximise those benefits.

HRO market overview


Five to ten years ago, HRO was usually considered in the context of cost savings: how can a certain process or combination of processes be delivered more cheaply. HRO providers were not seen as sources of strategic advantage, and the processes most commonly outsourced were highly transactional, such as payroll processing, pension administration and HR helpdesk. The tools for workforce planning, talent management and overall people strategy remained fully within the retained HR function.

Today, the picture has changed. People strategy has become a board issue, particularly among organisations who are competing in a crowded marketplace, whose business model depends on intellectual capital, or who want to move rapidly into emerging markets. Increasingly, organisations need help with critical people-related issues such as workforce planning, succession planning, identifying talent gaps, and recruiting and retaining the right talent.

Whilst ultimate responsibility for people strategy should always remain within the organisation, there are many more ways in which HRO providers can help with these issues than simply freeing up time for in-house HR staff by taking over the management of transactional processes. Some of the ways in which the new breed of HRO providers can help are outlined below.

• Innovative, value-add servicesA number of providers now offer innovative services beyond transactional process outsourcing, with the result that HR Directors are now looking to HRO providers for access to strategic insight and expertise to complement their own.

Case in Point: Offerings such as Alexander Mann’s Total Workforce Acquisition service and the new legal service launched by UK-based employment relations support provider Adviser Plus have enabled these providers to increase the strategic value of their services in their respective areas of expertise.

Strategic opportunities of HRO


• Local market capabilitiesOrganisations aiming to move fast into new territories are looking to already-established HRO providers in those regions to take care of everything from recruitment and relocation of talent to the establishment of locally-compliant HR processes, systems and support infrastructure. In such situations the outsourcer is often contracted on a shorter-term basis to set up the local operation, drawing on its capacity in the region and its local knowledge. Once established, the HR operation may then be handed back to the client organisation.

• Analytics and reportingWorkforce-related decision-making is increasingly being driven by advances in data integration, analytics, modelling, reporting and visualisation. Many HRO service providers have invested in technologies that integrate and cleanse their clients’ HR-related data, and provide services and dashboards for real-time analysis, identification of trends and gaps, and ‘what-if’ modelling. The resulting information can prove a vital support to decision making at the highest levels.

Case in Point: HRO service providers including Logica, IBM and Accenture have been early movers into these markets. They offer Business Intelligence capabilities that not only provide analysis of historical ERP data but also deliver predictive analytics as well as cross-analysis of different datasets to uncover patterns and trends that might otherwise have go unnoticed.

• Access to enabling technologiesIn recent years, HR technologies have extended beyond the back-office to encompass a wide range of valuable workforce-facing technologies including self-service, social networking and collaboration, as well as mobile applications. Organisations that find it difficult to secure internal budget for IT can leverage this kind of functionality by partnering with an HRO provider that is committed to introducing new HR technologies as they emerge.

Case in Point: Aon Hewitt, Capita, and ACS Xerox all now offer mobile access to their HR services and learning services. The best offerings build this access into the daily workflow for staff and managers, increasing levels of engagement with the HR process.



• Operational excellenceEstablished HRO providers have built up operational centres of excellence deploying advanced management control and automation approaches. Leveraging this expertise can help HR Directors achieve the standards of operational excellence that are often aspired to within the organisation, but require significant development and investment to achieve. This investment draws on deep specialism in operations management and technology enablement that HR teams and the wider business may not possess.

Case in Point: Kelly OGC has been rigorously applying Six Sigma approaches to its operations, and with GE as a major client has a great reference point. Meanwhile, both Logica and Northgate Arinso have invested heavily in Capability Maturity Model Integration (CMMI) to ensure worldwide operational excellence. This approach drives consistency in process and operations management, creates a platform for continuous improvement, and delivers a framework to improve automation. This is the kind of performance-boosting initiative that internal HR services operations find hard to justify.

In short, today’s HRO providers often have a lot more to offer than simple cost-reduction opportunities based on transactional process efficiency. The next section will outline how to select the right HRO partner and how to make the best of the capabilities and services they offer.

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To reap the full strategic benefits of HR outsourcing, HR Directors must look beyond traditional approaches to sourcing, contracting with and working with an HRO provider. In a traditional HR outsourcing scenario, the choice of provider is based on cost and decided after scoring the service scope and standards against a marking framework. At the end of the process, the chosen provider is presented to the business as a faît accompli. Once the service is live, the provider is then retained at arm’s length to manage administrative processes while the HR function concentrates on strategic issues.

In order to get the best strategic support from the new breed of HRO provider, however, HR Directors must be prepared to work much more closely with the rest of the business and with the provider throughout the life of the contract. This approach must begin even before a selection is made, in order to choose the provider that is the best operational and strategic fit with the business.

