Introduction

The concept of human resources (HR) transformation or the extensive restructuring of corporate human resources departments (HRD) took hold in the last decade or so. Prior to that HRD staff was seen as administrators managing the mundane and not involved or responsible for strategic decisions. However, as competition increased so did the demand for human assets and a need for attracting, retaining and growing the best talent.

This required a change in the mindset of the HRD and taking on more strategic role bearing in mind the larger business goals and objectives. Soon organizations began to relook their HR departments and its functions. HR transformation took root and HRDs started getting influenced by ideas on modern HR practices of HR specialists and gurus of the time like Dave Ulrich. Shared services center (SSC) for HR, outsourcing HR, and HR business partners/leaders and other similar concepts and models started getting implemented. The key idea of HR transformation was to set HRD free from the administrative tasks and focus on the strategic.

The current scenario

Today, as the global economy continues to gain further stability, a large number of organizations worldwide are expecting HR transformation by reducing their total cost of ownership (TCO) for human resources. With a focus on achieving this, strategic HR seems to have taken a back seat. Several HR surveys done so far have indicated that ‘Cost’ remains a top priority that an enterprise seeks to reduce in case of HR “too”. This could be achieved either through in-house cost reduction initiatives or setting-up a shared services center or outsourcing to a third-party service provider or a combination of these models. Most of the organizations trying to transform HR have chosen outsourcing as a major portion of their Human Resource transformation strategy.

Organizations will continue to invest heavily in HR Outsourcing (HRO)

NASSCOM estimates the global BPO industry spend to grow at a CAGR of 6.1 percent between 2009 to 2014, while the HRO spend which is 43 percent of total BPO spend, will grow at a slightly lower CAGR of 4.8 percent during the same period to reach around USD 83.6 billion by 2014 and still contribute nearly the same percent to the total BPO spend pie.

These numbers reaffirm the fact that organizations worldwide will continue to spend a significant portion of their revenues on managing their human resources. This also indicates the continuous commitment of enterprises worldwide to their HR outsourcing plans and the strategic intent behind it.

Scope for Outsourcing Human Resource Services

While human resource outsourcing continues to grow, it is still a very long way from full-scope HR outsourcing in comparison to what we have witnessed in IT outsourcing space.

What started more than a decade ago still continues today. Most of the HRO contracts have transactional HR work getting outsourced, for example; payroll processing, employee background check, staffing, training, benefits administration, etc. Organizations choose to retain more strategic HR initiatives like organization development, change management, etc. in-house.  A few organizations hire external consultants to offer such services, but typically it’s a one-off case in the history of that organization rather than a cyclical or regular activity.

At a high level, today’s HR is seen as a more strategic department seeking answers to issues relating to multi-cultural complexities, leadership development or change management which are core to the organization and hence the reasons for keeping them in-house. Probably they will always remain in-house and only more mundane and transactional processes will continue to be outsourced. However, that’s not a concern when it comes to using outsourcing for HR transformation.

The Big Question: Are organizations transforming their HR by outsourcing?

To my mind the top few reasons why organizations outsource HR are; they get the opportunity to reduce costs, get access to external HR expertise, ability to focus on strategic HR priorities, relieved of possible labor regulatory issues, and a possibility of improving service quality. However, the following parameters are typically measured by these organizations to determine the HRO engagement success; operational efficiency, operating costs, service quality, employee satisfaction, HR staff reduction or changes, etc.

While a vast majority of business leaders will quote of having achieved their HR outsourcing objectives to a large extent, most of the metrics chosen do not indicate any HR transformation happening in reality. This only indicates that purely outsourcing or setting-up an HR SSC or having “n” number of HR business partners will not ensure HR transformation.

The ‘how-to’ of HR Transformation – A perspective

It is quite evident that outsourcing an organizations HR functions will certainly do the ground work for focusing on strategic issues as the routine, low-end and transactional tasks will no longer eat-up HRDs time and energy. At the same time certain processes or systems must be paid attention or be in place to expect real HR transformation. Some pointers in this direction are mentioned below:

Partner with the “right” service provider - The degree of buyer satisfaction in a HRO engagement varies according to certain key attributes while evaluating vendors. These are-

Per-employee costs

Staff Quality of service provider and their expertise

Technology capabilities

Those companies which underestimate these key attributes and focus more on the overall cost savings remain typically less than satisfied or dissatisfied with their HRO vendor, leading to spending time and energy in managing vendor relationship and service related issues. Service providers’ offering a combination of competitive pricing and strong key attributes typically create long-term customer satisfaction.

It might sound clichéd but partnering is the key. The idea is that if the parties involved in the deal work closely together as partners they both can learn in the process and forge a win-win relationship, instead of the iterative negotiations thought to characterize a typical transactional HRO engagement.

Establish HR transformation metrics - As the saying goes “what cannot be measured cannot be improved”. While this is true, it is virtually impossible to list out how to measure HR transformation, the ultimate metric being “how much value is being created”?

In the context of HR this could mean- establishing HR metrics based on input, efficiency, effectiveness and outcome based metrics, establishing the correlation between HR and business scorecards. Examples of such metrics could be; ‘on-boarding vs. attrition’, which could help in prioritizing HR resources to make maximum business impact. Others like revenue per employee or profits per employee could give a financial perspective to HR value creation.

Redefine new HR roles within the retained HRD based on business initiatives to serve - Due to off-loading of administrative work, HR roles need to be redefined within the organization. But instead of doing that first, what is essential is to identify the critical business needs and initiatives of the business units and then realign the HRD with suitable roles and responsibilities that will add maximum value to the unit and deliver business results. HRD also needs to probably re-skill its retained staff or employ new staff to suit the new and more strategic roles.

A failure to redefine HR roles will only mean that the HR spends more time on keeping a check on the outsourced service provider which will ultimately lead to the failure of the transformation initiative.

Top Management role crucial for successful HR transformation - Ultimately the success of HR transformation lies with the top management’s involvement and drive. They need to believe and propagate the notion within their organization that talent leads to superior corporate performance. At the same time understand that HR is not the only one accountable for employee and employee processes but it is every business leader’s responsibility.

Conclusion

Outsourcing to a third-party vendor or setting-up an HR SSC or any other model will not guarantee successful HR transformation. It’s only the beginning and demonstrates a change in the delivery mechanism while possibly allowing the HR to focus on strategic issues that will add business value. What happens later will be the crucial part to determine success. Management has to realize its role in empowering the human resources department in taking itself to a new level to realize transformation in the true sense. HR business partners should redefine their staff roles to enable them to think and act in a more strategic sense in line with the business units’ top priorities. HR transformation should be measured with appropriate metrics so that effectiveness of the process is tracked and suitable and timely measures are taken to make the process more robust.

HR transformation will change the way organizations behave and deliver. Success lies not in ‘in-sourcing’ or ‘outsourcing’ but in the synergies between the transformation objective, implementation and the key stakeholders drive to achieve it.