The 80/20 Rule in Mid-Market HRO = Major Cost Savings and Much More

The “80/20 rule” most frequently refers to the Pareto principle which states that, for many events, roughly 80 percent of the effects come from 20 percent of the causes. But here, with all due respect to Italian economist Vilfredo Pareto for well-intentioned plagiarism, I’m referring to making mid-market HRO affordable, efficient and sustainable for both buyers and providers.

In mid-market HRO, the 80 percent is standardization, e.g. alignment and relative homogeny of systems, processes, metrics and data across the buyer organization, and a provider model built to operate to scale and at peak efficiency across multiple clients. And the 20 percent is configurability – minor changes to the standardized processes and technology – to meet individual client’s unique needs and requirements.

And the model appears to be working well for the provider and buyer communities alike. It enables providers to realize a profit by offering scalable, repeatable, affordable solutions to mid-market companies, and provides buyers with significant cost savings, single, standard technology platforms for delivered services, increased consistency and accuracy, and employee self-service ease.

•  For example, in payroll, a variety of providers offer multi-country payroll services which are a big boon for multi-lingual, multi-currency companies. And per our January 2009 research report entitled “Mid-Market HR Outsourcing Market Analysis,” the average cost savings for mid-market payroll outsourcing buyers – whether multi-country or not – was 22 percent.

•  In benefits administration, the standardization provides enterprise-wide consistency on how to enroll, how to determine the impact of changes, how to apply for a leave of absence, where to go for company online portal-based FAQs and who to call for more individualized questions, etc. And our above noted report found an average savings of 26 percent for buyers.

•  Standardized RPO processes in the mid-market include creating and submitting job requisitions, screening and testing candidates, extending job offers, processing I-9 forms proving eligibility to work in the U.S., etc. And by outsourcing RPO, buyers can save an average of 26 percent according to our January 2009 mid-market HRO research study.

The downsides of this high level of standardization for the mid-market are that there is a learning curve for both HR staff and employees, and larger mid-market companies may have multiple systems and legacy processes that “work” for particular groups within the organization, and those will have to be given up and the new modus operandi embraced. But effective communications and change management programs can eliminate those challenges.

Finally, according to our January 2009 Mid-Market HR Outsourcing Market Analysis, by 2013 HRO standardization will increase to 90 percent to meet the mid-market’s top three drivers: 1) reduced cost; 2) improved service (including consistency of service delivery); and 3) better technology than clients can afford to implement themselves.

Gary Bragar, Lead HRO Analyst, NelsonHall

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Explore posts in the same categories: benefits administration, benefits administration outsourcing, hr outsourcing, hr outsourcing research, hro, hro research, mid-market HRO, outsourcing research, payroll outsourcing, rpo, rpo research

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