Human Resource Outsourcing (HRO) or Human Resource Services (HRS) is one of the oldest areas to have been outsourced in varied and different models, in bits and parts, especially areas such as recruitment, payroll and benefits and learning/training. This has resulted in large and very successful specialized and localized outsourcing firms in the HRO space. The advent of offshoring has lent a different flavor and new opportunities, but there are numerous challenges that buyers and providers are still struggling with.

The Sum of the Parts

Most are still searching for the magic formula of success. In fact, to club all Hire to Retire (H2R) or Search to Separation (S2S) processes under one roof is a mistake in itself because each of the hire to retire processes is unique and has a unique set of characteristics that need a different strategy both from a buyer/providers viewpoint. Some of the differentiating characteristics are:

Recruitment: There are sourcing and search functions within recruitment, especially at junior and middle levels that lend themselves to being operated out of a shared services environment which is location agnostic. Needless to say that technology enablement is a critical factor for this to be successful. This has only been possible in the recent past, with internet becoming an important medium for job seekers. However, there are still aspects of recruitment that are better performed on shore, especially that require face to face interaction and allow really experienced recruiters to add value based on their experience of the sector and the geography (including networks and contacts).

Payroll/benefits: These functions, especially transactional aspects are most easily done in an outsourced and offshore environment. Once again a robust and country compliant technology is the key enabler. However, there is a very thin layer of knowledge that is required which best resides with on shore staff. This mostly pertains to regal regulatory filings and compliance related activities. The question about does this fall into the finance or HR function is still being discussed. I have seen several organizations where payroll is part of finance function and equal number where it is part of the HR function. Wherever this might lie, but what is certain is that its important to recognize the finance and HR components of this sub function and address them appropriately with the right owners.

International mobility: This HR function impacts a very few number of employees of any organization, but most of these employees are prized high profile talent, hence most firms endeavor for this service to be best provided by specialist organizations, for instance immigration services firms, moving companies etc. However, internal staff provide coordination and administrative type services, which, though small in numbers are suited for offshoring.

Learning: Training and Development as this function was previously called, now has signification components that can be outsourced and can be better performed by specialist firms (offshore or on shore), especially if online learning or e learning is a significant part of a company’s strategy. Learning, again is being increasingly used as a differentiator by companies. Administrative tasks, e learning related components such as content design, development, instructional design, project management, conversion, administration, testing and tracking are activities that are increasingly being outsourced and even offshored.

Employee Data Management and Queries: These functions are mostly the ones that can be completely outsourced and are location agnostic. Employee Self Service and Manager Self Service, ESS or MSS enablement, very widely being adopted, restrict the scale at which these functions need to be performed. However, query handling, again mostly pertaining to compensation and benefits still remains a significant proportion of activities that can be outsourced/offshored.

Talent & Performance Management: These activities are very niche, mostly periodic in nature, usually centralized with the HR function, closely linked with Learning and Recruitment and other than administrative tasks do not have high scale.

Importance & Complexity of HR Processes

HR processes and activities in any firm, though fragmented and small as far as number of staff performing a single process is concerned, are mostly the most sensitive processes and have the opportunity to impact each and every employee of the company at some point of time during the hire to retire lifecycle, as compared to any of the other shared services or functional areas. Additionally, experience with HR processes is crucial to maintain employee engagement and morale and one bad experience has the ability of becoming the topic of coffee corner conversation and experience sharing, thus disrupting the agenda of HR managers. Often, I have found that tolerance for errors in HR processes is extremely low.

Additionally, from a providers standpoint, HR Processes have a degree of unparalleled complexity, primarily because of zero tolerance from buyers end, the relative importance as described above, coupled with diversity of processes in a limited scale that require varied levels of skills and knowledge ie both voice and transactions, simple data entry to judgment based, local/geography specific knowledge as well as knowledge of company specific rules and policies.

The Organization’s Viewpoint: Enablers for Offshoring

The three tiered model, implemented well and consistently, is the key for designing the HR function in a cost efficient manner that not only enables a global organization to grow and operate in different countries, but also ensures that through transition to shared services (global, cost effective and scalable), provides consistent employee experience.

