HR Outsourcing Today & Tomorrow
   

The Outsourcing Institute recently sat down with two leading experts from Hewitt Associates for their perspective and predictions on emerging trends in human resource management (HR) outsourcing. We chose Hewitt Associates because for 60 years, the firm has pioneered HR ideas, services and products, and is the largest provider of multi-service HR and benefits outsourcing in the US. In fact, outsourcing accounts for more than half of Hewitt's business, with more than two-thirds of the Fortune 500 and more than one third of the Global 500 as clients.

Bryan Doyle, Global Practice Leader, Total Benefits Outsourcing, heads up Hewitt's benefits administration practice which has enjoyed the market leader position for more than 20 years.

In response to anticipated marketplace trends, Mike Wright, Global Practice Leader, launched Hewitt's newest consulting and outsourcing business, HR Effectiveness, which helps organizations align the HR function with overall business strategy.

OI: Give us some historical perspective on outsourcing of HR-related activities? When did the trend being in the US? How has it evolved to the present day?
   
BD:

HR outsourcing started 20 years ago with recordkeeping for pension plans, 401K plans and the like. In the late 80s/early 90s, service providers began talking directly with the employees of client organizations. The trend evolved from recordkeeping to interactive delivery via voice response systems, call centers and the Internet.

Now, we find the marketplace and ourselves continually evolving beyond benefits administration to outsourcing other HR activities such as HR data management, recruiting, hiring, compensation and performance management. Companies are looking to us to help them develop the overview perspective and strategy that will ensure effective acquisition, motivation and retention of top talent.
   
MW: What we expect tomorrow in HR outsourcing is similar to the evolution we've seen in IT outsourcing over the past decade. In its infancy IT used to be about fixing printers and keeping PCs running. Today we have CIOs in strategic business planning roles helping to shape the business direction and implementing broad business strategies. That's the transformation—from transactional to strategic—we believe will occur in HR, a fundamental shift from an administrative, tactical and compliance-driven business to a focus on the strategic acquisition, motivation and retention of talent. The transactional activities are necessary, and the web and new technologies will further enable those activities. The key focus will be the human assets of a business.
   
OI: Specifically, what HR functions are most commonly outsourced? Does this vary for different size corporations?
   
BD:

Benefits administration and payroll are mature lines of business, while the broader realm of HR outsourcing is just emerging.

Different companies are attracted to different business models. Some service providers will take on current HR systems and over time, improve those processes. We believe it's better to streamline first, then automate. Employees can only absorb so much change. We re-engineer the process to accomplish work better, faster, cheaper, then use our technology to automate a streamlined process. As a result, the client can focus on strategy, design and higher value-added activities, while we take care of the day to day administration in a more efficient way.
   
MW:

Let me add some specific examples beyond benefits administration. As companies look at the recruiting function, technology can now accomplish much of what has been done manually. Outsourcing that technology is common. Because of the current competition for talent, some companies are going further, outsourcing the entire recruiting/staffing and even performance management functions previously accomplished in-house.

The big shift we see is that large companies are facing tough decisions around technology and the web. Companies have to decide whether they will upgrade technology in-house or use it as an opportunity to outsource.

Since so much of IT is focused on ebusiness, HRIS systems, while necessary, won't always receive sufficient resources, because it's not a core competency of the business and doesn't drive immediate sales. HRIS systems, recruiting, performance management, learning, and administration tend to be interrelated, so companies are beginning to consider outsourcing all those functions and transactions.

Over the next few years, we believe the lines will get drawn around how much of the direct interaction with employees a company wants to have managed by a third party. And that will vary depending upon the size and scope of the company.

For example, there may be a COO or head of HR in a subsidiary company that doesn't want or need to adopt the practices of parent company, due to size and stage of growth. As a result, we will see some creative ways HR gets done, which looks and feels like what a parent would expect, yet is highly customized for unique business environments.
   
OI: Specifically, how can outsourcing all or portions of a corporate HR function support a company's bottom-line?
   
MW:

The challenge is to clearly demonstrate the value outsourcing contributes in supporting the overall business objectives.

To stay competitive, companies are web-enabling many HR processes. Implementation of technology is necessary, but expensive. Costs can be minimized and efficiency increased if leveraged by someone (a service provider) who's doing it routinely.

Outsourcing can provide a higher level of service than might be reasonable to expect from an internal department. Faster response times, higher compliance, and convenient access to benefits supports employee loyalty, in effect minimizing liability and turnover costs.

The same is true if you look at HR and outsourcing more broadly. Outsourcing works because it can deliver higher value and free up internal resources to focus on a company's core competency.
   
BD:

A hard cost/benefit analysis can be a complicated challenge. Few organizations have a solid handle on the complete range of their pre-outsourcing hard- and soft-dollar HR costs.

However, while I don't want to overstate the case, we know outsourcing improves HR process functions which in turn allows HR professionals to focus on more strategic activities that support the overall business objectives. It also insulates companies from continual investment to maintain state-of-the-art HR systems and processes.

In addition, if you can give employees what they want and need, when they want and need it, you build stronger ties between the employee and the company. At the end of the day, we believe there is a positive impact to the bottom line, along with a lot of softer measures, such as improving employee/manager relationships and employee engagement and satisfaction as well as staff utilization, productivity, and longevity.
   
OI: What questions should one ask when interviewing an outsourcing service provider for HR-related functions?
   
