Roundtable: HR Transformation through BPO



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Participants -
Doug Kasambala,
Finance Director, Transformation within Unilever Enterprise Support (UES)
Gary Madden,
Global Hr Services Manager, Cadbury
Tim Palmer,
Member of the Management Group at PA Consulting
Roy Barden, Senior Director,
Global Business Services Advisory Practice Leader, The Hackett Group
Wayne Wang,
CEO, CDP Group Ltd

SSON: I would like to start with Roy Barden from the Hackett Group; we are coming out of a recession  - how is HR delivering value for organizations, and have you seen any trends within the last year or so?

Roy Barden:
The recent performance study the Hackett Group carried out around shared services and outsourcing suggests that the appetite for outsourcing in HR particularly for transactional HR - is increasing. We asked a number of people where they think they are, and those that are using very little outsourcing today, and that was 42% of the group – (only 31% will not be using outsourcing in two years time), whereas those that are heavily outsourced, i.e. they are doing more than 75% more of their HR transactions through outsourcing -  that number goes up from 8% of the population to 22%. So, some pretty dramatic increases.

I think the issue that the recession has forced - is the question around the stable level of activity to base an outsourced contract? So we are seeing that people are holding back their contracting until they are clear what their head counts levels are, what services are going to be required going forward, where they are going to extend geographically; we expect that trend to accelerate where deals that were planned in principle for the past 18 months start to be signed.

SSON: Doug, coming out of a recession how has this changed HR outsourcing within Unilever and what areas have you been looking at condensing?

Doug Kasambala:
Very few can pretend to have anticipated the scale and scope of the global recession and financial crisis. However it has been our good fortune that our business case was agreed before businesses got into the difficulties that we have seen globally. Despite the recession we have continued on the journey and been even more focused on realizing the intended benefits. This has allowed us to cut our costs of serving the business, and by reducing the costs of serving the business, we are able to use those resources either to support areas of the business where we needed more investment or to increase our profitability through reducing our in-direct costs.

Additionally, by outsourcing and under-going HR transformation we have been able to build capabilities that would have taken us significantly longer to build on our own. These capabilities enable us to respond to market conditions in a far more agile and flexible way than we would have in the past. So we are able to rapidly deploy interventions, targeting specific strategic priorities in ways that we couldn’t even have envisaged.
Finally, we have significantly more data and information upon which leadership can base decision-making, something which we didn’t have before we out-sourced and transformed.

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SSON: Tim Palmer of PA Consulting, are you seeing any changes at all in HR transformation through BPO in the last year?

Tim Palmer:
Well I think that if you go back to the fall of the Lehmann brothers 18 months ago now, there was quite a lot of activity in the market at the time for people looking to do outsourcing for transformational HR work. That pretty much stopped on the day of Lehmann’s falling, for new contracts. And although there were one or two large contracts agreed last year - they were few and far between.  It is really a direct result of the recession and the uncertainty that is caused by not knowing quite whether your business is going to be twice the size or half the size in a year or two’s time. It makes it quite difficult to contemplate large scale activity like outsourcing contracts. I think that all of that has changed since Christmas and if you now talk to someone in the industry they will say that the interest levels and activity levels have ‘upped it’ enormously. And I think what has happened is that people have postponed difficult decisions or interesting strategic decisions during 2009, and are now going to do those things. So I think we should expect to see more activity in 2010.

SSON: Gary within Cadbury, what HR changes have there been and how are you looking coming out of the recession?

Gary Madden:
Well, for my own organization we weren’t hit as badly as other organizations by the recession, because people tend to buy chocolate when they are feeling a bit down! So it didn’t directly impact us. Obviously like any other business when markets are tough, you do downsize still, you try to look at the shareholder value. So if anything, what it done to us was  impact our business case, because some assumptions we made in the business case were affected by  re-engineering other areas of the business as a result of trying to squeeze margins and things like that. Our business case was made invalid in some areas, because some of the assumptions around FTEs that we made were absorbed through other business change.

SSON: Wayne what changes has BPO CDP seen when it comes to HR transformation? And are they global or are they just affecting Asia?

Wayne Wang:
Inevitably the macro slow-down has impacted this part of the world and we have seen companies or our current clients experience some of the pain in transitions. But as Tim suggested, since Christmas, things have been picking up. But, I think largely in this part of the world, ( currently the majority of our business is coming out of Asia Pacific and China etc,)  growth is still the main theme. Thinking about the macro economics - GDP growth is still 8% plus. So a lot of our global clients, although they may be experiencing difficulties in some other areas, in this part of the world they are still saying "we want to keep our growth." So the HR transformation outsourcing projects are centred on building the capacity to support their business objectives here. So in conclusion, to that extend it is actually pretty good, contrary to some other parts of the world. But at the start of this year, I see now the economical recovery is sort of on the horizon and a lot of companies are looking to start to invest in growth.

SSON: When looking to outsource HR functions from an organization - what functions are necessary to keep near shore and what are you looking at outsourcing to locations like say CDP in Asia?

