Improving people strategy execution through HR outsourcing | Orion Partners

Improvinggeneration
The next people
strategy execution
How to transform your HR Services
team into a strategic force
through HR outsourcing
October 2011

ORION
Transforming HR orion-partners.com
01 The next generation

Contents

Contents 01

Aboutthispaper 02

Executivesummary 03

Introduction 04

HROmarketoverview 05

StrategicopportunitiesofHRO 07

BestpracticesforHRoutsourcing 10

Theroleoftechnology 13

Casestudy:LogicaandAhold 15

Conclusion 16

01 Improving people strategy execution through HR outsourcing

About this paper

About this paper
This white paper was authored by Simon Constance, Partner at Orion
Partners LLP. Simon leads the Infrastructure practice at Orion Partners,
focusing on shared services, business partnering, outsourcing and offshoring.
He has worked on some of the largest HRO contracts agreed to date, and
advises clients, government bodies, and suppliers on partnerships that have
shaped the HRO market in Europe and beyond. He regularly writes and
speaks on HR strategy and transformation and has published a number of
books including Transforming HR (2003) and HR Business Partners (2005).

About Orion Partners
Orion Partners are leading advisors in HR transformation, the creation and
execution of Talent strategies to achieve measurable business results. Our goal
is to help HR teams lift their game to the strategic level now demanded of our
profession, and to help HR organisations develop the programmes, resources
and capabilities needed to deliver these measurable business results.

With our extensive research into what makes HR teams tick, along with
our closeness to the markets for HRO, we’ve helped many organisations
construct the best approach to delivering their HR services.

We believe HR Services can be so much more than a processing factory. With
the data it collects and the touch points it has, it can provide valuable business
intelligence to inform strategic debate and help organisations be more in touch,
more nimble and more flexible. To realise these benefits, we help to:

• Integrate HR Services into wider operating models

• Advise on sourcing from strategy to implementation

• Improve the performance of shared services

• Optimise the use of technology

• Advise on off-shoring

For more information about Orion Partners please visit www.orion-partners.com.


Executive summary

HRoutsourcinghaschangedinthepastfiveyears,movingfromapurely
tactical,cost-cuttingexercisetobecomeasourceofstrategicsupport
andcompetitiveadvantage.AstheHRoutsourcingmarketexpandsand
fragments,HRDirectorsmustmakeinformeddecisionsaboutwhich
providertoselect,howtomakethemostoftheservicestheyofferand
howbesttointegrateHROswiththeservicesthatremainin-house.

Thiswhitepaperoutlinesthestrategicopportunitiesaffordedbyan
intelligentapproachtoHRoutsourcingandofferssomeguidancetoHR
Directorsinchoosingtherightproviderfortheirorganisation’sneeds.


Introduction

HR outsourcing has come a long way since its beginnings in the 1990s.
Once viewed purely as a cost-cutting exercise, HRO is now better thought
of as a strategic investment that can actively support the organisation in its
pursuit of business goals.

The HRO industry has fragmented as it has matured. In addition to the big
multi-process outsourcers, there are now many providers offering specialist
services in areas such as recruitment, learning, workforce mobility and
employee relations. The benefits go far beyond cost-cutting, with HRO
providers delivering skills, resources, tools and insights that complement
those of their client organisations.

The breadth of services offered makes it critical for organisations to choose the
right provider for their needs, particularly as contracts tend to be long-term.
A lot can change in the five to ten years of a typical contract, and organisations
must be sure their chosen HRO partner can support that change.

This white paper is intended to act as a guide for HR Directors in
organisations currently considering outsourcing all or part of their HR
operations. It will review the options currently available; explore some
of the strategic benefits of outsourcing that HR Directors may not have
considered; examine the current and future role of technology in HR
outsourcing strategy; and provide recommendations for gaining the most
value from the relationship with the chosen outsourcing provider.

Finally, a number of case studies have been used to illustrate how many of
the recommendations outlined in the paper are working - or will work - in
practice at HRO provider Logica. In particular we cite two of Logica’s major
clients; KPN and Ahold.


HRO market overview

For many, the term ‘outsourcing’ may conjure up visions of monolithic, multi-
year, multi-million dollar BPO contracts, signed in the name of cost-cutting
and transactional process efficiency. Very often in the early days, once the
initial cost reductions had been delivered, there was little left to gain from the
relationship other than ‘business as usual.’ As a result, many executives have
become sceptical of the scale of the benefit offered by outsourcing.

