I D C A N A L Y S T C O N N E C T I O N Lisa Rowan Program Director, HR and Talent Management Services Improving HR Through Business Process Outsourcing May 2009 In the very early days of HR business process outsourcing (BPO), the pioneers blazed a trail that did not rely much on technology, but was all about work transfer. This "lift and shift" model contrasts with the service providers that offer their own platforms (which could also be based on proprietary customizations or commercially available software) to which clients must switch. Usually multitenant in design, this "platform" model is not for every buyer, given investments buyers have, both monetarily and culturally, in the processes and software they have been using. Some vendors have abandoned the full-scale "platform" model, and are attempting instead to standardize technology and business processes as far as possible, then migrate end users to their chosen technology bit by bit. This approach is often referred to as "transform then transfer." The models are changing as we move closer to to the "holy grail" of multitenancy or one-to-manymodel. With full multitenancy, we will see stage 3 of BPO; where stage 1 was "lift and shift," and stage 2 was "transform and transfer," stage 3 enables service providers to much more cost-effectively support their clients from a platform perspective. This model demands the most change management from the buyer, but enables the provider by virtue of a standardized, configurable platform to optimize the service from a cost, quality, and risk perspective. For BPO to be successful in the long term, service suppliers need to achieve the delicate balance between support for underlying technology whether the technology is their own or the client's existing platform and their ability to achieve economies of scale through technological innovation. As a result, the role of underlying technology continues to be a factor in the success or failure of BPO projects. The following questions were posed by SAP to Lisa Rowan, Program Director for IDC's HR and Talent Management Services, on behalf of SAP's customers. Q. Has HR BPO lived up to the promise of elevating the HR function? A. For some organizations it has. This really depends on the status of their platform and processes upon entering the relationship, and a willingness to adapt. So many HR buyers struggle with the fact that they ve not always made good decisions around their HR technology; as they made acquisitions over the years or branched out globally, they end up with a variety of different systems in place. And they looked to outsourcing in the past to lower costs and relieve the IT burden, and not necessarily to improve processes and process flows. Many HR executives are just beginning to focus on their underlying technology. That is, the outsourcing providers have helped by getting the HR organizations to standardize technology, and then standardizing processes comes next. That's when the HR function can
be elevated; once technology and processes are standardized, process improvements can begin to take hold. Building HR skills and knowledge around a core, consistent set of technologies enables the development of templates for rapid on-boarding, for example, and for other repeatable processes that in turn enable the benefits of labor arbitrage. Using solutions with built-in information and process flows improves communication, and supports real-time and automated data updates, both to HR and non-hr functions. These capabilities would be harder and more expensive to achieve on the basis of disparate solutions and a fragmented IT footprint. Integration among processes, including the integration of data, is critical to achieving value. Disparate technologies can compromise an organization's potential for success, while standardized platforms help ensure consistency, accuracy, efficiency, and ultimately business value. Q. How important is it for the provider and customer to have the software vendor "on board" in a structured fashion, and what value can an ISV create? A. In an outsourcing arrangement, there are many sets of interdependent relationships and they re all important. You ve got the buyer at the center of the universe, who typically will continue to make some investments in underlying technologies for HR. At the same time, the buyer is looking to the provider to help alleviate some of the day-to-day burdens associated with managing things not only from the perspective of some of the HR functions, but also some related IT functions as well. Beyond basic maintenance, the provider might be tasked (for numerous clients at the same time) with continuous enhancements and updates, for example, with legal compliance which strongly benefit from a deep understanding of the software platform And so you really need all three the buyer, the provider, and the software vendor to work together very harmoniously. It s important that communication among all three be strong. In a recent survey that IDC conducted on HR BPO, over 70% of the respondents want the service provider to work very closely with the technology provider because they recognize the importance of those relationships and feel that both providers are vital to the organization's success. Sustainable BPO requires operational excellence, and providers can't achieve this in a vacuum; they have to collaborate closely with their software vendors. The BPO provider must fully understand the technology in order to optimize use of best practices, advise about the availability of standardized templates and avoid unnecessary customization, which impacts their own costs and scalability capabilities. BPO providers are not always fully versed on all the capabilities of the software or the availability of productivity tools especially in environments where multiple clients must be run in parallel with some degree of synergy so they may make design decisions that impede future efficiencies and results for the customer, as well as for their own overall sustainability. A software vendor can help the BPO provider blend process and technology to create "factory economics" that drive BPO sustainability. Buyers should seek evidence of tight collaboration between their software vendor and BPO provider. Things such as certification of a provider by the software vendor on the technology, and continuous support and education of the BPO provider on the technology are things to look for. Deep understanding of the technology, its capabilities, and future direction by both 2 2009 IDC
