Description
Human Resources outsourcing has been around for many years with processes such as payroll and benefits commonly outsourced by businesses and the public sector.
www.ihrim.org • Workforce Solutions Review Online • FEBRUARY/MARCH 2012 1
H
uman Resources outsourcing has been around for
many years with processes such as payroll and bene-
fits commonly outsourced by businesses and the
public sector. Multi-process HR business process outsourc-
ing (BPO), commonly called HRO, became popular in the
2000s with several high-profile organizations outsourcing
multiple HR processes to a single provider. But multi-
process HR BPO growth slowed considerably after the
biggest recession in 50 years hit the economy in late-2007.
Buyers also exercised caution due to several well-publi-
cized HR BPO engagements that got off to a rocky start
earlier in the decade.
Figure 1. Outsourcing and Shared Services Delivery dominate global serice models
over next three years.
Looking ahead, the market once again appears ready to
embrace outsourcing and shared services as a preferred
model to manage key business processes. Buyers recognize
the value created by these now mature service delivery
models and many are evaluating these models as part of
their HR service delivery strategy. In relatively few cases
do customers that have already outsourced processes plan
to bring those processes back in-house. Even most of the
early adopters of HR BPO that experienced the challenges
that resulted from new, immature service delivery models
have extended their HR BPO contracts or entered into new
contracts with a new provider that better fits their needs.
Some early customers have rearranged the scope of their
HR BPO engagements, but few have brought all of the
original outsourced processes back in-house.
HR Outsourcing is Maturing
The HR outsourcing industry has gone through a lot of
change over the last decade. There has been a great deal of
consolidation driven by the need for providers to strengthen
service delivery capabilities or to establish a broader
customer base in strategic geographies. As a result of this
consolidation, providers are stronger and better positioned
with the people, processes, and technology needed to
successfully deliver for their customers. While some of the
consolidated providers are relatively early in their integra-
tion life cycle, most indications are that the consolidation
has been good for the providers and their customers.
Figure 2. Outsourcing maturity curve in 2011.
Standardization Is Taking Hold
Human Resources BPO providers have made consider-
able investments and put significant effort into standardiz-
ing service delivery processes and the underlying technology
that supports these processes. As a result, service delivery
quality has improved, customer satisfaction is up, and the
provider’s profit margins are better, which allows them to
continue to invest in technology and processes that foster
continuous improvement. Buyers are now much more recep-
HR Business Process
Outsourcing Back On
the Radar
Keith Strodtman, HfS Research
Feature
2 FEBRUARY/MARCH 2012 • Workforce Solutions Review Online • www.ihrim.org
tive to (and, in many cases, demand) this increased level of
process and technology standardization. Buyers recognize
that standardization improves the reliability and quality of
the services, as well as reduces costs.
Standardized technology and process solutions have
made HR BPO more attractive in the mid-market as well.
The scalability of standard solutions has enabled providers
to deliver best practice solutions to mid-market customers
at an attractive price and without a large up-front capital
investment. Mid-market HR BPO growth will likely accel-
erate in 2012 as more companies look for solutions that
enable their HR team to focus more of their time on
supporting the talent needs of the business and less time
on important, but less strategic administrative functions.
Buyers should look for providers that have standard
processes and technology platforms, which most closely
align with their requirements and desired business
outcomes. Selecting the best-fit provider from a capability
and a cultural perspective is arguably the most important
consideration when selecting a HR BPO provider.
Buyers and Providers Are More Focused
A third trend in the HR BPO market is that buyers are
narrowing the scope of the HRO projects and outsourcing
discrete processes with more frequency than the very broad
multi-process outsourcing engagements that dominated the
early to mid-2000s. While multi-process HR BPO engage-
ments are still common, the functional scope of these engage-
ments is often not as broad as we saw 5 to 10 years ago.
Specifically, buyers are more likely to outsource transactional
processes such as workforce administration transactions,
payroll, and benefits administration to providers that have
particular strengths in these processes and choose other
providers to manage processes such as recruiting or learning
management.
In the old days of “outsource everything to a single
provider,” the providers had to figure out how to win the deal
despite having limited capability in certain of the processes
that were included in the customer’s proposed scope. With
today’s “focused scope” deals, buyers are achieving better
outcomes from outsourcing engagements because the
providers are better equipped to deliver on services for which
they have strong competencies. Providers are also able to
achieve better profits because they don’t bid on processes for
which they don’t have strong delivery capability.
Global and Regional Solutions
Many of the large HR BPO providers have solid global
service delivery capability. In additional to their North
American locations, most of these providers have delivery
centers in Europe, Asia, and some have centers in Latin
America. These centers not only offer the benefit of lower
labor cost, known in BPO circles as labor arbitrage, but
they also provide a more local service experience for
employers located in those regions.