In the past few years, however, the HR outsourcing industry has matured and
redefined itself to address the evolving needs of large organisations. Today’s
HRO market is much more diverse and flexible than in the past, enabling
businesses to make very fine-grained decisions about what to outsource and
what to keep in-house.

The industry still includes a number of large, long-established multi-process
HR outsourcing (MHRO) providers who manage multiple operations on
behalf of their clients. However, more recent market entrants include smaller,
specialist providers who focus on doing just one process very well, such as
recruitment process outsourcing (RPO) and learning process outsourcing
(LPO). Specialist providers have also emerged to manage niche processes
such as workforce mobility, compensation benefits, and employee relations.

Major vendors in the European HRO Markets

Niche specialists Payroll and employee admin Major multi-process

Aon Hewitt

Accenture
Alexander Mann, RPO
ADP
Kelly OGC, RPO IBM
Pattersons
Scope

Kenexa, RPO Capita
TCS
Raytheon, Learning
Logica
Ceridian
NIIT, Learning
Northgate Arinso

ACS, A Xerox Company


HRO market overview

While some providers still focus on purely transactional services, many now
offer strategic consultancy based on their research, global market knowledge
and sophisticated analytics capabilities. In the RPO sector for example, the
types of service offered range from the transactional (tracking CVs and sending
candidate letters) to the highly strategic, including global workforce planning,
identifying talent gaps, and helping to establish talent management strategy.

Some providers also offer state-of-the-art technologies that can help the HR
function to be more effective and play a more strategic role in the organisation
at a time when internal budget for HRIT is hard to come by. As professionals
have become used to using social networking services and mobile apps to
organise their personal lives, so they expect to be able to use the same kind
of functionality to organise their work lives and career. A number of HRO
providers have invested in social, Cloud-based and mobile-enabled systems
and can thus offer capabilities that the business is unable, or unwilling, to
implement internally.

The use of workforce analytics to drive strategic decision-making is another
key service. Providers have introduced sophisticated business intelligence
technologies and an underlying technological infrastructure that enables the
integration and aggregation of HR data for real-time analysis. This allows for
strategic modelling and the kind of analytics that contribute to the shaping of
business strategy.

The breadth and depth of HR outsourcing services available means HR
Directors need to weigh any outsourcing decision very carefully, to ensure
they are selecting the right provider – or combination of providers – for the
business’s current and future needs. The right provider can deliver much
more than cost reduction. The next section will explore some of the additional
strategic opportunities that HRO can deliver, and provide some guidance on
how to maximise those benefits.


Strategic opportunities of HRO

Five to ten years ago, HRO was usually considered in the context of
cost savings: how can a certain process or combination of processes
be delivered more cheaply. HRO providers were not seen as sources of
strategic advantage, and the processes most commonly outsourced were
highly transactional, such as payroll processing, pension administration and
HR helpdesk. The tools for workforce planning, talent management and
overall people strategy remained fully within the retained HR function.

Today, the picture has changed. People strategy has become a board
issue, particularly among organisations who are competing in a crowded
marketplace, whose business model depends on intellectual capital, or who
want to move rapidly into emerging markets. Increasingly, organisations
need help with critical people-related issues such as workforce planning,
succession planning, identifying talent gaps, and recruiting and retaining the
right talent.

Whilst ultimate responsibility for people strategy should always remain
within the organisation, there are many more ways in which HRO providers
can help with these issues than simply freeing up time for in-house HR staff
by taking over the management of transactional processes. Some of the
ways in which the new breed of HRO providers can help are outlined below.

• Innovative, value-add services
A number of providers now offer innovative services beyond transactional
process outsourcing, with the result that HR Directors are now looking
to HRO providers for access to strategic insight and expertise to
complement their own.

Case in Point: Offerings such as Alexander Mann’s Total Workforce
Acquisition service and the new legal service launched by UK-based
employment relations support provider Adviser Plus have enabled these
providers to increase the strategic value of their services in their respective
areas of expertise.



• Local market capabilities
Organisations aiming to move fast into new territories are looking to
already-established HRO providers in those regions to take care of
everything from recruitment and relocation of talent to the establishment
of locally-compliant HR processes, systems and support infrastructure.
In such situations the outsourcer is often contracted on a shorter-term
basis to set up the local operation, drawing on its capacity in the region
and its local knowledge. Once established, the HR operation may then
be handed back to the client organisation.

