HRO and the HR Function Study: Troubling Findings

Key findings from the Chartered Institute of Personnel and Development’s (CIPD) June 2009 survey entitled, “HR outsourcing and the HR function: Threat or opportunity?” – for which 315 heads of HR, HR managers, HR experts, learning and development experts and others from CIPD member companies were queried – included:

•  29 percent of respondents’ companies outsource HR, but 43 percent of respondents claim HRO isn’t relieving the pressure HR departments are facing, e.g., need to enhance efficiency, need to enhance quality and an increasing need to innovate

•  80 percent considered their partnership working, change management and business awareness skills to be good or excellent. But only 28 percent considered their vendor management skills as fair or developing, and 13 percent declared no skills at all in this area

•  50 percent think HR is taken seriously within their organization, but most HR professionals are not involved in HRO ventures until the later stages – monitoring, managing vendor relations and provision of end-user feedback

•  36 percent do not consider HRO a strategic enabler for the HR function, while over 50 percent believe it has enabled them to adopt a more strategic role to a limited extent

•  Only 19 percent consider they play a key administrative role in their organization, and only 13 percent consider the HR function to be at the forefront of shaping the organization’s strategic direction

•  48 percent of respondents have occupied a range of business positions prior to their role in HR, while 39 percent have a pure HR background

•  Payroll, pensions, training and aspects of recruitment are among the most outsourced functions, which supports the results of NelsonHall research studies

•  Most respondents report that HRO has been successful in some areas but not others, with a minority reporting no success at all (5 percent), and only 7 percent declaring HRO an all-round success

I am troubled by many of these findings, and HRO buyers and providers should be as well.

First, HR heads must be involved in the HRO decision-making process from the very start – providing input and key advice on vendor selection based on the “on the ground” requirements within HR, cultural fit and the requirements for governance of the contract within the HR department and throughout the buyer organization – as they are the individuals who ultimately will make the outsourcing initiative succeed. Accordingly, without this input from HR executives, many contracts will fail. Thus, the question looms if HR is taken seriously, why isn’t it involved in the HRO deal process? This mismatch suggests that some HR organizations do not have a realistic view of their role within an organization, and perhaps need to take a step back to determine whether lip service is being paid to their actual role in their organization.

Obviously success or failure of an HRO initiative must be shared among the provider, the buyer and the HR department. In regard to the CIPD study findings – as the overall perception of whether HRO has been successful or not didn’t stem from the success of achieving organizational objectives but rather on whether it relieved pressure on the HR department and enabled the HR department to adopt a more strategic role in the organization:

•  Providers should proactively explore with client stakeholders, including HR, whether these challenges are due to incorrect scoping in the contract, unrealistic contract expectations, too-limited client-side governance resources, etc., and develop and implement mitigation plans to address the findings

•  Buyer organizations must recognize and rectify the fact that their HR departments are pressured to change from a transactional to a strategic function without the necessary skills to do so, as well as realize that lack of involvement in the initial contractual discussions results in HR not understanding what’s expected of them in order for the outsourcer to deliver its targets

•  While a very high percentage of those surveyed consider their change management and business awareness skills to be very strong, HR departments must reconsider their view of their own skills. For example, there is clearly room for improvement within change management to enable a more seamless transition from an in-house to outsourced environment. And HR leaders’ admittedly low vendor management skills must be enhanced as these are not only critical to the success of an HRO initiative but also a responsibility with which HR is tasked

Further, to achieve greater HRO success, again in light of the parameters of this CIPD study, buyers must ensure HR personnel have the right tools to enable them to play a more strategic role, e.g., analytics tools to help understand HR’s pain points and their impact on the business. They must also invest training dollars in consultative and problem solving skills to enable HR to act on the resulting data. And providers must encourage buyers to utilize analytics within engagements and provide not just the data but also insights on what that data may mean in the HR and wider business community.

An end note to HR departments: If you want to be more strategic contributor to your company, don’t wait or hope for it to happen, make it so. Provide your C-suite with a solid value proposition outlining how you can more strategically support the company, and present a solid business case regarding the reskilling required to do so.

Until next time, happy sourcing!

Helen Neale, Research Director, Human Resources Outsourcing, NelsonHall

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Explore posts in the same categories: benefits administration outsourcing, hr outsourcing, hr outsourcing research, hro research, learning outsourcing, outsourcing research, payroll outsourcing, recruitment process outsourcing

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