When HRO’s brightest stars and Europe’s HR thought leaders gather November 7 and 8 in Brussels at the lovely Conrad Hotel, the debates that started at the 2005 conference will become even more heated…because in 2006, the stakes are €6 billion higher than last year’s €54 billion market.

by Jay Whitehead

In the past three years, European HRO has grown up from the source of fistfights, mean conversations, and labor strikes to a business tool used as routinely as HR software. Since 2002, I have seen a lot of emotion over HRO. I have seen a lot of intelligent debate. And the 325 top HR executives, sourcing advisors, legal counsel, and HRO providers who gathered at HRO World Europe last November in Brussels took part in the most intelligent HRO discussions ever to grace Europe. The sessions featured the most HRO-informed speakers and delegates Europe has ever seen. A full 100 percent of the speakers and 55 percent of the audience had first-hand experience in HRO.

By all accounts, the 2005 delegates were fearless in their pursuit of the truth about the €54 billion HRO phenomenon. “There was much less angst out there in 2005 than there was in 2004,” said Andrew Kris, the conference co-chairman. “About 150 of Europe’s most-impacted HR leaders were at the conference, and they were outspoken about their need to understand every important aspect of HR outsourcing—the savings, the career impacts, the data security issues, the works council issues, the truth about provider qualifications, and the ways to avoid failure.”

Like me, Andrew Kris has been part of the growing HRO movement for nearly 10 years. Admittedly, as the chairman of the Shared Services and Business Process Outsourcing Association, Kris’ experience is heavily scented with shared services.

“Shared services tend to be European companies’ first step on the road to full-scale outsourcing,” said Kris. “Most companies graduate beyond shared services to HRO. But many companies prefer to keep functions in-house. Honeywell is a great example. They have a highly developed shared-services organization, and they have vowed to keep this functionality inside the company.”

The statistics compiled by HRO Today and HRO Europe (for which I am the publisher and president) show that around 77 percent of European companies who have implemented shared-services capabilities in HR have already or plan to eventually outsource the functions. Another group of companies will skip the expense and pain of building shared services altogether and go right to HRO. As Luigi Pierleoni, Procter & Gamble’s head of global HR sourcing, explains: “Shared services are an expensive but sometimes culturally necessary phase for big companies to experience before they outsource functions.”

P&G outsourced its global HR functions to IBM in 2004 after creating several service functions in-house. In the end, Pierleoni admitted, “In hindsight, we could have outsourced the functions from the beginning. But, before creating shared services, we did not know what we did not know.”

Since the P&G deal in 2004, however, the market has matured at an extremely rapid pace. Reg Bull, senior vice president of HR transformation for Unilever—P&G’s most direct global competitor—took P&G’s move as a sign that HRO was a competitive imperative for it as well. As a result, Unilever outsourced HR services to Accenture HR Services. Bull’s case study presentation at HRO World Europe 2006 is a great example of HRO’s rapid market maturation. As a result, HRO today is a run-of-the-mill business tool, routinely used and rarely the cause of red-hot emotion.

HRO WORLD EUROPE 2006, MAKING TRANSFORMATION ROUTINE
When the Royal Mail’s McCarthy, group director, people and organizational development, appeared as the keynote speaker for HRO World Europe 2005, the conference organizers had to deny entry to more than 20 media representatives. After all, the potential of outsourcing staff functions at a public service function as large as Royal Mail’s, was a headline-making event.

Fast-forward to 2006. McCarthy, by speaking often and loudly about the competitive imperatives of innovations such as outsourcing, has quieted the crowds. His comments on the topics are no longer front-page fare. And in fact, his appearance on the 2006 conference program has moved to the much-more-routine position of panelist in the final panel of the conference—Future-Proofing HR Transformation. His evolution perfectly illustrates the rapid evolution of HRO from tortured topic to trusted tool.

Despite the fact his impending HRO decision has become a virtual fait accompli, not even McCarthy could have imagined the level of HR horrors he found upon his arrival at Royal Mail in 2003 from BAE. At that point, the 195,000 full-time employees and 72,500 franchisees and other workers of the Royal Mail accounted for 50 percent of all strikes in Britain. It was losing £1 million per day on its operations. There were 18,000 temporary workers on payroll, many of whom had worked a full two years before they became permanent. The Royal Mail’s service had not hit “first class” mail delivery targets since 1992. It was losing 28 million pieces of mail every year.

McCarthy used the vernacular to describe the scene. “I knew,” he says, “it was going to be a dog’s breakfast.”

His first task was to rid the organization of duplication. There were 3,700 HR staffers on payroll in 2003. He knew he needed to reduce the number to 1,900 just to get the HR staff-to-employee ratio to a rational 100-to-1. For starters, he reduced headcount in recruiting from 1,000 to 200 simply by centralizing recruiting functions into eight regional centers rather than having a staff at each office. He found £40 million in annual savings in less than a year. He helped cut the Mail’s second daily delivery, which involved only 10 percent of total volume but accounted for 40 percent of the organization’s costs. Following these changes and more, in the most recent reporting period, Royal Mail turned a profit of £535 million. Britain’s Telegraph newspaper called the Mail’s improvements “the biggest turnaround in U.K. corporate history.”