• Analytics and reporting
Workforce-related decision-making is increasingly being driven by
advances in data integration, analytics, modelling, reporting and
visualisation. Many HRO service providers have invested in technologies
that integrate and cleanse their clients’ HR-related data, and provide
services and dashboards for real-time analysis, identification of trends
and gaps, and ‘what-if’ modelling. The resulting information can prove a
vital support to decision making at the highest levels.

Case in Point: HRO service providers including Logica, IBM and Accenture
have been early movers into these markets. They offer Business Intelligence
capabilities that not only provide analysis of historical ERP data but also
deliver predictive analytics as well as cross-analysis of different datasets to
uncover patterns and trends that might otherwise have go unnoticed.

• Access to enabling technologies
In recent years, HR technologies have extended beyond the back-office
to encompass a wide range of valuable workforce-facing technologies
including self-service, social networking and collaboration, as well as
mobile applications. Organisations that find it difficult to secure internal
budget for IT can leverage this kind of functionality by partnering with an
HRO provider that is committed to introducing new HR technologies as
they emerge.

Case in Point: Aon Hewitt, Capita, and ACS Xerox all now offer mobile
access to their HR services and learning services. The best offerings build
this access into the daily workflow for staff and managers, increasing levels
of engagement with the HR process.



• Operational excellence
Established HRO providers have built up operational centres of
excellence deploying advanced management control and automation
approaches. Leveraging this expertise can help HR Directors achieve
the standards of operational excellence that are often aspired to within
the organisation, but require significant development and investment
to achieve. This investment draws on deep specialism in operations
management and technology enablement that HR teams and the wider
business may not possess.

Case in Point: Kelly OGC has been rigorously applying Six Sigma
approaches to its operations, and with GE as a major client has a great
reference point. Meanwhile, both Logica and Northgate Arinso have
invested heavily in Capability Maturity Model Integration (CMMI) to ensure
worldwide operational excellence. This approach drives consistency in
process and operations management, creates a platform for continuous
improvement, and delivers a framework to improve automation. This is the
kind of performance-boosting initiative that internal HR services operations
find hard to justify.

In short, today’s HRO providers often have a lot more to offer than simple
cost-reduction opportunities based on transactional process efficiency. The
next section will outline how to select the right HRO partner and how to
make the best of the capabilities and services they offer.

.


Best practices for HR outsourcing

To reap the full strategic benefits of HR outsourcing, HR Directors must look
beyond traditional approaches to sourcing, contracting with and working
with an HRO provider. In a traditional HR outsourcing scenario, the choice of
provider is based on cost and decided after scoring the service scope and
standards against a marking framework. At the end of the process, the chosen
provider is presented to the business as a faît accompli. Once the service is
live, the provider is then retained at arm’s length to manage administrative
processes while the HR function concentrates on strategic issues.

In order to get the best strategic support from the new breed of HRO provider,
however, HR Directors must be prepared to work much more closely with the
rest of the business and with the provider throughout the life of the contract.
This approach must begin even before a selection is made, in order to choose
the provider that is the best operational and strategic fit with the business.

Orion Partners applies its own, well-proven approach called “Sustainable
Outsourcing” to help organisations get the most strategic value from their
outsourcing agreement over the whole lifetime of the contract. Some key
elements of best practice for Sustainable Outsourcing are outlined below.

• Allow stakeholders to explore how a new HRO service could benefit
them
The services offered by HRO providers can help board executives and line
of business managers execute business strategy far more effectively. Make
sure the business is aware of the potential advantages in terms of workforce
analytics, talent acquisition and retention and workforce planning – and that
they understand how these services can help them to get the right people in
the right places at the right time. Hold workshops to ascertain how an HRO
provider could help individual lines of business achieve their objectives, and
use this insight to inform the selection process.

• Get close to your provider before making a decision
Don’t just settle for an arm’s-length due diligence approach that ticks the
boxes on visiting centres and taking references. Get close to the provider’s
management and leadership team to understand how they will fit culturally
with your organisation, whether their future roadmap fits with your own, how
and when they plan to invest in new enabling technologies, and what their
capacity is like in terms of current and future client demands. Be ambitious:
share your business’s strategic objectives with them and ask them how they
can support them over the life of the contract. Finally make sure they use
their services themselves – if they don’t practise what they preach, be careful
about being their guinea-pig!



