So
it’s no use lamenting the demise of the traditional role of the HR manager.
Instead we provide a guide to the new skills and competencies you need to
acquire, By Jane Lewis
Outsourcing
is back, big time. Not, of course, that it ever went away – it is always there
simmering away somewhere in the background – but we have reached another of
those points in the business cycle where the outsourcing model is under intense
scrutiny once again. Management consultants are openly referring to this new
wave of activity as the second or even third-generation of outsourcing.
The difference this time around is that the
activity has acquired a near-fanatical following in some quarters, perceived
not just as a practical answer to issues of cost, speed and efficiency, but as
a key indicator of strategic intent.
Outsourcing, or "partnership" as it
now known, has become an essential requirement of the horizontal business model
proposed by such prophets of new economy thinking as William H Davidow and
Michael S Malone in The Virtual Corporation (1992) and Don Tapscott in Digital
Capital (2000), to name but a few.
Most
HR departments have long been keen outsourcers, at least in terms of certain
specific functions. In a recent survey, European Trends in HR Outsourcing,
jointly conducted by researchers at the Cranfield School of Management and
William M Mercer, 77 per cent of respondents claimed they regularly outsourced
their training and development, and 59 per cent said the same of recruitment
and selection.
But
few in the profession will be unaware of the more wide-sweeping changes afoot,
encapsulated perhaps by a new breed of provider – Exult, Xchanging,
e-peopleserve – all of whom make a virtue of offering a "cradle to
grave" service, incorporating the bulk of the HR administrative function
throughout the employment cycle. And all of whom major on the strength of their
technological offering.
"The
territory for outsourcing in HR is expanding very quickly. It’s big
business," says Richard Finn, director at Penna Change Consulting.
And
there is evidence that even smaller, specialised outsourcers are seeking to
capitalise on the trend by moving into more general provision on the back of
arguments about the strategic gain of partnership.
Certainly
the market is ripe for such exploitation. One of the most interesting points to
have emerged from the Cranet survey was the ad hoc nature of most HR
outsourcing in Europe. "Organisations are simply responding to immediate
demands by using providers more extensively in the areas that are directly
impacted by [organisational change], such as recruitment and
outplacement," it claimed. "This reflects a picture of short
short-term opportunism…rather than long-term strategic sourcing."
If
the strategic gains of partnership are becoming firmly entrenched in the HR
psyche, it is likely that a secondary consideration will also spur the shift
towards outsourcing – namely the growing sense of economic uncertainty on both
sides of the Atlantic.
"If
we do see a recession, I think many companies will look more closely at
outsourcing," says Tony Green, a management consultant at Collinson Grant.
Companies will be looking to find better ways of cutting costs. And one of
those is moving into shared services."
Other
providers are equally optimistic about the market’s potential for growth
whichever way the wider picture pans out. "We get business volume when
businesses are growing, and when they are contracting, because both mean
increa-sed movement," says Andrew Finney, managing director of relocation
specialist HCR Countrywide Mobility. "Which-ever way the economic cycle is
swinging, there’s potential for growth."
Nonetheless,
the whole issue of outsourcing raises some difficult questions for any HR
department – not least because the historical instances of spectacular failure
are at least as common as any out-and-out success story you may hear. One need
only look at the series of debacles that afflicted the UK public sector in the
1990s – from botched systems at the DSS to that long hot summer of queues at
the Passport Office – to get the point.
For
a more recent example of the damage that a poor "partnering" strategy
can wreak, look no further than Railtrack, which outsourced the bulk of its
track inspection and repair remit to outside contractors.
Although
it’s been some time since anyone compiled a really comprehensive report of
outsourcing practice in the UK private sector, the results of a survey compiled
by PA Consulting in 1996 speaks for itself. PA found that over half the
companies it studied had not achieved their expected gains from outsourcing.
And 39 per cent showed mediocre results.
Only
5 per cent achieved "outstanding success" – demonstrating that
outsourcing is either not all it’s cracked up to be, or that it has been
managed ineffectively in most cases.