There has also been growth in the number of HR BPO
firms that are headquartered in Europe and Asia. Others
specialize or have particularly strong delivery capability in
various regions of the world. The Asia Pacific region has been
an especially active market in the last few years as companies
expand there, increasing the demand for HR services.
Buyers that have needs in a specific country or region
should consider providers that can deliver in that region.
Some buyers have found that using a local provider can
enhance the service experience for employees in the region
because the provider has a better understanding of the
local culture of the employees. Other buyers prefer the
benefits of a single global provider that can deliver a more
integrated and standard service around the world.
Outsourcing and Talent Management
Talent management is at or near the top of the strategic
agenda for many companies today. But how does outsourc-
ing fit into a talent management delivery strategy? Many
buyers have come to realize that a solid workforce adminis-
tration foundation is needed to support an effective strategic
talent management process. In the past, some buyers have
tried to implement a comprehensive talent management
solution before fixing the core administrative processes only
to find that they lacked the critical data and information
needed for an effective talent management process. Through
outsourcing, buyers are able to offload the task of fixing the
administrative processes and are then able to focus their
time and resources on talent management.
For some buyers, the outsourcing provider can also deliver
the talent management technology and consulting services
required to support some of HR’s more strategic processes.
Several HRO providers own their talent management soft-
ware or partner with leading talent management software
firms to deliver solutions to their customers.
Buyers in the market for HR service delivery solutions
should first define their desired business outcomes and then
develop a complete HR service delivery plan before jumping
into provider selection. Once armed with a clear vision of
business outcomes and a solid service delivery plan, buyers
can then evaluate and select the solutions that best fit their
unique needs. For many, HR BPO will be part of their
comprehensive HR service delivery solution.
About the Author
Keith Strodtman is a research fellow for HfS
Research, with specific focus on the HR services
industry and the critical factors shaping the future
of workforce development in today's environment.
He is one of the pioneers of HR outsourcing. His
work in HR services and business process outsourcing (BPO)
spans more than two decades. Before joining HfS Research,
he spent eight years as the leader of the HR Outsourcing
(HRO) business at Ceridian. Before that, he was director of
HRO solutions at PricewaterhouseCoopers and was at Fidelity
Investments during the launch of their HRO business. He has
spoken at many conferences, participated on industry panels,
and written several articles on HRO. He is a member of the
advisory board of HRO Today and has been recognized on
HRO Today’s HRO Superstar list several times. He can be
reached at [email protected] on
Twitter: @kstrodtman.
doc_874973583.pdf
Human Resources outsourcing has been around for many years with processes such as payroll and benefits commonly outsourced by businesses and the public sector.
www.ihrim.org • Workforce Solutions Review Online • FEBRUARY/MARCH 2012 1
H
uman Resources outsourcing has been around for
many years with processes such as payroll and bene-
fits commonly outsourced by businesses and the
public sector. Multi-process HR business process outsourc-
ing (BPO), commonly called HRO, became popular in the
2000s with several high-profile organizations outsourcing
multiple HR processes to a single provider. But multi-
process HR BPO growth slowed considerably after the
biggest recession in 50 years hit the economy in late-2007.
Buyers also exercised caution due to several well-publi-
cized HR BPO engagements that got off to a rocky start
earlier in the decade.
Figure 1. Outsourcing and Shared Services Delivery dominate global serice models
over next three years.
Looking ahead, the market once again appears ready to
embrace outsourcing and shared services as a preferred
model to manage key business processes. Buyers recognize
the value created by these now mature service delivery
models and many are evaluating these models as part of
their HR service delivery strategy. In relatively few cases
do customers that have already outsourced processes plan
to bring those processes back in-house. Even most of the
early adopters of HR BPO that experienced the challenges
that resulted from new, immature service delivery models
have extended their HR BPO contracts or entered into new
contracts with a new provider that better fits their needs.
Some early customers have rearranged the scope of their
HR BPO engagements, but few have brought all of the
original outsourced processes back in-house.
HR Outsourcing is Maturing
The HR outsourcing industry has gone through a lot of
change over the last decade. There has been a great deal of
consolidation driven by the need for providers to strengthen
service delivery capabilities or to establish a broader
customer base in strategic geographies. As a result of this
consolidation, providers are stronger and better positioned
with the people, processes, and technology needed to
successfully deliver for their customers. While some of the
consolidated providers are relatively early in their integra-
tion life cycle, most indications are that the consolidation
has been good for the providers and their customers.
Figure 2. Outsourcing maturity curve in 2011.
Standardization Is Taking Hold
Human Resources BPO providers have made consider-
able investments and put significant effort into standardiz-
ing service delivery processes and the underlying technology
that supports these processes. As a result, service delivery
quality has improved, customer satisfaction is up, and the
provider’s profit margins are better, which allows them to
continue to invest in technology and processes that foster
continuous improvement. Buyers are now much more recep-
HR Business Process
Outsourcing Back On
the Radar
Keith Strodtman, HfS Research
Feature
2 FEBRUARY/MARCH 2012 • Workforce Solutions Review Online • www.ihrim.org
tive to (and, in many cases, demand) this increased level of
process and technology standardization. Buyers recognize
that standardization improves the reliability and quality of
the services, as well as reduces costs.
