Getting inside outsourcing

Ceridian’s Keith Strodtman, Convergys’ Peter Hirano and Greg Secord of ADP National Account Services talk HR BPO.

In an effort to reduce the costs of HR administration, companies are increasingly looking outside their own office walls to find efficient solutions to essential functions. But is HR outsourcing just about saving money or are there other less quantifiable benefits, and how do you get the most out of that outsourcer relationship? HRM invited three leaders in the field to give us the whys and hows of extracting optimum benefits from HR BPO.

Speaking with:
Keith Strodtman, Sr. Vice President and GM of Ceridian's HRO business.
Peter Hirano, Senior VP Global Product Management, Convergys
Greg Secord, VP of Marketing and Business Development, ADP National Account Services

HRM. What tend to be the main drivers behind outsourcing HR functions?
JG. Aside from more obvious drivers such as a need to cut HR-related costs and improve overall efficiencies, we see companies looking at HR Business Process Outsourcing (BPO) as a key step towards transforming both the role that HR plays and the strategic value it delivers to the organization. Shifting workforce demographics, the global economy and technology have irrevocably changed the focus of HR. The sweeping changes taking place now, and those still to come, mandate that HR departments focus on high-value activities that help their company attract, retain and develop the best talent. In large companies that have employees scattered around the globe, HR can become mired in delivering services that are largely administrative in nature such as getting the payroll out, addressing employee questions about benefits, and administrating various plans. Critical as these activities are, they are not central to the expanded role today’s HR organization must play. Outsourcing allows HR executives to focus on these higher value initiatives.

Another key driver we see is with companies that have highly-decentralized HR across divisional and geographic boundaries. These companies know that they have inconsistencies, inefficiencies and duplication in their HR, but the task of assessing best practices and transforming to more standardized processes is Herculean. A provider that understands and knows how to manage transformation can help these companies get to their desired state much faster and cost-effectively than they could on their own.

KS. Any company will tell you that increasing shareholder value is a business driver. At Ceridian, we’ve helped companies see that outsourcing is a great way to increase shareholder value because they can reap benefits in six key areas: economic value, strategy and planning, operational effectiveness, robust technology, refocusing of HR on core-value activities and strong risk management programs. Any of these areas can be considered a ‘main driver’, but together they make a very compelling argument for outsourcing.

Another, not so obvious driver is when a company is experiencing change – such as a spin-off or divestiture. These types of M&A activities can be a catalyst for change – and sometimes a primary requirement of the spin-off or divestiture. Having the option of HRO can offer a quick replacement or establishment of HR infrastructures while allowing key resources to focus on the other areas affected by the change.

We also feel that companies turn to HRO to improve their employee services. This is becoming more important to companies in tight labor markets such as healthcare. Companies with strong internal HR functions can make it easier for their employees to manage their benefits, retirement plan and other day-to-day needs. Having this in place, we feel, can actually contribute to employee retention and satisfaction –two key needs for companies today.

GS. Mid-market or medium-sized companies are finding that transactional and support processes, typical of payroll, HR and benefit services, can be a drain on organizational resources rather than a strategic advantage. They are therefore turning to BPO providers for the ‘best-practice’ processes and technologies to drive down costs, standardize service delivery and enhance their focus on core business issues.

To define ‘best practices’ a bit further, ADP has found that many medium-sized companies are struggling to deliver HR services through a difficult combination of dated technology and manual processes. They often find it necessary to add staff to accommodate these inefficiencies. Companies are looking for beneficial alternatives that streamline their efforts, expand services, offload the manual components and deliver tools, such as self service, that enrich the overall employee experience.

HRM. Is HR outsourcing the right solution for every company – are there any common mistakes or pitfalls companies make or is it always a win-win situation?
GS. Of course, there is no one single solution that is right for every company. In general, however, outsourcing is an effective way for companies to reduce the internal administrative effort and costs associated with non-strategic HR, payroll and benefit transactions.

