Human Resources Outsourcing

Solutions, Suppliers, Key Processes and the Current Market

Ian Hunter, Jane Saunders

• Publisher: Routledge
• Year: 2017
• Print ISBN:
  9780566088018
• eBook ISBN:
  9781351929653
• Topic: Business
• Subtopic: Business General
• Index: Business

This Orion Partners' report addresses the main considerations for an organization investigating a large-scale transference of HR transactional activity to an outsource provider. The report also provides an overview of the market for HR outsourcing services in Europe. There are sections profiling each of the main outsourcing providers in the UK and continental Europe and case studies drawn from both the public and private sector. Human Resources Outsourcing agreements, which typically run for seven years or more, have a critical influence on any organization's ability to deliver its long-term strategy. The Orion Partners' report is a valuable contribution to identifying the right model, locating the right partner and realising the value of one of the most important elements in the current strategic investment for large organizations. It also provides helpful advice on how to manage the impact of outsourcing on the retained HR team.

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EXECUTIVE SUMMARY

This report was prepared by Orion Partners and provides an overview of the market for HR outsourcing services in Europe since the late 1990s. The report also addresses the main considerations for an organisation considering a large-scale transference of HR transactional activity to an outsource provider of HR outsourcing (HRO).

THE MARKET

Orion Partners estimate that the global size of the full service HRO market covers more than 128 deals with a combined value in excess of US$23 billion. The global leaders are Hewitt with 33 deals worth US$7.8 billion, Accenture with 21 deals worth US$4.9 billion and ACS with 8 deals worth US$2.5 billion. The majority of these deals have a North American focus.

The European market for full-scope HR transactional outsourcing, covering all parts of the employee life-cycle, is still relatively immature compared to North America but is showing signs of acceleration, particularly in mainland Europe.

European Market – Key Facts

1. ■ European market relatively immature – 70% HRO deals are first generation deals for over 25 000 employees
2. ■ UK represents 50% of the European market which has grown threefold over the past 5 years
3. ■ Public sector accounts for 19% of the European market
4. ■ Deals have typically taken 18 months to 3 years but are speeding up
5. ■ Average contract terms are 8 years with breakpoints at 3-5 years
6. ■ Average European contract value US$300m

At present, the market is still focused mainly on first generation deals to organisations of over 25 000 employees; this market accounts for 70% of European deals. The public sector market is steadily growing with 19% of European deals coming from this sector, as well as an increasing number of single service line deals in the UK, which may lead to full HRO if proven successful.

Historically, the complexity of HRO deals has led to long negotiation and transition timescales (18 months to 3 years were not untypical) but signs are that outsourcers are becoming more efficient at the process of transition and this timescale is rapidly coming down.

Overall the HRO market is maturing quickly with a significant increase in signed deals in 2005 and 2006 versus the previous period 1998–2004. Some high-profile first generation deals (for example, BP and BT) have been renewed once the initial deal term expired (although in BP’s case not with the same supplier). There is abundance evidence that HRO deals have delivered on their promised cost savings (typically a reduction of at least 20%) but have not realized the ambitions of transforming the strategic value of HR’s service delivery or enabled the retained HR function to increase its profile and perceived value as a business partner.

HRO suppliers are split between those with specific expertise in the HR domain and those who provide HRO as part of a broader spectrum of outsourced/managed services. Although there has been some consolidation of key players, the supplier market appears relatively stable at present. Eleven of the main HRO providers are profiled in this report.

Trends

1. ■ Significant growth evidenced during 2005 and 2006
2. ■ Capita/BBC deal announced in February 2006 and Accenture/Unilever in June 2006
3. ■ 17% increase in worldwide HRO predicted for 2007
4. ■ Average price per employee -US$325 (down 55% since 1998)
5. ■ Predicted increase in ‘multi-tower’, cross-functional deals.

