How to: standardize HRO

Ceridian’s Senior Vice President and General Manager for HRO Keith Strodtman outlines why standardization represents the future of HR outsourcing.

Over the last six or seven years in the HRO world, I’ve already seen trends come and go. And while four years doesn’t seem like enough time for trends to develop, HRO is proving something of an exception. As the first wave of HRO passes and the second generation comes of age, many are now asking: what’s next? And while it would seem that the answers are many, for me it boils down to a matter of two things: accountability and standardization.

Put quite simply, accountability means vendors have to be accountable for the solution and service. When I was on the Presidential Debate panel at the HRO World Conference in April of this year, Jay Whitehead (president and publisher of HRO Today) asked me: “What are they [companies looking at HRO] buying these days, Keith?” I told him that it boiled down to one thing – accountability. “What they want is for us to keep them in compliance, to file everything on time, to worry about data security, and to have someone they can count on to reliably deliver HR processes and systems to support their HR goals and objectives,” I said. “Last year it was about the money, and this year it is all about accountability.” (Coincidentally, the other 13 vendors on the panel all gave vigorous nods of agreement.)

Jay summarized this thought well in his finance and industry trends column in the May issue of HRO Today, saying: “Accountability is the new cost savings.” I agree with this sentiment wholeheartedly – if the first generation HRO vendors is going to be around for the second generation, they have to show a track record of accountability: being compliant, timely, meeting service expectations and having systems and processes that are proven. This brings me to my other point – standardization – which I firmly believe is the key to HR outsourcing success.

You’ve most likely already done standardization – perhaps you’ve standardized HR processes in your company. Perhaps you’ve centralized HR processes into a shared services environment.

If you look at the history of outsourcing, you can see the pattern emerging: company develops a great software program, company adds new functionality, company adds customization, company realizes all the customization makes servicing customers challenging, company standardizes software. While that’s a vastly oversimplified example, you get the picture. A real-life example showed up about 10 years ago, when the major players in the software and ERP space began standardizing on certain platforms and languages to ensure quality for their customers. And by having a common starting point, all software was the better for it.

It’s the same need for HRO. In fact, Everest Partners’ Mark Pramuk stated in a June 2006 Research Brief: “Buyers are likely to hear suppliers more strongly highlight leveraged operating models versus a more configured and leveraged model. In particular, the message will shift from ‘yes, we can do that’ to ‘here is how we recommend doing it’.”

It’s easy enough to create special processes and non-standard delivery approaches, but does that produce enough value to justify the costs? My honest answer is no. There’s little to no ROI in creating customized processes and systems for administration processes in payroll and benefits administration. In fact, quality, timeliness and control can actually suffer as a result of complex processes or highly customized systems. Customers and suppliers alike have learned there are no winners when there are service delivery failures. And complex, custom processes only increase that risk.

As a result, many HRO vendors have invested or are investing in standard HR processes and systems based on best practices – as Everest Research Institute indicated in their June 2006 HRO Market Update: “The importance of realizing leverage [economies of scale] across buyers is growing in importance to suppliers. In order for leverage to be realized, standards need to emerge in the HRO industry.”

The great thing is that both buyers and suppliers will benefit from this standardization. Buyers will achieve more consistent service level results and lower costs from their provider. Suppliers will be able to provide improved services at a cost that still allows for a profit and that’s money that can be invested in enhancing services to help their customers better manage the productivity of their workforce.

So in closing, standardization is a key component for HR outsourcing to fulfill its value proposition. It’s a win-win situation for buyers, suppliers and the industry itself.

Keith Strodtman is Senior Vice President and General Manager of HR Outsourcing for Ceridian, a leader in managed human resource solutions that maximize the value of people. He has nearly 15 years of expertise and a proven track record in helping companies realize a value proposition through outsourcing and the application of technology to improve business processes.