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BPO: Yet Another Acronym?
Michael M. Harris
University of Missouri–St. Louis
The days are getting shorter (but still humid and warm in St. Louis) as I
write this column under the new, highly skilled editorship of Debra Major
(Debbie: Don’t forget the $15.00 you promised if I said nice things about
you!). I hope that you, my faithful reader, didn’t worry that I had stopped
writing this column because the previous issue of TIP did not include a contribution from me. Or, did you suspect that I was politely asked to resign?
No such luck! (I hope you at least noticed I didn’t have a column in the last
issue.) I merely asked to write this column semi-annually, rather than four
times per year, so that I can work on other projects that merit attention.
Rather than tell you what those “other projects” are, however, I will leave
you in suspense and get back to the topic at hand.
Let’s start with a quiz. Do you know what BPO is (2 points for the right
answer; see below)? Do you know what BPO stands for (1 point for the right
answer; see below)? By now you are probably quite curious as to what BPO
stands for, and I won’t keep it from you anymore.
BPO stands for Business Process Outsourcing. A BPO may be defined
as the contractual service of a functional area (e.g., HR) by an organization
(e.g., Exult), which in turn completely “owns,” operates, and manages that
functional area. BPO often relies on information technology to a great
extent. One recent report estimates that by 2004, companies will spend
more than $75 billion annually on HR BPOs, a large increase from 1999,
when companies spent $17 billion on HR BPOs. In the last 2 years, for
example, several large companies have contracted with Exult to provide
such services. Bank of America signed a 10-year, $1.1 billion contract to
provide HR and financial services, including payroll, benefits, and other
functions. BP Amoco signed a 5-year, $600 million contract for benefits,
compensation, recruiting, legal compliance, and so forth.
Have you heard of BPOs? Please send me an e-mail (mharris@umsl.edu)
if you have, and tell me how they are affecting your job. Anyhow, I felt that
this might be something worth knowing more about. In order to investigate
how and where the BPO trend is affecting I-O psychology, I contacted four
I-O psychologists. Two of my respondents operate in consulting firms and
two of them operate in large corporations. I will summarize their answers
to my questions in three sections:
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1. The effects of BPO on our field;
2. The effects of BPO on our skill sets; and
3. The future of I-O psychology as a result of BPO.
What Are the Effects of BPO on I-O Psychology?
BPO will have a variety of effects on our field, some potentially good and
some potentially bad. Or, to borrow some terms from strategic management,
BPO provides both threats and opportunities to I-O psychology. On the opportunity side, one respondent observed that if I-O psychologists control the
HRM business process, it will be much easier to do things such as validation
studies. Also, if an I-O psychology firm obtains the BPO contract, there is an
opportunity for I-O psychology principles and practices to be used to a far
greater extent than has heretofore been the case. Imagine, for instance, a firm
with I-O psychologists who contract with the organization to assume the
staffing side of HRM. The BPO firm might recruit, select, provide an realistic job preview, offer new employee orientation, and conduct training programs. Imagine that opportunity to apply our I-O psychology know-how.
On the negative side, one of my participants noted that in-house I-O psychologists could potentially lose their jobs if the HRM department is outsourced. This was perceived to be particularly true given that I-O psychologists are often viewed as expensive specialists. By way of analogy, think
about HMOs and why they often require one to see a primary care physician,
who acts as a gatekeeper, first. If you want to cut costs, one strategy is that
you go to the generalist first, and only use a specialist when you must! Of
course, for those of you who have had to fight to see the specialist, you probably have first-hand knowledge of the expression, “A jack of all trades and
a master of none.” If that isn’t reason enough, one respondent noted that
companies often downsize by mere “head count” and given that I-O psychologists are usually viewed as “staff,” they are moving targets for replacement by a BPO. I would say that this view is probably the most pessimistic
perspective. Nonetheless, it probably has already occurred to you that even
the outsource companies will need I-O psychologists—or will they? On the
positive side, I checked the Web site of exult.com and found that the advisory council includes Ed Lawler. So there may be some involvement by IO psychologists. On the other hand, having spent quite a bit of time looking through names in the SIOP directory, I can’t recall seeing anyone listed
with employment at Exult or another BPO organization. (If you are
employed by such an organization, and you are an I-O psychologist, please
contact me!) Yet, some I-O firms, such as DDI, are offering outsourcing for
at least some HR functions. Perhaps down the road, some I-O firms will
offer to completely operate an organization’s HR function.
