HR Outsourcing Becomes a Business

By Gary N. Bowen

Human resources outsourcing (HRO) expert Diana Robinson has a rather unique story to tell attendees of the HRO World Conference and Exposition. Robinson, an Executive Vice President of the Human Resources Outsourcing Group at Aon Human Capital Services, manages Aon's global client relationships and business development for total HR outsourcing. But previously she was Vice President of Human Resources for AT&T, where she led the firm's HR outsourcing effort, one of the largest, most complex initiatives in the telecommunications industry.

Her experience as a client/buyer in the development of an outsourcing relationship (with Aon), then later as the provider of the services she helped buy, uniquely qualifies her to speak to both sides of the HR outsourcing table. Small wonder that her topic is entitled, "Switching Sides: My journey from in-house HR to HRO leader."

The Trend Toward Single Providers

Fewer business areas have changed more dramatically than HR, according to Robinson.

Today, HRO is no longer just about payroll. It's a collection of multiple responsibilities that also includes the systems that operate this diverse collection of services and communicate with a firm's prospective and actual employees.

Because of this, "buyers are seeking single providers that can fulfill more services or manage other HR vendors and providers along with their own," notes Robinson. And though she feels HRO needs to be a business initiative, not an HR initiative, Robinson also sees a new wrinkle in the full service HR outsourcing model.

"Buyers might have existing legacy partnerships as a part of their current HR formula they don't want to throw out. So providers have to incorporate that into their offering," she says.

With increasing frequency, new service level agreements (SLA) require the outsourcer to manage incumbent suppliers in a particular area not directly provided by the full service outsourcer. "This is why vendor and provider management and contract administration is becoming a discipline unto itself for HRO outsourcers," she says.

Getting Off on the Right Foot with Mutual Due Diligence

Robinson says her unusual perspective taught her one thing: there's no good alternative or contingency plan if an outsourcing relationship fails. "It's got to be right from the opening bell and then every day after that. The alternative is to find another provider. Everyone loses when that happens," she says.

So where does a good HRO relationship begin?

"It's a long, expensive, time-intensive process from soup to nuts," she confesses. She advises companies about to find a provider to outsource their HR (or anything for that matter) to have either a C-level employee who understands all the twists and turns of events leading up to and after the service level agreements (SLA), or use a trusted, experienced third-party advisor.

"A good HR outsourcing provider is going to do its due diligence in understanding the client, its business, and what the client expects. But it's equally important for the potential client to do just as much, if not more, due diligence to understand the impact the outsourcer will have on the company and its processes. Buyers have to understand how outsourcing will affect all areas of the enterprise because very few aren't impacted in some way by HR," she explains.

"In short, mutual due diligence leads to a mutually realistic starting point," she reports.

The Financial Element: Culpability and Visionary Perspective

Robinson calls the Sarbanes-Oxley Act "the latest wake-up call." Everyone's now financially culpable from a reporting standpoint: vendors, outsourcing providers, and the client. This leads to greater appeal for full-service HR outsourcers that can either fulfill the largest segment of services themselves or show demonstrated ability to manage other suppliers in conjunction with the direct services they provide.

This new provider is responsible for managing all services (including incumbent suppliers), completing Sarbanes-Oxley mandated reporting, and tracking the tangible results of all services. Robinsons says this is where "full services firms that know their stuff can demonstrate just how critical vendor management is. Not all suppliers come with the new HRO provider, some are inherited due to client insistence," observes Robinson.

"This is now part of the value proposition. Financial culpability and a gift at managing other providers -- both new and the incumbents -- are important value propositions in addition to cost savings," she adds. "More clients want a fuller-service HR outsourcing provider: which is why there could likely be more consolidation in the HRO provider world in the coming years."

Drawing from her experience on the client side, Robinson suggests that "HRO buyers need strong, innovative financial leadership." She defines it this way:

"Innovation is the ability to think in longer, more strategic terms past the obvious cost savings. Creativity inspires such questions as: How can the buyer and outsourcer benefit? Or, is there opportunity to build in market growth or gain share? Might there be equity partnership opportunities to keep both buyer and provider in the game together for much longer than the originally envisioned SLA?"

Such relationships often result in innovation, which leads to Robinson's final thought. "You never know. By thinking out of the box together, the two of you could build such a better mousetrap that other companies might want to buy your model and shared expertise. "Now tell me, is that a bad thing?"