Utilizing Analytics to Improve the HRO Experience – It’s Time to Step Up the Game

HR analytics – which we define in our latest market analysis as “a method of tracking, measuring, analyzing and assessing HR and business performance for the purpose of making more informed strategic decisions, improving financial outcomes and monitoring goals” – have never been more vital than in today’s economic climate. Organizations must have data-based insights into their HR cost structures, how to optimize their diminished workforces, their cost per hire, employee cost as a percentage of sales, labor costs by department across various locations and myriad other considerations.

But whether leveraged by in-house staff or an HRO provider on behalf of its clients, most HR analytics today are focused on operational reporting such as basic, aggregated headcount data, and tactical metrics including quality of hires and sourcing effectiveness. HRO providers can  step up their competitive game by addressing the main drivers of HRO analytics – justifying the outsourcing business case,  providing HR ROI and becoming an integral partner in not just process performance but in business intelligence.

To do so, per the findings from our just completed study, “HRO Analytics: Utilizing Analytics to Improve Outsourcing Experiences”, HRO providers must address factors including:

•  Demonstrate the effectiveness of the function or process such as sourcing effectiveness within recruitment or a new communications strategy within benefits administration services

•  Deliver analytics around not only quantity,  but also effectiveness, of recruitment, learning and benefits, e.g., utilization of various benefits programs offered and why they may vary across geographies

•  Prove the return on investment in the relevant HR function, e.g., ROI of a specific training program or reduction in recruitment cycle time

•  Assist in prioritizing HR activities and determining what should be provided with an appropriate budget, such as a particular training course which increases sales capabilities

•  Provide insight into how to improve workforce performance and increase employee productivity

When reviewing the findings from our HRO Analytics market analysis, my colleague Helen Neale observed the following: “Indeed the surprising finding from the study was the low incidence in the use of higher level analytics within multi-process HRO arrangements, which, given their focus across a number of process areas, particularly within talent management, would provide a perfect platform for enabling HR through analytics. However, it seems the struggles providers are experiencing with developing a business model that works has impacted the value-added services originally promised in these contracts. NelsonHall expects the next wave of multi-process HRO contracts, which are more focused on payroll plus basic transactional and HR IT services, should enable a more robust platform for developing higher level analytics solutions. This will help, in the longer term, to prove the ROI of payroll plus multi-process HRO.”

Of course, implementing a robust, high-level HR analytics initiative requires an up-front investment by buyers and providers, in terms of both cost and time. But these can be mitigated by ROI achieved by the buy-side, and increased client satisfaction and development of repeatable solutions on the sell-side.

We believe that as the economy recovers, HR contracts will be likely to adopt more strategic level uses of analytics to justify HR spend, prove ROI for specific HR initiatives, and reduce costs associated with pain points in the organization. HRO providers are continually being asked by their clients to provide more value-added services, and suppliers can prove that value by moving outsourced HR analytics up the value chain.

Gary Bragar, Lead HRO Analyst, NelsonHall

HR Software – The New HR Spaghetti?

Workforce.com recently reported that while there has been a slowing of sales, HR application spending is still expected to show some growth for 2009. The article said, “…despite the downturn, investments are being made in HR software vendors and technologies that could lead to new capabilities when the economy eventually recovers.” 

According to early results from CedarCrestone’s 2009-2010 HR Systems Survey to be published in full this October, “60% of respondents said they were cautiously continuing their HR technologies plans and budgets but more than ever must support requests for funds with a strong business case.”

And a report NelsonHall recently conducted on the commoditization of IT and BPO services found that seven percent of organizations think SaaS will assist in improving business costs, and nearly 100 percent believe that SaaS plus BPO services will reduce business costs.

There is HR software business being done, but it is not the rip-and-replace new ERP variety. The economic downturn has greatly reduced risk tolerance for big bet, upfront investments or long-term commitments, which is reflected in the slow pace of major HR deals of any sort. The current economic environment, where end-to-end anything seems too aggressive, favors the growth of point solution deals and even piece part and component deals. Not ready to fully integrate talent management or outsource recruiting and staffing? Why not just add a new applicant tracking system or a compensation management application?  Uncertain about outsourcing payroll services today? Consider opting for a hosted solution. The fact is, sales of both hosted and true SaaS software is growing, bolstered by the comfort of lower costs in the short term — let’s call it SaaS at the edge.

My July 24 HRO Insights blog discussed that today’s buyers want fast, flexible and free HRO, and investing in and leveraging a SaaS solution is about as close as you can get to that model. But doing so is not without longer term impacts and strategic HR considerations.

For example, when, how and where should you add on around your core HR system, how many varieties of separate work flow automation can your end users tolerate, and where will business intelligence live in HR? Techie decisions on data architecture, data warehousing and service-oriented architecture are important and have major cost and capability impacts.

Any purchase that is new and pretty, and just adopted and adapted to by users, impacts decisions that will replace it too soon. This effects both multi-process and point solution HRO. The economic benefits of integrated solutions are reduced for both the buyer and service provider when the pressure is to cobble together a service solution around existing software and vendors. Many buyers and providers will have to work around the decisions of today that will still be constraining the opportunities of tomorrow.

Without a strategic plan for HR-wide services technology, HR will end up with a new generation’s version of the old legacy system spaghetti – systems that silo HR functions and data, reducing the capability to manage and measure human capital across HR processes and across the enterprise. Yogi Berra once said, “If you don’t know where you’re going, you’ll end up somewhere else.” I say that if you do not know where you are going, it will be harder to get there from here.

Linda Merritt, Research Director, HRO, NelsonHall