1. The Impact of HR Outsourcing on the HR Profession
Based on a Report from the SHRM Outsourcing/Consulting Panel
For the last decade HR has been experiencing outsourcing, so what are we seeing as the impacts on our HR profession?
The C level executives have heard of the potential cost savings
Technology has become commonplace in the delivery of services
New providers have emerged, large and small, some integrated services, others stand alone offers
For more than the last decade HR has described “a seat at the table” as a focus on the value added or strategic initiatives
It seems the transaction work is where HR received accolades and HR seemed little able to perform the strategic work talked about frequently
Outsourcing means that services can be moved to other providers freeing up our time and more importantly a chance to change the role and do the strategic
What’s happening as a result of outsourcing has broad implications for the profession and will change our roles
This report is a summary of the thoughts and discussions from SHRM’s Outsourcing/Consulting Panel as they looked out 5 years on the implications to the profession and ponder the longer term impact to careers

2. Definitions
Outsourcing—transferring of a business process to an external provider
Offshoring—outsourcing of an operation to a firm with principal base of operations outside the country
Insourcing—transfer of an outsourced activity to an internal department of a company to be run and managed by employees
Sole-sourcing—outsourcing all processes in the HR life cycle to a single provider
HRO—standard market term for the group HR related outsourced processes
BPO—standard market term for business processes outsourced be they HR or other business related
SLAs—contracted service level agreements outlining performance expected in terms of availability, cost and quality
Due diligence—the process of conveying the operational information to third parties and vice versa
Transition—moving from a current model to a new model
Transformation—transitioning from a current model with significant change in the new model, usually improved processes
Integrated outsourcing--combining vendors to achieve an outsourced solution using more than one vendor
RFI/RFP—request for information and request for proposal, first steps with vendors

3. What is HR Outsourcing?
HR Outsourcing manages the people, processes and systems for:
Employee Life Cycle Administration
Compliance
Communications
Recruiting And Selection
Training
Compensation
Benefits Administration
Stock Administration
Safety
Pension
Payroll
After outsourcing, companies typically retain “Strategic HR” duties inside
HR policy
Organization development
Deployment of the right people to the right jobs
Human capital decisions affecting financial results
Outsourcing is as the name implies, taking work performed in the organization and moving that work outside the boundaries of the organization
While not new, there is a new focus on providing service on a long-term basis meaning it is not coming back inside
Outsourcing can be for discrete services, high volume and repetitive
Outsourcing can be for multiple processes, like health and welfare
Outsourcing for a few companies is a move to total process outsourcing
There seems to be a variety of examples around of what is left in an organization
Consensus seems to be that regardless of the scale of outsourcing there are those functions that must remain because they are deemed core to the company and include:
Company policy
Culture and development activities like branding, ethics, leadership development
Making sourcing (development and deployment) moves
The balancing of Cost of Employment with budget and financial concerns
Each HRO provider claims to offer cost savings & service improvements in delivering processes.

4. Trends Continued Growth/Maturation of HR outsourcing
Increasing Weight of Non-cost Factors as Decision Drivers
“Commodization” of Many HR functions continues
Development of New Roles for internal HR Departments
Emphasis on New Career Opportunities for Professionals
Small/Mid-Sized HR outsourcing markets will expand
Demographic Changes will up Outsourcing’s appeal
Demand for Improved HR metrics
Consolidation, Competition, Sole Sourcing Reshape Industry
Outsourcing Failures will cause Re-evaluation of Decisions
In the beginning HRO was mostly about cost savings
Further it was about using others investments in technology as leverage
Going further we will begin to see the uses of Outsourcing to improve productivity and performance
The diversity and quality of HR services will be enhanced
Time will be available for the internal staff to focus more on business functions
Internal HR staff can be redirected to other activities
Subject matter experts are and will be available through the providers
The most frequently outsourced activities for HR have included: IT development, customer service, payroll, reporting, health and welfare, and accounting activities
The work is going outside the firm and it’s not coming back
HRO is an accepted management practice and an opportunity to be embraced.

