Making outsourcing safe for the HR director.

by Neil McEwen

Any HR director approaching the idea of outsourcing HR functions faces a number of concerns. And most who have been through this process would admitalbeit only privatelythat among the most prominent of these worries is the impact that outsourcing may have on their own position and maybe even on their job security.

Put bluntly, HR directors fear that if they rock the corporate boat with an HRO deal, they may end up falling out themselves. This concern is perpetuated by occasional but highly-publicized departures at the HR director level following problems over outsourcing. However, experience also shows that these risks can be managed and mitigated by focusing on the right issues.

Clearly, HRO is a significant step that begets several inherent risks. The early publicity around HRO tended to focus on instances where these risks were not managed well enoughhelping to create a negative image that HRO has taken some years to shake off, particularly outside the United States.

During the early days of HRO, there were three risks that were especially prevalent. First, the initial claims for potential cost reduction and improved effectiveness were sometimes exaggerated or unrealistic, leading to disappointment when they were not delivered. Second, people often failed to appreciate the effort required to make HRO work, given that it affects all employees served by the HR function and has a huge impact on the HR community. Third, some companies thought that by outsourcing an organizational mess, they could make it someone elses problem. Of course, the reality was that the problem would ultimately boomerang back to them, because the HRO supplierwho possibly may not have realized how bad things werewould come up against the same intractable issues.

Beyond these initial risks, each of which carry clear implications for the HR director, there are other potentially risk-creating issues. One is that HRO inevitably involves a loss of direct control over a number of activities. HRO will only succeed if the leave-behind organization within the business is also transformed. Different people with different skills doing different things will be needed to support the transactional piece that has been outsourced in order to influence and educate the business and to contribute to the formation of corporate strategy. The final risk-creating issue is around systems. Essentially, the business needs to decide whether to own its HR IT systems or have them hosted by the outsource provider. However, what happens to them if the agreement breaks down? If they are being kept in-house, can the often enormous costs of replacing piecemeal legacy systems with an HR ERP-type system be justified?

While the risks around HRO are clearly significant, they are by no means insurmountable, given the right approach, controls, and safeguards. We have identified five key areas on which the HR director should focus during the deal negotiations and after HRO transition and operation (see sidebar). Getting this right will not only give the deal a far greater chance of success, but also ensure that the HR director can come out in a stronger position organizationally than before. Clearly, HRO raises risks for the HR director. But the risks of doing nothing may well be greater. A clear focus on these five issues should ensure that the HR director emerges from BPO with an enhanced reputationand greater influence.

Five Areas for Focus in HRO

1. MEASUREMENT AND METRICS

Be very clear from the start what service levels are acceptable. Then ensure that the metrics to measure them are consistent and fit for purpose, and that the outputs are relevant to the way the business actually operates.

2. SERVICE MANAGEMENT ORGANIZATION

The relationship and contract with the provider must be managed actively and continually. This requires the creation of an explicit service management organization that ensures high-level contact between the two sides, enabling exchange of ideas, fixing of problems, and effective decision making.

3. BEHAVIORAL CHANGE

Recognize the scale of change required in employee behavior for the benefits of HRO to be realized, and mount the appropriate communication and training programs. It is especially critical that high-level people lead by example and demonstrate buy-in and new behaviours. When IBM introduced HR selfservice, CEO Lou Gerstner simply told senior executives: You will do this.

4. REMAIN REALISTIC

Do not make overblown estimates for the results of HRO, and dont promise anything that you cant deliver.

5. STAY INVOLVED

HRO is a major change both for HR and the organization as a whole, and the HR director needs to stay actively involved and demonstrate ownership and leadership throughout. Dont let delegation turn into abdication.