The 12 relationships nominated for the 2007 Outsourcing Excellence Awards in the category of outsourced HR processes reveal some significant findings regarding supplier-selection criteria and buyers’ opinions of key success factors in their relationships.
As Exhibit 1 displays, among the 12 is a large group of relationships where the buyers transitioned to their current suppliers processes that were not handled in house at the buyer organization at the time.
Two of the buyers were in the midst of merger initiatives where one of the merging companies had already outsourced its HR process for a number of years.
Four buyers had already outsourced their HR processes to suppliers such as Exult (which was acquired by Hewitt Associates) or Towers Perrin (which was acquired by EDS and became ExcellerateHRO) and consequently experienced a second due-diligence/selection process and subsequent second transition. One buyer entered the current contract by switching from an unsatisfactory relationship. Two buyers were spin-outs with no existing in-house HR staff or processes at the time they outsourced, and their processes had been outsourced before they became spin-outs.
The information provided by buyers in this segment (hereafter referred to as Group A) differs notably from information regarding deals that transitioned to outsourcing while the HR process was still handled in-house (hereafter referred to as Group B).
The buyers comprising both groups represent four financial institutions, a hospital/healthcare provider, a global packaging supplier, a logistics supplier, an automotive manufacturer, a supplier to the automotive industry, a food manufacturer, an insurance company, and a land drilling company.
Exhibit 2 illustrates the processes outsourced by the buyers in all 12 HR relationships.
Supplier-Selection Criteria
We asked the 12 buyers to list their primary supplier-selection criteria; there was no limit as to the number of criteria they could list. Findings reveal that Groups A and B had very different concerns that guided their supplier selection in their current relationships.
In the total number of criteria listed by Group B (the in-house processes), the top three criteria (HR domain knowledge, cost, and level of customer services to the buyer’s employees) received equal ranking. These three criteria were the only items cited by this group’s buyers.
In contrast, Group A did not mention cost. Further, this group ranked robust technical capabilities as their top criteria (see Exhibit 3 for rankings of the top five criteria cited). Flexibility and HR domain knowledge tied for second most frequently cited criteria.
The complete list of criteria cited by Group A, listed in order of number of times cited, includes:
- Robust technical capabilities
- A tie between HR domain knowledge and flexibility
- Other specific knowledge
- A tie between financial health, integrity/work ethic, cultural fit, commitment to innovation
Flexibility, a top priority for some Group A buyers, was not mentioned at all by Group B. It should be noted that each buyer in Group A that cited flexibility as a top priority had an unusual situation.
For example, the healthcare provider, a 150-year-old institution founded by Catholic nuns, still maintains nuns’ influence over business processes. The nuns on the HR committee determine how things will be processed for employees, whether or not those processes mesh with best practices or standard business practices of the supplier.
As another example, the parent company of one of the spun-out buyers informed the soon-to-be spin-out that its go-live date was not definite but would occur within 6-18 months. The selected supplier had to be flexible enough to hurry up and put staff, processes, and systems in place yet wait for an indefinite length of time before starting services.
Keys to Success
We asked the 12 buyers to list the factors they believe are the keys to their currently successful outsourcing relationship; there was no limit as to the number of criteria they could list. Findings reveal that the top three factors cited by both Groups A and B mirror each other. However, as illustrated in Exhibit 4, the two are also opposites.
Interviews with the buyers in both groups reveal that the difference in the rankings in Exhibit 4 for honest, open communications and a partnering mentality/approach are a function of where the relationships are in their development of trust. While buyers in Group A place high importance on honest, open communications, several of them believe this is a natural outcome of the partnership mentality/approach and therefore do not consider the two factors as distinct from each other.
In addition to the top three criteria cited as keys to success, Group A buyers also cited:
- Detailed, “crystal-clear” requirements in contract
- Continually leveraging resources to create more value
The other success factor cited by Group B was one buyer’s comment: “staying very involved in managing the process.”
Additional Findings
The challenge most frequently cited by buyers in both groups was incorporating or adopting a large amount of change. Buyers mentioned that the suppliers’ methodologies and assistance in change management was an important factor in transitions and implementations.
Although all 12 relationships are successful, more than half of the buyers stated that, if they had to do it all over again from Day One, they would do a few things differently. These include:
- Spend more time to “get a better handle” on the cost and resources necessary for the transition
- Gain a better understanding for more accurate planning around the timing and resources required to implement the technology
- Make sure the contract includes a very detailed scope of services and roles/responsibilities matrix to avoid any incorrect assumptions.
- Conduct more internal communication in the buyer’s organization about how the new outsourced process (or new technology) would work
In hindsight, the buyers stated that they now recognize early challenges in their transition phases could have been eliminated by conducting these activities up front. Nevertheless, because of their partnering approach, the parties managed to successfully navigate through these challenges without damaging their relationship.
Lessons from Outsourcing Journal:
- In scenarios where the buyer is outsourcing its in-house HR function for the first time, the top provider-selection criteria are likely to be: HR domain knowledge, cost, and level of customer services to the buyer’s employees.
- Buyers of outsourced HR services often rank a partnering approach/mentality; honest, open communication; and cultural fit as their keys to success in mutually beneficial relationships.
- Where the buyer and provider build their outsourcing relationship from a partnering approach, they can successfully navigate through challenges without damaging their relationship.
- When buyers consider what they would do differently in their HR outsourcing relationships if they had to do it all over again from Day One, incidents cited are usually something that could have been mitigated with better up front planning and communication.