Posted tagged ‘HRO value proposition’

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

August 6, 2009

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

Fast, Flexible and Free HRO – What Customers Want Now

July 24, 2009

The newest NelsonHall HR Outsourcing Confidence Index indicates that although supplier confidence in the demand for HRO services rose significantly in the second quarter of 2009, they still face largely frozen decision makers.

The signs of hope seem to be more in growing pipelines than in deals done. When a few presenters at this year’s HRO World conference in New York said pipelines were increasingly active and growing, the buzz quickly spread. Rumors, or even rumors of rumors, about the dawn of an upturn in the economy and dreams of unleashing pent-up demand were enough to feed the HRO World attendees’ hunger for good news.

What will help unfreeze the freeze? What are HRO customers most looking for now? Well, they want deals that are fast, flexible and free.

Fast – First Year Savings

The focus is on the short-term. Customers are not interested in long-term returns on investment that may or may not materialize, they want savings now. Our research over the past year shows the nature of deals has changed with organizations typically looking for certainty of cost reduction within the first year of the contract.

Flexible – No Minimums

Scalable services and variable pricing has long been part of the HRO value proposition. Minimum volume guarantees are a part of many contracts as a way to embed suppliers’ recovery of transition and investment costs. Today buyers are looking for infinite variability to be able to quickly add or shed expense directly in line with volumes to the maximum degree possible.

Free – No Upfront Investments

If buyers are shying away from fixed fees, they are even more averse to upfront implementation fees and technology investments.

This risk-averse environment favors smaller scope and scale deals, as opposed to large transformative deals where major technology investments are needed. Right now, buyers are not willing to make major long-term investments and service providers, mindful of their own profitability, are much more cautious about taking on more financial risk.

With HRO pipelines heating up it will be interesting to see what type of deals result. How close will they be to fast, flexible and free?

Linda Merritt, Research Director, HRO, NelsonHall