Case in Point: Logica has undergone a World Class HR transformation
programme that will allow 39,000 Logica employees in 40 countries to
take advantage of the same value-added services and innovations that the
company provides to its HRO clients. Logica’s Dynamic HR framework, based
on continually-evolving solutions from the Oracle suite of HCM products, will
deliver standardised global processes for operational efficiency, coupled with
local expertise, advanced self-service for managers and employees, and
sophisticated analytics for workforce planning and talent management. Future
innovations in the Oracle platform will be incorporated into the Dynamic HR
framework as they are developed.

Chris Sutton, Logica’s Managing Director of Global BPO, recently said
about the platform he has built for his internal and external customers: “As
is becoming best practice in HRO, Logica is committed to exploiting new
technological developments for its clients, and has chosen to standardise on
Oracle products on that basis.”

“We want to work with a software developer that provides future proofing
for our customers, that has a route map which reflects the needs of the
HR director and that stays abreast of new themes around the best way to
manage HR.”

• Ensure your internal HR team are able to take advantage of the
opportunity
The best results happen when the internal HR function and the HRO
provider work together as one team, collaborating towards the achievement
of defined strategic (and combined) objectives with mutual trust and
confidence.

This means ensuring that the internal HR team have the right skills and
mindset in place to make best use of the services offered by the provider
– even if that means redefining or creating new internal roles to take
advantage of the opportunities available. For example, if the provider is
offering sophisticated BI dashboards, make sure that internal staff know
how to use this new insight to drive strategic decisions that support the
organisation’s business objectives.



• Maintain a close relationship post-contract
In order to deliver the most effective service, the HRO provider will need
to have continuous insight into your business as it grows and evolves. By
maintaining a close relationship and involving them in your decision-making,
you will find they can support your organisation better in achieving its
strategic objectives.

You may not want your provider to be party to every discussion about
HR strategy, but it is perfectly possible for HRO relationship leads to sit
on HR leadership teams if there are clear rules of engagement in place.
These should include a clear definition of the client organisation’s strategic
goals, mutually-agreed service level commitments, and a well-defined and
regularly-updated exit plan in case the relationship ceases to be beneficial.

By establishing and nurturing a close working relationship, HR Directors will
be better positioned to exploit all of the capabilities the provider can offer, and
the provider will have a depth of insight into the business that will help it to
proactively suggest new services to support its client’s growth.

Increasingly, those services will be technology-driven. The final section
examines some of the technological capabilities and innovations that enable
the new breed of HRO provider to deliver strategically-valuable services to their
client organisations.


The role of technology

Technology advances at a dizzying pace. In just a few short years, a wave of
new consumer technologies have transformed the way we all live and behave.
Relationships are forged and maintained through social networking and
location-based services. Banking, shopping, reading and information-sharing
are all done online. Smartphones have created an always-on culture in which
people expect to be able to conduct any digital task they want at any time they
want, and in late 2011 e-book sales overtook hardback sales, indicating the
scale and pace of the changes wrought by technology.

Consumerisation of IT
Increasingly, people who rely on these technologies in their personal lives
want to be able to use them in the workplace too. But while the willingness
is there in many organisations to exploit the latest technologies, very often
the budget and the requisite organisational agility are not. HR teams in
particular may find it difficult to get budget for new IT systems if there has
been recent investment in a large-scale HCM implementation.

The result is that employees and managers start to bypass ‘old-fashioned’
enterprise systems and use their favourite consumer tools and services to
conduct HR-related tasks. While this may get the job done, it means that
vital data is being lost to the organisation. As the ability to analyse and model
operational data becomes critical to an organisation’s success, losing important
information can have a material impact on future business performance.

Embracing innovation
With internal IT budget and resource hard to come by, due to CAPEX
restrictions in a tight economy, organisations are increasingly seeking to
partner with HRO providers who have a track record of successfully delivering
new HR technologies and a commitment to introducing new technologies as
they emerge. That commitment is now being explicitly built into contracts and
SLAs so that the client organisation can be confident it will always have the
opportunity to exploit technologies that can make a difference.

Case in Point: KPN, the Netherlands’ leading telecommunications provider,
appointed a director of HR Innovation to work closely alongside HRO partner
Logica in exploring the potential of emerging HR technologies. One of the
many benefits has been the high level of employee and manager self service,
instead of telephone interaction with the service centre. The self service, with its
context-rich Frequently Asked Questions, has been designed to enhance the
experience of employees. “Click” interaction has become more effective and
more acceptable than a phone call, and reflects demographic changes in the
KPN workforce.