5. Career Implications
Developing use of third party providers as strategic business options
Using the power of others as leverage for expanding expertise
Chance to reorder focus and priorities
Evolving accountabilities for growing human capital value
Defining new jobs and job descriptions
Building integrated business process solutions no matter size
Fitting technology appropriate to the workforce skill base
Learning to apply quantitative data as decision drivers
Relying on performance of one to many providers
Expanding the profile of risk management
Perhaps the primary implication of the future is HR learning how to run itself as a business, managing to a budget, seeking alternatives and options just like other business leaders
HR is learning that 3rd parties can be a source of additional resources, on demand
The priorities and performance contract changes the focus to business aligned objectives
The measure of success will be whether human capital in total value increases, not how many services are rendered
There will be some new jobs like Supply Chain Manager, Process Expert, and Project Leader
Processes will be integrated across disciplines like accounting, tax and IT, partnering for better business process
Technology will be fit for the workforce, in an IT wired solution, even though not all employees will have ready access to IT on the desk
Judgments and choices on how many and what services are decision options that must lie within an organization’s culture and abilities
Relying on others is risky and we have seen examples of failures, the whole realm of risk management is different and set ups new roles and accountabilities
HR has the opportunity to shape how they respond to the demands being received.

6. HR Transactions--Moving to More
Trend: Continued Growth/Maturation of HR Outsourcing Implies: Developing use of third parties as strategic business options
Running HR as a business, proving returns
Selective decisions for service delivery modules, fragmented or integrated
Protection and governance of company data and property
Managing the performance of others
HR Transactions--Moving to More
Broad Base HR
$80 billion: 50% of all HR work
$8 billion
The market is expected to grow 10 times in the near term
More than half of the current HR work is expected to be done outside in 5 years
The trend started with the large firms
The trend is now moving to mid sized firms of which there are some companies in the US
This middle market as it is called is about $35 billion in value
Small firms have been taking up the outsourced solution primarily in providing base payroll and benefits
PEOs have been a choice for small firms for some time
There are many emerging small and large providers rushing to fill the demand
Making HR decisions for outsourcing has new dimensions for HR including:
Project planning
Creating RFIs/RFPs
Managing due diligence
Contracting
Transition and Change Management
Managing the promises of vendors

7. Conference Board Study 2004
Trend: Increasing Weight of Non-cost Factors as Decision Drivers Implies: Using power of others as leverage for expanding expertise
Conference Board Study 2004
Top Execs Desire
Cost
Capital Avoidance
Maximize Resources
Service Improvement
Line Managers Desire
Meet Changing Needs
HR Leadership Desire
Building strategic drivers for actions aligning with core missions
Aligning HR key activities to products and services outcomes
Heightened focus on people management practices and workforce development
HR management challenge to sustain achievements and grow future options with providers
In a study by the Conference Board in 2004, and substantiated by other studies, we have seen that HR had different motives for outsourcing than line managers or executives
The why now questions seem to center around:
Technology and communications capabilities at commodity pricing
Proven nature of outsourcing in IT, accounting, health plans and pensions
Emergence of big known players like Accenture, Fidelity, ACS, Convergys, ADP, IBM and others
Several years of under investment in HRIS by HR, leaving old customized systems, needing significant upgrade
Business demand for more focus on talent management
HR must be an advocate for their solution and describe the business case befitting their core mission
HR must be able to brand the new products and services within their company’s culture of operating
HR must be able to deliver and sustain delivery through others

8. Trend: “Commodization” of many HR functions continues Implies: The more HR activities and tasks become a commodity, the greater emphasis on price and the more likely they will be outsourced
Transactional HR activities are unbundled into discrete components
Information technology allows these components to be digitized
Web-based HR applications enhance the processing of digitized content and allow multiple worksite collaboration
As transactional HR activities become commoditized, product/service differentiation is increasingly based on price
The organization’s reliance on and loyalty to its HR department weakens as activities are commoditized. HR must now compete with external sources and price becomes a critical decision making criteria.
In this environment, transactional activities will increasingly go to the most efficient or least costly. In-house HR professionals will have to compete with vendors or concentrate on activities that are less likely to be commoditized

