Change management

Outsourcing is set to change the nature of the personnel profession, with a
shift in focus from service provision to partnership nurturing. But what kind
of skills will professionals need to succeed in this brave new world of HR

Shivers went through the HR world at the recent news that BP Amoco is
outsourcing virtually the whole of its personnel function, involving the
transfer of up to 350 staff. The £370m five-year deal – by far the biggest of
its kind – is a gamble both for the company and US provider Exult, which now
has little more than a year to start showing results.

That is a tall order for a new entrant to the market with no track record.
But through an aggressive use of web technology, which long-established UK
outsourcing companies have been slower to take advantage of, BP Amoco is
betting it will succeed in yielding significant cost savings and service
improvements.

In that case the scepticism employers have traditionally felt about
outsourcing could dissipate and other companies would be encouraged to follow
suit. BP Amoco is only one of at least half a dozen major concerns said to have
plans in that direction, and a trend also shows signs of developing in the
public sector, with Lincolnshire local authority following Westminster by
outsourcing its entire HR function last year.

But if deals of this size become common, where does that leave HR as a
profession?

Concerns have been voiced that when training, recruitment, legal advice and
other mainstream personnel activities come to be treated on the same level as
payroll and pensions, the function will be fatally downgraded. Far from
becoming ever more central to a business, as many have been urging, the average
HR professional will eventually be marginalised.

Not so, say many experts, who argue that the need for HR in organisations is
in no way diminished by outsourcing administration functions. On the contrary,
the more of the day-to-day tasks that can be handled by third parties, the
easier it will be for HR to provide the kind of strategic advice organisations
need to work effectively. Meanwhile, those who work for outsourcing companies
will enjoy varied challenges and opportunities for development that are not
always available in the HR departments of large organisations.

In effect, outsourcing can be seen as cementing a split between these two
arms of HR. "It could change the nature of the profession," declares
Marta White, managing director of search firm DS Wolf International.
"Administration can be 80 per cent of the burden and without that hassle
there will be opportunities for those who are more strategically oriented to
bring their expertise to organisations."

She adds, however, that HR departments will increasingly be charged with
managing outsourcing contracts, a role which many think will require new skills
and competencies.

David Koch, European leader for HR sourcing at PricewaterhouseCoopers, says,
"You are establishing a partnership with the organisation, not a service,
so you will need a different kind of person, someone who is focused on managing
relationships rather than handling transactions. It doesn’t take a lot of those
sorts of people but it needs to be someone with clout."

Koch says he often hears stories of chief executives asking why they need an
HR department at all, but argues that there still has to be someone in the
company who understands its culture and internal workings. To deliver services effectively,
the outsourcing partner will often need internal change to take place in the
client organisation – something it is not equipped to handle.

"If we are having difficulty delivering services, we need to sit down
with the client to learn what issues they are facing and how we can help them
meet those needs," he says. "There also has to be someone in the
organisation who knows where to go for talent and understands where the best
performers come from. That is something the outsourcing organisation will take
years to understand."

At Penna HR Consulting, chief executive Suzie Mummé believes that in the
future there will be more competition for fewer HR roles. "HR will have to
identify the best companies to work for, with enlightened CEOs who see them as
a partner not as a processor," she says. "Then they will have to
develop an ability to manage strategic initiatives in such areas as resource
planning, operational excellence, and leadership issues."

Be selective

Instead of outsourcing non-core competencies to a variety of specialist
agencies, Mummé sees the HR professional of the future developing strong
relationships with just a few, who themselves will have fewer clients. But
these experts will be unlikely to understand the culture of the organisation,
so HR will need to adopt a partnership mentality, being more open to get the
best out of them. Influencing and conflict management skills will be important
as well, which means developing gravitas and credibility.

To be useful as strategic advisers, Mummé says HR professionals also need to
spend time studying trends and best practice, for instance, by picking up the
latest thinking from gurus, establishing networks with peer groups and
researching the market for the best providers.

To the board of a company, outsourcing might seem an attractive way of
achieving cost savings, quality and flexibility. The ideal is a delivery
service that can be ramped up quickly and then turned off when the requirement
is satisfied. But the need to have HR controlling and monitoring the delivery
of strategic objectives will always remain.

For instance, an HR director who is closely in touch with the provider of an
employee assistance programme might learn a lot about the effects of changes
being carried out in the organisation, information not necessarily available
from other sources, points out Philip Sanders, managing director of EAP
provider PPC.

