Over There

When it comes to offshoring HR services, the benefits can go beyond cost savings. However, the issue must be approached delicately with employees.

Friday, March 16, 2007
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We think globally, communicate globally, buy globally and sell globally. It was only a matter of time before even domestic companies began to operate globally via offshoring.

However, offshoring -- the moving of certain business functions (including those related to HR) beyond the borders of an organization's home country -- has been a political hot potato for several years running, as any regular viewer of CNN's "Lou Dobbs Tonight" can attest to. A survey conducted last December by the Chicago Council on Foreign Relations found that 76 percent of the U.S. public said offshoring is "mostly a bad thing because American workers lose their jobs to people in other countries."

This negative view compared to just 21 percent who believed offshoring is "mostly a good thing because it results in lower prices in the United States, which helps stimulate the economy and create jobs."

Clearly, companies that intend to use offshored services should anticipate some negative feedback from employees and plan a communications strategy that emphasizes the business reasons behind it, framing it in terms that emphasize the organization's long-term health.

In fact, the business reasons for offshoring have changed in recent years. Bottom-line savings is chief among them, but other benefits to this "global mind-set" abound. Companies that take the time to craft a comprehensive strategy for offshoring that includes preparing employees for the changes involved will be best-positioned to reap the benefits of such a move.

A Balanced Approach

"Offshoring is about keeping jobs," says Michel Janssen, managing director of globalization practice at the Hackett Group, a consulting firm based in Atlanta. An organization that sources talent effectively, provides comparable quality at a lowered cost and redirects its existing people to more important tasks is better equipped to survive in the marketplace, he says.

"It is a broader issue than just pure cost," says Steve Joyce, Hackett's HR practice leader. Joyce admits that, while cost isn't everything in offshoring, it is still a big part of the equation. But whereas the opportunity to take advantage of wage arbitrage between the United States and developing nations used to be the reason to offshore, it's no longer the only one.

"If you're talking to the CFO, he's very focused on reducing cost," Joyce says, "but if you're talking to HR executives, they want to have a more balanced approach -- they're recognizing that lowered cost is important, but they're also looking at the other, holistic side of this, which is, Are there overall benefits? Will you see better productivity?"

That's what companies are increasingly looking for: better productivity, and better people to fill an increasing number of jobs. Although 80 percent of respondents to a 2006 study by Duke University's Fuqua School of Business and consulting firm Booz Allen Hamilton cited "cost reduction" as an important or very important consideration when evaluating an offshoring move, almost 70 percent of respondents also rated "access to qualified personnel" as equally important, up from 40 percent in a similar 2004 study.

Annella Heytens, division practice leader for international and west at Bethesda, Md.-based consultancy Watson Wyatt, points to the widespread prediction of a U.S. labor shortage in the coming decades. There will soon be more jobs than there are people to fill them, and by around 2020, organizations will need to decide which jobs they want their limited workforce to fill. Should it be payroll and answering customer queries, or higher-end strategic work, such as designing benefits plans and managing talent and training?

With the HR offshoring market vaguely described as "still small but growing," it's uncommon for companies to offshore the entirety of their HR functions. It happens piecemeal, says Heytens, with the most rules-based, transactional processes going first. In this way, freed of "turning the crank" tasks, HR can see productivity increases immediately.

And that's the point, says Heytens. While offshoring is a future solution to a U.S. talent shortage in fields such as engineering and research-and-development, it's a potential solution for HR right now. HR, which has always had a tough time proving a demonstrable return-on-investment, has grown increasingly lean in many companies as of late. And yet, it's being asked to do more with less. By sending some of their lower-end processes offshore, companies can ensure their employees who remain in the United States will have more bandwidth for strategic work.

If you've followed the sleight of hand in the above example, you'll notice that no U.S. jobs have been lost. But as most people know by now, jobs are sometimes lost, including HR jobs. The Duke/Booz Allen Hamilton study found that in approximately 46 percent of HR offshoring implementations, some U.S. jobs were lost. However, Janssen says, offshoring is simply one of many factors that are impacting HR jobs.

"There are more jobs that are impacted by employee self-service HR than offshoring," he says. Whereas employees used to see an HR generalist to update their benefits, change addresses or add a child to their health plans, they now often log into their company's corporate portal and do it themselves. That generalist may be out of a job, but ESS doesn't have the sinister image that offshoring is sometimes given.

This raises an interesting point: Many HR functions today are handled without person-to-person interaction. If those functions -- ones that have already been outsourced and are non-contact -- are moved offshore by the HRO provider, the employee reaction may well be non-existent, because nobody will realize a switch has been made.

Talking the Talk

Companies will need to be careful when it comes to transactions that do involve human contact, says Mike Caruso, chief operating officer of Plano, Texas-based HRO provider ExcellerateHRO.

