Selecting the right HR Outsourcing options
Christine Stanowski Vice President of Global Consulting, ADP
Christine Stanowski ‘s Biography
Christine Stanowski,
Vice President of Global Consulting, ADP Christine is Vice President of Global Consulting for ADP in Europe. She is responsible for supporting the overall HR Outsourcing sales process for large multinational companies. Christine heads up a team of senior consultants in charge of delivering RFPs, RFIs, due diligence, business cases, service level agreements, transition plans and service organization. Her professional background includes the management of French and international payroll and HR projects. Christine is based in Paris but travels extensively, mainly across Europe. She can be reached at: contact@globalhrstudio.com
Selecting the right HR Outsourcing options Stepping up in HR transformation, and more specifically HR outsourcing, raises fundamental questions and requires agreement on the processes and activities to keep in-house and the ones to reengineer and outsource. More generally, HR transformation is about deciding on the organization to implement to fit the new business needs.
Designing and managing your retained team correctly is a critical factor for the success of your overall HR outsourcing business plan. In particular, the ability to achieve significant staffing efficiencies is typically the key to achieving the financial objectives expected from the outsourcing relationship. This is often the most difficult and poorly planned aspect of the transition to outsourcing HR.
The roles and responsibilities that your organization will need to retain during and after transition of HR services will depend on a number of related factors: • • • • • •
Scope of services that you will be outsourcing Day-to-day processes that will be left behind for your retained team Complexity of Business Unit structure Diversity of your current information systems and/or service suppliers Expected timeline for the transition to your vendor Number of manual tasks that will be automated by outsourcing
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Selecting the right HR outsourcing options The first step to design your retained organization is to understand the different outsourcing options available on the market. The chosen service model will have a significant impact on the way procedures and tasks are to be handled once the HR outsourcing contract has been implemented.
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Models and service levels Constantly evolving HR outsourcing has become an industry. As demand evolves, new offerings are introduced on the market with their own names, terminology and acronyms. A bit of deciphering is required even before benchmarking solutions. BPO, SaaS, AMO…What do you mean exactly? Application Management Outsourcing (AMO), Application Service Provider (ASP), Software as a Service (SaaS), Managed Services (MS), Comprehensive Outsourcing Services (COS), Business Process Outsourcing (BPO)… A lot of acronyms, a rich vocabulary, and almost as many dictionaries!
How to obtain a clear definition of each model? By compiling a list of the available solutions on the market, an operational nomenclature of outsourcing models can be built. It is based on two criteria:
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First criterion: what responsibility is being transferred? The first criterion deals with what is actually being transferred from the enterprise to its service supplier. Is it just IT infrastructure that is being transitioned? Will the partner provide application management? Will the service provider run processes – such as payroll processing – on your behalf? Ultimately, is there a complete transfer of a function or a department to a supplier? Beyond the type of transfer, the dimension of responsibility becomes apparent, revealing the design of the future retained organization. For example, a supplier that provides access to an application takes on the responsibility for its delivery and legal compliance but does not commit to the outcome of its use. On the other hand, when a function or department is outsourced, the service supplier is accountable for measurable, functional results. This highlights the distinction between performing a given task and assuming responsibility for the deliverables of an outsourced function or department.
A look at pricing Figuring out the base unit for pricing also helps clarify the actual nature of the transfer: outsourcing can occur at four different levels. These levels are represented vertically in the graph below where added value increases with the level of outsourcing.
