Sunday, May 22, 2005

Outsourcing and Strategic HR

Andrew wrote a nice piece about outsourcers and how they have to change their "look" in order to succeed in the future. To quote him,
Business service providers need to be strategic to truly succeed.
Indeed, being strategic can often involve low-cost delivery to free up a
client's capital for other uses. However, I submit that solely driving
prices to the bottom to gain market share, particularly in areas such as HR
services where the product is managing a workforce, will lead to low service
delivery and poor customer relations.

While I'm not familiar with the couple of Indian outsourcers in his comments, his position is well reflected in the major U.S. outsourcers. If we take ADP and Hewitt as examples of successful models, we can see how Andrew's hypothesis works out. ADP (let's look at PR only) is well known to be more costly than say Ceridian and ProBusiness (while it lasted), and ADP is the 1000 lb. gorrila in this market. The reason they can be more costly and have greater market share is because they have among other things, a generally better track record of compliance and processing throughput when it counts. You could say the same for Hewitt. Hewitt now has the only proven trackrecord of implementations (ok - at least the best in the industry) for HRO. They also have the trackrecord in pure benefit outsourcing - nobody else has the volume at the high end market.

I suppose that while I'm trying to reinforce Andrew's argument, I'm also trying to say that as an outsourcer, allowing clients to be strategic is one method of success. The key is not to be simply transactional or functional.

By the way - It's good to be back, but I'd rather still be on vacation. - Dubs