Case in Point: IBM has implemented ‘chat’ services for a number of HRO
clients. This improves flexibility of access for employees by allowing them to
contact IBM service centres with quick questions and interact immediately with
a helpdesk operator without having to go through a call centre.

The ability to provide capabilities like corporate social networks, mobile
applications and enterprise collaboration can vastly increase organisation-
wide engagement with HR processes. It also means that data is captured
within enterprise systems for analysis and decision-making.

Analytics
Workforce-facing tools are not the only technological advantage that HRO
providers can deliver. Many now offer sophisticated analytics, reporting,
dashboards and data visualisation capabilities to help HR teams and
senior executives make intelligent decisions about people strategy.
Providers that have invested in integrated systems, or which have robust
tools in place for real-time data integration and business intelligence, are
well placed to help their clients make sense of the mass of operational
data they gather each day.

Data integration
Integration of data is critical to HR’s ability to draw on a “single source of truth”
for business intelligence, planning and reporting purposes. Many organisations
today run a plethora of different technologies, resulting in fragmented islands
of data that make an accurate, 360-degree view of HR information difficult to
achieve. When selecting a provider, HR Directors should look out for a robust
HR technology strategy that enables HRO and in-house technologies to
remain aligned and the data they handle to be fully integrated. The decision to
outsource should not result in data becoming fragmented, or the delivery of
valuable management information will be inhibited.

In summary, technology is increasingly central to the way people-related
tasks are conducted across the organisation and the way people-related
data is analysed to drive better decision-making. An outsourcing provider’s
technological capabilities, the stability and reliability of the technology
vendors with whom they partner, their agility to adopt new technologies, the
architecture and architectural flexibility and the proven delivery reliability of
these technologies should all be closely considered by any organisation looking
to increase its strategic advantage through HR outsourcing.

The August 2011 deal between Logica and Ahold, now well into transition,
provides a good example of how these considerations are playing out in
practice.



Case study: Logica and Ahold
In August 2011 Dutch international food retailer Ahold outsourced its HR
business processes to Logica in a contract worth $70 million over nine years.

Under the terms of the agreement, Logica provides local HR support and
presence to Ahold in the Netherlands, the Czech Republic and Slovakia, and
back office administration from its state of the art shared service facility in the
Philippines.

Ahold selected Logica to provide both transactional services (including
helpdesk, payroll and HR admin) and technology-driven value-added services
that will deliver competitive advantage in a number of ways, including:

• Rapid Business Expansion
Ahold aims to move quickly into new geographical markets outside the
Netherlands. Logica will provide a ready-made HR and payroll service
for new territories, enabling Ahold to get up and running with a global
operating model.

• Manager Productivity
One of the main challenges for a retailer is to simplify the onboarding of
new staff. Logica will deliver electronic document flows which will be fully
integrated with HR systems, enabling store managers to spend less time
on admin and more time managing the store. These will cover the full
onboarding process, from recruitment through to the issue of identity cards.

• Strategic Planning
Ahold has the option to use sophisticated workforce analytics provided by
Logica to drive decisions on everything from workforce planning to training
delivery.

• Future-Proofing
Logica conducts regular innovation boards with its HRO clients to discuss
where they can get most value from their investment in Logica and its
technology platform. It also provides a framework for adopting best
practice in HR and HR technology as it evolves, ensuring that clients
can always take advantage of new technological developments such as
predictive analytics, enterprise social networking and mobile capabilities.

At the core of Logica’s service offering is a platform based on Oracle’s suite of
HCM products, which will serve more than 90,000 Ahold employees.


Conclusion

AstherangeofservicesofferedbyHROprovidersexpands,thereare
manyopportunitiesforHRDirectorsandtheirorganisationstoderive
significantstrategicadvantagefromtheiroutsourcingprovider.

HRDirectorswhochooseanHROproviderbasedonitsvalue-add
capabilities,culturalfit,technologicalsophisticationandcommitment
toensuringitsclients’successwillultimatelybeabletoplayamore
strategicroleinhelpingthebusinesstoimproveperformanceandmeet
itsobjectives.


Orion Partners

ORION
Transforming HR
t +44 (0)20 7993 4699
e info@orion-partners.com
w orion-partners.com

Improving people strategy execution through HR outsourcing | Orion Partners

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