Orion Partners applies its own, well-proven approach called “Sustainable Outsourcing” to help organisations get the most strategic value from their outsourcing agreement over the whole lifetime of the contract. Some key elements of best practice for Sustainable Outsourcing are outlined below.

• Allow stakeholders to explore how a new HRO service could benefit themThe services offered by HRO providers can help board executives and line of business managers execute business strategy far more effectively. Make sure the business is aware of the potential advantages in terms of workforce analytics, talent acquisition and retention and workforce planning – and that they understand how these services can help them to get the right people in the right places at the right time. Hold workshops to ascertain how an HRO provider could help individual lines of business achieve their objectives, and use this insight to inform the selection process.

• Get close to your provider before making a decisionDon’t just settle for an arm’s-length due diligence approach that ticks the boxes on visiting centres and taking references. Get close to the provider’s management and leadership team to understand how they will fit culturally with your organisation, whether their future roadmap fits with your own, how and when they plan to invest in new enabling technologies, and what their capacity is like in terms of current and future client demands. Be ambitious: share your business’s strategic objectives with them and ask them how they can support them over the life of the contract. Finally make sure they use their services themselves – if they don’t practise what they preach, be careful about being their guinea-pig!

Best practices for HR outsourcing


Case in Point: Logica has undergone a World Class HR transformation programme that will allow 39,000 Logica employees in 40 countries to take advantage of the same value-added services and innovations that the company provides to its HRO clients. Logica’s Dynamic HR framework, based on continually-evolving solutions from the Oracle suite of HCM products, will deliver standardised global processes for operational efficiency, coupled with local expertise, advanced self-service for managers and employees, and sophisticated analytics for workforce planning and talent management. Future innovations in the Oracle platform will be incorporated into the Dynamic HR framework as they are developed.

Chris Sutton, Logica’s Managing Director of Global BPO, recently said about the platform he has built for his internal and external customers: “As is becoming best practice in HRO, Logica is committed to exploiting new technological developments for its clients, and has chosen to standardise on Oracle products on that basis.”

“We want to work with a software developer that provides future proofing for our customers, that has a route map which reflects the needs of the HR director and that stays abreast of new themes around the best way to manage HR.”

• Ensure your internal HR team are able to take advantage of the opportunityThe best results happen when the internal HR function and the HRO provider work together as one team, collaborating towards the achievement of defined strategic (and combined) objectives with mutual trust and confidence.

This means ensuring that the internal HR team have the right skills and mindset in place to make best use of the services offered by the provider – even if that means redefining or creating new internal roles to take advantage of the opportunities available. For example, if the provider is offering sophisticated BI dashboards, make sure that internal staff know how to use this new insight to drive strategic decisions that support the organisation’s business objectives.



• Maintain a close relationship post-contractIn order to deliver the most effective service, the HRO provider will need to have continuous insight into your business as it grows and evolves. By maintaining a close relationship and involving them in your decision-making, you will find they can support your organisation better in achieving its strategic objectives.

You may not want your provider to be party to every discussion about HR strategy, but it is perfectly possible for HRO relationship leads to sit on HR leadership teams if there are clear rules of engagement in place. These should include a clear definition of the client organisation’s strategic goals, mutually-agreed service level commitments, and a well-defined and regularly-updated exit plan in case the relationship ceases to be beneficial.

By establishing and nurturing a close working relationship, HR Directors will be better positioned to exploit all of the capabilities the provider can offer, and the provider will have a depth of insight into the business that will help it to proactively suggest new services to support its client’s growth.

Increasingly, those services will be technology-driven. The final section examines some of the technological capabilities and innovations that enable the new breed of HRO provider to deliver strategically-valuable services to their client organisations.



The role of technology

Technology advances at a dizzying pace. In just a few short years, a wave of new consumer technologies have transformed the way we all live and behave. Relationships are forged and maintained through social networking and location-based services. Banking, shopping, reading and information-sharing are all done online. Smartphones have created an always-on culture in which people expect to be able to conduct any digital task they want at any time they want, and in late 2011 e-book sales overtook hardback sales, indicating the scale and pace of the changes wrought by technology.

Consumerisation of ITIncreasingly, people who rely on these technologies in their personal lives want to be able to use them in the workplace too. But while the willingness is there in many organisations to exploit the latest technologies, very often the budget and the requisite organisational agility are not. HR teams in particular may find it difficult to get budget for new IT systems if there has been recent investment in a large-scale HCM implementation.

The result is that employees and managers start to bypass ‘old-fashioned’ enterprise systems and use their favourite consumer tools and services to conduct HR-related tasks. While this may get the job done, it means that vital data is being lost to the organisation. As the ability to analyse and model operational data becomes critical to an organisation’s success, losing important information can have a material impact on future business performance.

