HROWorld 2008: An industry re-inventing itself

Braving the annual industry HRO schmooze fest this year, I realized I was emulating Roger Federer’s extraordinary Wimbledon run by making it to my fifth-consecutive show.  Only an elite few have made all six – at least I can’t claim that honor -:)

From the moment I stepped into Naomi Bloom’s Brazen Hussies event on Tuesday night and was ordered to eat a heavily-garlicked vol-au-vent with the instruction “we’ve all had one, and so should you”, I knew something interesting was in the air this year.

For starters, all the industry big-guns were there; the leading HRO providers with all had their head honchos; the sourcing advisors; both SAP's and Oracle's BPO teams espousing the virtues of outsourcing on their ERP platforms; every staffing, benefits, talent management, data-something-or-other firm you’d never heard of; and even a few mercenary analysts dotted around the place.  We even had a new double-act to entertain us – the Elliot and Richard show, moderated by the vivacious and cabalistic Jay Whitehead.  This was one networking event when you just had to be there.

So, in true HROWorld tradition, I slammed myself with 20 back-to-back meetings over the two days, supplemented with a constant supply of stale coffee and a constant stream of sales literature I will cherish for a long time (ahem). 

My overall impression of the state of HRO is one of re-engineering to get this right.  This was the resounding message I got from several discussions with the market-makers in this industry. OK, we’ve had a few non-starters recently, but let’s emphasize these were projects that were cancelled before any implementation work had taken place, and in several cases, the contract had just never quite made it to fruition.  This doesn’t imply that HRO is failing; it implies that some businesses have made strategic decisions that now isn’t the right time to undergo open-heart HR surgery on themselves.  And do you blame some of these firms, when the bottom has fallen out of their industry and they might just have some other urgent priorities to rectify?

I wrote a year ago that the industry crystallized around the Convergys/J&J deal, and I was right.  What I liked about this show was the serious discussion on what works in HRO versus what doesn’t.  There was a refreshing honesty from almost everyone regarding the steps suppliers and buyers need to take to make this work…and so much less hype.  In fact we had so little hype, we could have used some.  Most of the suppliers are seriously focusing on what they are good at, and crafting HRO solutions based on their core strengths.  The need for standards and common service levels was discussed at length, with several ongoing initiatives in the industry currently focused on the joint-development of common HR standards and technologies that enable a more robust, repeatable HR delivery model. 

There was universal recognition that HRO works when solutions are crafted from the bottom-up, with services added incrementally and HR leaders having more time to develop successful governance practices, as opposed to some of these massive end-to-end “big-bang” deployments, that have often resulted in a misalignment of expectations and delivery.  This isn’t failure or disaster; it’s a 9 year-old industry testing the boundaries of what works - and what doesn’t.  I’ve been at pains recently to point-out that 97% of HRO deals have succeeded – and by succeeded, I emphasize that they are plugging away to get this right.

Let’s be brutally honest here, this is business process outsourcing – and this is a tough complex business, where things can only go wrong.  You really cannot judge the “success” of any major outsourcing engagement until it’s at least 3 years’ along and transition has been completed.  The day of the billion-dollar mega-HRO deal may be over for now, but take some time to look at the plethora of these “bottom-up” engagements taking place, where companies like ADP and Ceridian are racking up their HRO clientele at double-digit growth rates; look at Hewitt’s re-focused strategy on centering its core benefits outsourcing business as the kernel of its HRO delivery model; and look at Accenture's and IBM’s continuing efforts to optimize their global HRO engagement models, with HR service-delivery centers employing thousands of service personnel across several global locations. The seeds of this industry have been sewn, and we’ve had our reality check.  Now it’s time to move on and watch some great companies make this thing work.

Comments

[Suresh Rajan]

Phil,

Interesting. Firms are much more used to outsourcing than a few years' ago. The more they find success with IT, F&A and other areas, the more motivated they will be to move HR out to third-parties. It's a logical evolution.

[Stephen Cohen]

Phil,

I really enjoyed reading this! Reminds me of the early ITO deals in the '90s where firms moved out too much too quickly with a single provider. Many pulled back some of the processes which didn't work too well, worked out how to source the right processes and learn how to manage their provider relationships effectively. Like HR, we had resistance and negativity from IT as firms got used to working in outsourced environments. Despite some pull-backs, most ITO adopters have diversified their process mix, work with 2 or more providers in some cases, and would never go back to an inhouse model. I don't see anything radically different in HRO,

Stephen

[John]

Phil,

I really enjoyed this great write-up of the show and fully concur with your insights regarding the direction HRO is taking. While the industry has had its share of difficulties, we're really coming out on the other side now, with a host of providers offering great service solutions across the HR spectrum. And yes, the bottoms-up approach is definitely the way to go with these solutions. Perhaps the HR weanies will now stop sniping at the HRO industry and start getting to grips with the modern world, and concepts such as globalization and outsourcing. Too many people still don't understand the concept of the HRO delivery model, but persist in trying to undermine it...

John

[Brian Sommer]

Phil -
I've got two posts on the HR Week events. One's at: http://softwaresafari.typepad.com/software_safari_premium_b/2008/04/the-economy-fro.html and the other will follow shortly. In brief, I saw some definite indicators re: the US economy. HR vendors can be a really good indicator of the job market.

Secondly, I noticed a marked increase in RPO discussions where Talent Management was hot at the HR Tech show last fall. There will be more in my second post.

Your points are fair and descriptive of the event. Good to see you there Phil.

[Naomi Bloom]

Phil, thanks for a first-rate and very accurate job of summarizing the state of the industry. From my own scheduled meetings with providers and platform vendors, with sourcing advisors and analysts, not to mention all the hallway conversations, I too was impressed with the seriousness of purpose and much clearer understanding by the providers of how they will make very individual approaches to HRM BPO work and work profitably. We've all paid a high price for the Barnum & Bailey tone of the early years of this industry; now let's take some credit for the learning we've done and the refined approaches on which we're working very hard. I was personally delighted to hear everyone say that the platform is a major key to durable success.