What
is clear is that outsourcing is no cop out. To work successfully any long-term
partnership needs careful consideration, constant monitoring and a very clear
idea of where it is headed.
Any
HR department contemplating the move will have to pose and answer some very
tough questions about the future of the function in their own organisations,
and whether they have the skills in place to manage this change.
Here
we list some of the main new skills HR managers need to embrace if they are to
make a success of a partnering strategy. Even if you are currently unsure of
the way forward your own company will take, it is worthwhile considering at
least some of these disciplines.
You can’t begin to outsource until you have a
clear idea of exactly where the department is now, and where it should be in
the future in relation to the rest of the business. But this is equally true if
you decide to keep the bulk of HR services in-house.
Either
way you cannot lose by undertaking some of the preliminary spade work now.
1.
Situation auditor
The
key to any successful outsourcing strategy is self-knowledge. Yet, as Prof
Chris Brewster of Cranfield Management School, and co-author of the Cranet
survey reports, "One of the clearest things we found is there is very
little strategic thinking. It is easy to go into an outsourcing relationship on
an opportunistic basis – to cut costs, say – but that says something fairly
significant about HR. Of course there are cases where outsourcing has been
achieved coherently and sensibly, but in a lot of cases, companies are just
stumbling in."
The
cardinal rule, therefore, is never to assume that outsourcing brings automatic
benefits. The business case for each outside contract has to be carefully made,
with the cons studied as rigorously as the pros. Don’t saddle yourself with
unrealistic expectations. It is the failure to be rigorous about this that led
to so many of the disappointments in outsourcing reported by the surveys.
As
a preliminary step, you need to be in a position to define your requirements
very tightly, and you cannot do that unless you have a clear understanding of
the strengths and weaknesses of the HR operation as it currently stands. You
cannot expect to be able to monitor and assess an external partner’s record on
performance before you have ascertained your own.
What
is your argument for outsourcing? Is it economies of scale, or the need for
specialisation? Would outsourcing boost your company’s capacity for growth?
Would it lead to a damaging internal brain drain?
"When
packaging up stuff for outsourcing, there’s an issue about knowing where to
draw the line," says Angela Baron, policy adviser at the CIPD. "Even
things that initially look easy to package, training and recruitment for
example, can be problematic. We know these are critical contributors to
business effectiveness, so if you do outsource them, you must be in a position
to give the outsourcer a very good brief. Be quite clear about what you want,
otherwise you’ll end up with a standardised, one-size-fits-all service."
Then
assess the risks inherent in the move. As one commentator remarks: "There
is a risk that by losing control of key activities, the company will restrict
its capacity to exploit new opportunities in the future. In a fast-changing
industry, the definition of core business must be revisited on a continuous
basis." But consider that this need for flexibility has to be balanced against
the clear productive advantages inherent in striking long-term relationships
with suppliers.
The
bottom line, says Brewster, is that you need to ask if partnership is right for
you. "People are right to be sceptical about the notion of longer-term
partners. The danger is you find yourself in a partnership that is
uncompetitive. Particularly when (as is happening more frequently), you end up
sharing the same partner as a competitor."
Above
all, retain control of the decision. Another interesting finding of the Cranet
survey was the extent to which HR has allowed itself to be walked over in terms
of outsourcing strategies. "Outsourcing is often a business decision made
by senior management, and is outside the control of the function impacted. It
appears that where top management actively evaluates the performance of the HR
function, outsourcing is more common."
Finally,
you must have vision. As Finn at Penna Change Consulting remarks, "The
outsourcing process is about understanding where HR will be in the future. You
don’t outsource until you know the HR strategy. And that’s a lot more than
saying we add value to the business. You have to ask, ‘How are we best going to
manage for value in HR?’"
2.
Negotiator
Routine
outsourcing contracts either run out, or can be terminated with relative ease.
But this is not what we’re talking about here. Strategic, long-term
partnerships, often involving millions of pounds, need very careful
consideration. If you are to be locked into a relationship for some time you
need to be absolutely sure it is the right one. Consequently, negotiation
skills – and the ability to second-guess and make provision for potential
disaster – are critical.