9. Trend: Development of New Roles for internal HR Departments Implies: Evolving accountabilities for growing Human Capital Value
“Total Value
Accountabilities”
System
New internal
Staffing Models
Supply chain management skills
Change management and communications skills
Project management skills
Relationship Management internal and external
Measuring performance of providers
Economies of
Scale
Lower
Administrative
Cost
Vendor
Performance
Optimal Use of
Human Capital
Outsourcing heightens the visibility of HR services within the organization because everyone is impacted
HR business leaders will be more visible at the executive level because they will demand information on the performance of the outsourced services
HR will be judged by its abilities in implementing HRO
HR’s objectives will be two-fold: Lower Costs and Add Value
In lowering costs they will responsible for setting up a new internal service delivery organization model, economies of scale (getting more because of the new relationship) spread across many clients and monitoring the performance of the vendor. As part of enabling these outcomes they will need to understand and benchmark leading edge systems applications, provide for high quality of six sigma like process excellence and manage the best mix of vendors that optimize the solutions. This will bring to the bear new skills in knowing what normative systems are available and applying them, and practicing change management project skills.
The strategic value added roles will be about better and more effective application of the use of talent in the organization and designing reward programs that align with the business by rewarding or motivating actions that deliver business value. To do this requires data from providers and quantitative models that frame decision parameters.
Strategic
Value Add
Effective Comp &
Ben & Talent
Management

10. Broader base of opportunities in providers to learn HR content
Trend: Emphasis on New Career Opportunities for Professionals Implies: Defining new Jobs and Job Descriptions
Business Alignment
Vendor Relations
Sourcing
Transformation
Skill Building
Knowledge Transfer
Broader base of opportunities in providers to learn HR content
Cross flow of employment between providers and companies
Provider data and knowledge brought to fulfill strategic mission
Opportunity for multi-client, multi industry base of knowledge
Inside
Outside
In an outsourced environment there are new opportunities for HR in the company and with Providers
Inside the company there are relationship roles in managing the vendors
Inside are change agent roles accountable for transforming the process to make them more amenable to technology and more efficient
There are significant roles in communications to all employees about the changes as they evolve
In the Provider community, HR can join as their first job and practice any of the disciplines like benefits, HRIS, payroll, relocation, training administration
Within the Provider community HR professionals can transfer among the disciplines to acquire content knowledge
HR will be exposed to the practices of many clients and yet have a firm grip on normative solutions
We will rely on these 3rd party HR professionals to have best practice and market knowledge
Knowledge transfer between client and provider is a source of operating excellence, HR in both the inside and outside organization in the best situation will work closely in sharing information and handling requests of one another
There are new jobs which haven’t been a part of traditional HR such as data and analytics advisors, relationship builders, vendor relations managers. All of these encompass more a feel of managing the total HR business versus just a service approach
Analytics
Webmasters
Discipline Expertise
Process Solutions
Best Practices
Customer Responders

11. Cultural adaptations accepting low touch alternatives
Trend: Small/Mid-Sized HR outsourcing markets will expand Implies: Building integrated business process solutions no matter size
2 Million Small Businesses:
Payroll, not HR
ADP, Ceridian, Paychex
Effective use of technology drives efficiencies and value added services
Cultural adaptations accepting low touch alternatives
Partnerships for economies of scale
Generalist small company HR role to significantly change
2,000 Mid Cap Companies:
Full HR
HR is stretched today
Underinvestment in HRIS
Clients ready to accept “normative solution”
The large known firms have built their HR outsourcing practices on the relationships of the past, such as a specialty in consulting, 401k and other niches
They have gone after the large Fortune 500 companies with much success and now are creating their marketing approach to the middle sized organizations of $1B turnover plus
Their attack has been on the stretched resources in these companies today and the underinvestment in technology and the world of web-enabled transactions have been rapidly expanding. Their offer is to build the services off the platforms already in place for the larger companies
For small companies, they have already utilized the payroll process as an outsourced option. Even payroll can be purchased through Costco for small firms at a fixed price per check.
To enhance their payroll business, companies like ADP are expanding up to chain to include services like benefits along with payroll. As Paychex expands their offer is for more services provisions to clients not just payroll
For HR in small firms where there has been typically a generalist and a few others, there is a question about their future role
Will the generalist be able to move into the more value added strategic space and is there enough work to support that role in a smaller firm
The key to value in this expansion is technology, one time investment shared among clients
Fortune 500:
Full HR
HR is good today
Hewitt, IBM, Accenture, Arinso, Fidelity, ACS, etc
Clients demand customized solutions

