Organisations are finding HR business process outsourcing can offer great benefits, says Lynnette Hoffman, but it takes some effort to achieve them
Organisations are finding HR business process outsourcing can offer great benefits, says Lynnette Hoffman, but it takes some effort to achieve them
When British Telecom opted to outsource much of its HR function to Accenture in 2000, the company was in do or die mode. Battling debt and in desperate need to cut costs and find a better way of doing things, the organisation chose to outsource everything from recruitment and training to payroll administration to managing absenteeism and health and safety.
The decision has proved wise. Along with the difficult-to-quantify benefits HR BPO can bring, such as greater transparency and increased time to spend on core business functions, BT has achieved a demonstrable return on investment.
BT HR director Sue Gooch says new policies to streamline procedures and increase the emphasis on rehabilitation and support for employees have led to a 23 per cent overall reduction in absenteeism between 2003 and 2005. The annual cost of sick leave alone has dropped by £24 ($57) million over the past three years.
Meanwhile a health and safety management training program developed and run by Accenture has contributed to a 58 per cent reduction in BT’s reportable accident rate over the same period. And their outsourced HR telephone helpline Peopleline resolved 89 per cent of calls at first point of contact in 2004, and is achieving this for 90 per cent of calls this financial year. This is up from about 75 per cent when the helpline was operated in-house, although this is difficult to quantify because a different measuring system was used then.
But BT’s outsourcing success hasn’t exactly been a leisurely stroll.
Communication is key
“About half way through our [first] contract we realised we weren’t getting the greatest value out of it,” Gooch says. Less than stellar communication both internally within BT and externally with the outsourcing provider meant BT wasn’t deriving the maximum benefit from the contract.
“We weren’t clear enough with HR in the beginning so there was an overlap in activities,” she says. BT also started to fall into the common trap of separating itself too much from the functions it was outsourcing.
“We needed to invest more time and energy into the relationship, and we needed more understanding of what was happening on our behalf. We realised we needed to share more information about where the business was going in order to better equip Accenture’s ability to support us,” Gooch says.
To rectify the problem BT’s senior managers dramatically increased communication with the outsourcing provider. Twice a year key HR managers in BT and key players at Accenture meet to set direction and share plans. Monthly governance forums are held to review global service and program performance, address policy changes and discuss new service requirements and their impact on the contract. Other forums are held to review issues affecting the contract, resolve any commercial issues and address key business issues.
“The forums are all designed to ensure regular dialogue and knowledge sharing between both parties and to address issues as close as possible to their source,” Gooch says.
BT went from merely supplying data to sharing intelligence. They began receiving much more detailed performance reports, financial reports and customer satisfaction questionnaires. And to ensure their goals were being met, BT built guaranteed price reductions into the contract.
“Our senior managers invested considerable time making sure the contract was detailed and robust, but flexible enough to cope with the evolving demands of changing HR services and business conditions,”Gooch says. “Clearly defined [service level agreements] (SLAs) and ‘reverse’ SLAs are built into the contract, providing the basis for evaluating Accenture HR Services’ performance as well as our own, and enabling us to demonstrate the significant returns we receive on our outsourcing investment.”
Outsourcing admin is still king
A recent opinion survey by recruitment firm Talent2 found that 41 per cent of the 200 Australian CEOs questioned outsource their payroll, and substantially more are considering it. IT is still the most commonly outsourced area – 64 per cent of CEOs say it makes sense to employ outside IT specialists. Twenty-seven per cent of the CEOs outsourced their HR component, and 27 per cent outsourced their call centre work.
Along with the potential to reduce costs, free up time for more essential business activities and mitigate risks associated with turnover or absence when only one or two key people know the system, outsourcing payroll systems has other benefits as well. It can allow companies to access the most up-to-date technology on an as-needed basis and know they will have people on hand with the right skills to operate it.
It is also a popular option among organisations that have expanded by acquisition and been left with multiple, incompatible systems. By outsourcing they end up with a single integrated system that allows for much simpler reporting as there’s not the need to make numerous phone calls or look things up in different systems that “don’t talk to each other”, says Harry Telfer, national business director at technology company Ross Logic.
This has been the case for News Ltd, which began outsourcing both the creation and the disbursement of its payroll systems almost two years ago – so far they’ve completed 25 per cent of the changeover and expect it will take a total of five years before all 20 systems are complete.
“We needed to install new payroll systems because our current ones were more than 20 years old. Rather than build them internally we decided to outsource as much as possible so we could concentrate more on our core business,” says Colin Croft, group systems executive at News Ltd.
Despite some initial challenges, he says he’s been pleased with the results. “There’s a commonality of data and we have an up-to-date, efficient payroll system that’s maintained and done on a routine schedule that we don’t have to worry about.”
Still, the transition period has had its frustrations. “The biggest challenges have been keeping the documentation up to date and getting the timing right. We used to do anything at the drop of a hat … Now we have a very strict timetable we have to work to, and that has taken some getting used to,” Croft says.
Similarly there is now less flexibility to modify software to meet changing requirements. “Now we’re more structured in our approach – for example, with pay reviews there is now a specific timetable, and management needs to be aware of it.”
Not to be taken too lightly
No one’s denying outsourcing often makes very good business sense and can translate to higher productivity, lower costs and the ability to focus on core business. But go into it unprepared, says Gartner analyst Rolf Jester, and you may reap more regrets than rewards.
As more and more organisations view outsourcing as a viable option they sometimes have a tendency to forget how significant a decision it can be. “While there can be tremendous benefits for outsourcing business processes it would be foolish, and indeed it could be catastrophic, to do it without a proper strategy,” Jester says.
Before diving in and outsourcing all or part of your HR function it’s essential to analyse extensively your internal business processes along with the external service offerings, Gartner research has found.
“It’s not a simple process, it’s a lot of work, but if you don’t do it you’re highly likely to fail and waste an awful lot of money and you may even risk losing the entire business,” he says. “The biggest mistake people make is jumping straight into the decision without doing the research… They’re asking ‘which provider should I use,’ or even worse, ‘should I outsource offshore or onshore’ without first doing a step-by-step analysis and starting with a strategy.”
Jester says outsourcing HR is no different from outsourcing IT or any other function – the lessons learned are applicable to both, but the key is for the lessons to be applied.
HR: do your outsourcing homework
Before taking the plunge into outsourcing HR organisations should:
• Take a comprehensive view of current costs and associated service-level abilities
• Consider current ability to manage the process in-house, as well as to manage a relationship with external service providers
• Evaluate how strategic each process is and how integrated it is with other support services
• Research all available options in the marketplace (and take note of the level of stability)
• Decide if it’s appropriate to outsource an entire category of processes, a single process or even a piece of a process.