One of the keys to long-term success is to carefully compare the outsourcing models available and decide on the solution that works best. Company leaders should ask whether they are looking for help with particular point processes, such as payroll processing or benefits administration, or, whether they seek an integrated solution that combines several processes? They should then consider to what degree they want their outsourcing partner to provide employee contact services, such as call-center support, self service, etc. It’s important for companies to understand that flexible options are available, depending on the goals and objectives.

JG. HR BPO is not the right solution for every company. Organizations with global operations and/or a large number of employees are most likely to experience the most significant cost benefits from large, multi-process HR BPO. Aside from size, companies considering outsourcing must thoroughly evaluate their reasons and expectations. We sometimes see companies fall into the pitfall of wanting to simply ‘lift and shift’ their HR operations over to a provider. The problem with this approach is it doesn’t address and correct any root problems that may have existed in the process that is being shifted. Simply moving a ‘broken’ process will not make it better.

We advocate a ‘transform, then transfer’ approach that ensures the best possible process is being leveraged.

Another common pitfall is underemphasizing the importance of a good cultural match between customer and outsourcer. HR BPO contracts are typically seven years long, at a minimum. That’s a long time to be working together, so there had better be a solid partnership. When employees have questions they need answered or problems they need solved, they need to feel that the person on the other end of the phone (or e-mail) is in their corner and will do all that is required to solve the problem. They don’t care (or even know) that the person helping them is from an ‘outsourcer’. This also comes down to the importance of culture fit.

KS. Any company looking to outsource needs to take a hard look at their company’s overall HR strategy – that’s always the best place to start. If your HR operation group is one of your company’s core competencies and best-in-class, don’t change it! If not, then look at outsourcing it. Also, consider company dynamics - is your organization undergoing a significant change (i.e., a merger or acquisition) that could be an opportunity to redesign how you deliver HR services?

Once you decide to outsource – the best advice I can give is to feel confidence and trust in the vendor you choose. Make sure they can handle the challenging, yet foundational, elements of payroll and benefits. If these nuances can’t be handled easily – you risk increased costs, lower morale and damage to your company’s reputation with its employees.

A common pitfall is relying on price as the final deciding factor. Just like an expensive personal purchase, the lowest cost solution isn’t always best. You need to compare the details in the proposal – does each proposal cover the same scope of services? Are your company’s specific requirements addressed in the proposal or will there be costly change orders in your future, which negate that lower price in the long run. Also, consider providers that have offerings that go beyond just the basics of HR/payroll and benefits administration. The addition of tools such as talent management, employee assistance and work-life programs, human capital management and others should be looked at either at the outset of moving to an HRO model, or as a long-term goal for the company. Certain providers can bring that to the table as part of their overall offering while others focus only on the core HR function.

A common mistake companies make is thinking too small and focusing on discrete processes. They also often look at technology without thinking about process improvement.

HRM. What considerations that should be taken into account when selecting an outsourcer?
GS. Industry experience and domain expertise should be a primary consideration. Several technology and consulting companies are beginning to focus on HR BPO because it is a hot ticket right now. Many of them have already been acquired in an attempt to meet this need.

If I were a client looking to outsource HR business processes, I would look for a committed provider with a history of success in their field. There is a big difference between HR expertise and IT expertise. Demonstrated domain expertise in HR would be a key differentiator if I were a potential customer.

Clients tell us time and again that financial stability is also a significant factor in their decision-making process. They want to partner with a company that is committed to the business, has the resources to invest in it and is going to be around for the long haul.

Naturally, companies want to partner with service providers who have a significant track record of helping clients achieve their goals and the financial stability to meet new requirements well into the future.

KS. After careful evaluation – understanding the services you want and need to outsource – it is important to find an outsourcer that can not only handle your ‘wish list’ for today, but that is able and willing to grow with you as those needs change.

