SHRM WebcastJune 17, 2010

The HR Outsourcing Evolution

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CAUTION – Mark may make this sound easy. It’s not. Electing to hand over the keys to a third-party is one of the most difficult decisions you can make. Don’t let his deep voice lull you into visions of simplicity.

Agenda

3 What A Long Strange Trip It’s Been

“Sometimes the light’s all shining on me. Other times I can barely see. Lately it occurs to me ...”

~ The Grateful Dead

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The Premise (and Promise) of HR Outsourcing

Internal efficiency gains are insufficient

Economies of scale will drive down costs

Retained staff can focus on strategic activities

Less customization and more standardization

Innovation will continue post go-live Provider sustainability is a non-

issue

“Given the surge in global mergers and acquisitions, the delayering of organisations around the globe and the increased speed of decision-making, HR is becoming more and more complex by the day. Many companies found their in-house resources and capabilities challenged in dealing with this complex situation.” ~ The Economic Times (Feb

‘02)

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The Reality (For Some) Was Quite Different

“Your mess for less” Customization prevailed Production deadlines were missed Scope was too aggressive Shadow organizations emerged Provider profitability was cut short Third parties exited the market

“Some providers in the past have promised clients that ‘they could have their cake and eat it, too.’ They signed contracts at low price points in the belief that they could scale up and make the deals profitable later. ‘That hasn't happened. Now there is a lot of renegotiation.’”-BLR report on speech by

Christian Baader, VP BPO for SAP AG (Apr ‘08)

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Yet HRO Continues to Grow… Cautiously

“The multi-process Human Resources Outsourcing (HRO) market is expected to regain traction in 2010, moving towards US$3-3.1 billion in annual contract value (ACV), driven by contract extensions and the re-emergence of new deal signings.” ~ Everest Research Institute

(Mar ‘10)

“From a customer perspective it became clear that the days of global multi-process HR deals are over. Customers are seeking to be better informed about what works and doesn’t work in HRO and want to understand the impact on their business strategy. This results in longer preparatory phases and a tendency to reduce the scope, size or geography of deals.”

~ Alsbridge (Apr ’10)

7 The Business Case For Change

“When we are no longer able to change a situation, we are challenged to change ourselves.”

~ Victor Frankl

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Innovation Is Extremely Important…

“… going beyond transactional/operational work to achieve new productivity gains and/or new revenue streams … through unique, creative methods.”

~ Horses for Sources

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… But Serious Challenges Exist

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Hope For The Future Remains High …

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… Because HR Must Innovate Every Single Day

12 10 Steps To Successful HRO

“The difference between failure and success is doing a thing nearly right and doing a thing exactly right.”

~ Edward Simmons

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Step One – Get Your House In Order

Define Your Objectives Why are you pursuing this course of action? What is your desired outcome? How will success be defined? Is this proactive or reactive?

Take Inventory Understand the nature of your current contracts and

relationships Itemize all internal and external service providers

Meet With Internal Stakeholders Assemble representatives from finance, IT, procurement

and legal Assess the possible impact on your clients/business units Learn and benefit from outsourcing initiatives in other

areas

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Step Two – Seek Market Intelligence

Benchmark Assess all aspects of service delivery Determine what market changes have occurred since last

investigated Beware of oranges disguised as apples

Leverage Advisory Firms Do not become codependent on your advisors/consultants Find those willing to stand next to (or behind) you Extract every ounce of knowledge you can

Network, Network, Network Schedule calls/meetings with your peers Discuss lessons learned and what they’d do differently now Attain guidance on service providers that worked (and those

who didn’t)

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Step Three – Meet With Prospective Providers

Culture Matters No two organizations are the same, so embrace your

uniqueness Assess your comfort with a provider’s philosophical

market approach Prescreen for the likelihood of a symbiotic relationship

People Matter Did they do their homework? Do you like your sales person? What did you think of their overall team? Did they pitch, do discovery or both?

Process Matters Invite procurement (and perhaps others) to the meeting Think about opportunity cost

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Step Four – Regroup And Reassess

Share Your Findings If your premise for HRO still valid? Is the market prepared to support your desired

outcomes? Is there additional work to do prior to continuation? Were you unable to locate critical information?

Do A SWOT Analysis Strengths and weaknesses Opportunities and threats

Create An Accurate Project Plan Assess resource allocation Document time commitments Ensure travel and expenses are preapproved Notify all other stakeholders

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Step Five – Issue The (Dreaded) RFP

Share Your Work Be completely transparent about your goals and objectives Include relevant systems inventories, base case financials

and all working assumptions Bigger is not better

Embrace Market Maturity In highly evolved segments, don’t question table stake

capabilities Emphasize quality of Q&A over quantity Get past “Yes”

Allow For Controlled Collaboration Give providers ample time to respond Manage lines of communication yet share with all Turn around Q&A very quickly Admit mistakes early and often

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Step Six – Down Select And Site Visits

Honesty Wins The Day Explain your logic and reasoning to providers – they

deserve candid feedback Choose no more than three (preferably two) for site

visits Don’t automatically include the incumbent

Embrace Subjectivity Allow team members to share their emotional responses Ask yourself if you want to work with the proposed team This reflects your legacy – proceed with caution

Make Site Visits Meaningful Set a tight agenda Meet with those who own the outcome, not just the sale Don’t let a good lunch overshadow a bad performance

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Step Seven – Speak With Real References

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Step Seven – Speak With Real References

Pay Attention To Details Is the provided reference on the same product/release? Are they in implementation or production? Are they at parity in terms of complexity and scope? What would they have done differently?

Don’t Be Afraid To Ask For More Feel free to work your professional networks to get

additional data Ask until you get the answers you want/need

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Step Eight – Establish Governance And SLAs

This Is A Partnership Avoid single points of failure Assign clear roles and responsibilities and allocate

dedicated staff, as appropriate Emphasize collaboration over escalation

Service Level Agreements Calculate the value of each SLA and assess what you’re

measuring and why Measure monthly and avoid quarterly averages Openly discuss viable scenarios Realize that the last thing you want is a SLA penalty

payment

Benchmark And Validate

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Step Nine – Negotiation And Contracting

Buy On Best Value Model all variable inputs and anticipated changes Ensure the provider is engaging profitably Have only one person negotiate pricing

Retain Outside Counsel Offers a real-time feel for marketable terms and

conditions Compliments your general counsel staff Has a prior body of experience negotiating to successful

outcomes

Think Through The Business Implications Term and termination Scope and change order processes Key personnel

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Step Ten – Innovate And Ideate

That Sick Feeling Is Normal This is an arduous process Be prepared for mistakes and missteps Acknowledge your role in the process

Welcome To The New Base Case Continuous improvement must be emphasized Take fat out by adding scope in Measure, study, improve… then repeat

Participate Willingly Join the client advisory board Attend annual events Brief with executives You can’t outsource accountability

24 Questions And Answers

“The important thing is to not stop questioning. Curiosity has it’s own reason for existing.”

~ Albert Einstein

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Thank you!

Contact Information

Mark StelznerPrincipal, Inflexion Advisors

415-658-7460mark.stelzner@inflexionadvisors.com

http://www.inflexionadvisors.com

http://www.twitter.com/stelznerhttp://www.linkedin.com/in/markstelzner