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Micah Fairchild The Truth about Comprehensive HR Business Process Outsourcing (BPO)

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 By Micah Fairchild

The Good, the Bad and the Ugly of Comprehensive HR BPO

We all do it…outsource that is. From the little things that we don't confess (like criminal background checks) to the bigger things we've probably forgotten about (remember Payroll?) we all outsource some part of our Human Resources function. Even so, a great deal of confusion still exists when the HR outsourcing topic is breached—especially when the topic turns to comprehensive HR Business Process Outsourcing (BPO). Whether due to a global economy that's still not quite where it should be; the fickle nature of the outsourcing market itself; or the increased outsourcing options that now exist, companies simply aren't leveraging comprehensive HR BPO like they once did. This guide is geared toward understanding what's happening in the HR BPO market; what risks and rewards remain for this outsourcing scene; and who the major players are that are still worth the investment in time and money.

The Past, Present, and Future of Comprehensive HR BPO

As analyst firm Gartner defines it, comprehensive HR business process outsourcing (BPO) is made up of multiple (typically 4+) HR business processes being supported through a single outsourcing contract. This covers the full span of HR processes from Payroll, to Benefits Administration, to Recruitment, to Learning, to Personnel Administration, and all of the sub-processes in between—resulting in arrangements where "a minimum threshold of 10% to 15% cost reduction should be attained; [while] 20% or more is typically average."

Back in the outsourcing fervor of the mid-2000s these singular contracts meant massive ERP roll-outs (for near end-to-end outsourced solutions); well-defined statements of work-to-be-outsourced; and a laser focus on reducing costs and increasing efficiencies. As HR technology and options have evolved though, incrementalism has taken over, and fewer companies have relied on "the Big-bang" approach to solve their comprehensive HR outsourcing problems. Instead, a growing number of companies are turning to the gateway option of "bundled" payroll and benefits services; focusing in on strategies like HR analytics; and leveraging the option for more, higher-impact services down the line. As Gartner's Robert Brown fairly accurately assesses, "Ultimately, the [HR BPO] market is at a crossroads", and the trends that are impacting the current market are:

  • Increased demand for effective and easily deployable global payroll solutions;
  • Increased segmentation of sub-processes from comprehensive HR BPO contracts;
  • Increased customer involvement from the SMB (small and medium business) market; and
  • Increased regulatory stipulations and concerns (especially in benefits administration)

Comprehensive HR BPO Cautions and Considerations
 

  • When considering options that are less impactful than comprehensive HR BPO, organizations should always conduct a cost-benefit analysis to determine whether the time and money that goes into partially-outsourced functions is more beneficial than full HR BPO delivery. Aside from immediate cost/benefits, this analysis should also factor in strategic investments.
  • Depending on the organization's size and scope, HR BPO buyers should also be aware that the geographic strategy of the provider can be critical says Gartner's MarketScope for Comprehensive HR BPO. Indeed, given that not all vendors support or possess the ability to deliver world-wide, regional, or multi-country services; organizations must be cognizant that piecemeal solutions are possible. As such, make sure this information is gathered before an HR vendor short list is finalized.
  • As it has been with countless other HR technology strategies, delivery models that run alternative to tradition (i.e. cloud or SaaS) are seeing greater adoption rates; whereas those models that take a significant initial outlay of financial and time resources are finding fewer supporters. Further, just as has been seen with other HR software technologies, scalability and standardization are kings in this post-recessionary market.

Comprehensive HR BPO Vendor Landscape

Not all HR vendors have remained viable or worthy of investment during this latest economic dip. However, three vendors in particular (Aon Hewitt, IBM, and NorthgateArinso) have risen to the occasion and even garnered the top spot of a "Strong Positive" rating in a Gartner analyst report. As follows:

  • Aon Hewitt – With around 30 outstanding contracts for comprehensive HR BPO on the books; a host of celebrated references; and a proven track record of thought leadership in the field, Aon Hewitt has showed time and again why it should be on the leaderboard. Though suffering from the fact that they are almost entirely made up of North American headquartered companies--and woefully under-branded (compared to several BPO counterparts)--their innovation, service portfolio, and attention to improvement has kept (and will likely continue to keep) Aon Hewitt on top for years to come.
  • IBM – With an unmatched ability to deliver services globally (95+ country scope), Big Blue is also a leader in innovation, transition management, and relationship management (which given IBM's size is surprising). Sporting a portfolio of 20+ HR BPO contracts, IBM is no stranger to the HR BPO market (and has the industry's best "future BPO needs" roadmap), but still lacks the delivery output consistency established competitors have.
  • NorthgateArinso (NGA) – Hovering at just over 27 contracts for comprehensive HR BPO, NGA has carved out a sizeable market share by reducing efforts needed for implementation; decreasing costs associated with customization; and targeting the middle market. While the acquisition of Convergys did net a serious bump in recognition and client appreciation (thanks to executive attention and stellar transition management), both brand awareness and innovation remain issues that plague NGA. If, however, the organization is able to continue on its slow, steady march towards improvement (a company hallmark), I wouldn't be surprised if NGA overtook one of the other top 3 HR BPO providers soon.

Recommendations for Comprehensive HR BPO

The time of "all-or-nothing" HR BPO has come and gone, and has been replaced by a more thoughtful and measured approach that leverages the latest in HR software and technology. Organizations can now incrementally build up their comprehensive outsourced solutions without worrying about "over-outsourcing". As always though, the key to successfully navigating the comprehensive HR BPO space is a well-developed knowledge of what exactly your organization wants and needs out of the relationship—especially out of an outsourcing relationship of this size and nature. End

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According to Gartner, in comprehensive HR BPO arrangements "a minimum threshold of 10% to 15% cost reduction should be attained; [while] 20% or more is typically average."

 

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