HR leaders who want their outsourcing ventures to go well should be prepared to hold themselves -- not just their vendors -- accountable for success.
Jody Wyrsch says she feels very positive about her company's two-year outsourcing experience.
Wyrsch, senior regional human resources manager for Travel Traders, a Miami-based company that operates hotel gift shops, has been successfully outsourcing payroll, benefits administration, employee relations, and training and development functions to a single vendor since 2004, when the company changed ownership.
According to Wyrsch, if there is a single critical factor to Travel Traders' good HR outsourcing experience, it has been ensuring that her department's relationship with its vendor, Lawrenceville, Ga.-based HR business-process-outsourcing vendor PlatformOne, is functioning as a true partnership.
In 2004, Travel Traders decided to relocate its headquarters from Atlanta to Miami and downsize its corporate staff, which meant it would no longer handle benefits and payroll internally for its 1,200 employees at 200 locations in 30 states.
"From the start, we had a clear-cut understanding about who would do what. We worked collaboratively with PlatformOne," says Wyrsch. "Most of all, we knew it wasn't just about handing off the responsibility to them. We had to do our part as well."
Put another way, while much discussion is devoted to the need for HRO vendors to improve the quality of the services they provide, the people who hire them also must improve their vendor-management skills and outcomes.
"HRO customers have to retain accountability for success," says Steve Joyce, HR practice leader at Answerthink, a Miami-based consulting firm. "In many early outsourcing deals -- and even in some current ones -- HR executives believed they were outsourcing accountability. If you do that, you are not likely to succeed. You may be using a different source to get the work done, but it needs to be a partnership for success."
One of the first orders of business between an outsourcing vendor and a customer must be for both parties to agree on ways in which success will be defined in the relationship, says Joyce. At Travel Traders, Wyrsch defines success with PlatformOne by the latter's quick responsiveness to any requests or concerns. Wyrsch also holds a monthly conference call with the vendor to provide a forum for discussing any issues from either side.
To complete the cycle, Joyce says, outsourcing customers need to determine how success will be measured. Travel Traders does that, in part, by tracking PlatformOne's data processing accuracy, immediately bringing any errors or discrepancies to the vendor's attention so they can be fixed right away.
Westward Dough, a Las Vegas-based franchisee for Krispy Kreme Inc. that also outsources most of its HR functions to a single vendor, measures success by monitoring retention, succession planning, quality of hire and reduced customer complaints. These measures are tracked daily by store and compared to prior years.
As for defining success in terms of its HR BPO contract, Molly Spoor, director of operations at Westward Dough, says HR is the critical driver in that area.
"Our definition of success is all about our people," says Spoor, who oversees HR. "Our people need to create 'magic moments' every single day with every single customer. We expect our HR BPO vendor to play the critical role in that effort."
According to Lowell Williams, vice president and head of the HR practice group at EquaTerra, an outsourcing advisory firm based in Houston, a critical objective for successfully managing the outsourcing process should be instilling a cultural readiness for change. In other words, while there are always different cliques and groups within a company, the entire organization needs to be receptive to change and have the desire to do things differently -- especially to use new systems and systems architecture to drive to a uniform, standardized HR process.
"In HR, that's incredibly difficult, because over the years it's become invested in specificity and particularity," he says. "For example, HR professionals have learned they have value by being experts in seven different legacy pension plans, rather than one uniform plan. Outsourcing is a sea change in many organizations, so they must have the cultural readiness to change.
"This is not just about the HR leader," he adds. "A standardized, uniform approach to transactional processes is what is going to make the company more competitive, and it's also the right way to treat your people. So managing the outsourcing process and the vendors who deliver it requires thought leadership around change management."
Lisa Rowan, global program manager for HR and talent management services at IDC, a market intelligence firm in Framingham, Mass., says the outsourcing customer's expectations must be aligned with what can realistically be achieved through outsourcing. For example, many buyers want to lower costs, but have no idea what their costs are today.
"Buyers need to know the current situation, both good and bad, in order to honestly assess the success or failure of the engagement as it unfolds," she says. "If lowering costs is a goal, the client needs to do a thorough analysis of what the cost basis is today."
In addition, after the honeymoon is over and key players have changed (which often happens), the HR executive in charge might take the stance of "What have you done for me lately?"
"Although this can be a good thing from a vigilance perspective, [in the interest of fairness] clients need to keep good historical records of what the vendor has achieved so that future generations know for a fact whether or not the original goals have been met," Rowan says.
At Travel Traders, PlatformOne got off to a strong start when it quickly hired Travel Traders' recently downsized HR director to handle the account. Also, very early in the process, Travel Traders executed a clearly defined service-level agreement with PlatformOne to nail down specifics.
An important criterion for success, says Wyrsch, is for clients to have a complete understanding of every detail of their existing HR program. Be sure to document the detailed tasks required to deliver each HR program, she says, as well as who currently performs what. Plus, Wyrsch says, clients must understand and document their internal costs so they can later determine the actual value an outsourcing provider is delivering.
"This part of the process prepares your organization to better communicate your requirements to the vendor and evaluate [its] solutions," she says. "It also better prepares you to document the scope of services provided by the selected vendor."
