Don’t Ask, Don’t Tell – And Don’t Be a HRO “Bubble” Buyer

Don’t ask for HRO to be done your way.

Using your existing technology, processes, people and vendors – called “lift and shift” – was common in the early years of multi-process HRO. It did lift. It did shift. And it did trap many a buyer and provider.

Providers could not leverage investments across clients when each buyer had its own customizations, sets of licenses, technology cocktails and networks of pre-existing vendors. They also couldn’t protect their own margins and profitability.

Bubble buyers found there was little on-going innovation and improvement other than what they could directly fund. Lift and shift limited overall total cost of ownership management. Whatever initial savings obtained were in many cases eaten away by change orders needed to continually address changes in the customized services platform.

Large enterprise customers do have legitimately complex needs, which may make them think they need significant customization. But even at this level, providers are offering viable ERP wrap-around technology, multi-tenant support services, tools, accelerators and partner vendors that will add value and lower costs for both parties.

Don’t tell providers how to meet your needs by limiting and pre-defining the solutions.

Avoid requesting costly customization that is ultimately unnecessary. For example, large multi-national companies thought they needed one instance of global payroll. It can be done, with enough capital. But even if you can afford it, is that the best use of your limited investment dollars? 

Today, multi-national payroll accuracy, compliance and business intelligence can be delivered through business process outsourcing (BPO) that supplies the required coverage, quality and reporting at less initial cost and with a more flexible total cost of ownership compared to a custom solution built for one.

There is increased buyer acceptance of true multi-tenancy, intelligent shoring, and common provider tools, services and partners. SaaS, SOA and provider proprietary investments in technology, workflow management and service center optimization can provide an integrated front-end with the quality, speed, cost points and analytics needed to satisfy a wide variety of needs. There will be room for unique needs. Vendors that offer standard solutions are set-up to offer 10-20 percent in planned customization.

Does this sound like an unnecessary warning? “We are beyond this”, you say? Take a look at the results of a LinkedIn poll by Vivek Khanna who asked; as head of HR, would you prefer a packaged offering or a customized solution from your service providers?

• 68 percent: “customized to my needs”
• 25 percent: “pre-packaged”
•   8 percent: “I don’t care, I need it cheaper”

While the number of poll respondents was small (25), the pattern of results is interesting. Who wouldn’t prefer customized, all things being equal? But all things are not equal. Customization sounds wonderful, but it is costly on Day One and every day thereafter when you pay the price to maintain, update and upgrade.

There always exceptions and niche players leveraging labor arbitrage, so you can still get it your way, if you really want it. But fewer major providers will take HRO bubble business, and if they do they now know to pass the full costs on to you. So, be careful what you ask for – you just might get it!

As provider capability and configurability is rapidly improving, my advice is to push the envelope internally and with vendors to limit customization to what is absolutely required and worth the price. Do not be a bubble buyer using customization to gain short-term comfort at the cost of long-term value.

Linda Merritt, Research Director, HRO, NelsonHall

BPO Platforms – a Springboard or a Swan Dive?

Last week I attended Infosys BPO’s analyst day and BPO conference in Baltimore, Maryland, overlooking the beautiful Inner Harbor. Platform BPO was one of the big topics, and one of Infosys BPO’s big bets for new avenues of growth. 

Platform BPO is the service delivery model whereby end-to-end processes are offered as managed services on a standardized business platform based on an ERP solution that is hosted, managed and maintained by the BPO provider. Platform as a Service (PaaS) providers bundle operations, integrating management of an end-to-end process with their technology suite and staff. Designed to be configured instead of customized, platform BPO will accelerate mid-market BPO adoption with its lower cost of entry, scalable services, variable pricing and ease and speed of transitions.

Platform BPO service providers will continue to build out their global service delivery footprint with service centers and partnerships, taking advantage of locations with low cost labor and access to skilled talent. These true multi-tenant service platforms will renew the promise of economies of scale the earlier generations of customized client-specialized services did not deliver. It’s an enticing value proposition designed for today’s capital constrained and challenge and change fatigued buyers. If the adoption rate is good, it will be a more economical infrastructure for vendors which can provide a springboard for profitability.

The timing is right. Clients are asking about and for solutions they would have rejected pre-downturn. The advent of new technologies like Service Oriented Architecture (SOA) and the openness of ERP providers like SAP and Oracle to work with service providers are enablers supporting the degree of needed integration.

There will be challenges, especially for the provider community. In return for moving to a configurable platform, the buyer gets to pass some risk and increased expectations over to the service provider. The provider becomes responsible for managing and integrating specified processes, applications and technology, including the investment in development and upgrades, and the selection, management and fit of any third-party applications and delivery partners. Also, accepting accountability for the increased complexity of integrated IT and operations requires a greater level of skilled staff capabilities and coordination across the expanded value chain. 

Hmm…not hearing any HRO platform BPO cannonball splashes yet? It’s a big leap for HR to make and platform BPO is not expected to fit everyone. Yet it is a viable option for many in the mid-market and even some in the large market. PaaS for HR will be especially appealing to those with openness to new solutions, positive experiences with hosted services and point solution SaaS providers, and those pushed by economic realities.

Single service platforms are not new; think payroll or benefits administration as managed services platforms. What is new is the possibility of multi-client and multi-process HRO on a platform that delivers globally for buyers and providers.

There are already some buyer toes in the water. Infosys reports it has several clients up and running on its new Hire-to-Retire HRO business platform which includes talent acquisition, development, retention and management services. At the conference I spoke with an attendee from a borderline mid-market to large-sized company who was thinking about replacing several current separate HRO provider services and wanted to learn more about the new Infosys HRO offering.

Overall, PaaS sounds great and the water is warm, so jump on in! Not ready? Then watch the pool of platform-based services and providers expand, learn about the challenges and successes, and get ready to test the waters.

Linda Merritt, Research Director, HRO, NelsonHall