Top Seven Reasons for Outsourcing*
- Save money, reduce operating costs (56%)
- Control legal risk; improve compliance (55%)
- Gain access to vendor talent, expertise (47%)
- Streamline HR functions (45%)
- Offer services the organization couldn't otherwise provide (44%)
- Allow the company to focus on its core business (42%)
- Reduce the number of HR staff (41%)
*Top Reasons for outsourcing: Evren Esen: SHRM Human Resources Outsourcing Survey Report (2004), page 4
A San Francisco weekly I sometimes read once ran a picture of Lilly Tomlin wearing a black T-shirt with "evolve or die" stenciled across the chest in large white letters. While I've forgotten the interview, I was reminded of this tag line by the lead article in the August Fast Company. Entitled "Why We Hate HR," Keith Hammond's anti-HR is quite clear-but unfortunately, his critique is sound. HR is at a crossroads and must evolve, or die.
Today, HR is paradox:
- For employees, it works best when they don't need to pick up the phone and interact with HR at all
- For employers, it's is an unfortunate cost center they'd love to be rid of
- Therefore, to many HR professionals, success and security are measured in both decibels and dollars: less noise, less cost equate directly to greater job security.
But not long ago, HR professionals were believed to add value-real, measurable value. What's changed? Fundamentally, the continued improvement of systems and business processes over the course of the last twenty-five years have lead to increased standardization in plan design, which has enriched vendor's abilities to provide wider, deeper offerings.
Why are HR professionals feeling the pinch today? In addition to the continued implementation of HRMS systems and the standardization they impose, the combined effect of three different, but related drivers-outsourcing, offshoring, and "ownership"-are being felt acutely in HR.
Over the past ten years, outsourcing ranging from individual plans and services to total HR administration has taken off, driven by a sharper focus on HR as a business area ripe for cost containment and the efficiencies of service and scale promised-though frequently not delivered-by outsource vendors.
So today, HR leaders-and in some cases, managers-must deliver strategic results or leave (put another way, their roles must evolve, or die), but many lack the essential skills, or knowledge, or in some cases, tactical support necessary to enable them to succeed. In turn, as they lose reporting staff and gain contract and service management accountabilities, HR managers often end up managing vendors and contracts, not people and relationships, and must work more closely with business partners to deliver on bottom-line-driven objectives.
The second major driver is offshoring, or the movement of U.S.-based jobs to other geographical locations where the work can be done at a lower cost per hour. While the effects of offshoring have been felt most strongly in the manufacturing and technology sectors to-date, traditional barriers to offshoring the work of other information-based sectors are falling fast.
Today, most HR outsource vendors provide service support within the United States, but as the many vendors providing services today consolidate, it's a reasonable assumption that many of the remaining providers will offshore HR services. As a result, the unit cost of providing services will fall further-and the cost differential between providing HR services internally and outsourcing them will become even more pronounced.
The third major driver changing the role of HR is a gradual reframing of the implied covenant between employers and employees. Driven by numerous causes, this boils down to a shift of responsibility for forms of security employers have traditionally provided-such as pensions, health care, disability insurance, and so on-to employees. Like outsourcing and offshoring this trend has been underway for awhile, but several years of double-digit healthcare cost increases on the employer side and the Administration's focus on developing an ownership society have left increasingly fewer obvious avenues for HR professionals to generate value.
Outsourcing + Offshoring + Ownership = Opportunity
While this looks like a bleak landscape for the HR profession overall, it's actually a time ripe with opportunity-if you know where to look and what to do. Some basic drivers of HR's traditional value haven't changed. No matter where they work, it's still true that well educated employees who share the organization's vision are the most important factor in its success.
It's still true that people typically work best and contribute voluntary effort most willingly when there are "ties that bind;" when they feel they are recognized, valued contributors to their company's business strategy.
And yet, according to recent Conference Board survey data, the current reality is that:
- 25% of employees are "just showing up to collect a paycheck"
- 40% of employees feel disconnected from their employers
- 66% do not identify with or feel motivated to drive their employers' business goals and objectives
Think about that for a moment. While it's not possible to quantify the exact cost when two out of three employees aren't interested in driving the organization's goals or objectives, given that payroll costs are the largest hit on the bottom line in most industries, each of these data points represent an important operational risk.
Taken together, this disconnect between how employees feel about the work they do and the current state of the HR profession offer a clear, simple illustration that there are indeed opportunities to add value in HR-and good reasons for HR professionals to work on delivering that value.
Interestingly, the most important area in which HR has traditionally added value has been largely invisible in the cost-driven context outlined earlier but anyone who's had a great experience with traditional HR delivery will attest that when it works best, HR is nothing less than the living embodiment of the employment promise.
Though the direct manager and work group drive one's day-to-day experience of working, it is through HR that employees have traditionally interacted with their organization.