Segmentation of outsourcing options Business Outcome
BPO
Comprehensive Outsourcing Services
Function
Processing Services
Process
Applications Infrastructure
Application Management Outsourcing ((AMO) (A MO)) MO
SaaS ASP
Added Value
One-to-One Model
One-to-One "Lift & Shift"
One-to-Many Model
Managed Services
IT Outsourcing Hosting
IT Efficiency
Cost Effectiveness
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Infrastructure
Application Management Outsourcing (AMO)
Applications
SaaS ASP
Processing Services
Process
Function
IT Outsourcing Hosting
BPO One-to-One "Lift & Shift""
Comprehensive Outsourcing Servic Se ces Services Managed Services
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Infrastructure: the service supplier hosts the IT infrastructure. The client buys the service of installing, running, and maintaining the applications. Pricing is based on Computer Processing Unit (CPU) consumption, gigabytes of memory, and storage and network usage. IT hosting and IT Outsourcing (ITO) are at this level. Applications: the service supplier hosts the infrastructure and the applications and commits to providing their availability and maintenance. The client makes use of these applications and remains responsible for operating activities. Pricing is either based on infrastructure and resources engaged or on application usage (pay per use). Application Management Outsourcing (AMO) and Software as a Service (Saas) fall under this definition. Process: the client outsources the management and execution of a single business process. Performance metrics are primarily linked to accuracy, timeliness, and compliance. The pay-off begins here. Processing Services is a typical outsourcing offering at the process level. Function: the entire function is outsourced. This is Business Process Outsourcing (BPO). The service provider is in charge of the end-to-end value chain for its client and is fully committed to results. “Lift & shift” outsourcing , Managed Services and Comprehensive Outsourcing Services are BPO models. In the case of Managed Services and Comprehensive Outsourcing Services, pricing is based on the number of employees managed. In a “lift & shift” approach, pricing is based on a due diligence assessment.
Second criterion: is outsourcing shared or dedicated? The second criterion deals with the environment for delivery of service set up by providers. This critical differentiator, one among many outsourcing options, is depicted horizontally in the graph. The service environment is dedicated – this is the one-to-one model. The provider sets up a specific environment for each client. Only a steep learning curve and the reengineering of internal processes will generate economies of scale and, hence, cost savings. The service environment is shared – this is the one-to-many model. The provider serves multiple clients with the same platform and application environment. Using shared and more standardized tools can generate significant cost savings.
One-to-one versus one-to-many If we consider the process or function level, the “lift & shift” approach, Processing, Managed and Comprehensive Outsourcing Services illustrate the difference between one-to-one and one-to-many models. With the “lift & shift” approach, teams and infrastructure remain dedicated to a client as in the one-to-one model. On the other hand, Processing Services, Managed Services, and Comprehensive Outsourcing Services are one-to-many service models. They are based on shared infrastructure, application, and teams for delivering a service to multiple clients. Such models offer a combination of commitment, strong expertise, and economies of scale.
How can we pick and choose among one-to-many models? As one of the key drivers for outsourcing, cost control has generated interest in solutions designed according to the shared, one-to-many models: SaaS, Processing Services, Managed Services, and Comprehensive Outsourcing Services.
“transforms” the information provided by its client and is responsible for delivering results.
Processing Services, Managed Services, and Comprehensive Outsourcing Services
The fine line between SaaS and Processing Services SaaS and Processing Services may look very similar. They both provide services online, delivered from a shared environment and billed on a transaction basis. But one difference stands out: with SaaS, the supplier – usually a software vendor – provides only the system. With Processing Services, the supplier performs tasks for its client. In this case, the supplier
At first sight, the differences among Processing Services, Managed Services, and Comprehensive Outsourcing Services seem to lie in the parts of the HR function value chain that are transferred and the level of risk shouldered by the supplier. In fact, the differences are greater. If we take payroll as an example, Processing Services corresponds to outsourcing the central – most transactional part – of the payroll value chain (see graph). This requires a strong commitment to service levels:
Processing, Managed and Comprehensive Outsourcing Services Comprehensive Outsourcing Services Managed Services Processing Services
Data Collection
Interpretation & Offline Calculation
Data Entry & Integration
Checking & Controls
Payroll Rules Management
Processing
Printing & Dispatching
Validating Results
Declarations
Answering Enquiries from Employees, Managers and Third-Parties Payroll is processed on time and accurately, in compliance with legislation, collective agreements and the client’s rules The client company benefits from a support consultant who brings payroll expertise, not only software knowledge Processing Services, initially the model for payroll outsourcing, has evolved towards higher levels.
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Extending the scope of responsibility Managed Services and Comprehensive Outsourcing Services encompass the entire payroll value chain. The client controls compensation policies, time and activity, etc. but outsources all the burdens associated with payroll management. Managed Services and Comprehensive Outsourcing Services minimize risks and free organizations from compliance concerns. But, Managed Services and Comprehensive Outsourcing Services don’t mean a loss of control, or that there’s no retained organization on the
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Managed Services can be extended to handle employees’ queries and services to manage payment to employees and third parties. This is called Comprehensive Outsourcing Services. Managed Services and Comprehensive Outsourcing Services are becoming the preferred models for outsourcing.