Main providers

1. ■ Top five providers in terms of global capability, offshore resources, size and breadth of portfolio are:
   1. ○ Accenture
   2. ○ ACS
   3. ○ Fidelity
   4. ○ Hewitt
   5. ○ IBM
2. ■ Hewitt are global leaders in HR BPO
3. ■ Accenture lead market in Europe
4. ■ Speculation about a merger between

SCOPE OF SERVICES

Evidence suggests that there is no ‘ideal’ scope of outsourced services; this is typically subject to negotiation. However, an examination of existing deals reveals where the distinctions are generally made between frequently outsourced, occasionally outsourced and rarely outsourced services.

This analysis suggests that HRO rarely impacts elements of the HR service such as:

1. ■ HR policy and strategy development;
2. ■ HR business partnering;
3. ■ recruitment authority and selection decisions;
4. ■ employee relations/collective bargaining;
5. ■ strategic training needs and talent management;
6. ■ exit/severance decisions.

THE IMPLICATIONS OF HRO FOR RETAINED HR

Evidence suggests that outsourcing organisations frequently underestimate the impact of HRO on the retained HR function. A lack of clarity around retained HR roles leads to uncertainty and a tendency to act as a ‘double-check’ on the outsourcer instead of focusing on strategic, value-enhancing services.

Depending on the extent to which ‘specialist and advisory’ services are included in the outsource arrangements, the ratio of support for the retained HR function can fall from less than one retained HR full-time equivalent per 250 employees (1:250) to more than 1:1000+.

Key considerations for the retained function in the HRO process include:

1. ■ Integration of service delivery, business objectives and strategy (the service led design concept);
2. ■ developing a clear view of unique or business specific activities that cannot be effectively outsourced;
3. ■ differentiation of discrete, self-sufficient processes from embedded processes that are complex/costly to extract from the business;
4. ■ the extent to which routine HR management is delegated into the ‘line’.

In managing the transition to the new service it is important for the retained service to establish the scope and rate of change most appropriate to the organisation. Different elements of the HRO service can and should be developed at a pace appropriate to the delivery of benefits and the management of risk.

The retained function will need to take on new tasks, principally the management of the external service provider and their performance. This is likely to demand new roles in the function, such as ‘Account Manager’ and ‘Service Analyst’, to manage service governance. Relationship management must, typically, be a jointly owned process that focuses on:

1. ■ Developing the service in line with changes to business strategy;
2. ■ flexing the service to meet operational demand;
3. ■ measurement and reporting on service performance;
4. ■ providing formal service management forums.

The move to HRO will considerably change the traditional career paths for HR and historic routes to senior positions via transactional services have to be reconsidered. Secondments and transfers to/from the outsource providers may offer the potential for a full breadth of professional development opportunities. In addition HRO typically stimulates demand for new career paths and new skill sets in the organisation – for example:

1. ■ Contract management;
2. ■ business planning;
3. ■ internal consultancy;
4. ■ career management.

CONTRACTUAL OPTIONS FOR DELIVERY OF HRO

Multiple options have emerged for structuring contracts with an HRO provider. The key considerations will include:

1. ■ Client concerns/demands for simplicity in the deal;
2. ■ approaches to risk management;
3. ■ cost of service;
4. ■ requirements for ‘best in class’ services versus the ‘one stop shop’ approach;
5. ■ the potential to realise VAT savings through the structure of the deal.

Six variations of HRO contract are considered here including:

1. ■ Simple ‘classic’ arrangements with a single service provider;
2. ■ a single service provider utilising multiple sub-contracted services;
3. ■ multi-sourcing arrangements with several service providers;
4. ■ multiple service providers operating through a single joint venture operation (a special purpose vehicle (SPV) consortium);
5. ■ custom...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• Acknowledgements
• 1 Executive Summary
• 2 Introduction
• 3 Overview of the European Market Size and Growth
• 4 Indicative Scope of Services
• 5 Implications for the Retained HR Function
• 6 Contractual Options
• 7 Engagement and Transition
• Appendix A: HR BPO Deals Europe >$50M TCV ‘99-O6
• Appendix B: Case Studies
• Appendix C: Leading Provider Profiles
• Appendix D: Scope of Services
• Index