the BPO provider and the buyer also helps perfect the relationship between buyer and provider, which can result in better definition of handoffs while also avoiding unnecessary customization. Q. What are some key considerations customers should look for to ensure maximum flexibility and future-proofed solutions when outsourcing? A. Customers don't want to be locked into a service and a set of technologies that aren t going to grow with them. So it is critical to look forward and see whether the provider is going to be able to service them well into the future. It's necessary to go beyond the immediate cost savings; customers need to be thinking about their longer-term goals and whether the provider can help them achieve those goals. It s important for customers to understand how a provider is servicing its clients today, and how successful those relationships are. Also, it's very important to look at the viability of the vendor; will the vendor be in this business five to seven years from now? Generally speaking, BPO contracts are fairly lengthy in duration; customers want their providers to be around for the life of the contract. Interestingly, within the duration of such contracts, companies might enter (either directly or through M&A) new geographies or businesses, and the inability of the technology currently used to service such an expansion may result in a strategic inflexibility reducing the effectiveness and efficiency of the expansion. It s also key that a provider is viable from a technology perspective, that it's doing the right things to make sure that all the latest and greatest technology is made available to its clients. As releases from the ERP vendor, for example, become available, do clients get them relatively quickly? This is an important consideration. Q. There are many notable engagements with global firms. What is it about HR BPO that is attractive to global firms, and what does this mean for HR executives? A. Global firms that aren t taking advantage of some of these capabilities are often unable to answer fairly straightforward questions about their workforce. They may be unable without massive amounts of paperwork and people running around working manually to even get a global headcount. Global HR BPO, when done correctly, creates a simplified IT landscape and makes global reporting from an HR perspective easier. There is no added complexity. Global reporting can provide global insight, while still supporting compliance on a local basis. A single technology platform, as opposed to an aggregated platform with many technologies, best enables this approach. For HR executives, it is necessary to embrace standards rather than stay with legacy technology and processes. Therefore, a BPO provider should leverage technologies that enable best practices and standardization of end-to-end processes such as recruiting, learning, and performance and succession planning. This drives process and cost efficiencies required for sustainability. All this, needless to say, does not properly work if the technology platforms used don t have the required global footprint, forcing organizations to create local solutions that introduce fragmentation not only in technology but also in cost. Being able to identify and target your top talent is particularly critical in difficult times like today. You don t want to risk losing your best people to the competition. Despite the current economic situation, good people can always find a new job. Savvy competitors are going to be on the lookout for anyone who might be dissatisfied with you as an employer. While it s hard to quantify what the cost of the loss of that individual, common wisdom says is that it can be two to three times that person s salary just to replace them. So having visibility into top performance around the world is an example of why global visibility into HR is so 2009 IDC 3
important. Importantly, talent management requires access to integrated data from numerous HR systems (not just the "usual suspects" such as performance, succession, and learning), which calls for a reduction of the potential technology "fracture points." Q. What happens with the increased adoption of software-as-a-service (SaaS)? Where is the demarcation, and how do you prepare? A. With SaaS and cloud computing on the horizon, there are clearly many more choices for the HR buyer. With SaaS, the HR department is still responsible for everything that gets done within the department, but the department doesn't have to worry about the IT component; to a certain degree, all upgrades and maintenance are taken care of by the SaaS provider. But the difference with SaaS is that nothing else is outsourced. In many cases with SaaS, the buyer is still responsible for what is and is not accepted as updates to the particular package in use. Plus, there are still the potential issues of having different SaaS solutions for different parts of the HR process. You may have one solution for recruiting, another for learning, and still another one for core HR processes. That will mean there are three different vendor relationships that a buyer needs to manage, and related process as well as data integration issues to be monitored whenever one component evolves. By standardizing on a single platform that s unified, HR buyers are in a much better position because there is only one vendor relationship to manage. And when you add outsourcing on top of that, you get the benefit of the ability to have that single, unified platform as well as assistance in standardizing processes and help in running some of the more administrative functions. Many buyers see SaaS as a potential alternative to having software in-house that is managed in-house. But there is still a difference between SaaS and HR BPO. It is incumbent upon HR BPO providers to realize that they need to emphasize that distinction; there are more services with an outsourcing engagement than there are with a SaaS engagement. With SaaS, it is important that perceived short-term benefits do not prevent the achievement of longer-term business goals. Siloed SaaS applications may be a good choice for quick wins, but if SaaS is not considered in the context of longer term delivery strategy and desired outcomes, buyers may find themselves retooling their approach in the future. Yet SaaS itself might become a very important aspect in improving HR BPO because it makes it that much easier for the providers to support their clients on underlying technology. A B O U T T H I S A N A L Y S T Lisa Rowan serves as IDC s Program Director for HR and Talent Management Services research. In this role, Ms. Rowan provides expert analysis focused on both the business services addressing HR and talent-related process issues, such as human resource consulting, processing services, and Business Process Outsourcing (BPO) services; and HR IT Services, such as systems integration and IT consulting. A B O U T T H I S P U B L I C A T I O N This publication was produced by IDC Go-to-Market Services. The opinion, analysis, and research results presented herein are drawn from more detailed research and analysis independently conducted and published by IDC, unless specific vendor sponsorship is noted. IDC Go-to-Market Services makes IDC content available in a wide range of formats for distribution by various companies. A license to distribute IDC content does not imply endorsement of or opinion about the licensee. 4 2009 IDC
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