A conversation with the enterprise resource planning software industry’s reigning top fan of HR outsourcing, HRO Europe gets to the bottom of the Peoplesoft-Oracle-SAP drama and the surprising reason why there is an amazing drive toward standardization.

by Jay Whitehead

There is a large universe of technology experts who hide behind their computer screens, too shy to come out and express important opinions in front of influential crowds. Christian Baader is not one of those experts. As an SAP HR technology evangelist, Baader has also never hidden his affection for the HRO mega trend. HRO Europe sat down with Baader recently to get an update on his views on all things HRIS, especially those that impact customers looking to outsource HR operations.

HRO Europe: Considering the developments occurring with Oracle, what is SAP’s strategy in the BPO and HRO market?

CB: We at SAP are ahead on the BPO partnering side. We’ve watched the market closely. We announced our foundation release strategy, where we are not announcing any upgrades until 2010. Our focus is to stabilize MySAP2005. And we are working hard to change the business model around upgrades. Rather than forcing customers to do upgrades to include new features or fixes, we are shipping enhanced packages. That means our customers do not need to buy and implement an entire release change in order to get upgraded features. We are in the process of shipping Enhancement Package 1, which includes now shared-services and HR capabilities. Enhanced Package 2 comes out mid-07, with more recruiting and learning capabilities. The second enhancement also includes lots more performance management stuff as well. Interestingly, many of the enhancements are directed at the multiple-client provider market, which includes both shared-services centers and BPO providers.

HRO Europe: So then, from your unique perspective, what are the biggest trends affecting the global HRO service market today?

CB:  The entire industry trying to do something quite fundamental. It is trying to become profitable. Profitability is all about scale and standardization. The broad trend, therefore, is standardized offerings, then process and platform-level standardizations. More process improvements are possible that way. The providers will be able to make money this way, since there is less customizations and one-off processes.

Another trend is getting broader and more judgment-based processes included. Among the buyer community, there is a growing appreciation for integration. To make HR strategic, this is critical to provide more integration, cross connecting the HR and business functions. The U.K. will stay in the lead, with the Nordic regions continuing to show strong growth, with Unilever and IKEA as examples. The southern part of Europe is lagging, with low levels of activities.

HRO Europe: Are HR leaders changing their attitudes about HRO? Are they evolving with the market?

CB: HRO, in the sense of transaction processing services especially, is clearly something that people are listening for more information about and discussing vigorously more often than ever. At same time, there is increased awareness of the risks associated with outsourcing of critical functions such as HR. The market is growing. But in Europe, there are a number of prospects sitting on the fence. This is not an impulse purchase, and there is a feeling that some of the early adopters made impulse purchases.

Today, there is more conscious decision-making by BPO and HRO buyers than ever before. There is more standardizing as a result. People are cleaning up their house before outsourcing it. The technology choices are also being made more uniformly. And more commonly, their decisions involve more vendor delegation.

HRO Europe: In your eyes, who are the most innovative HRO providers and why?

CB: A provider’s innovativeness today is in the realization that standardization is driving cost and productivity changes. Process optimization has caused partners to sign up for more standard offerings. ARINSO and ADP are really among the ones most visibly pushing this standardized innovation. They are really pushing HRO 2.0 model, where innovation is standardization. We see customers coming around and being more ready for standard offerings. This is more prevalent this year more than before.

IKEA picked SAP first. Then the cornerstone of their approach drove the HRO conversation toward standardization. BP was a very innovative client in Europe. They started it all, and they were first on what we would call the “bleeding-edge” group. What I like about how P&G and DuPont are approaching their initiatives is that they are approaching it in a very mature way. They standardize, centralize, and then outsource, instead of jumping right into outsourcing without baselining and making the metrics and measures clear.

The Hewitt example shows that the gain for both parties is in standardization. Compliance and transparency are both driving standardization as well, because being transparent is a competitive imperative. In the end, the providers who are the most responsible—meaning transparent, open, and operationally collaborative—come out ahead.