Update on Shared Services and HRO

I am on the Human Resources Outsourcing Association (HROA) Publications and Practices Committee and for the November meeting our hot topic was an update on shared services and HRO.

Linda Merritt, HRO Research Analyst, NelsonHall

Value Delivered

All three guest speakers agreed that HR shared services organizations (SSO) remain one of the core transformation trends in HR. Colin Brennan, Aon Hewitt product management and strategy VP, sees that the movement to SSOs and HRO is focusing more on value delivered and less on pure cost.  Clients want to improve both the cost and quality of services like talent management, recruiting, and learning. Clients also want to measure and manage HR issues across the enterprise, whether it is various operating divisions or regions of the world.

Tech Talks

Maribeth Sivak, a principal consultant with ISG, also sees an uptick in interest in SSOs and HRO, but as a follow on to HR technology decisions.  Many companies are facing major and costly upgrades in core HR technology systems, which create the opportunity to consider consolidation into shared services including HRO. Cost is a key driver, of course, but so is a desire to improve the employee experience with mobile and social capabilities as well as improve HR with access to more HR analytics.

Major technology costs also open the door for considering new vendor-provided systems and even SaaS. As SaaS offerings move “up stack” there is and will be a call for BPO service support.

The Chicken or the Egg

What comes first, shared services or HRO? Some start with HRO and others create SSOs first. Either way, clients usually want to get their arms around what they can do first and then look to optimize and increase velocity, often ending up with a blend of both.

At KellyOCG, Kathleen Bienkowski, global shared services VP, sees some organizations that start with shared services continue to evolve into multi-functional general business services as they mature. KellyOCG has its own showcase that demonstrates many of the aspects of a mature SSO: delivery centers, transaction processing, recruitment sourcing, and a knowledge center for global mobility. The contact center is outsourced to another division, Kelly Connect.

What Doesn’t Change

Each of our speakers commented on the continued need to manage major change including:

• A strong internal sponsor / champion to drive the change
• A clear vision that articulates the benefits and defines the future state delivery model
• Change management  in transition and implementation plans
• A governance structure for performance and issues management.

As both shared services and HRO reach a level of maturity, they are reaching a level of acceptance with less perceived risk in the decision, value is balancing the focus on cost, and pent up technology needs will be opening the door to opportunity. All in all, a great update with plenty of good news!

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RPO, A Bright Future on the Path to Business Impact

Linda Merritt, HRO Research Analyst, NelsonHall

The future of RPO is bright with growth opportunities in every area of the world. According to NelsonHall’s “HRO Market Forecast 2012 – 2013,” RPO will remain the fastest growing area within HRO.

RPO is still evolving as a service line, moving from back-office paperwork administration to the front lines of recruiting, predictive assessment, and employer brand management. Contract renewals and extensions are now a regular part of the RPO news stream. Among those with announcements of renewals and extensions are:

• Alexander Mann Services
• Capita
• Manpower Group
• Novotus
• Pinstripe.

RPO is not for the faint of heart

With great opportunity comes increased risk. Growth is seldom in a straight path upwards and RPO is also on the leading edge of any business downturn that impacts hiring. It is not uncommon to see up and down swings in revenues of 20% or more between good and bad years. RPO providers need to be ready to rock and roll incredibly fast and be flexible in responding to changes in demand while balancing its own core of subject matter expertise.

RPO is the trail blazer

It is hard for any business including HRO service lines to keep up with new technologies, global service delivery networks, social media, and open device access. To recruit highly skilled multi-generational talent anywhere on the planet, RPO needs the latest tools and technologies to bring capabilities to employers they could not easily and affordably duplicate.

RPO has a direct path to business impact

Dr. John Sullivan, a respected HR thought leader, recently said that RPO has the greatest business impact of any HR function. Dr. Sullivan is referring to The Boston Consulting Group’s (BCG) “Realizing the Value of People Management from Capability to Profitability” research that rates the relative business impact of different HR functions on growth and profitability.

This was a major study of over 4,000 respondents across 102 countries, comparing the difference in revenue growth and profit margins at firms with “very high capability” individual HR functions to the business impacts of “low capability” HR functions. The firms studied had been named to Fortune’s “100 Best Places to Work For” list at least three times in the last ten years; their stock price growth was then compared to the stock price growth of the S&P 500. The “best companies” with great HR saw their stock price increase an average of 109% when the S&P 500 rose only 10% over the last 10 years, up to 10 times higher. Wow!

BCG found that the top ten performing HR functions in rank order were:

• Recruiting
• Onboarding and retention
• Managing talent
• Employer branding
• Performance management and rewards
• Leadership development
• Mastering HR process
• Global people management and global expansion
• Enhancing employee engagement
• Providing HR shared services and outsourcing.

In addition to the good news for RPO, the broader picture is the need for integrated talent management and the boost for HR outsourcing. Great HR can and does directly support great business results, and great RPO and HRO can be a part of that success story.