Briefly, the three tiered model consists of HR Strategy, policy and design components at the top, business partner HR as HR support to business and conduits for change management and implementation of HR strategy in the business and shared services at the base, almost as the strong foundation on which the HR function resides. This model is being increasingly adopted as HR functions transform themselves in an effort to support increasing demands and complexities of businesses in a cost efficient manner.

HR Technology is the next fundamental pillar which enables the creation of HR shared services which can then be outsourced/offshored, with adequate change management and knowledge transfer routines.

Mostly, in the case of HRO, buyers are HR managers and not sourcing departments. Often, I have found that this translates into greater importance on factors such as competence and experience in HR, home grown HR technology and its functionalities and lower consideration on factors such as competence in delivery, offshore capability, knowledge management, SLAs etc.

Also, most buyer organizations and HR managers, when asked would normally state that they intend buying superior service, and not lowest cost. Service performance even if it’s at a wee bit higher cost is more important in the buying decision.

Service Providers- Key Success Factors

Bundled HR technology in the solution set is the single largest enabler for success in not just delivery but also in winning more and new business. Cost and time involved in an in house HR ERP implementation can act as deterrent and can work hugely in favor of the provider who can provide a BPaaS (Business Process as a service) model. Most large outsourcing providers who have added HRO in their basket of services have now realized this and have partnered large ERP like Peoplesoft/SAP and provide HRO service using the underlying technology platform. Traditional HRO firms have their own home grown, highly customized technology platforms that has resulted in client stickiness.

Provider organizations have to realize that business process management techniques and disciplines, if used well can enable them to be successful in this space. A recognition of how HRO comprises several smallish processes, and treating each one, however small in scale it might be, as a process that requires strict process discipline of mapping (SIPOC), training process staff, escalation matrix, ‘what if’ scenarios, knowledge transfer/management are all very critical.

Competent and skilled staff, like in most other areas is just as important. Service attitude, higher skilled staff capable of performing multiple processes are more important in the HRO space.

For complete end to end outsourcing, mix of onsite and offshore in the solution mix can be a differentiator and important. Specific geography compliance. legal/regulatory knowledge can be additional advantage in the overall delivery capability.

Enablers for both Buyers and Providers

Just as in any outsourcing, both buyer and provider need to invest in setting the foundation of this relationship that can enable the future delivery of superior service to the employees of the business.

One key area is to invest in process standardization along with policy streamlining. A complete analysis of process and policy anomalies and standardizing them prior to outsourcing can assist a seamless transition and on going delivery. It is broken processes, too many exceptions in smallish scale of operations, backed by several policy variations that pose delivery and knowledge management constraints from a providers standpoint. Also, process and policy variations that may have crept in over time, are also in the interest of HR organizations as they attempt to build scalable, consistent employee policies and practices. Hence addressing this aspect is of mutual interest.

Often, this aspect is over looked, and technology is awarded greater importance. However, the point to note is that policy, process standardization can enable cleaner smoother technology implementation with fewer customizations that can be a boon for any technology/application implementation and maintenance professionals.

Change management, the discipline that HR professionals are entrusted with for all major transformation projects in any business is just as important for HR Outsourcing projects. This area, since it happens in HR functions’ own backyard, is also, most easily ignored and overlooked. But due to the nature of HR Outsourcing as it has the potential of impacting every employee several times during their employment with the company needs to be adequately addressed through various change management techniques and communication.

Emerging Trends & New Model

Anyone who has viewed and been a part of this industry has witnessed trends where HRO has moved from processwise specialist in country outsourced mode to complete function deal based list and shift to now generalist offshored. Newer trends in this space (both technology ie Workday and process) are now looking at closer integration of all shared services functions that creates scale, which was the drawback with HR shared services alone. Creation of scale then enables investment justification both at providers and buyers end. If one has to adopt the customer centric view then this trend makes eminent sense to have all internal shared services processes that impact employee lifecycle (not just HR, but even finance, ie employee reimbursements, travel and expenses etc) all reside under a single shared services umbrella. From an operations and delivery standpoint, these processes can then be classified by skills required to perform them i.e. voice, numeric ability, end user service etc. While from a purist standpoint, this makes a good model that addresses the strains that exist in the current model and combines ease of delivery and greater end user satisfaction, the challenge that this poses is that of functional territory and operational control within the structure of any organization.