HR's Evolutionary Path: Brand, Attraction and Retention
During the same decade that has challenged HR with accountability for adding strategic value, the dot-com bubble saw employment branding grow from an interesting idea to a strategic imperative. And though the employment bubble burst, the number of companies engaged in employer branding has continued to grow. That's largely because of an increased understanding of internal brand's importance as driver of external success, but it's also a response to the gradual disappearance of "the HR office down the hall" as a physical embodiment of the organization's mission.
While yesterday's mode of interaction with the organization via HR administration may no longer be viable on a cost-per-transaction basis, today, there is an evolutionary path available to HR, one that provides an opening to add measurable strategic value.
HR still holds three essential strategic levers with tremendous tactical impact: control of the employment brand and accountability for attraction and retention. Because they speak to the organization's fundamental need to execute against its mission, each is essential to the organization's viability.
The organization's consumer brand In the January Edge we'll look at how to build an employment brand position that's clear, relevant, resonant and differentiated. In this space, let's look at some emerging trends in employment branding. The strategic value each of these adds should be clear and compelling.
- From attraction to engagement:
Today, employment branding is largely "owned" by recruitment. But this is primarily because the rest of HR hasn't caught up with the value of brand stewardship. In coming years, as employment brand moves beyond recruitment, every employment touch point will be infused with it. And, as the proliferation of niche communications media continues and viral marketing largely replaces conventional marketing, we can also expect an increased emphasis on brand ambassadorship.
- From vertical integration to benefits differentiation:
Today, many larger organizations spend heavily on providing benefits, then control costs by outsourcing plan design and administration. As a result, when benefit communications are vertically integrated with the employment and consumer brand position, best in class organizations are doing little more than generic copy smiling faces in alignment with the employment brand. Soon, when employers begin to recognize the opportunity cost of generic benefits positioning and strive to differentiate offerings, they'll begin to push vendors to provide creative executions based on differentiation. (Think about it: if your firm and my firm both offer retirement plans administered by Vanguard, for example, what kind of incentive does my firm's investment in that relationship provide me not to jump ship to yours? None: and that's an easy problem to solve.)
- From perception to education
Today, the primary emphasis in employment branding is perception management. Organizations find out who they are in the eyes of employees and the marketplace, find the "white space" among the aspirational-but-true things they can say about the work experience they offer, and build messaging around those truths. Tomorrow, as employment branding matures further, organizations will become more focused on educating the key sub-segments of the marketplace they want to reach on the reality of their job offer, as opposed to the employer. Think of it this way. Today, we brand the employer; tomorrow, we'll also brand the job req. for certain hard-to-fill roles.
It's well and fine to provide futuristic assessments of where employment branding is going, but how do you bring your organization into that future? The answer will naturally depend on the particulars of your industry, size and complexity, but these guidelines are a good point of departure.
- If you're in HR, act like a business at risk. You are.
But that's not a bad thing. Being a business at risk provides both the opportunity and the leverage you need to effect change. Start by asking yourself what's your unique value proposition? Imagine "your employees" could shop anywhere: would they buy the benefits, the services, the work experience your organization offers? And since they can, in fact, shop anywhere, what's keeping your employees employed with you? Any answer is okay-except "I don't know." If you don't know, it's time to do some serious market research. If you do, this is an opportunity to begin adding value by quantifying the turnover cost your organization is paying and measuring that cost against the cost of making changes to the areas of pain research turns up.
- Make new friends.
The world of HR is shrinking, the vendor's role is growing, and the opportunity will be in different pastures tomorrow. But benefits and recruitment control the largest chunk of discretionary employee spending (outside pay). Tomorrow, you will work together closely. Why wait? (And while you're at it, reach out to Marketing Communications too.)
- Change what you measure.
As a general rule, the parts of HR currently involved in vendor management need to move beyond measuring vendor response time to measuring customer needs, wants, desires-and price sensitivity. Use real research, not "squeaky wheel" metrics-and to a model of employment where employees are seen as customers with other employment options available to them. Your new friends in marketing can help, maybe even for free and exit interview data should offer additional key insights. (And if you're not doing exit interviews, that's a front-burner opportunity to add value.)
- Change how you market.
Every employee touch point should reinforce key organizational values. Here's an opportunity for recruiters to add huge value to colleagues in benefits who don't typically think with the same market focus. Today, benefits thinking tends to stop at "here's how it works." Benefits needs to get to "here's why it fits." Working with benefits to make this change will help them to consider prospects as among their target audiences, to get beyond open enrollment and retirement to work lifecycle, and to make a more compelling employment value proposition.
- Educate your service providers
If you've already outsourced HR services, demand service that supports your brand, not theirs. Insist that your service providers understand your brand-and that their understanding goes beyond knowing the cute names you've developed for your different offerings. Measure them on their willingness to customize to support your brand-starting with your outsource RFP.