Gary
: I think that the challenge here is the knowledge; the knowledge of the legislative requirements comes from being serviced and the knowledge of the business that you are serving. Generally the tier one can be offshored, but what we’re finding is tier two has got to stay in the country, because of the knowledge of whatever it may be – for example, Mexican tax legislation or the maternity policy that applies to this lady because she joined the company prior to 1987.

You cannot outsource everything that some of the outsourcing advisors, would say. The reality is something different, but I’m not saying that that can’t change but it’s not an overnight thing. It will take a number of years. The challenge that I think some of the service provider’s face particularly in markets whether it is somewhere in China or somewhere like  Manila is that when they build the skill set up - when they have client specific knowledge and even country specific legislative knowledge they tend to move to service providers because they become more marketable. So it’s a big challenge and I would say that generally all we can get offshore is really tier one support, which is really basic data input and simple question and answering.

Doug: The other way to look at this issue would be by specific processes. There are processes that don’t lend themselves as easily to offshoring as others. A good example is recruitment for factory or distribution sites. Because that kind of recruitment may be seasonal and require very unique skills, for example, providers need to know the local markets, the unique skills that are required and be very familiar with local sources from which you can get the types of resources that a company needs. It can therefore be challenging to do this in some geographies using only off-shore resources. In such cases it is important to ensure that as many of the appropriately skilled resources as possible can transfer to the service provider to ensure continuity in the quality of service.

I think that knowing the local market not from just a statutory, tax or legal perspective, but even from the point of view of what is available locally and having a real feel for the clients’ needs is essential for some services. This makes them difficult to deliver wholly from offshore.

Tim: In fact if I can just add to that, based upon the experience of the industry in general. Recruitment is the process which has caused the most problems when taken offshore, and I think that is one of the reasons why there has been a move to use more specialist recruitment providers, RPO companies rather than general outsourcers. Because they have a network of people onshore who can also get to know their client specific requirements.

And so you do need to look at this process by process, and within a level of process, if you think about the level of activities in the way that Gary said, things that are administrative and transactional. Tier one activities can go offshore but things that require judgment and knowledge need to be closer to the business.

Wayne: I would say that a lot of the transactional, operational processes are easily outsourced. But I think that a lot of more human-involved processes cannot be outsourced as easily, in the way that transactional processes can be automated and offshored. In this part of the world, HR Outsourcing is not really viewed as an alternative for nearshore outsourcing. I think here we are providing a sort of enabler for companies to capture the fast growth capabilities. Looking at a typical international company, - at least one third or maybe up to fifty percent of their market is currently in, say, China or maybe in Asia-Pacific. The APAC region represents their fastest growth region. So in a sense, I have witnessed quite a few large outsourcing transformation projects going on in this region, those are viewed as enablers to help grow their business or to at least help to deliver the growth strategy as one of the initiatives.

SSON: Following the outsourced agreement and the heavy investment of time and money - how easy is it to gain access to the tools that have been acquired?

Roy
: I think that the key thing is to look at the totality of how the HR service is delivered and what part the outsourcer plays in that, certainly our experience is that outsourcing is a component of the overall model but it is not the whole story. And it’s how those components are blended together, so it’s really important that you’re clear which parts of the process are the accountability of the outsourcer, and therefore what technologies they employ. Are you actually going to the outsourcer because they have access to technologies that either you don’t have or don’t want to invest in, or skills that you don’t have? So as long as you see in total and have a vision of what you are trying to build for HR delivery. It is really plugging the outsourcer into the right elements for that and being clear where the hand-offs are. Because, that tends to be where outsourcing relationships tend to break down - it is either where there is lack of clarity for hand-offs or in particular where there is lack of clarity over measuring what success or good looks like at those hand–offs. Then people have to sort through the contract to sort out issues rather than doing it in a more cost effective way through normal business-as-usual management.

Gary: I think that is quite a good summary. I would say that an important element in any important outsourcing decision, are the tools. And it is different for many companies. Some companies already have the tools, so it’s easier to move, and others don’t. Actually in many cases the bigger the company, the more multinational - the more likely they are going to have disparate systems. Certainly in our case we were looking for a provider that could give us a solution because we didn’t have one - it can mean different things for different companies. Certainly the technology is a key component of any deal.

Tim: I think when people look at outsourcing they think that ‘if I am going to go to an outsource solution then I am going to magically get world class tools, a world class service’.. But if you’re going to do this on a scale of a multinational, it is very difficult because you have got to move a very large organization from one model to another. The key point is that if you want to get access to better tools, outsourcing is a good way of doing it, because the chances are that you will be able to share a good investment across a number of organisations to get access to those tools, and use some best practice thinking, but you need to go into it knowing what you are going to get. Because two or three years into this, if you want to get access to some new tools or you are expecting some innovation to come through, it’s not for free, unless you have somehow built that into the contract. This is not best practice tools for free, this is best practice tools that you have thought about, talked about, agreed that you are going to do with your service provider and that are programmed into the work that you are going to take on.