12. Trend: Demographic Changes will up Outsourcing’s appeal Implies: Fitting technology appropriate to the workforce skill base
Recruiting is more strategic than ever and more difficult
Access to HR tools is as close as any computer
Less personal and low touch services become the norm
HROs are the largest recruiters for HR talent
Transition for retiring workforce
Facing the challenge with workers who are not IT connected in their jobs
War For Talent
A backdrop to the move to outsourcing is the shifting need of HR inside companies to work more on talent management
Talent is the key to any organization’s success and the worrying future around the lack of people because of the boomer story, lower immigration rates and drop math and science studies is creating pressure on organizations to hire away the best, making for fierce competition
HR really desires outsourced providers to handle the day to day because they are being pulled to focus on Talent Management as an urgent business priority
This is true for HRO who will compete for HR graduates alongside your companies
Behind the backdrop is technology and a diverse group of people, some IT enabled and others less able to navigate or having access to the IT environment
Moving the culture in an organization from high touch to low touch involves the best of communications skills, change management and culture building—a necessary role for HR
Recruiting the best HR people will be tougher, one of the new priorities of HR will be talent management in the firm, and HR will have to partner with their IT colleagues to manage the pace and complexity of the new IT challenges

13. Service level agreements Return on investments analysis
Trend: Demand for Improved HR metrics Implies: Learning to apply quantitative data as decision drivers
HR, Operating Leaders,
Project Teams
Service level agreements
Return on investments analysis
Value realization techniques
Human Capital Value accounting
Cash flow, capital investments, non-cash items accounting
Moving from provider of services to accountability for business performance
Source Data
Global Data Base
Line managers want data and not just historical data and they want it now and on demand
There is an unfilled request that data based on history can be somewhat predictive
This data and its implication and predictive nature can lead to a seat at the table where HR is value added service
HR can enhance their role by becoming data junkies and the outsourcing providers are in a good position to help with data from the company and other clients
As a manager and caretaker of a large budget spending, HR will be expected to act like a manager and fiduciary of that spend
HR will be expected to describe the return on investment and the options as inflation and costs escalate—more quantitative and a more financial focus
HR must be able to answer the what are getting for our money and Total Cost of Employment questions
Remote Data Mgmt

14. EDS joint venture with Towers Perrin Hewitt buys Exult
Trend: Consolidation, Competition, Sole Sourcing Reshape Industry Implies: Relying on performance of one to many providers
ACS buys Mellon
EDS joint venture with Towers Perrin
Hewitt buys Exult
IBM sells HR services units to Fidelity
Oracle buys PeopleSoft
Managing redundant systems
Contingency Planning
Crisis Management
Supply Chain disruptions
Optimization decisions on number and scope of services
Monitoring financial and ongoing viability of vendors
Health-check on work climate at providers
“Between January 1993 and October 2003, a total of 509 HR Outsourcing transactions were recorded with 30% of those disclosing value that aggregate to a total of $14.4 billion.” (Mergers & Acquisitions Group, Robert W. Baird & Co.)
The affects of a maturing market are already being noticed
When the larger players start buying one another you have a move toward a more mature market continuing to shake out
Estimations are this shake-out will continue and some of the smaller players will either join up, fall by the by, or just become niche players
HR is again in a management position where they must have a contingency plan
Part of the plan may include staying with a few providers versus an integrated sole source solution
As the margins are relatively small in a mature market, there will be pricing pressures. How will HR respond? Where’s the long term HR plan for future changes and options?
If there are choices to change suppliers HR must know the switching costs and plan accordingly

