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| Friday, June 10, 2005 | |
| Assessing The Barriers To Offshore HRO | |
| Human Resources Outsourcing is hot, but many companies question whether transformational work should go offshore. EquaTerra's Robin Rasmussen and Stan Lepeak assess and reject the major objections to it | |
| Robin Rasmussen and Stan Lepeak | |
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Most individuals and organizations undertaking a discussion on offshore outsourcing come to the table with preconceived notions and predefined positions. They are either for it or against it, often regardless of its need, viability, practicality, or potential level of benefits and cost savings.
The offshoring of HR processes is a particularly sensitive—and highly debated—issue. People give a variety of reasons why HR cannot, or should not, go offshore. Some are generic excuses, such as concerns over outsourcing a core competency, inability to develop a compelling ROI case, and lack of qualified service providers. Other excuses are more
specific to the “people” aspect of HR. These include arguments such as “HR is too sensitive a business process to outsource,” or “HR is about ‘people,’ and we don’t want non-employees in other countries handling ‘our people.’” But it is very possible that at the heart of the argument is the fear that if the company outsources the transactional work that has been core to HR for so long, the organization may not have the capability (or talent) to transform the retained organization into the strategic business partner it wants to become.
While these concerns are valid, it’s essential to recognize that offshoring is, for all practical purposes, not a location. Rather, it’s a business model that encompasses the utilization of (more) remote, low(er) cost (and potentially higher skilled) resources for delivering services. Organizations, particularly for-profit businesses, must recognize this fact and apply standard cost/benefit analysis and strategic assessment processes against its value proposition. Only in this way can they determine the best and most viable approach.
Achieving HR Transformation
A recent EquaTerra study found that a large majority of organizations view HR transformation as a compelling concept. While “transformation” is an opaque term, study participants understood and aligned more tangible goals under the transformation
umbrella. Cost savings were identified as the clear leading benefit from enabling HR transformation. Improving HR efficiency and effectiveness and enabling a shift in resources to more strategic activities also were highly rated. While organizations can achieve these goals without outsourcing, they are common benefits cited from successful outsourcing engagements. In particular, offshore efforts often provide significant cost savings and thereby become a key component of the business case and driver of transformation within the organization.
However, few respondents directly perceived that HRO would significantly drive HR transformation efforts. Perhaps more telling was that more than half of the study’s participants felt offshore outsourcing was “extremely unimportant” to enabling
HR transformation. Yet the typical benefits associated with outsourcing in general and offshoring in particular—cost savings, enabling a shift in focus to more strategic activities, leveraging external expertise for process improvement efforts—all were considered important.
So, a situation exists where organizations clearly value the benefits outsourcing can bring but are often hesitant to undertake an outsourcing initiative, especially in an offshored environment. In order to take their seat at the strategy table, HR executives must move beyond the blanket negative connotations associated with offshore outsourcing. They must focus
on undertaking a rigorous review process to define offshore HRO’s merits for their organizations and its potential capability to achieve cost cutting, process improvement, and transformational goals.
Against this backdrop, the following are several factors cited by organizations as barriers to offshoring HR.
You Should Not Outsource A “Core Competency”
The core competency barrier is common to both traditional and offshore outsourcing. The definition of a core competency, however, is a moving target. Historically, the mantra was, “Don’t outsource anything that touches the customer.” But the meaning of the term “core” competency is in flux. It is no longer enough for HR organizations to continue to deliver the transactional work that they, in theory, do well, simply because that is the world in which many HR employees continue to
feel most comfortable. Organizations must differentiate between what should be a core competency and what currently is a core competency.
True HR transformation cannot take place unless the organization is ready to recognize that it must let go of its historical competencies to focus on work that is more strategic to the business today. In addition, if something is not a competency but should be, the question then becomes what are the best and most viable means to improve capabilities in that area. By the
same token, just because something is core, but analysis shows that it is not being delivered effectively, a company may want to reassess whether it really should be core or could be outsourced.
The focus should shift from what is core to areas of competitive advantage. It is difficult to rationalize that being “best in class” at payroll, claims, or benefits processing can create true differentiation. These are activities that typically go unnoticed when performed well and create problems when performed poorly. They are solid candidates for outsourcing both to improve performance and cost levels, as well as to enable organizations to refocus their scarce internal capital, talent, and attention toward more value-added and differentiating activities that will drive the future of the organization.
Cannot Find A Qualified Offshore HRO Provider
While many of the India-based BPO service providers do not offer HRO services or have nascent offerings, several are targeting this space, particularly around transactional administrative processes. Many multinationals, however, have established global HRO practices. For many, they are extensions of their own global HR operations. Most leading multinationals have all operated globally for more than 20 years. Leveraging that talent and experience is a critical success factor in HRO, as providers leverage experiences gained from internal HR executives. The line between local and offshore HRO is blurring, due to the inevitability of the globalization. Thus, organizations considering HRO will increasingly face more compelling—and less avoidable—offshore options.
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