HR outsourcing: Where being unique is not always a good thing

One HR outsourcing client says conforming processes to the vendor's standard model can reduce risk and cost.

HR outsourcing turns the adage "dare to be different" on its ear if approached correctly, according to Kevin McDonald, vice president of business process outsourcing (BPO) governance at The E. W. Scripps Company.

"The biggest mistake people make when outsourcing is they try to get providers to conform with their company and not the other way around," McDonald said. "Learn from your predecessors -- [this model] has been tried, and there are really few successful examples of it."

But even for HR leaders who have come to understand the benefits of conforming outsourced processes like payroll and benefits management to the vendor's standard model, one important question rears its head: If businesses really are more similar than different, why aren't providers applying the lessons learned from one customer to all customers?

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"Outsourcing clients bemoan the fact that their providers don't come to them with new ideas," said Morgan Yeates, research director of global HR BPO at Stamford, Conn.-based consultancy Gartner Inc. Instead, clients report that "providers don't say, 'You've had this problem, and we have other clients that have dealt with that, and here's how.' They say, 'Here's what you paid me to do, we did it, see you next quarter.'"

With new outsourcing services gaining momentum and a new model of HR BPO on the horizon, both McDonald and Yeates named several reasons why companies interested in HR outsourcing should "dare to be the same." However, the definition and importance of provider innovation was a more contentious topic.

Conforming to the provider's model minimizes risk and cost

When McDonald started at Scripps six years ago, the Cincinnati-based media organization had already opted to outsource a handful of HR processes, and he was tasked with guiding the vendor selection. Drawing on previous experience, he decided to choose a vendor that employed a "one-to-many" rather than a "one-to-one" approach -- a vendor that asked for a certain amount of process conformity versus one that customized its services for each client.

The one-to-many approach was not the prevailing model at the time, which narrowed McDonald's choices. He considered both Accenture and ACS (now Xerox) before selecting ADP.

"We wanted a partner that could come to the table with 80% of it figured out," he said. "Sometimes ADP gets a bad rep with the perception of 'their way or the highway,' but we actually looked at that as a positive -- they're not starting with a blank slate." Within 11 months, Scripps was live on payroll and benefits outsourcing, and, today, the company outsources more than 20 HR processes through ADP.

In McDonald's view, conforming to the vendor's model keeps costs low and minimizes risk. While many HR managers pursue HR outsourcing as a cost-cutting measure, they often don't realize that deviations from the provider's standard process will drive up the price, he explained. For Scripps, McDonald limited deviations within payroll to the two places where they were absolutely necessary: union contracts and certain state laws.

McDonald also pointed out that deviations can increase the potential for errors. "If I pull ADP out of their comfort zone, [I'm] adding risk," he explained. "ADP, NorthgateArinso, Ceridian, etc. -- they all have many, many clients, so there's no reason not to listen to them tell me how my payroll process should be."

Yeates added that willingness to conform decreases customers' preparation time before outsourcing. "Don't lose time cleaning up your mess because once you go to the provider, you're going to have to change," he said. "In the process of implementation, leapfrog your situation to the provider's situation, and you'll have a consistent process without having wasted time." He said the average timeframe for an outsourcing implementation ranges from six months to a year.

If HR managers are willing to conform as much as possible, the rewards of HR outsourcing can outweigh the pains of standardization. In the wake of recent tax reforms, compliance is one especially pertinent advantage.

"When you look back on the last few years at all the different payroll tax programs that have been introduced, the biggest benefit to me with outsourcing is that I have a provider who is figuring all of that out for me," McDonald said. "We don't have to worry too much about the administrative side of health care reforms. ADP will figure it out for [their] clients, so I can focus on other things."

But McDonald's experience hasn't been without challenges. "You can't walk down the hall and talk to your HR manager anymore about issues. You're supposed to call the contact line, and some folks don't like that," he said.

McDonald also said the temptation to overreact to problems is higher with outsourcing. "With the call center, there are growing pains, and they're going to make mistakes from time to time, and it's easier for me to be mad at someone over the phone," he said. "You need to stay the course, and recognize the difference between 'the system is down,' and 'this stinks, let's replace it.'"

Provider innovation: What does it really mean?

Yeates said provider innovation is a sore subject for many HR outsourcing customers, especially regarding problems. Users are extremely interested in how other clients have solved problems, but providers are not often forthcoming.

But McDonald said the meaning of provider innovation is convoluted. "In my opinion, 'innovation' is one of the most overused buzzwords in HR BPO," he said.

He recounted a meeting of the HR Buyers Group where he asked fellow members to define provider innovation, and answers ranged from more self-service to process refinements to better integration with HR systems.

HR outsourcing clients report that "providers don't say, 'You've had this problem, and we have other clients that have dealt with that, and here's how.' They say, 'Here's what you paid me to do, we did it, see you next quarter.'"

Morgan Yeates, research director of global HR BPO, Gartner

According to McDonald, the issue is rooted in buyers not understanding providers' business models. He explained that contracts start being profitable for providers when the service becomes stabilized, but that is often precisely the juncture at which buyers expect big changes.

However, such concerns aren't entirely unfounded, he said. "I think what people are complaining about is a lack of continuous improvement. You don't see incremental improvements over time."

BPaaS further cuts cost through automation

In recent years, several new developments in HR outsourcing have been coming to the forefront, Yeates said.

Two relatively young service areas, learning and recruitment process outsourcing (RPO), have been experiencing rapid growth. Yeates explained that these adoption curves are mainly comprised of repeat customers -- because customers are now comfortable with benefits and payroll outsourcing, they are quicker to outsource other processes.

A new delivery model is also emerging: Business Process as a Service (BPaaS). "BPaaS is the idea that the labor component of outsourcing is shrinking and being replaced by automation," Yeates said. Whereas traditional outsourcing reduced labor cost, the goal of BPaaS is to reduce labor count, which further lowers cost as a result. Yeates cautioned that providers that are not developing BPaaS alternatives risk becoming obsolete.

But no matter what service a company is trying to outsource, McDonald stressed that standardization is key. "Outsourcing in and of itself isn't necessarily going to be your silver bullet," he said. "Try to become more standardized in transactional areas. Be as standard as possible."

Emma Snider is the associate site editor for SearchFinancialApplications.com. Follow her on Twitter: @emmajs24.

This was first published in January 2013

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