Phil Fersht had an interesting post in his new blog “Horses for Sources”. This post talked about how the Johnson and Johnson HRO deal was a bellweather for the industry. He also discusses how the HRO deal was a catalyst for dramatic change (Phil refrains from the use of the word “transformation”) in HR service delivery at J&J.
Phil points out that “… HR outsourcing drives business change with the investment footed by labor arbitrage, process automation and self-service technology (contrary to the mega ERP implementations of the ‘90s where the cost was borne by the shareholders). For many global organizations, they simply cannot drive the scale of change necessary through organic process re-engineering – it’s often far too expensive, far too slow, and often far too political. Many companies do not have the required management experience to do it either. Going through outsourcing drives shock into system, forces change quickly and usually reduces administrative costs.”
I agree that HRO can be a shock to the system and can be a way to force change. I also agree that the business case is strong (though many mega ERP implementations included shared service implementations that had a strong business case). However, one could argue that the underwhelming employee satisfaction numbers for HRO providers and their service delivery might have something to do with the way the change was managed.
Fast change is not always good change. Phil is right that many organizations do not have change management as a core competency. However, regardless of whether or not they choose BPO or organic process change (through approaches like shared services), they need strong change management to be successful. It is not just about changing the role of the HR organization and the people who work there. Unlike other outsourcing relationships, HRO touches every employee in a company. The change management bar is higher in HRO relationship than in other outsourcing relationships.
HRO can be a “burning platform” for change. However, like any other change, it needs to be managed properly to achieve the desired outcomes.
2 responses so far ↓
1 Phil Fersht // Jun 4, 2007 at 6:17 pm
Jim – good comments. My view is that HRO has really changed in the last couple of years. After 9/11, CEOs wanted quick savings to hit the bottom line, and inexperienced HRO providers were willing to grant them front-loaded contracts to enable that do happen. Nowadays, you’d be hard-pressed to find an HRO customer who only did this to save money (in fact, recent research shows most of the recent deals barely effected any cost savings after transformation costs were taken into account). All in all, we’re really talking about widespread HR transformation underpinned by new sourcing models – and (hopefully) better technology as a result. The long-term effect of this is to make HR a more important and strategic function in the organization – let’s just hope today’s providers can bring the three key elements together to make this happen: the people, the processes and the technology.
Cheers!
Phil
2 Jim Holincheck // Jun 4, 2007 at 7:06 pm
That is a good point on the motivation. I agree with it. My point is simply that there are significant change challenges regardless of how an organization chooses to change (BPO or organic process change). The fact that companies are looking beyond purely cost savings makes that challenge even greater for BPO.
BPO may be a catalyst for change that otherwise would not be able to happen (for the reasons in your post). However, choosing to go with BPO does not automatically guarantee a successful transformation. That was really my point. Change management is critical in any transformation (which I guess is stating the obvious, but I am not sure buyers think that way all of the time).
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