BD:

We are asked this question all the time. Here's what I tell people:

Outsourcing Focus: What is the service provider's commitment to outsourcing? Is outsourcing a core competency or are they in outsourcing for other reasons, like building capital or acquiring employee assets? How many implementations has the service provider accomplished – on time?

Client Relationship: How does a service provider work with client? Everybody uses words like ‘partner'. A buyer needs to look under the hood to see how the service provider works with existing clients, to see the technology, and meet the team of people who will be working with you. Talk directly with their clients for feedback. By seeing all of that first hand, you'll gain clarity about the company's dedication and focus to your business, which will help foster a feeling of trust. This is a long-term relationship that should be flexible and adaptable to each company's culture and unique business needs. A sense of trust and partnership is important.

Managing Change: Outsourcing is a tremendous change. What's the process for going through that change? You definitely shouldn't hear that it's easy! For outsourcing to be successful, the service provider needs a detailed understanding of current environment, culture, technology, and people. You want to hear about the details. What do project plans look like? How will you benefit the provider's experience with other clients? How does the provider bring the latest and greatest in terms of people, process and technology?
   
MW:

I agree with Bryan and would add a few more questions to your list.

Purpose: The first question to consider is: How do I view the problem I'm trying to solve with outsourcing? And what's the bias or focus of the service providers? If I view the problem as a technology issue/challenge, I'd want to understand the technology orientation of the potential service providers. If I view the problem as a HR issue, I'd want to understand the provider's depth of experience with HR and range of solutions related to people challenges.

Commitment: Many view outsourcing as a loss of control. Once you place a relationship somewhere, it can be difficult to extract from that relationship. You want to understand the people involved and their commitment to your business. How important and core is your business to the service provider's organization? What are they doing to build the assets of their business and how will you benefit as an organization? Are they going to invest and grow with you?

Relationship with Employees: What kind of relationship will the service provider build with my employees? If I am mightily challenged to get people in the door, will the service provider help me further my brand and my relationship with employees? Will my employees feel closer to me or the service provider?
   
OI: As an expert in HR outsourcing, what trends do you predict will evolve in the next three to five years?
   
MW: Globalization will be one trend. Many other countries regulate employee benefits in different ways, with benefits often provided by the government. Currency and language issues are still significant in terms of benefits administration. But organizations everywhere still need to hire people and provide training. So we might see more speed and acceptance in outsourcing other HR functions globally, more rapidly than in benefits administration.
   
BD: Technology is a critical factor, truly the backbone that enables HR outsourcing to happen. The Internet creates so many more opportunities to streamline and improve the ways HR services are delivered to employees and managers. Technology will continue to enable how employees interact with their companies. Soon, you'll be able to look up your 401K balance or review your doctor's information and performance on your cell phone or home TV. We've seen tremendous change in the last five years and expect that trend will continue and accelerate into the future.
   
MW: We do look to technology to provide ‘any time any place' kinds of activities, and view it as an enabler to help managers build better relationships with employees. When we look at turnover and the engagement of employees in a work environment, one of the greatest drivers is an employee's relationship with their manager. Of course, line managers aren't looking to take on HR functions, so any technology that supports and enables a better relationship with employees will be welcomed.
   
BD: Also, the HR function is under growing pressure to be a business partner—to shift from an expense center to a business enabler. We believe it will become more acceptable for companies to rely on outsourcing expertise and thought leadership to not only improve the HR function, but also increase the value of HR to the organization as a strategic player in accomplishing overall business objectives.
   
MW:

That's very true. Think about it: If a business owned as much information about its key customers as HR typically owns about its employees, that business' sales and marketing organization would go wild in terms of developing a powerful customer relationship management model. As we look forward, technology will likely enable HR to approach its employees the way a sales organization approaches its best customers, in terms of personalization, segmentation and overall relationship management.

Organizations have invested heavily and are doing an effective job at collecting information about customer wants and needs, interactions with the company, demographics and more. HR owns much of that information about employees today. What might lag, but follow in HR is a similar approach. The same principles of customer relationship management will be applied towards employees, and technology will be used to address the larger question: How do we (the employer) enable what's happening in employee's lives, and how can we make it easier for them?
   
OI: On a personal note, both of you have chosen to stay with Hewitt for more than 15 years. That's a bit rare in today's job market. Why do you do what you do?
   
MW:

One of the interesting things about Hewitt is the incredible bench-strength and intellectual capital the firm has built, largely because it is not unusual for our thought leaders to stay with the firm.

I've been here 18 years. The business changes so much I've had the opportunity to do many different jobs, all related to human resources. I love managing client relationships. In taking on the HR Effectiveness initiative, I saw huge opportunity to build a large, complementary business for Hewitt. For me, that's an opportunity to accomplish challenging work for my company and our clients.
   
BD:

I came to Hewitt 16 years ago with a background in technology and an MBA in finance. I was looking for a role that allowed me to leverage both business and technology expertise and found it here. Truthfully, it's been a fun 16 years of rapid growth. We have a lot of long term associates.

What makes Hewitt unique in HR is we have delivery outsourcing capabilities along with consulting and design capabilities. When you have one without the other, clients end up with elegant business plans that don't work or implementation capabilities that aren't efficient because they don't consider broader business strategies. It's challenging to blend and balance both.

Hewitt is responsive to an industry that is always changing. So, it's like being in a new company all the time. As the organization has grown and evolved, the roles and opportunities have evolved as well. In fact, many of the jobs and careers we have today didn't exist 5 years ago. I'm jazzed about being part of a really successful company.