But,
as Green suggests, these kind of hard-nosed skills are not common in the
profession. "The negotiating skills in a purchasing environment are very
different to negotiation skills needed in other areas of HR," he says. As
a preliminary step, therefore, it might be a good idea to take advice from other
departments.
Then
get yourself a good lawyer. "The key thing to any successful relationship
is a real understanding of the contractual issues," says Margaret Harvey,
partner in technology at solicitors Addleshaw Booth & Co – and Exult’s
adviser during its negotiations with BP Amoco. Her advice is to ensure you
understand the objectives before you even think about putting a contract
together, work out how the arrangement will be managed, and think about the
end. "A lot of companies don’t do this, but the end is as critical as the
beginning," she says.
Outsourcing
providers will be quick to offer their own advice about the detail of your
contract, but you’d be foolish to rely on that alone. "The onus is on you
to mitigate all the risks you can think of by putting a good contract together
with a supplier," says one commentator. "I am not talking about a
five-page contract. It needs to be more like a five-book contract."
Areas
you need to focus on include: setting clear performance criteria, drawing up
comprehensive service level agreements, and clearly assigning liability.
You
must be prepared to ask any potential outsourcer "to provide illustrations
of how the model will work, and what the cost/benefits would be", he adds.
You also need to be able to negotiate internally. According to one commentator:
"I would walk away from a deal that did not have the support of senior
leadership."
Harvey
suggests that a degree of tactical finesse is necessary in any contractual
negotiation. "There are some issues about handling the negotiations to get
the best deal and make sure you’re not hoodwinked – and then also managing the
relationship. You need to think tactically about how you divide up those roles.
It’s very difficult when you’re the relationship person, and you also have to
be the tough one doing the negotiation, building all the rigour and discipline
into the relationship." Although you would be foolish to make price the
ultimate factor in any negotiation, you must be prepared to argue for value for
money.
Finally,
consider the Armaggedon situation. Build into the contract provision for if
your supplier goes out of business, is bought by another, signs up one of your
competitors, and so on. Keep yourself in the picture. Insist on ongoing
reporting, the right to go in and audit your outsourcer, and the right to
develop and maintain procedures.
3.
Performance manager/ Information analyst
One
of the best things about outsourcing is that it forces companies to adopt good
practice that might otherwise be lacking – and performance management is a
classic example of this. The Cranet survey found clear links between the two
disciplines: companies that use outsourcers extensively also tended to have
established clear measurement systems for their HR function – assessing performance
in terms of business scorecard similar tools. As a result, they were much
better informed about their own cost structures on process basis.
"If
you’re going to make these things work, you need to be able to combine close
partnership with a very cool, hands-off approach to performance issues,"
claims Brewster. "You’ve got to be able to manage the matrix of using
suppliers," adds Green at Collinson Grant. "It’s not simply a
question of reducing costs, but also of managing the quality of the service on
an ongoing basis. Unless the resident HR manager has got some kind of plan for
managing that, he/she’ll be lost."
But
this is no easy feat to get right. One of the main difficulties facing any HR
function is deciding exactly what you plan to measure in the first place. As
Green points out, "You’ve got to find a way of measuring the outsourcer’s
performance by certain fixed criteria, but also at looking at how they manage
performance measurement in terms of assessing your own staff." And it’s important
to enshrine what ever you do decide into the terms of the SLA. "Place in
the contract an obligation to provide the information you need, on a
predetermined regular basis, and in the format you need it," is Harvey’s
advice.
One
of the main problems thrown up by outsourcing is knowledge management. And even
the most ardent proponents of outsourcing advise that you proceed with care on
this point. "If it’s true that the skills in an organisation are the key
to competitive advantage and that knowledge management is the way forward, then
to put all that in someone else’s hands is decidedly dangerous," says
Brewster at Cranfield. "You may end up totally dependent on these people
and their goodwill and capacity."
Consider
a company like BP, which now outsources some 70 per cent of its total costs. As
one commentator remarks, "That means the ‘loss’ of one hell of a lot of
knowledge and information, so you’ve got to be able to manage the situation or
you risk disaster."