At the heart of the HR delivery system are people, processes and technology. As a prospective buyer, prospects need to look at all three of those dimensions. In HRO relationships, which are longer-term than traditional deals, buyers also need to ensure there is cultural alignment between the company and the provider (for example, in the degree of flexibility, service approach and whether formal or informal communication is preferred). They also need to ensure there is a strong governance model in place to ensure the relationship is properly managed.

Finally, you should select a provider that offers outsourcing of numerous functions. This approach means you have a single point of responsibility for the outsourcing contract, account management and which can result in improved service delivery at a lower cost. Even if you only take advantage of a few services initially, you know that you can add more services at a later point with a trusted partner.

JG. First and foremost, companies evaluating outsourcers should look at the outsourcer’s track record. What are their current customer engagements and what are the breadth and scope of these engagements? Has the outsourcer been able to deliver on the agreement and have the goals been achieved? Second, it’s important to look at capabilities, infrastructure and the service delivery footprint. Companies with global operations need to make sure the outsourcer has the capabilities and expertise to provide service in region, in country, and in language. Third, consider both implementation expertise and significant relationships with the market-leading ERPs. It’s not enough to have mastery over the technology – the outsourcer needs to have a seat at the table with SAP and with Oracle/Peoplesoft in order to represent client’s best interests in the future direction of the platform. The fourth thing I would stress is culture fit. It’s critical that there is good working partnership between the two companies. Lastly, I’d encourage the company looking at outsourcers to ask tough questions about how they can support their business needs and goals.

Rarely is a company just looking to cut costs or get better at delivering services. What they need is a partner that can help them get where they need to be.

HRM. Once a company has taken the step to outsource, how can it determine how successful that service is proving to be? Is there an ROI that can be measured on that investment?
KS. The measurement of success is an on-going process – service level agreements (SLAs) and key performance indicators are two metric points. Of course, cost savings coupled with improved efficiency are the obvious ways to measure ROI, as they should be, which is why SLAs and key performance indicators were created. However, ROI around improved employee services, employee morale, employee productivity and other workplace indicators should be looked at when trying to determine what your desired ROI will be.

In addition to these two indicators, another measurement of outsourcing success is whether it is helping you meet the key goals you set when you made the decision to outsource (e.g. access to technology or subject matter experts or in mitigation of risks).

JG. HR BPO will mean different things in different organizations so no one ROI formula is meaningful across the board. It’s imperative to define the metrics tailored to the needs of the organization early on in the decision to outsource. In addition to defining these metrics in the planning stages, the processes and communications plans needed to make sure all parties can gain visibility and understand the efficacy of their outsourcing relationship should be constructed. Obvious metrics will be the cost-savings of HR business process outsourcing; however, other metrics, such as those related to organizational transformation, should also be measured as those will help drive competitive advantages that result from better business process management.

GS. Companies that begin with the end in mind, and set clear expectations and measurable objectives up front, are the companies who receive the most value from HR BPO services.

We see companies define their ROI in a number of ways, such as financial savings, service improvements and employee satisfaction. Companies looking to outsource HR BPO should first define their required outcomes and then seek early agreement with their service provider on the set of deliverables that will assess their progress toward those goals. They should hold their service provider accountable for ensuring that the agreed-upon objectives are met.

HRM. Is it necessary that a company works closely with their outsourcer or should opting for BPO mean you can effectively forget about those outsourced functions?
JG. Opting for BPO should not mean forgetting about what has been outsourced. In order for outsourcing to continue to add value to the business, both partners need to come to the table, discuss what is happening in the business environment, what goals must be achieved, and what can be done to achieve those goals. Outsourcing provides a level of workforce intelligence that was most likely not previously available to the company. This intelligence enables a deeper level of analysis, understanding, and fact-based decision-making. To take advantage of this business intelligence, the company must stay engaged with their outsourcer. With the burden of managing and delivering services is removed, HR executives are able to focus on these and other higher priority initiatives like Talent Management strategy. At the end of the day, the outsourcing initiative is about advancing business goals, not just about improving processes and that requires the participation of both parties.