"In a very personalized transaction, you need to be able to identify with the person on the other end of the telephone," says Caruso. "It's important to develop a rapport. You can't do that if you're in an antiseptic, 'I can't get this person to really get what my issue is' mode."

A communication barrier, he says, is about more than differences in accents. When the two people on the phone [have only the problem in question] in common, the transaction becomes scripted and the caller can become frustrated.

Cliff Justice, globalization competency practice leader for Houston-based outsourcing advisory firm EquaTerra, says that while this lack of rapport can occur anywhere, there's a tendency for it to be magnified between different nations.

"If you can't understand them, and they can't understand you, it almost defeats the purpose," he says. "People don't call. They just say, 'It's just not worth calling, I'll just live with the problem.' And then you have behavioral issues that develop within the company."

Caruso says ExcellerateHRO invests not only in classes to minimize accents and make offshore workers more easily understood by Americans, but also in general rapport-building education. Where appropriate, workers are taught to try to eke out a bit of small talk, asking about where the client's employee may have traveled, whether he or she has children and so on. If the call-center employee is able to establish some commonality and good will, then the location in which he or she works is immaterial.

"It's a matter of understanding your company's culture and understanding your destination market," says Justice. This is one of the reasons that HR offshoring tends to center more often in countries like the Philippines than in India, which is a common location for IT offshoring. People in the Philippines tend to watch American TV, speak clear English and be very familiar with the American way of life. This sort of commonality goes a long way when dealing with sensitive, personal transactions such as those in HR.

Michelle Adelman, a vice president at Accenture HR Services, which provides consulting and business-process outsourcing services, says that, in addition to extensive accent and cultural training, her firm instills offshore workers with a sense of culture appropriate to the company they are working for.

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"If they're serving a client based in the United Kingdom, you may see that [workers] are very into U.K. soccer," she says. "Teams will select various British football teams that they follow. There's actually quite a bit of company and cultural training, so the employees can support the company's brand, but also gain a sense of pride and a high degree of engagement in what they're doing."

Different Shore, Same Issues

One of the reservations sometimes raised about offshoring is that sending sensitive employee information abroad sounds inherently risky. However, consultants agree that thanks to encryption technology, data is not typically at any more risk overseas than it is on American soil.

In fact, most offshoring challenges are really the same as those that would arise when outsourcing domestically. Whether an HRO provider will be operating out of North Dakota or Costa Rica, the same care must be taken to preserve quality and manage the change effectively.

"You certainly can sacrifice quality," says Justice. "There are cases where quality has been compromised, and clients will say, 'We now receive a lower level of service, but our costs are lower.' And there are clients who had a lower level of service to begin with, and they've actually had increases in service level while still reducing cost."

To preserve quality, proper due diligence and planning are paramount. Any company considering HR offshoring should ask vendors about cultural and accent training such as Accenture's, and rapport education such as that at ExcellerateHRO. Potential clients should also ensure their processes are carefully documented and understandable, because no outsourcer can work miracles with jumbled and disorganized information.

Watson Wyatt's Heytens suggests pinning vendors down on as many quantifiable metrics as possible. What promises are being made about time-to-fill? How much volume can the call center handle? What "hold times" should be expected? What challenges, if any, will be presented by the difference in time zones? Clients will need to visit overseas facilities in a number of markets, operated by a number of HRO providers, and assess workers' attitudes and communication skills. Spell out everything in the contract so it's clear what is expected from both parties.

"In general, [offshoring presents] the opportunity for a quality improvement," says Justice. "But clients who look at this as an opportunity to simply throw responsibility over the fence and not govern it are asking for trouble. Establishing the right governance organization is probably the single most important activity to ensure that quality improves, or at least stays the same."

The Fear Factor

When doing all the research and planning involved in setting up the offshore installation, remember that domestic planning and research are also key to making the transition a smooth one. Heytens says it's vital to prepare key people early on so they don't get spooked by the change and leave the company. After all, their jobs will change dramatically, and it's common for them to have a justifiable fear of loss of control.

"You may not have all of the staff you need, and half of them are going to be in another place in the world," she says. "Get [key people] involved early on in the process. Have them be part of the transition planning, maybe as part of a multi-business-unit committee that looks at all the various aspects of the change."

As for employees, consultants recommend honesty and ubiquitous communication. Let people know what the company is doing, and why. Is offshoring intended to expand the company's capability for future growth or to improve profitability? Justice suggests developing a matrix outlining which messages should be released to whom, and when. Trying to keep the move a secret is a big mistake, he says. Be honest, even if the move will mean changes that employees will not like, such as staff cuts.

"I think the most important tip is to put all of this in a business context, rather than having it appear arbitrary and capricious," says Hackett's Joyce.

Janssen advocates taking the holistic approach: "Offshoring is about playing to our strengths as a country, which include creativity and having a workforce that's well-prepared for answering tomorrow's questions, not yesterday's questions."

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