Doug: One thing that has struck me through the outsourcing journey was the fact that  companies could be better prepared before embarking on such journeys. Companies need to be a lot clearer about the relative importance of different services and capabilities. There will be services which are so important to you as an organization that you need the very best tools and high-touch service. There will be other services where you may be satisfied with whatever tools the service provider brings along. Drawing that distinction beforehand would allow you to target the right tools for the right processes in a more effective way as Tim has suggested. So you would know beforehand, for example, that your expatriation service is extremely important and for that particular service you want high-touch with the best service affordable, whilst on the other hand perhaps for the learning administration service you might have less exacting standards. These are just examples but that’s the kind of thinking that needs to go on across all in-scope service areas before you engage with service providers and before you make those tool selections.

Wayne: I like what Doug was saying, I believe that first of all it has to be a meaningful solution for the business NEED and the strategic initiative that the company is focusing on. And then the provider has to deliver a value, that is very important, so altogether it all boils down to three key elements – people, process and platform. And I want to emphasize that a HR transactional platform has to be meaningful. And a tool is just a tool, and the service provider has to deliver the value - that is a very important element.

SSON: How important was it for your organizations so win the hearts and minds of people before outsourcing HR functions?

Doug: I think it easy to underestimate how much it will take to win the hearts and minds of people. We need to remember many organizations will be moving from high touch, locally delivered services, which they could manipulate as they felt fit, to more standard and cost effective processes that are likely to be supported by a higher degree of self service.

I spoke earlier about being clear about which parts of your service are critical to you as an organization; this can help you with the change management effort. I think identifying those critical service areas jointly with the business leadership allows you to work with the business to reduce costs in other less critical areas. Doing that upfront is important and enables the use of your business leadership to directly support your outsourcing and transformation journey. Outsourcing is a business project and therefore all your business leadership must be seen to support it. It is not for the third party to deliver the change management

Gary: It is absolutely critical that the top line management of the organization is visible. If this is better for our business then we have to do it, and the point of change management is that the HR folks know how to change the business, it is not the role of the consultant. The third party can bring some tools, such as stakeholder matrix that perhaps you need to think about or something like that, but change management is definitely something for the organization to drive alone.

Roy: One thing to really consider strongly is what happens to the retained organization. The risk here is that you concentrate on something that is moving and in some ways that is the easy bit, because in theory you are going to a provider that knows what they are doing, and therefore you are moving to a known process if you do the job right around the contract. If you have repositioned the roles that are left, and in particular if you haven’t recognized elements of service delivery that used to be done locally are no longer being done locally and that the consulting business partner role tends to be prime. Are the people you have got left the right people with the right skills to do that role, and the biggest issue that we see on change and HR is the legacy HR service providers basically resisting the change and continuing to provide a parallel shadow service which means that the cost case is destroyed and of course you don’t get process continuity because people are given a local option. And certainly there have been instances where the only way that that is broken is a profound reorganization of the business partnering power is parallel with the outsourcing to make sure that people are doing the right jobs for the right skills.

SSON: Thanks Roy, a question for you and Tim then, how much time and money should be pushed into looking at the retained organization, and ensuring that change happens as smoothly as possible.

Tim
: I think the first thing to say is that it is not the retained organization it is the organization. Some clients think that you keep it once, then you have got it forever. Let me put this in perspective, when you are going through a transformational outsourcing contract everyone gets massively excited about the deal - they’re looking at the money. They have got people, but they’re looking at the spreadsheets, FTE’s and headcount in spreadsheets and they are not so much thinking about the people and what they are going to do. Of course as we have heard it is not about the deal, it is about the business change that you are trying to effect, and the people that are in the organization after the outsourcing are massively important because they are the ones that are either going to adopt or not adopt the new ways of working  And if they don’t adopt it, and create this parallel service or don’t work in an effective way with the service provider, all the spreadsheets and costs that you promised yourselves before you did the deal were a waste of time. You’re not actually doing the things that you thought you would do.

There is just one technique, which I have heard from one of my clients recently - it is so basic that you’d wonder why I was mentioning it, it is getting the statement of work for the outsourcing contract out of the cupboard every year and going to every country that is in scope, looking the local HR function in the eye and saying which of these items which are supposed to be done by the service provider are you doing here today. How much FTE is it, and what are we doing over the next year to take those people out, and then come back a year later and do it again. That is hard work over a long period of time, but it is one of the key areas to getting value out of the outsourcing.

To make another point - it’s about the difference between buying services and then buying transformational services. The theme of this session is about transformation through outsourcing. If you want to have transformation, think about the type of transformation you want and contract for that transformation. Don’t expect the transformation to magically happen just because you are going to buy some new services from someone else. And the measures, and the contracting structures, and the way that you face up to a service provider, it’s different if you’re expecting them to come up with the transformation rather than if you have them deliver new services to you.

Roy: I mean all the evidence is that high performance functions operate by having integrated processes, and we’re certainly seeing the shared service internal model looking at how we can use some of the things that we have talked about today – such as, Tier one supporting employees on a cross functional basis, because it is looking at a process like hire to retire the cuts across not just HR, but potentially procurement and finance as well for example. So there is definitely a trend to say that when you’re looking at provision, can your outsource provider operate outside the functional boundary, are they going to be a partner that you can operate with for the next five to ten years in a world where the transactional work, that has been the core of outsourcing is being eliminated through self service automation and technology?

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