Call for Better Practices

Sunday, January 1, 2006
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In the HR outsourcing industry, we are entering the Age of "Generation 2." We have come through the creation of full-spectrum outsourcing, and a wide range of companies headquartered in both the United States and Europe are now actively engaged in outsourcing parts of their transactional HR work. It is now time to focus on how the business can thrive, and this is a call for service-provider dedication to best-practice development as "Gen 2" moves forward with HRO.

In human resources, we have tended to look at very large employers as models for benefits, innovation and best practices. In manufacturing, we paid very close attention to General Motors, and in technology, to IBM. Johnson & Johnson was also long viewed as a model employer. These are all organizations with fine, even great, HR models.

What we have not focused on is the fact that while many outsourcing service providers are not large by any means, several are providing HR services to more employees, dependents and retirees than GM, IBM and J&J combined. We estimate, conservatively, that HR outsourcers today are providing services to more than 2,000,000 employees, retirees and dependents.

The development of HR best practices was long served by academics, consultants and employers, all driving for efficiency and the best way to deliver HR services. That common-interest group still exists. What is less clear is how much and to what depth the HRO providers are tapping into this body of knowledge and development.

In part, outsourcing service providers may not recognize the need to provide best-practice flow to their clients. Within the master service agreement, service levels are clearly defined, and the primary responsibility of the provider is to meet those standards or exceed them. Certainly, an outsourcing provider can be counted on to offer process innovation or service changes when doing so clearly improves its margin or better utilizes its capacity.

What I am more concerned about is whether outsourcing service providers recognize the need to continue to innovate and develop best practices for transactional services apart from margin improvement. Outsourcing clients are best served when providers recognize the three-way partnership between the outsourcer, the company and its employees to provide the best service possible, given the constraints of technology, access to service and understanding of the variables of the service offered.

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Best-practice development is not an abstraction. Instead, it involves looking beyond internal process quality to those elements of service that drive costs down, while also providing fully available service that can easily be understood by the users of services. True best practice development involves design, implementation, trial and error, and rigorous satisfaction testing and measurement.

Providers need to step up and go beyond meeting contractual service levels. The HRO-provider industry survivors will be those that tap into helping their clients deliver the best possible HR service to all their stakeholders.

Lowell Williams is human resources practice leader for EquaTerra, a leading BPO consulting firm located in Houston. He can be reached via e-mail at

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