What Drives HR Outsourcing? Magic FTE ratios, Compliance, and Technology ...

If you are driving efficiency through your HR function, sooner or later you'll come up against the magic ratio of "FTE per 1000 employees serviced." It's this number, says Wipro BPO’s head of HR Outsourcing, Neelaksh Singla, that brings most of his firm's clients to the negotiating table. Barbara Hodge interviews New Delhi-based Neelaksh Singla FTE ratios aside however, the three factors that lead most HR directors to the outsourcing negotiating table are: cost; the need to forge technical consolidation within the organization; and compliance. But before we get to outsourcing, days Wipro’s head of global HR Outsourcing, Neelaksh Singla, we need to understand what’s impacting HR service delivery. And right now, the answer – as most of you will know – is technology. In fact, its impossible, says Neelaksh, to overstate the impact of technology on service delivery for HR. While the Oracle, SAP, or PeopleSoft ERP implementations of the past provided a big step towards standardization and delivered the benefits of centralization, today, with the emergence of HR SaaS (Software as a Service) via the cloud, more affordable access is offered to many more companies, albeit at the price of lower customization. But while the choice of what’s on offer may be overwhelming, what's important is to keep an eye firmly on the desired outcome. "The question for any HR director should be, ‘where can the evolving technology have the biggest impact on my business?’" Says Neelaksh. "Many people are being distracted by the novelty of new solutions, the friendly interface, the mobility aspects. And these are all important. But newer is not always better." Where can evolving technology have the biggest impact on business success? The top priority for an HR department is still: attract, recruit, deploy, retain, and develop the best talent that will drive the business forward. Those businesses that retain the best will grow the best. The other aspects of HR’s role – benefits and payroll – are certainly very complex, but are easily automated, and don't necessarily, in themselves offer added value differentiation other than the obvious cost, time, and quality benefit, explains Neelaksh. Where HR leaders should be focusing their attention, he believes, is on developing talent and encouraging employee engagement. These are the primary concerns of an HR director, and they are absolutely key in driving value throughout the organization. The way to excel in this is by layering data analytics over what they already know. Where this is where some of the emerging Cloud-based technology offers significant added value: in the data analytic capability. "The more you know about your business, the better decisions you can make" explains Neelaksh. "And to make the right HR decisions you really need the best possible data analysis regarding individual employees as well as individual business operations. The cloud is certainly supplying this kind of analysis." "Employee engagement and talent development, however, are the primary concerns of an HR director. And how they excel in this area is by layering better analytics on top of what they already know." When does outsourcing make sense? The big driver for outsourcing a process is fairly straightforward: if the organization does not have the skills itself, or if it's obvious that the process can be executed elsewhere much cheaper, for example though offshoring, then working with a provider is a smart business choice. "What tends to happen with in-house support functions," explains Neelaksh, "is that, unless they opt for very tight controls, they tend to gather a lot of fat over time." This means, they operate inefficiently. Where a provider offers obvious value is in driving the now well-accepted industry benchmark of HR FTEs per 1000 employees down to best practice levels. What makes HR relatively easy to measure is that everything is proportional to the total number of employees. "We see companies that don't operate shared services (SSC for MPHRO) operating on ratios are as high as 10 to 12 FTEs per 1000 employees," says Neelaksh. "A best practice scenario, which Wipro uses as a benchmark, would aim at a ratio of 2 to 3 FTEs per 1000 employees. That is where the top 75% of companies operate, and this is the ratio that drives most companies to outsourcing at one time or another. Added to the FTE optimization is the fact that there is a double whammy of sorts at play in outsourcing HR: first a reduction in headcount, and therefore spend, by operating more efficiently; and then there’s the added benefit of offshore labor arbitrage. How do you most effectively break down the HR process? HR spans the hire-to-retire process end-to-end, and there’s an increasingly tendency, as Neelaksh explains, to take a multi-process approach to outsourcing. While some processes are logically connected – HR Administration, Payroll & Employee Helpdesk, for example –the efficiencies that can be achieved by outsourcing these together are higher in terms of the impact on FTE per 1000. "There's a better play on resources," explains Neelaksh. Other aspects of the process however, like recruitment, learning or data processing, stand alone, with little cross leverage. In these cases, the touch points to other processes are not high, and the benefits of bundling not so obvious. However, outsourcing logically connected processes within the end-to-end data yield higher benefits. And it's becoming more usual to see these multi-process HR outsourcing projects coming down the pipeline, Neelaksh explains. Getting the best performance out of HR There are three steps to getting a better HR performance through shared services, says Neelaksh. First, you consolidate as much as possible. Second, you cut out the fat through optimization and move to better efficiency ratio. And third, you gain technical wins through automation and process improvements. Scale comes into this, of course. "Generally, companies of 15,000+ employees will have invested a lot in their ERP, and will be working from a stable technical background. The outsourcing driver, therefore, is based on leveraging technology and labor cost. Wipro HR Outsourcing has learned a lot from its clients: "We have a very diverse customer base, globally distributed, and over the years have accumulated a lot of understanding and knowledge around HR service delivery," Neelaksh explains. "Much of this knowledge is recycled for the benefit of other clients." The added value of the services thus supplied he characterizes as follows: First: employee experience; second: actionable analytics; and third: compliance. Much of Wipro’s focus today is around enhancing the employee experience and therefore improving employee productivity. "We are developing a number of mobility solutions, which support improved productivity by, for example, offering approval via mobile devices. We also facilitate the use of web-based self-service with intelligence solutions built in – effectively online FAQs –which act like a search engine for HR policies. And in addition, we support chat enabling online help desks, within self-services portals." There’s a lot that’s happening behind the scenes to support actionable insights. Take, for example, an employee transfer situation. This can take 7-8 days, which translates into lost days of productivity. Through, Base))), a workflow & analytics tool we’ve developed and which we offer our clients, we can easily identify the bottlenecks and see where time is lost. In a best practice scenario, transferring should take less than 2 days. But to control it you need to take various small steps. This can be difficult without technology or process, when you are dealing with hundreds of retail stores for example. So analytics can help streamline the process and improve the basic deliverables of the function. Compliance is one of the most important value-adds that can be gained through outsourcing, Neelaksh says. "Measuring is part of the DNA in BPO. We build in customer satisfaction metrics, and follow up on exceptions automatically. We can get to 100% compliance levels without too much difficulty because it’s part of the process." What are the big wins? For Neelaksh and his HRP team, the big wins for their clients are made in three main areas: The cost impact tends to be most significant, and tends to impact HR spend by cutting 40-70% of the costs. Again, this is driven by shared services first, and then outsourcing. Compliance wins are transferred to the customer as a result of Wipro gaining experience across its diverse client base and leveraging this learning. Wipro is at almost 100% for its compliance solutions. It has put in place internal tools and procedures to near eliminate any chances of error. Most payrolls run at greater than 99.7% accuracy. With 600K employees serviced globally – that’s 11m paychecks per year – it’s a statistic Neelaksh is evidently proud about. The whole experience for an employee is measured and tracked, and Wipro is seeing strong improvements where they collaborate with a business. As an HR director, your biggest customers are your employees. It’s important to satisfy them – not just by how you answer the phone but according to the whole HR experience. Data Analytics Because data is so important, Wipro has invested in a tool called Base))), which offers "awesome" capabilities as Neelaksh explains it. This case management tool captures all operational data. There’s little that it does not know about the company’s operations. By putting analytics on top of it, and by integrating standard reports with core ERP, Base is offering some real differentiation.

What Drives HR Outsourcing? Magic FTE ratios, Compliance, and Technology ...

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