The Impact of HR Outsourcing on
the HR Profession
Based on a Report from the SHRM
Outsourcing/Consulting Panel
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Definitions
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Outsourcing—transferring of a business process to an external provider
Offshoring—outsourcing of an operation to a firm with principal base of operations
outside the country
Insourcing—transfer of an outsourced activity to an internal department of a
company to be run and managed by employees
Sole-sourcing—outsourcing all processes in the HR life cycle to a single provider
HRO—standard market term for the group HR related outsourced processes
BPO—standard market term for business processes outsourced be they HR or other
business related
SLAs—contracted service level agreements outlining performance expected in terms
of availability, cost and quality
Due diligence—the process of conveying the operational information to third parties
and vice versa
Transition—moving from a current model to a new model
Transformation—transitioning from a current model with significant change in the
new model, usually improved processes
Integrated outsourcing--combining vendors to achieve an outsourced solution using
more than one vendor
RFI/RFP—request for information and request for proposal, first steps with vendors
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What is HR Outsourcing?
• HR Outsourcing manages the
• After outsourcing, companies
people, processes and
typically retain “Strategic HR”
systems for:
duties inside
– Employee Life Cycle
Administration
– HR policy
– Compliance
– Communications
– Organization development
– Recruiting And Selection
– Training
– Deployment of the right
– Compensation
people to the right jobs
– Benefits Administration
– Stock Administration
– Human capital decisions
affecting financial results
– Safety
– Pension
Each HRO provider claims to offer cost savings &
– Payroll
service improvements in delivering processes.
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Trends
• Continued Growth/Maturation
of HR outsourcing
• Increasing Weight of Non-cost
Factors as Decision Drivers
• “Commodization” of Many HR
functions continues
• Development of New Roles for
internal HR Departments
• Emphasis on New Career
Opportunities for Professionals
• Small/Mid-Sized HR
outsourcing markets will
expand
• Demographic Changes will up
Outsourcing’s appeal
• Demand for Improved HR
metrics
• Consolidation, Competition,
Sole Sourcing Reshape
Industry
• Outsourcing Failures will
cause Re-evaluation of
Decisions
HRO is an accepted management practice and an
opportunity to be embraced.
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Career Implications
• Developing use of third party
providers as strategic business
options
• Using the power of others as
leverage for expanding
expertise
• Chance to reorder focus and
priorities
• Evolving accountabilities for
growing human capital value
• Defining new jobs and job
descriptions
• Building integrated business
process solutions no matter
size
• Fitting technology appropriate
to the workforce skill base
• Learning to apply quantitative
data as decision drivers
• Relying on performance of one
to many providers
• Expanding the profile of risk
management
HR has the opportunity to shape how they
respond to the demands being received.
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Trend: Continued Growth/Maturation of HR Outsourcing
Implies: Developing use of third parties as strategic business options
HR Transactions--Moving to More
Broad Base HR
$8 billion
• Running HR as a business,
proving returns
• Selective decisions for service
delivery modules, fragmented
or integrated
• Protection and governance of
company data and property
• Managing the performance of
others
1998 2000 2002 2004 2006 2008 2010
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Trend: Increasing Weight of Non-cost Factors as Decision Drivers
Implies: Using power of others as leverage for expanding expertise
Conference Board Study 2004
Top Execs Desire
•Cost
•Capital Avoidance
•Maximize Resources
•Service Improvement
Line Managers Desire
•Cost
•Service Improvement
•Meet Changing Needs
•Maximize Resources
HR Leadership Desire
•Service Improvement
•Cost
•Maximize Resources
•Meet Changing Needs
• Building strategic drivers for
actions aligning with core
missions
• Aligning HR key activities to
products and services
outcomes
• Heightened focus on people
management practices and
workforce development
• HR management challenge to
sustain achievements and
grow future options with
providers
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Trend: “Commodization” of many HR functions continues
Implies: The more HR activities and tasks become a commodity, the
greater emphasis on price and the more likely they will be outsourced
• Transactional HR activities are
unbundled into discrete
components
• Information technology allows
these components to be digitized
• Web-based HR applications
enhance the processing of
digitized content and allow
multiple worksite collaboration
• As transactional HR activities
become commoditized,
product/service differentiation is
increasingly based on price
• The organization’s reliance on and
loyalty to its HR department
weakens as activities are
commoditized. HR must now
compete with external sources and
price becomes a critical decision
making criteria.
• In this environment, transactional
activities will increasingly go to
the most efficient or least costly.