Embracing innovationWith internal IT budget and resource hard to come by, due to CAPEX restrictions in a tight economy, organisations are increasingly seeking to partner with HRO providers who have a track record of successfully delivering new HR technologies and a commitment to introducing new technologies as they emerge. That commitment is now being explicitly built into contracts and SLAs so that the client organisation can be confident it will always have the opportunity to exploit technologies that can make a difference.

Case in Point: KPN, the Netherlands’ leading telecommunications provider, appointed a director of HR Innovation to work closely alongside HRO partner Logica in exploring the potential of emerging HR technologies. One of the many benefits has been the high level of employee and manager self service, instead of telephone interaction with the service centre. The self service, with its context-rich Frequently Asked Questions, has been designed to enhance the experience of employees. “Click” interaction has become more effective and more acceptable than a phone call, and reflects demographic changes in the KPN workforce.


Case in Point: IBM has implemented ‘chat’ services for a number of HRO clients. This improves flexibility of access for employees by allowing them to contact IBM service centres with quick questions and interact immediately with a helpdesk operator without having to go through a call centre.

The ability to provide capabilities like corporate social networks, mobile applications and enterprise collaboration can vastly increase organisation-wide engagement with HR processes. It also means that data is captured within enterprise systems for analysis and decision-making.

AnalyticsWorkforce-facing tools are not the only technological advantage that HRO providers can deliver. Many now offer sophisticated analytics, reporting, dashboards and data visualisation capabilities to help HR teams and senior executives make intelligent decisions about people strategy. Providers that have invested in integrated systems, or which have robust tools in place for real-time data integration and business intelligence, are well placed to help their clients make sense of the mass of operational data they gather each day.

Data integrationIntegration of data is critical to HR’s ability to draw on a “single source of truth” for business intelligence, planning and reporting purposes. Many organisations today run a plethora of different technologies, resulting in fragmented islands of data that make an accurate, 360-degree view of HR information difficult to achieve. When selecting a provider, HR Directors should look out for a robust HR technology strategy that enables HRO and in-house technologies to remain aligned and the data they handle to be fully integrated. The decision to outsource should not result in data becoming fragmented, or the delivery of valuable management information will be inhibited.

In summary, technology is increasingly central to the way people-related tasks are conducted across the organisation and the way people-related data is analysed to drive better decision-making. An outsourcing provider’s technological capabilities, the stability and reliability of the technology vendors with whom they partner, their agility to adopt new technologies, the architecture and architectural flexibility and the proven delivery reliability of these technologies should all be closely considered by any organisation looking to increase its strategic advantage through HR outsourcing.

The August 2011 deal between Logica and Ahold, now well into transition, provides a good example of how these considerations are playing out in practice.



Case study: Logica and Ahold

In August 2011 Dutch international food retailer Ahold outsourced its HR business processes to Logica in a contract worth $70 million over nine years.

Under the terms of the agreement, Logica provides local HR support and presence to Ahold in the Netherlands, the Czech Republic and Slovakia, and back office administration from its state of the art shared service facility in the Philippines.

Ahold selected Logica to provide both transactional services (including helpdesk, payroll and HR admin) and technology-driven value-added services that will deliver competitive advantage in a number of ways, including:

• Rapid Business ExpansionAhold aims to move quickly into new geographical markets outside the Netherlands. Logica will provide a ready-made HR and payroll service for new territories, enabling Ahold to get up and running with a global operating model.

• Manager ProductivityOne of the main challenges for a retailer is to simplify the onboarding of new staff. Logica will deliver electronic document flows which will be fully integrated with HR systems, enabling store managers to spend less time on admin and more time managing the store. These will cover the full onboarding process, from recruitment through to the issue of identity cards.

• Strategic PlanningAhold has the option to use sophisticated workforce analytics provided by Logica to drive decisions on everything from workforce planning to training delivery.

• Future-ProofingLogica conducts regular innovation boards with its HRO clients to discuss where they can get most value from their investment in Logica and its technology platform. It also provides a framework for adopting best practice in HR and HR technology as it evolves, ensuring that clients can always take advantage of new technological developments such as predictive analytics, enterprise social networking and mobile capabilities.

At the core of Logica’s service offering is a platform based on Oracle’s suite of HCM products, which will serve more than 90,000 Ahold employees.



As�the�range�of�services�offered�by�HRO�providers�expands,�there�are�many�opportunities�for�HR�Directors�and�their�organisations�to�derive�significant�strategic�advantage�from�their�outsourcing�provider.�

HR�Directors�who�choose�an�HRO�provider�based�on�its�value-add�capabilities,�cultural�fit,�technological�sophistication�and�commitment�to�ensuring�its�clients’�success�will�ultimately�be�able�to�play�a�more�strategic�role�in�helping�the�business�to�improve�performance�and�meet�its�objectives.

Conclusion

ORIONTransforming HR

Orion Partners

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