Sourcing Market Pulse

EquaSiis recently completed a new whitepaper looking at HRO (human resource outsourcing) renewal best practices.   The paper was sponsored by HRO service provider Convergys.  If any of you are at the HRO Summit in Tampa this week, I am there delivering a session on HRO renewals based on this research with Steve Ditty, VP or HR Management at Convergys.

The topic is a timely one given the number of early multi-process HRO deals that are now approaching renewals.  It is important given that one of the key success factors with HRO renewals is to start far enough in advance of the renewal date to give adequate time to work through the process.  So even buyers in the early stages of HRO efforts should have a plan and timing agenda for inevitable renewal efforts.

The paper provides an analysis of renewal options and guidelines (see figure below for one example) and frameworks to employ during renewals.  It identifies key success factors (start early, involve key buyer and service provider stakeholders, reevaluate the HRO business case and realign to the HR and corporate strategies, etc.) and important blind spots to avoid (rearview mirror strategy, renewal isolation, new contract/old premises, etc.)  These best practices are further illustrated through the review of three successful Convergys HRO renewals. 

The paper is useful for buyers both in the early stages of their HRO efforts and especially for those approaching renewals.  Many of the best practices apply to other functional areas of outsourcing. 

Several EquaTerra and EquaSiis colleagues and I attended the HRO World show in New York city this week.  While attendance was down and buyers were scarce there was much talk among the HR service providers there about what human resource related issues buyer organizations should focus on in the current market environment.  While HR groups must respond to extreme pressures to reduce costs they have the added challenge - and opportunity - to help their organizations as a whole limit the long term damage done my over-aggressive or misdirected staff reductions.

Rapid, extensive and often minimally planned layoff efforts have re-exposed that most organizations still do not have a good handle on managing their talent.  Using seniority/tenure, role, or informal management discretion as the basis to determine which employees stay and which go is an inexact and dangerous science.  Often too much dead wood remains and those who depart are the up and coming talent or the true brains behind various operations.  While organizations may meet short term cost savings goals they can jeopardize longer term competitiveness.  They also create an environment where the good talent that remains is more likely to jump ship when market conditions improve because they accurately recognize that the organization cannot discern good talent from bad.

The point is not to just improve the process of selecting who to fire in a downturn.  Or who to get rid of in an outsourcing effort.  Rather it is to address the need to get much better at identifying, nurturing and retaining top talent. 

An EquaTerra and Human Resource Executive market study found that becoming a leader in total talent management was identified as the most important thing HR organizations could do to become more strategic.  This is a perennial problem that is becoming a bigger issue for western commercial and public sector organizations.  It is exacerbated by aging workforces, shifting demographics, chronically under-performing schools, especially in urban areas, and a more competitive global marketplace.     In a separate market study on globalization that EquaTerra conducted last year with the Economist Intelligence Unit, finding and retaining high-quality talent was cited by executives as the biggest challenge facing their organizations.    This is manifested in the growing talent pools of resources in markets like India and China that today perform work for western firms but in the future will increasingly work for local market firms competing with those same western organizations. 

There are many things organizations can do to improve their talent management capabilities.  The biggest one is to prioritize it as a strategic initiative and support it accordingly.  Improvements to process and supporting IT systems and the required cultural changes can then follow.  Parallel efforts to improve learning and training capabilities are also required.  

Tying this back to HRO World, the opportunity for HRO service providers is to move beyond the rote HR work of payroll and benefits administration and focus on more strategic areas like talent management and learning.  This is not in the cards for all providers.  Some are more suited to take over the routine from the buyer and allow them to focus on more strategic issues.  But for a select few, particularly those with strong HR advisory practices and the skills and requisite client permission to operate in these areas, the current chaotic times can create the opportunity to potentially truly deliver transformational HR services around talent and talent management. 

Let me know what you're take on the challenges and opportunities to improve talent management created by current market conditions.

Stan Lepeak

Managing Director, EquaTerra and EquaSiis Global Research