In-house HR professionals will
have to compete with vendors or
concentrate on activities that are
less likely to be commoditized
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Trend: Development of New Roles for internal HR Departments
Implies: Evolving accountabilities for growing Human Capital Value
“Total Value
Accountabilities”
New internal
SystemStaffing
Models
System
Lower
Administrative
Cost
Economies of
Scale
Vendor
Performance
Optimal Use of
Human Capital
Strategic
Value Add
• Supply chain management
skills
• Change management and
communications skills
• Project management skills
• Relationship Management
internal and external
• Measuring performance of
providers
Effective Comp &
Ben & Talent
Management
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Trend: Emphasis on New Career Opportunities for Professionals
Implies: Defining new Jobs and Job Descriptions
Business Alignment
Vendor Relations
Sourcing
Transformation
Skill Building
Knowledge Transfer
Inside
Outside
Analytics
Webmasters
Discipline Expertise
Process Solutions
Best Practices
Customer Responders
• Broader base of opportunities
in providers to learn HR
content
• Cross flow of employment
between providers and
companies
• Provider data and knowledge
brought to fulfill strategic
mission
• Opportunity for multi-client,
multi industry base of
knowledge
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Trend: Small/Mid-Sized HR outsourcing markets will expand
Implies: Building integrated business process solutions no matter size
2 Million Small
Businesses:
Payroll, not HR
ADP, Ceridian,
Paychex
2,000 Mid Cap Companies:
Full HR
HR is stretched today
Underinvestment in
HRIS
Clients ready to accept
“normative solution”
Fortune 500:
Full HR
HR is good today
Hewitt, IBM,
Accenture, Arinso,
Fidelity, ACS, etc
Clients demand
customized solutions
• Effective use of technology
drives efficiencies and value
added services
• Cultural adaptations accepting
low touch alternatives
• Partnerships for economies of
scale
• Generalist small company HR
role to significantly change
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Trend: Demographic Changes will up Outsourcing’s appeal
Implies: Fitting technology appropriate to the workforce skill base
War For Talent
HRO
Declining
Math and Science
Studies
Lower Immigration
Lower birth rates 1980s-90s
Boomers Retirements
Global Labor with Market Talent Shortage
• Recruiting is more strategic
than ever and more difficult
• Access to HR tools is as close
as any computer
• Less personal and low touch
services become the norm
• HROs are the largest recruiters
for HR talent
• Transition for retiring workforce
• Facing the challenge with
workers who are not IT
connected in their jobs
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Trend: Demand for Improved HR metrics
Implies: Learning to apply quantitative data as decision drivers
HR, Operating Leaders,
Project Teams
Source Data
Global Data Base
• Service level agreements
• Return on investments
analysis
• Value realization techniques
• Human Capital Value
accounting
• Cash flow, capital investments,
non-cash items accounting
• Moving from provider of
services to accountability for
business performance
Remote Data Mgmt
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Trend: Consolidation, Competition, Sole Sourcing Reshape Industry
Implies: Relying on performance of one to many providers
• ACS buys Mellon
• EDS joint venture with Towers
Perrin
• Hewitt buys Exult
• IBM sells HR services units to
Fidelity
• Oracle buys PeopleSoft
“Between January 1993 and October 2003, a
total of 509 HR Outsourcing transactions
were recorded with 30% of those disclosing
value that aggregate to a total of $14.4
billion.” (Mergers & Acquisitions Group,
Robert W. Baird & Co.)
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Managing redundant systems
Contingency Planning
Crisis Management
Supply Chain disruptions
Optimization decisions on
number and scope of services
• Monitoring financial and
ongoing viability of vendors
• Health-check on work climate
at providers
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Trend: Outsourcing Failures will cause Re-evaluation of Decisions
Implies: Expanding the profile of Risk Management
Project Mgmt.
Change Mgmt.
Performance Mgmt.
Contracting
Negotiation
ROI Analysis
HR Managers as Risk Managers
Risk Factors*
•Loss of Institutional knowledge
•Lack of internal staff/capability
•Difficulty managing vendor relationships
•Mismatch of cultures
•Security of databases with providers
•Lack of vendor knowledge of industry
•Sarbanes-Oxley Compliance
•Financial stability of chosen vendor
•Organizational resistance
•Security of transaction in multi-client env.
•Unpredictable costs
•Cost/benefits not realized
Source: Adapted from Bajpai, N., J., Arora, R., & Khurana, H. (2004, June). Global services sourcing: Issues of cost and quality [CGSD Working Paper No.16}, 2005 SHRM
Research Quarterly 3rd Quarter, page 6.
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Building Blocks of the Future
• Strategic Sourcing--Integrate HR Operations
between supply partners and technology
solutions
• Effective Technology--Build the infrastructure
with efficient fit for purpose technology
• Access to Data--Create innovative reporting
and strategic advice linked with business
performance metrics
• HR Excellence--Grow competencies and
capabilities of HR team
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Learning from the Journey
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Can’t wait for everyone to be “happy”
We are problem solvers for the organization
Lots of people have advice but go with those who deliver
From challenge and debate comes progress
Details and data are the foundation of good execution
It’s broken so we better start fixing
There is a war for the best HR people
Successful performance is proportional to the amount of change
Belief in death is self-fulfilling
Align and support the business leaders who are creating success
Have the commitment and passion to put your job on the line
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Our Future
ADD VALUE
KNOWLEDGE TRANSFER AND RELATONSHIPS
STRATEGIC ALIGNMENT
PERFORMANCE AND REWARDS
CHANGE PROJECTS
OPERATING WITH SKILLS OUTSIDE
DIFFERENT HR COMPETENCIES
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