HRO Can Help Companies Play the Employment Spread and Avoid its Pitfalls

The Consumer Confidence Index, earnings reports, unemployment rates, housing starts, inventory levels, non-farm productivity rates – we are all scanning leading and lagging surveys, reports and indexes for signs of where recovery will first start to occur and where the recession’s impact will linger longest.

To shed a little light on the outsourcing terrain, our September 2009 BPO buyer survey and 3Q09 HRO Confidence Index both indicate increased contract activity in 2010. All the providers we’ve been speaking with are excited about pipelines that are filling up with potential deals at every stage, from lookie-loo’s to those nearly ready to sign on the dotted line.

As reported this week by USA Today, more companies plan to hire rather than cut workers in the next six months. Most report no change (57 percent). Still, 24 percent said they planned to grow their workforce, up from 18 percent in July. Only 20 percent plan to trim further, down from 28 percent in July.

When hiring activity does increase, the service industries like retail, professional services and healthcare will lead with 31 percent expecting to add jobs in the next six months and only 3 percent cutting staff. Manufacturing will likely lag, with only 12 percent expecting to hire and 31 percent still anticipating further reductions, according to the National Association for Business Economics.

In our above-mentioned survey of 480 BPO buyers, the highest ranking current business metric was customer retention, followed by cutting costs and increasing revenue. Staff retention came in only 5^th out of 6 in business metric importance. The gap in importance could be because employers are still playing the productivity spread. Productivity has been rising as companies have been able to produce what they need with fewer workers. According to the Labor Department, non-farm productivity rose 6.4 percent in the second quarter, even as unit labor costs fell by 5.8 percent.

And while we need not yet prepare for a grand hiring extravaganza as employers are likely to milk the productivity spread as long as they can to put off hiring, organizations must start playing their cards right in terms of staff retention and hiring plans, or they will be one-upped by their competitors.

As my colleague Gary pointed out in his recent blog on staff retention, ignoring rising indicators of employee discontent could leave employers not only adding hires to meet increased demand, but facing a more disruptive rise in turnover in high performers and hard to replace positions.

HR’s HRO partners must be forward thinking. For sales in the pipeline, HRO providers need to show how their services will help prospects prepare for and manage workforce changes. And for current clients, providers must be proactive and help them prepare for recovery by holding early discussions on using their available centralized data and analytics to anticipate needs – needs they can then gear up to help their clients meet.

Linda Merritt, Research Director, HRO, NelsonHall

The Staff Retention Ship is in Danger of Sinking – Can HRO be its Life Raft?

Last week I wrote that there is cause for optimism in the BPO space as, per interviews we conducted in September with 480 BPO buyers in North America, Europe and Asia-Pacific, RFP and BPO contract activity is expected to significantly increase in 2010. And that’s obviously good news for providers and buyers alike…increased revenue for providers, and the benefits of BPO for buyers.

But I found one key data point which emerged from those interviews particularly troubling. The buyers rank-ordered the importance of business metrics for 2010, and customer retention and cost reduction took the top two spots, 4.5 and 4.3, respectively, on a 1 – 5 scale. However, staff retention only ranked 3 on the same 1 – 5 scale.

There are so many things wrong with staff retention being viewed as only mid-scale important. First, it signals that little investment will be made in training, development and other staff retention methods. Given the points we made in our September 3 blog – e.g., “A recent study concluded that 54 percent of employed Americans plan to look for new opportunities once the economy begins to turn around”, and “More than eight in 10 employers feel that their workers are just happy to have a job, but just 53 percent of employees feel this way” – businesses which don’t invest in their staff will be on a slippery slope, especially since it will be the top quartile employees who first move to different jobs.

Second, a recent study by Australia-based RPO provider Hudson found that over half of managers admit they lack the skills to properly manage employees during the downturn, and a whopping 60 percent of employers said they have no strategy in place to recruit leaders with the competencies required to lead though adverse and challenging economic times.

Third, businesses can’t meet their number two business objective of cost reduction if they need to spend already scarce dollars on hiring new staff to replace those lost.

Fourth, if employees don’t feel their employers care enough to invest in retaining them, will they continue to be motivated, committed and enthusiastic, or will their morale and productivity wane?

Finally, how can businesses achieve their top business imperative of customer retention when their employee base becomes stripped to the bone with low quartile staff?

Can HRO be a life raft to save the sinking staff retention ship? In a word, no. But a couple of HRO components can help.

Talent management software and services can help monitor and manage workforce issues, e.g., where is performance dipping, is compensation aligned with performance, is top talent being retained, is training under-utilized in critical areas?

Further, I’m seeing an increase in outsourced learning services in which training is being conducted on how to measure the impact and benefit of training and development. I believe the results will demonstrate to businesses their direct importance to retaining staff.

On the flip side, if businesses don’t step up to the plate and make investments in staff retention, RPO providers can source the best talent to replace their client’s lost staff. However, hiring new staff – whether through in-house recruiters or RPO firms – costs significantly more than retaining existing staff.

The bottom line is that to achieve their top-ranked 2010 business objectives, organizations must strategically invest in methods by which to retain at least their top quartile staff. An investment now will help them retain customers and reduce costs. Talk about mapping actions to business objectives!

Gary Bragar, Lead HRO Analyst, NelsonHall