As the number of HR service and product suppliers grows, HR executives increasingly find themselves in the vendor-management business, which is not usually the best use of HR leadership talent.
While there is no rule of thumb for the number of vendors relative to size of employee base, it is not uncommon for North American employers with more than 10,000 employees to have more than 300 human resource vendors supplying services to the company.
The touch points between various suppliers are critically important, and HR sourcing officers can help ensure handoffs between suppliers are seamless and employees are both treated well and informed of the various changes between the respective plans.
HRSOs can take advantage of a wide variety of available governance tools and applications that can help them manage this growing area of HR. It is not critically important where the function resides, and we have seen some companies lodge this responsibility in finance, procurement and HR. What is important is that the HRSO has the experience, tools, staff and recognition necessary to do this critical function well.
Overall management of HR suppliers is critically important, and HR has unique needs that are often not understood outside of line HR management. Quality of handoffs between the company and its vendors, as well as between various vendors, is a crucial key to employee satisfaction. It is also a primary reason that progressive companies are turning to internal HRSOs.
A second major reason for HRSOs is the sheer volume of contracts, service-level measurement, contract-term changes, renewals and vendor changes. Not every contract needs to be addressed every year, but major re-bids or renegotiations can each absorb 100 hours of time. This can become a major burden on HR management when there is not a dedicated team and process in place to address contract management on a systematic basis.
The third major driver for HRSOs is financial. The annual spend running through the HR operations budget for external services and supplies is often as much as the internal HR operations budget, and some regulatory requirements may dictate that companies have dedicated governance professionals in place to verify quality of results and to limit or avoid fraud and waste.
The dollars at risk with poorly supervised vendors and suppliers can be very substantial, and there is also the very real risk of public embarrassment and reputational harm from poor supervision and governance of external suppliers.
Although organizations may be hesitant to add new positions in this economic environment, the complexity, variety and sheer number of HR provider and supply contracts, the large amount of spend flowing through those contracts, and the financial and reputational risks that occur with poor management of HR vendors dictate that more HRSOs should be put in place. Then HR executives would be freed to return to the finding, building and retention of human capital.
Lowell Williams is a director in KPMG's Shared Services and Outsourcing Advisory group, based in New York. He can be reached at lcwilliams@KPMG.com.