"A company that is downsizing or regionalising faces a huge potential
impact," Sanders says. "We would monitor the phone calls coming
through and advise HR if we are getting significant numbers of complaints
concerning the effects on employees’ health as a consequence of these
changes."

Contract management, however, is a competence most HR departments lack,
argues Colin Carmichael, partner at Organisation Consulting Partnership.
"That’s a real issue for companies, because unless they can manage
third-party providers they will have big problems in the future," he says.
"They need to be careful at the outset that they don’t find themselves in
a contract that ultimately delivers more benefit to the provider than to the
company doing the outsourcing."

HR will also have to work to convince other departments in the organisation
that it has something to offer, Carmichael believes. "A lot of line
managers want the basics done well and may not have an expectation of much
beyond that. The personal credibility of senior players in HR is to add value
to the company, and outsourcing will help by giving them the space they need to
be strategic."

If outsourcing becomes the norm, one major effect will be that HR
professionals will be less likely to follow careers in organisations operating
in specific sectors. Instead they will be employed by outsourcing providers,
handling a range of different accounts.

That may be a cause for concern for some, but from the perspective of
outsourcers themselves there are obvious advantages. Alison Humphries, director
of Barkers Norman Broadbent (BNB) Outsourcing, says, "It provides much
greater opportunities. With an outsourcing partner the role of HR professionals
becomes central rather than peripheral. Instead of being regarded as being of
doubtful value they will find themselves an essential fee-earning part of their
business."

Nor need HR staff being transferred to another company necessarily feel they
are being dumped, Humphries says. In her experience, employers putting out to
tender are usually keen to ensure that the outsourcing partner can provide
outgoing staff with good career development opportunities.

Similarly, at Rebus HR Services, personnel services director Michelle Walker
points out that outsourcing gives HR professionals a more varied and
challenging agenda. "We are servicing more than 110 clients for personnel
services across a range of services, including financial services, education
and manufacturing. My staff act more as consultants, which gives them the
chance to become much more rounded in their skills. And when they choose to
progress, their CVs will be much broader as a result."

Get wired

Technology is a major element in managing outsourcing relationships and
those who use it effectively are likely to gain an advantage. A key factor in
the BP Amoco deal with Exult is the provider’s emphasis on the Internet and
company intranets as a communication channel for employees. Systems that enable
staff and managers to enter data automatically reduce labour and make
outsourcing easier.

This focus has been less evident in the UK but the potential is beginning to
be recognised. For instance, Collinson Grant Consultants offers an
"extranet" service where the HR director can log on to a private
network and look at all the phone traffic between outsourcing consultants and
company managers. CEO Andrew Collinson says, "They might want to see how
many tribunals are on the go and then look at the results, analysing sites by
the number of calls. They can also see the notes typed by consultants during
the conversations. That enables them to get a feel for all the issues."

The effective use of such methods is an area HR must seek to develop, argues
Terence Brake, president of TMA. He believes the profession will continue to be
driven by the traditional competencies of handling people and talent, but will
take a big leap when these are interfaced with technology.

"The real breakthrough will come when there is a far stronger
partnership between HR and IT," he says. "Some say these should be
the top two objectives of any organisation. I would take that further by saying
they should not be separate objectives – the focal point must be on global
competitiveness, and the interface with IT people is essential to achieving
that."

Brake continues, "I believe there will be a big shakedown in the HR
community, and those who remain will be those who have the thinking agility to
understand the business issues.

"People who come into HR will be quite different. The trend to
outsourcing will continue but at the same time business executives will be
aware of much clearer value propositions from what remains in HR. And it will
be up to HR professionals to define very clearly what that is in each
individual company."

Gain flexibility

At the strategic level a key HR role will be to strive for flexibility and
adaptability, Brake believes. He cites the case of Intel, which suffered
damaging delays over bringing a much-heralded new chip to market last year and
realised it had lost sight of its customers.

"Intel understood that it had fallen into the trap of spending too much
time fine-tuning products and forgetting about its customers" needs,"
Brake says. "An outsourcing agency cannot address that because it doesn’t
know your business like you do. The HR person has to be the one that spots the
problem and says we must quickly shift to a new mindset."

But that change of strategy can be on a day-to-day basis and HR directors
have to stay alert, he says. Brake remembers visiting the museum in Mount St
Helens in Oregon, where a volcano erupted spectacularly in 1980. There he came
across a quote from the local sheriff, who said the authorities were totally
unprepared for a disaster on that scale.

"The sheriff said they had to act as though they were trying to build a
boat and row it at the same time," says Brake. "With the pace of
change as fast as it is, that is the kind of situation HR people will
increasingly find themselves in."

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