Tired of Reading the HRO Tea Leaves? Then Let’s Go Back to School

Everywhere we turn the analysts, advisors and outsourcing media are trying to read the tea leaves of the 2Q and 1H09 results on anything and everything. What are the annual contract values of new and renewal HRO deals signed? Who is entering, exiting and partnering? NelsonHall’s July 2009 HRO Confidence Index showed markedly more confidence in the prospects for HR outsourcing for the coming year in Q2 2009 than in Q1 2009. Can we believe – and we all do want to believe! – the uptick in perception survey trends in provider pipelines and anticipated buyer readiness to expand hiring/training/add-your-service here areas? Less bad is good, right?

The “when” of the recovery is, of course, critical to all of us in the HR outsourcing community, as well to all in the larger global economy. The “what” and “how” are also important.

In its July 20 blog, IT services company Levi9 commented, “In striving to cut costs and derive more value from outsourcing contracts companies may forget all the important lessons they have learned rushing into ambiguous arrangements chasing short-term, and sometimes elusive benefits.” While Levi9 was talking IT, its statement is universal and reflective of the first generations of large scale HRO. How will we approach the opportunity for launching third generation HRO?

As it is almost return to school time, we should all be checking what lessons we have learned and what changes we have made. How will the HR outsourcing community be ready for expansion when it occurs? By using the three HRO R’s: Reviewing, Revising and Relaunching!

Reviewing

Every aspect of the HRO value proposition needs to have been vetted, strategically analyzed and selective investment (and divestment?) decisions made to put growth on a flexible, scalable, sustainable footing that is easier and less expense to buy, implement and operate while offering greater differentiated competitive advantage, and, let us not forget, margins.

Revising

I can offer one piece of advice that requires no tea leaves, but does take a lot of homework. Once you have developed your strategy, rigorously conduct your due diligence, run the numbers, map out all elements of your service delivery and technology infrastructure, and stringently assess capabilities, risks and trade-offs. In the SAP white paper, “Strategic Levers to Optimize Your HR Processes,” the recommended HR client assessments could be readily adapted and applied to other portfolios, including HR service providers.

Relaunching

We have recently seen RPO partnerships expand geographic and service footprints for each partner, and changes in direction by Fidelity and Hewitt, away from certain large scale multi-process HRO business. And Spherion’s RPO division, newly branded as SourceRight, is an example of taking something that is working well and leveraging it even more strongly as a single process option. All this indicates that back to school basic analyses are being played out.

How are you doing with the three HRO R’s?

Linda Merritt, Research Director, HRO, NelsonHall

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