Royal Mail, as HRO people have come to say, has a “burning platform.” Its Infinium HR system has been outgrown by the organization’s complex and changing needs. And McCarthy estimates it will take £35 million to replace the system. But, he says, “there is exactly zero appetite within Royal Mail for such an enormous capital expenditure.” The cap-ex conundrum is one faced by thousands of European public and private sector organizations. “If we could find that amount of money,” McCarthy said, “it would go for sorting machines or a new mail center, not for an HRIS installation.”

McCarthy himself pointed out, “Because it represents such an extreme turnaround situation, I think Royal Mail’s HR situation is instructive, almost a perfect case study for high-level HR professional education.”

Speaking of professional education, HRO World Europe this year delivers a much more academic message than has ever been possible before. Finally, the academic world is catching up with HR’s rapid run into transformation—a journey aided by outsourcing. Emeritus Professor Geert Hofstede of Maastricht University leads off the conference with his keynote, “How Cultural Resources Support Business Transformation.” In a compelling analysis of corporate soft assets, Professor Hofstede takes HRO to a new level of measurement—this time, a measurement of largely invisible assets. The professor’s session is not to miss.

HRO WORLD EUROPE 2006: KILLER KEYNOTES, POIGNANT PANELS, CLASSIC CASE STUDIES
When we set out with partners, advisors, buyers, and providers to design HRO World Europe for 2006, we identified 55 organizations—20 buyer companies, 20 providers and 15 advisors, academics, and analyst firms who best illustrate today’s biggest market trends. And I am happy to report that the HRO World Europe 2006 conference features 55 percent of them, in one place at one time, for your professional learning benefit.

Of today’s top 20 buyers and potential buyers, HRO World Europe features 10: Unilever, IKEA, Centrica, Deutsche Bank, P&G, RBS, Bayer AG, Marriott Hotels, Electrolux Europe, and Royal Mail. Of the top 20 providers, HRO World Europe features 10: ADP, Accenture HR Services, Hewitt, IBM, Oracle, SAP, Valuentis, Kelly HR First, Excellerate HRO, Xansa. And of those 15 advisors, analysts, and associations, HRO World Europe features 10: Delve, SharedXpertise, Forrester, IDC, NelsonHall, Gartner, PA Consulting, EquaTerra, Maastricht University, and the HRO Association Europe.

And just like in past years, we are striving to ask the hard questions—the questions to which you need answers. Here they are,
the 11 biggest questions in HRO and HR transformation.

• Will HRO Wreck HR in Order to Rule the Wreckage?
• Is HRO Incompatible with French or German Concepts of Corporate Social Responsibility?
• How Can I Make HRO More Than “My Mess For Less,” and Actually Deliver Greater Productivity?
• How Can I Separate HRO’s Tough Truths from Provider Promotion?
• Can HR Really Reduce Costs While Better Delivering On its Mission?
• How Do HR Leaders Reduce the Risks of HRO Failure?
• Who Can HR Leaders Trust for HRO Lessons Learned First-Hand?
• Who Should I Have in My Network of HRO Peers, Who Can Help Me Deal with HRO and My Management Team?
• How Can HRO Help Me Transform HR, Step-by-Step, to Align My Workforce with Our New Business Objectives?
• Who are Those Elusive Sourcing Advisors and Analysts Who Seem to Control All HRO Deals, and How Can I Meet Them?
• What Exactly is Change Management Step-by-Step?

How well we succeed in answering the 11 Biggest Questions with the 40 speakers and assembled audience of HRO buyers and prospective buyers, providers, analysts, advocates, and advisors, only our esteemed delegates will decide. But one thing is certain. Once again, we can say that this is the greatest group of HRO experts ever to be assembled in Europe.

An HRO World Europe Sub-theme: HRO In The Public Sector—A Growing PhenomenonNext time you visit an American airport and are asked to remove your shoes, you can thank the public sector HRO phenomenon.

As America’s response to the events of 9/11, the U.S. Transportation Security Administration, or TSA, grew from two employees to 60,000 in a little more than four months. The TSA knew that to succeed, it could not go at it alone. It hired Accenture HR Services as the master HRO contractor to provide all the HR and HRIS muscle that the project required. Accenture worked with several additional providers such as CPS, a public-private recruiting partnership, to offer a full suite of services that enabled the TSA ramp-up. The agency has since renewed the contract with Accenture.

THE U.S. STATES OF FLORIDA AND TEXAS
When Florida Governor Jeb Bush faced a budget-busting HR systems upgrade in 2002, he turned to his then-head of Department of Management Services, Cynthia Henderson.

Later that year, Florida hired Convergys Employee Care. After navigating the treacherous and uncharted waters of HRO for a state government, Convergys and the state declared the project a success after its first year. Cincinnati-based Convergys has since made a boutique practice out of serving the HRO needs of state governments, with another landmark contract serving Texas in 2004.

COPENHAGEN'S PIONEERING HRO EFFORT
The City of Copenhagen’s then-world-record-sized HRO contract, involving more than 65,000 public sector employees, was featured in the cover story of the first issue of HRO Europe back in the winter of 2003. While the City has since repatriated certain services formerly outsourced, the pioneering contract served as an important step in Europe’s HRO learning process.