15. HR Managers as Risk Managers Risk Factors*
Trend: Outsourcing Failures will cause Re-evaluation of Decisions Implies: Expanding the profile of Risk Management
Project Mgmt.
Change Mgmt.
Performance Mgmt.
HR Managers as Risk Managers
Risk Factors*
Loss of Institutional knowledge
Lack of internal staff/capability
Difficulty managing vendor relationships
Mismatch of cultures
Security of databases with providers
Lack of vendor knowledge of industry
Sarbanes-Oxley Compliance
Financial stability of chosen vendor
Organizational resistance
Security of transaction in multi-client env.
Unpredictable costs
Cost/benefits not realized
What Failed and Why?
Contracting
Negotiation
ROI Analysis
There have been failures in outsourcing
There have been cases where services were brought back in house
HR must tackle the root cause in such cases
What went wrong, the project management, change management, performance management, contracting, no cost or service benefits
As the survey of risk factors implies, there are many things that can go wrong
As HR it may be prudent to create a Risk Manager role in larger organization that can deal with contingencies and the wide array of compliance and regulatory issues that remain with the company
How Much $$$$?
Source: Adapted from Bajpai, N., J., Arora, R., & Khurana, H. (2004, June). Global services sourcing: Issues of cost and quality [CGSD Working Paper No.16}, 2005 SHRM
Research Quarterly 3rd Quarter, page 6.

16. Building Blocks of the Future
Strategic Sourcing--Integrate HR Operations between supply partners and technology solutions
Effective Technology--Build the infrastructure with efficient fit for purpose technology
Access to Data--Create innovative reporting and strategic advice linked with business performance metrics
HR Excellence--Grow competencies and capabilities of HR team
We should embrace the option of outsourcing as a tool for doing our jobs. It gives us flexibility, choice and options for using our time and the time of others
We must build a solid technology infrastructure. The technology is the future in service delivery, speed to communications, and a part of our culture in the US and global community of work
Data and information is our life blood to a seat at the table. The more we know about our people and what works to motivate them and retain their skills, the better we are able to meet the goals of getting the right person in the right job at the right time
We need to hire different skills, train in different disciplines and build a new set of capabilities for HR people.
Outsourcing has changed us. We are a profession who are no longer about rules, compliance, and keeping people happy but we have a new offer, the strategic value add is upon us. Outsourcing can help us and sustain us when we’re at the table.

17. Learning from the Journey
Can’t wait for everyone to be “happy”
We are problem solvers for the organization
Lots of people have advice but go with those who deliver
From challenge and debate comes progress
Details and data are the foundation of good execution
It’s broken so we better start fixing
There is a war for the best HR people
Successful performance is proportional to the amount of change
Belief in death is self-fulfilling
Align and support the business leaders who are creating success
Have the commitment and passion to put your job on the line

18. Our Future ADD VALUE KNOWLEDGE TRANSFER AND RELATONSHIPS
STRATEGIC ALIGNMENT
PERFORMANCE AND REWARDS
CHANGE PROJECTS
Thinking about our future using the framework of the Mckinsey 7s model, we are building a new construct.
Our superordinate goal is to add value.
Our structure is built around a culture that can transfer knowledge among many parts and relies on relationships internally and externally.
Our strategy is to align ourselves with business imperatives, those imperatives that deliver what the business needs to assure it can sustain itself, prosper and achieve its objectives.
Our style is to be performance based and driven, only reward our staff and those within the organization for accomplishing and achieving the plans we have set for ourselves.
Our systems are built from a solid foundation, implemented with the best of change management practices, all the while cognizant that change is ever more. The leaps in technology based solutions and inherent environment changes mean we must always be in change mode.
Skills necessary to do the HR jobs are not the sole domain of HR. The reside in finance, accounting, the business line, outside providers and many others. The HR of the future pulls together all the resources as needed to achieve its purpose.
The staff of HR realize that what we did and knew yesterday are only part of what we need for tomorrow. New skills and competencies are needed and they will not be a list that when ticked can announce proficiency. Knowledge, practice, application and inquiry will be our future.
OPERATING WITH SKILLS OUTSIDE
DIFFERENT HR COMPETENCIES