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How Will BPO Affect I-O Psychologists’ Skill Sets?
It won’t surprise you that BPO trends are likely to broaden our necessary
skill sets. As one of my respondents pointed out, the decision by an organization to outsource a business process has nothing to do with I-O psychology. In order to understand whether or not an organization should outsource
the HRM department, it would be important to understand the factors that go
into these decisions.
The problem, however, is that I-O psychologists are not really trained in
the factors that might affect this decision. As one respondent observed, I-O
psychologists have not been particularly cognizant of considerations such as
cycle time, cost, durability, and other system design features. Thus, we need
to become more familiar with how to design and build effective processes.
A second way in which BPO will affect our skill sets is in the importance
of strategic thinking. While I-O psychologists focus more on the managerial
(e.g., designing a validation study) and the operational side (e.g., administering an assessment center), the BPO model focuses on making strategic decisions. A good example of a strategic decision would be deciding whether to
outsource the HRM department or to keep it in-house! Would you believe
there is even research on this topic (e.g., Klass, McClendon, & Gainey, 2001)?
Respondents also pointed out the importance of breadth in addressing
BPOs. It was argued that we need to know much more about a broad range
of topics, including health and safety, teams, OD, and so forth. We tend to
be narrow specialists; this trend would suggest that at least for some roles
(e.g., in-house I-O psychologist) we need to become broader.
Finally, a respondent suggested additional skills needed for an in-house
I-O psychologist who deals with BPOs, such as project management competencies, contract negotiation abilities, vendor management, database management, and knowledge of HTML.
Before you despair completely, though, I would like to point out that no
one argued that I-O psychology knowledge and skills would become obsolete. As one respondent pointed out, he used to spend his time creating I-O
tools. Now he spends his time making sure that the vendors are correctly
delivering their products and following company procedures. It was clear
that while the nature of his job has changed in some sense (i.e., no longer creating the tests, but monitoring to ensure that they were properly created) and
the competencies expanded, an I-O psychology background is still needed.
Is There a Future for I-O Psychology After BPO?
Either I had done a poor job in my e-mails and telephone calls, or my
respondents dodged the question, so I had little direct information as to the
impact of BPOs on our field. Nevertheless, I will try to address it, based on what
I gleaned from my respondents, as well as what I have read about elsewhere.
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So, I am going to “stick my neck out” and argue that the BPO trend has
the potential to significantly change the way in-house I-O psychologists function, though I expect it will have less influence on the way external consultants will operate. As a proof, last week when I was in the airport, I met a
friend of mine who works for a large I-O consulting firm. After exchanging
pleasantries, we began discussing why we were both in the airport. My friend
revealed that he was going to present a proposal to an organization to sell the
consulting firm’s tests for a selection project. I asked him who he thought
their biggest competitor would be for this project and to my great surprise, he
answered with the name of a staffing firm that would supply the actual candidates, rather than just provide a test battery. Would anyone have answered
that way 5 years ago? I don’t believe so. I think that BPO will alter the way
we function as I-O psychologists, particularly for in-house positions, though
there will always be a need for I-O skills as part of a BPO. Moreover, I suspect that 10 years from now, few companies will have full-time I-O psychologists on staff. While there will always be a need for I-O psychologists, our
work will increasingly be part of a larger set of BPO systems, rather than a
self-contained “mini-process.” Moreover, I predict that the move towards
BPO will only grow with time. The question for I-O psychologists will be,
“Are we invited to the party?” I think that the answer lies in making sure that
we keep up to date on these trends so that we are knowledgeable partners.
As usual, please let me know what you think! Contact me by e-mail at
mharris@umsl.edu, phone (314)-516-6280, fax (314)-516-6420, or snailmail at Michael Harris, College of Business Administration, University of
Missouri–St. Louis, St. Louis, MO 63121.
I would like to thank the following individuals for their help in preparing this column: Seymour Adler, ASI; Bill Byham, DDI; Doug
McCormick, AT&T; and Seth Zimmer, SBC.
Reference
Klass, B., McClendon, J., & Gainey, T. (2001). Outsourcing HR: The impact of organizational characteristics. Human Resource Management, 40, 125–138.
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