Another important checklist item for maintaining a good vendor relationship is insisting on a team dedicated to your account, says Wyrsch, and taking the time to meet the individuals who will service your account.
"Get agreements from the provider that only qualified individuals whom you accept will be assigned to your account," she says. "This is the first step in determining whether you will receive basic call-center support or personalized support from individuals you know and trust. That way, you can start building the needed personal relationships that keep the communication lines open."
And that, she adds, leads to perhaps the most important aspect of managing the vendor relationship -- strong, consistent communications between your company and the BPO provider. Wyrsch recommends using meetings and conference calls to review open issues, and adds that it's critical to expand the agenda to be collaborative and strategy-driven. "Only when both sides speak up can you ensure an effective working relationship," she says.
In fact, clearly defined expectations and regular communication can ensure a seamless link between client and vendor, says Wyrsch. "We really view PlatformOne as an extension of our HR department," she says.
At Westward Dough, the company "in-sources" its entire HR function to Gevity, a Bradenton, Fla.-based provider of in-sourced employment management services -- in other words, it literally takes over the entire HR function for its clients, to include providing an on-site HR manager.
When Spoor arrived at Westward Dough in 2003, the company had an existing contract with an HR outsourcing firm, but it wasn't a good fit: The vendor was very large, and Westward Dough wasn't at the time (10 Krispy Kreme stores in five states).
So her first move was to find a BPO provider that was a better fit. Ultimately, Spoor says, the firm chose Gevity because it was able to provide affordable health-care coverage to all of Westward Dough's 700 employees (a relatively rare benefit in the retail-food business) and it could provide an on-site HR manager to ensure all HR matters would be taken care of at all hours of the day and night, freeing the company's managers to focus on the core business.
"We in-sourced because we're in the doughnut business -- that's all we do," says Spoor. "Gevity is in the HR business -- that's all they do. So it's a perfect fit."
Gevity's on-site HR manager for Westward Dough, Felicia Ceberio, spent her first two months on the job working in Krispy Kreme stores, learning the doughnut-making business from the ground up.
Spoor explains that Westward Dough needed to make sure Gevity had an intimate understanding of what the doughnut business is all about. It knew in 2003 it was going to grow, so management wanted its HRO vendor to grow with it in a partnership. "Felicia and I probably talk 1,200 times a day," says Spoor with a laugh. "We're in constant communication. The thing that has been terrific is the trust level -- sometimes, people don't want to talk about uncomfortable things, but we talk about all of them."
Get It in Writing
Bob Crow, a senior consultant with Watson Wyatt in San Diego, consults with many large employers, helping them find, evaluate and select HR outsourcers and negotiate outsourcing agreements. He says that while in the larger, more complex HRO deals, there exist potentially hundreds of moving contractual parts that can somehow impact services, fees and expectations, getting it right up-front remains critical for success.
"Having clearly defined goals and objectives and requirements -- before you outsource -- is the first key step in vendor management," Crow says. "Early in the planning and due-diligence phases, clients should clearly articulate what they are trying to accomplish from an overall perspective."
Additionally, clients should clearly define what's not currently working and why, he says. Crow explains that, as these items are refined, it's even more important that clients spend time to clearly define the specific requirements they need from the vendor (e.g., services, processes and sub-processes).
"If clients can't do it alone, they should seek out consultants who can assist them with flushing out the detailed requirements and essentials necessary for the request-for-proposal process," he says.
Another critical vendor-management step is ensuring there are mutually agreed-upon and clearly defined "statements of work" and service-level agreements, with the emphasis on taking the time to be crystal clear around what the client currently does versus what the vendor is committing to do, and then knowing the gaps that still exist in terms of technical or service-related issues.
"There are, at times, disconnects [around] overall expectations between the client and the vendor on who is doing what," says Crow. "Never assume that something's going to be done. Make sure it's in writing and has some measurable service level around it, whether it's technical-, process- or service-related."
Finally, it's crucial to have a vendor management and governance strategy, which Crow likens to an outsourcing "pre-nup."
"It's absolutely critical to have a clearly defined strategy, plan and model for managing the relationship," Crow says. "Here is where HR executives need to make sure that the outsourcing relationship is focused on helping the client achieve the initial goals, objectives and targets."
Vendor management is about keeping both the client and the vendor accountable for ensuring that services are delivered properly and on time.
As for some of the mistakes clients make, he says, the top two include continuing to add scope to the project (without it being part of the initial agreement) and an unwillingness to change.
"I don't believe that the balance of the outsourcing effort has tilted to 50/50 between customer and vendor," he says. "If a customer has a clear view, with clear requirements, a good partner and a good vendor management plan, then I would think that an 80/20 or 75/25 balance would be appropriate. But I don't believe that the customer should ever expect there to be an auto-pilot mode for outsourcing."
EquaTerra's Williams says that, in an outsourcing situation, a major part of what gets done in HR is very detail-oriented.
"Micromanaging is not worthwhile, but the devil truly is in the details in a lot of HR work," Williams says. "There are a whole raft of little issues that can literally block your path to success. The trick is to make sure the provider that is catching the process is generally knowledgeable but also understands any particularities of your situation -- the things that are unique to your HR strategy."