Maybe nothing is wrong with HR Outsourcing. Maybe we only hear about the deals that go bad. I don't know, and I am no expert on BPO, but it seems like there are more negative stories about HR Outsourcing these days than there are positive.
The latest is this week's announcement by NiSource who said that outsourcing jobs to IBM was a failure. Two and a half years after NiSource Inc. reached a 10-year $1.6 billion outsourcing agreement with IBM — and eliminated more than 5 percent of its employees corporate-wide— the company is conceding that the originally projected cost savings will not be realized under that agreement. NiSource has accordingly amended that agreement with IBM and will assume responsibility once again for a range of business support functions which IBM has been performing.
From an outsider looking in, it honestly does not seem like the HR outsourcing industry has evolved all that much since Exult pioneered the concept of large-scale HR outsourcing in the late 1990's (Exult went public at $10 per share in 2002 and was purchased by Hewitt in 2004 for for $6.30 per share). Even the experts disagree about the fundamentals of HRO as captured by Jessica Marquez in her story about HRO from last year's NY HR Week Conference & Expo - I'd expect the dialogue amongst HRO experts to be a little further along at this point in time.
So what is going on?
Last year, Offshoring Times offered this excellent piece on The State of HR Outsourcing which still has relevance today. A common theme seems to be suppliers underestimating the complexity and cost associated with delivering on large HR outsourcing contracts. Blame also resides with the buyers when these deals go bad. Along these lines, an article from 2004 by Samuel Greengard (who references Naomi Bloom's outsourcing expertise) titled 10 Questions to Ask Before Outsourcing also has relevance today. And at the recent HR Technology Expo, Ms. Bloom in response to a question from Bill Kutik about what has gone wrong with HRO referenced many things including (I paraphrase) greed by suppliers who seemed more focussed on inking large deals than on the quality of those deals and the fact that many suppliers were simply not prepared to deliver on the deals. She also said that the next generation of HRO will succeed only when HR practitioners, not consultants, are in charge of designing and executing these deals. We'll see but as I recall from the early Exult days, there were a lot of former HR practitioners on the Exult executive and delivery teams and many of those deals did not go so smoothly.
Could it be that companies must accept the fact that there is a certain minimum amount that companies must spend on HR (and a limit to what HR outsourcing can save) and that HRO success should be measured not by cost savings but broader business results?
Posted by Mark WillamanLabels: BPO, HR Outsourcing, HRO