Certainly,
you could take the view that it is better to keep in-house the skills and
knowledge you consider critical to your organisation’s strategic way forward,
and/or competitive edge. But in many cases, that would defeat the entire
strategic object of the partnering arrangement. Consequently, many organisations
attempt to strike a compromise, balancing trust with eternal vigilance and a
constant flow of accurate information about the fulfilment of your
requirements.
4.
Customer service
By
this we mean how you go about ensuring the move into outsourcing HR service is
achieved with minimum disruption to your own workforce – a process which
experience suggests can be fraught with difficulty. "Most HR departments
have a fairly shrewd idea of what line managers want," claims Brewster.
But that could be in active conflict with what you hope to achieve with your
new partnership arrangement. It goes without saying the attitude of your own
employees will be critical to the success of the venture, and that internal
division needs to be avoided. But that is easier said than done.
Although
many HR departments have coped with successive waves of outsourcing, few have
actually had to manage the process with reference to their own departments. And
that can pose problems in its own right. As Finney at HCR Countrywide Mobility
points out, "The most difficult thing emotionally for people in HR is
letting go. There is a perception that in outsourcing something, you’re
threatening your own job." Or, if not your own, then certainly that of
someone else close to you. To many people outsourcing is synonymous with
outplacement – and with good reason.
The
best means of tackling the issue, as with any in which personal security is at
stake, is to be as open as possible about the arrangements you intend to make.
Spell out exactly why you intend to outsource a particular function and what
you hope its benefits will be to the overall organisation – but don’t shirk
from addressing exactly what effect the move will have on individuals. In other
words, boost morale, but don’t do it at the expense of the truth.
5. Culture/brand manager
A
common worry afflicting those embarking on full-scale outsourcing is the move
will in some way dilute or change the culture and brand of their organisation.
It would be foolhardy to deny that any deal you strike won’t have some impact –
particularly given the blurring of the boundaries that management experts claim
is critical to a successful partnership.
"The
problem with outsourcing is encapsulated in the question ‘Whose brand are you
looking at?’ The outsourcer will have their own. To what extent do you take
this on board?" claims Brewster.
There
clearly needs to be someone in the organisation capable of taking an overall
view, someone who understands the prevailing culture and internal
interdepartmental workings. This role naturally falls to the HR manager. One of
the main risks of outsourcing is a lack of internal focus and communication –
particularly in terms of ensuring continued communication with other
departments (often themselves outsourced). This, with hindsight, is one of the
main problems that afflicted an organisation like Railtrack.
When
it comes to cultural issues, the actual choice of partner is clearly critical.
Although many successful arrangements have been struck between organisations that,
on paper at least, look markedly different, they have all been characterised by
a certain common purpose. "You need to ask, is this company sympathetic to
the aims and visions of your organisation and, most importantly, do you feel
comfortable working with them," says Angela Baron at the CIPD.
In
terms of branding, many experts suggest that if the relationship is intended to
be long term in scope, you make a virtue of your common links. In defining his
vision of internetworked business webs of separate companies, Tapscott talks
about the importance of establishing a shared set of values and brand. The car
manufacturer Ford and its dealers are a good example of this. Moreover,
sometimes the addition of an outsourcer’s brand can be a very positive thing. Consider
all those PC manufacturers who did very well out of the "Intel
Inside" campaign.
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The
bottom line is that, before embarking on any relationship, you need to identify
and spell out to the supplier which aspects of your company culture and
branding you consider critical to retain. It might be soft, but it could make
the difference between make or break.
BP
Amoco’s decision to outsource a major part of its global HR operations has been
watched with interest by the industry. So how has this symbiotic relationship
of two companies with very different cultures worked out? See The odd couple
produce model for HR outsourcing. And in a second case study, energy servicing
firm PIL takes a very hard-nosed attitude to finding an outsourcing partner.
See PIL gets tough over outsourcing partnership with Capita. Jane Lewis reports
on both cases at:
www.personneltoday.com/features