Standardized technology and process solutions have
made HR BPO more attractive in the mid-market as well.
The scalability of standard solutions has enabled providers
to deliver best practice solutions to mid-market customers
at an attractive price and without a large up-front capital
investment. Mid-market HR BPO growth will likely accel-
erate in 2012 as more companies look for solutions that
enable their HR team to focus more of their time on
supporting the talent needs of the business and less time
on important, but less strategic administrative functions.
Buyers should look for providers that have standard
processes and technology platforms, which most closely
align with their requirements and desired business
outcomes. Selecting the best-fit provider from a capability
and a cultural perspective is arguably the most important
consideration when selecting a HR BPO provider.
Buyers and Providers Are More Focused
A third trend in the HR BPO market is that buyers are
narrowing the scope of the HRO projects and outsourcing
discrete processes with more frequency than the very broad
multi-process outsourcing engagements that dominated the
early to mid-2000s. While multi-process HR BPO engage-
ments are still common, the functional scope of these engage-
ments is often not as broad as we saw 5 to 10 years ago.
Specifically, buyers are more likely to outsource transactional
processes such as workforce administration transactions,
payroll, and benefits administration to providers that have
particular strengths in these processes and choose other
providers to manage processes such as recruiting or learning
management.
In the old days of “outsource everything to a single
provider,” the providers had to figure out how to win the deal
despite having limited capability in certain of the processes
that were included in the customer’s proposed scope. With
today’s “focused scope” deals, buyers are achieving better
outcomes from outsourcing engagements because the
providers are better equipped to deliver on services for which
they have strong competencies. Providers are also able to
achieve better profits because they don’t bid on processes for
which they don’t have strong delivery capability.
Global and Regional Solutions
Many of the large HR BPO providers have solid global
service delivery capability. In additional to their North
American locations, most of these providers have delivery
centers in Europe, Asia, and some have centers in Latin
America. These centers not only offer the benefit of lower
labor cost, known in BPO circles as labor arbitrage, but
they also provide a more local service experience for
employers located in those regions.
There has also been growth in the number of HR BPO
firms that are headquartered in Europe and Asia. Others
specialize or have particularly strong delivery capability in
various regions of the world. The Asia Pacific region has been
an especially active market in the last few years as companies
expand there, increasing the demand for HR services.
Buyers that have needs in a specific country or region
should consider providers that can deliver in that region.
Some buyers have found that using a local provider can
enhance the service experience for employees in the region
because the provider has a better understanding of the
local culture of the employees. Other buyers prefer the
benefits of a single global provider that can deliver a more
integrated and standard service around the world.
Outsourcing and Talent Management
Talent management is at or near the top of the strategic
agenda for many companies today. But how does outsourc-
ing fit into a talent management delivery strategy? Many
buyers have come to realize that a solid workforce adminis-
tration foundation is needed to support an effective strategic
talent management process. In the past, some buyers have
tried to implement a comprehensive talent management
solution before fixing the core administrative processes only
to find that they lacked the critical data and information
needed for an effective talent management process. Through
outsourcing, buyers are able to offload the task of fixing the
administrative processes and are then able to focus their
time and resources on talent management.
For some buyers, the outsourcing provider can also deliver
the talent management technology and consulting services
required to support some of HR’s more strategic processes.
Several HRO providers own their talent management soft-
ware or partner with leading talent management software
firms to deliver solutions to their customers.
Buyers in the market for HR service delivery solutions
should first define their desired business outcomes and then
develop a complete HR service delivery plan before jumping
into provider selection. Once armed with a clear vision of
business outcomes and a solid service delivery plan, buyers
can then evaluate and select the solutions that best fit their
unique needs. For many, HR BPO will be part of their
comprehensive HR service delivery solution.
About the Author
Keith Strodtman is a research fellow for HfS
Research, with specific focus on the HR services
industry and the critical factors shaping the future
of workforce development in today's environment.
He is one of the pioneers of HR outsourcing. His
work in HR services and business process outsourcing (BPO)
spans more than two decades. Before joining HfS Research,
he spent eight years as the leader of the HR Outsourcing
(HRO) business at Ceridian. Before that, he was director of
HRO solutions at PricewaterhouseCoopers and was at Fidelity
Investments during the launch of their HRO business. He has
spoken at many conferences, participated on industry panels,
and written several articles on HRO. He is a member of the
advisory board of HRO Today and has been recognized on
HRO Today’s HRO Superstar list several times. He can be
reached at [email protected] on
Twitter: @kstrodtman.
doc_874973583.pdf