Impact of the HR outsourcing options on the retained organization Does HR outsourcing always mean cutting the HR organization to the bone? One may consider that the direct consequence of HR outsourcing is to enable companies to benefit from a stripped down organization. Reality is often more complex. The newly designed HR organization and the way a company leverages it to improve service delivery efficiency, quality standards, and cost control are directly linked to the outsourced service model implemented.
The “1 to 31” approach is a simple and quick guide to establishing how employees occupy their working time on a day-to-day basis. For example: • On day one, 70% of time is spent collating payroll input data, 30% is spent on travel & expenses; • On day two, 50% of time is spent handling employees queries, 50% is spent on accounting • Etc.
The “1 to 31” approach
At the end of the month, a company can establish where the majority of time is being spent in the HR department. Very often, an employee is perceived as being 100% dedicated to one task or function, but usually spends time on additional activities related to the primary task. As a consequence, this may result in a significant gap in the business case when it comes to comparing the “as is” with the “to be” phase in the course of the outsourcing project.
The first step for a company is to challenge its current organization and evaluate its own compelling reasons to outsource before going any further. This preliminary action triggers the analysis of the processes in place, documentation of current HR responsibilities and job descriptions, and prioritization of targets that must be reached in the retained organization.
A specific task may take one or two days of an employee’s time each month, but that time could be reduced or even eliminated according to the outsourcing service model option chosen. It is therefore critical to adopt a structured approach to the preliminary phase of outsourcing. This will enable companies to avoid the pain resulting from a miss-match of choice and solution.
The interaction between the future HR organization and the chosen outsourced service model makes them inseparable. For example, why continue to let the retained organization monitor payroll tasks if the chosen outsourcing model handles this responsibility?
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client’s side. Providers operate within the scope defined by the client and steps still require validation and controls.
Different service models that fit different dynamics
or not complying with data privacy standards.
HR outsourcing can take many forms which may generate some confusion.
Today service suppliers have gained enough experience to manage all these points in order to guarantee flexibility and security for their clients. In most cases, companies also pursue common objectives that can be covered by the one-to-many approach.
The decision to make is whether to choose the one-to-one or the one-to-many model. The one-to-one model can be particularly appropriate for big and mature organizations; companies that want to maintain some specific processes or IT systems and that are ready to integrate in their business case the additional cost related to one-to-one legal maintenance, customized upgrades, and specific country-bycountry management. In some cases, the one-to-one model can also be a good fit for groups that have grown by acquiring businesses in different domains. Specific adaptations are required in order to streamline their processes and organization while continuing to keep some of the Business Units’ strategic specificities.
Many companies – common objectives But more often, cost control, cost reduction and return on investment push most companies to consider the one-to-many model as the preferred option. Aside from the strategic considerations that may lead a company to choose between one model and another, mindset also plays an important role. The one-to-many model is sometimes viewed as being too general for a company’s specificities, lacking flexibility for process change,
For companies that target cost savings, the one-to-many model is the way to implement an approach based on rapid return on investment and economies of scale. Companies that rely on external growth can use the standardized, one-to-many approach to quickly integrate the new acquisitions in pre-defined, seamless and shared processes to maintain consistency within the group. Organizations with various information systems across countries may opt for one-to-many HR outsourcing to get rid of complex and specific IT upgrades and to run their HR operations on a common platform. The level of services will then depend on a combination of targets and timing. Processing Services is the model of choice for step-by-step progress in outsourcing. Managed Services and Comprehensive Outsourcing Services suit organizations with populations spread across countries and complex processes, as well as companies that are organized around shared services centers and/or that have to manage offshore activities.
Wrap-up • HR outsourcing can take many forms which may generate some confusion. • The first step for a company that undertakes HR transformation is to challenge its current organization and evaluate its own compelling reasons to outsource before going any further. • Outsourcing is about selecting the tasks that have to be transferred and opting for the appropriate environment for the delivery of service, according to a combination of targets and timing. • The newly designed HR organization’s efficiency is directly linked to the outsourced service model implemented. • As one of the key drivers for outsourcing, cost control has generated interest in solutions designed according to the shared, one-to-many models.
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