KS. You must work closely with your outsourcer to truly succeed and achieve desired results. The Ceridian HRO model is based on having close ties with clients at each level. That means the HR project manager has a Ceridian contact, the company’s employees have a dedicated service team, and the executive champion within our client has an executive partner at Ceridian. We’ve found this dedicated resource and peer-to-peer contact invaluable to our clients’ satisfaction and overall retention.

In addition it’s important to remember that, while the outsourcing vendor is responsible for the work, you still have to be responsible for the outcomes of the work. A close partnership is crucial! After all, we can take away the headaches of the administration and process, but to truly forget about those outsourced functions? I’m afraid that’s never going to happen!

GS. When working with a BPO partner, companies absolutely should have a level of trust that their outsourcing partner can deliver the services promised. There should be service level agreements and performance metrics in place to help manage and evaluate that performance. It is in the best interest of the client, however, to closely communicate with their outsourcing partner. BPO truly is a partnership, and for it to be successful, there has to be commitment and participation from both sides.

HRM. Just how important is the relationship between a company and its outsourcer? Is it one that needs to develop over time- is it a learning process?
JG. In two words, very important. The relationship between a company and its outsourcer is a partnership. Unlike other vendor-client relationships that are more intermittent in nature, the relationship with an outsourcing vendor is similar to a marriage. You’ll interact on a daily basis with this vendor on matters that are closest to the heart of the business.

Entrusting the backbone of your organization to any vendor requires assurance that you’ve selected an experienced vendor who can help streamline business processes and better align resources with business outcomes. Clearly, the relationship will intensify over time, but it’s important to make sure your initial vendor selection is one that has the breadth and depth of both organization and services to meet the dynamic needs of your business.

KS. At Ceridian, we prefer to work in a true partnership with our clients. We sit down and develop HR outsourcing solutions that support their initiatives and priorities. We want our clients to achieve their desired business outcomes in terms of managing employees, transactions and the outsourcing program. If we don’t have a close business relationship – with constant communication at all levels – we could never achieve that goal.

That being said, it is always a learning process in a true partnership. The ability to flex and adapt as business needs change and as challenges occur is a goal for all of us. That’s when the relationship really grows and solidifies to long-term partnership.

GS. Companies should consider their outsourcing partner to be an extension of their organization. As such, they should put as much effort and consideration into selecting a partner as they would when hiring a new employee. Companies should evaluate a potential partner’s experience and domain expertise, carefully check references and consider whether they are someone they would want to work with on a daily basis.

When you think of it that way, the relationship is certainly one that will develop over time, but a solid foundation is required for both parties to achieve their goals.

Keith Strodtman is Senior Vice President and General Manager of HR Outsourcing for Ceridian, a leader in HRO management solutions that help maximize the value of people. Ceridian is the leading HRO provider to mid-sized companies and utilizes a standardized, multi-client shared service approach that leverages best practice processes, sophisticated technology and skilled people to deliver quality services to its customers. Prior to joining Ceridian, Strodtman was responsible for client solution development at PricewaterhouseCoopers.

In his role as Senior Vice President of Product Management for Convergys Corporation’s Employee Care business unit, Peter Hirano is responsible for designing, integrating and marketing Convergys’ Employee Care products, services, and alliances globally.

Hirano has nearly 20 years of experience in HR outsourcing. Prior to joining Convergys – a leading provider of integrated human resource management solutions for outsourcing solutions for large, multinational companies – he was an independent consultant focused on helping organizations develop and execute strategic plans for human resources service delivery – with a specific focus on outsourcing.

Greg Secord is Vice President, Marketing and Business Development for ADP National Account Services, a proven leader in outsourced human resources, benefits and payroll. ADP National Account Services, a division of ADO Employer Services, provides advanced, flexible business solutions to match the needs of large employers and meet the challenges of a changing environment. ADP’s solution-oriented approach lets clients concentrate on core strategic initiatives, confident in the knowledge that they’ll be empowered with best-in-class outsourcing services.