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HRO, Shared Services Centers and the HR COO

Oh the things you can find when you wander the Web. One link leads to another and you can find shiny new ideas that catch your eye. Wandering may be a sign of a short attention span, I prefer to considerate it part of having an open mind searching for relevance. My latest Web find is Deloitte’s Human Capital Trends 2011 study.

HR is challenged to meet a myriad of needs and provide ever more value within constrained resources. Cost remains a top priority and business leaders also want HR to be less tactical and more strategic. The HR tactical work must get done to keep the organization running and HR regulatory compliance issues grow ever more complex, necessitating even more tactical tracking and reporting requirements.

In response, HR shared service centers (HRSSC) have emerged in larger organizations, especially multinationals, driven by the need for cost reduction and the efficiency and compliance benefits of better integrated systems and consistent processes.  Outsourcing some of the shared service processes and/or technology support is also a typical part of HRSSCs.

The HRO community touts the benefits of cost optimization, improved processes, improved compliance and reporting, meeting SLAs, and high user satisfaction. By role and nature, vendors focus on the performance of the areas of their own accountability. Therefore, if only a portion of the HRSSC’s processes are outsourced and multiple vendors are involved, it is a challenge to ensure that overall HR delivery services are effective, efficient, and cost-controlled.

One “revolutionary” trend for HR from the Deloitte study is the need for a HR Chief Operating Officer (COO) to focus on the design, development, implementation, and delivery of HR services. This leader needs to be a great organizational, process, and systems designer and manager. I would also add the HR COO needs to be able to determine from a capability and cost perspective where outsourcing is the most viable option and how to integrate HRO into the overall operation.

It is important to not get lost in the tactical aspects of shared services. The HR COO should be a strategic leader, well-versed in both HR and the business. Adding in the art of building and selling business cases, including capabilities in communications, networking, and even marketing would add value.

Tracking cost and process efficiency are necessary parts of managing an HRSSC. So is collaborating with HR generalists and business leaders to create results and provide data-based information for workforce decision making. Promoting HR and the value of the HRSSC is also important – deliver, create awareness, and buy-in for the next cycle of improvement!

Buyers – the HRSSC leader can be a key partner in both operations and strategic HR transformation, invest and select wisely.

HRO vendors – the state of HRSSC leadership, capabilities, vision, and current operation is a component of the HRO Maturity Continuum.

Linda Merritt, Research Director, HRO, NelsonHall

Welcome to 2010 and the Rise of the HRO Services Portfolio Manager

As we were moving quickly toward 2010, most leading firms in the services delivery industry were asked to make predictions for the year ahead, what trends will continue and in what new directions will we go tomorrow. NelsonHall’s (per Gary Bragar and me) HRO predictions will be published in the next issue of HRO Today magazine, and mine is already available in the Shared Services & Outsourcing Network’s article, The Year Ahead: 2010 in Shared Services & Outsourcing.

I firmly believe achieving HR services excellence today does not begin with the question of outsourcing or shared services. Rather, the question is what is the optimum mix of outsourced, shared services-based and locally delivered HR services given the current and going forward needs of the business? As a result, I see the possible, and needed, rise of a new type of HR executive…the HR services portfolio manager.

The HR services portfolio manager is a business and HR leader who blends a review of business plans and HR initiatives with internal capabilities and costs to develop a strategic plan to manage the total cost of ownership for the entire portfolio of HR services, while maximizing HR’s efficiency and effectiveness and its impact on the business. The HR services portfolio manager partners with the HR executive to gain funding and the buy-in of stakeholders.  

Another role of the HR services portfolio manager is that of HR services delivery architect. Here the responsibility lies in building out in phases the “Lego” mix and match service delivery model to ensure it is all seamlessly integrated and managed, and providing the required service quality, cost and performance. The requisite skills and competencies for this role are that of a technology leader, a vendor manager and an HR-savvy operations manager. 

While this new role represents a new possible direction rather than a solid current trend, I saw signs of it as early as 2007, and have continued to seek and see peeks and parts since then. For example, I met a European executive who was managing a large scale multi-function outsourcing portfolio, and a U.S. executive who was brought in to manage a large and challenging scale HRO engagement and help revise the retained HR services. Both were non-HR business executives.

A more rare peeks and parts sighting is the metamorphosis of existing shared services leaders into portfolio and delivery architects. The financial pressures of the recession have helped with the growth under fire of some of the skills and competencies needed for the full emergence of the HR services portfolio manager.  

Whether this describes one HR superstar, or team capabilities, we are not talking about quiet “factory” managers toiling out of the way in the back-office, taking out a few more pennies here and there. We are talking dynamic executive talent that impacts the lion’s share of the HR spend, and accelerates HR’s delivery of business results.

Happy New Year!

Linda Merritt, Research Director, HRO, NelsonHall