The Future Of HRM Service Delivery

I am honored to welcome one of my earliest - and long-time - mentors in the services and hi-tech advisory business to guest on Horses for Sources. It's taken me over a year to persuade her to showcase her insights here, so I guess now she has submitted me a piece is testament to the power of blogging, and the fact that it is fast-becoming a preferred medium for industry luminaries to opine their views to the industry-at-large. The fact that she felt she could be a little more "edgy" and freer to express her views here makes me feel like I am doing something useful for the outsourcing industry hosting this blog :)

Ladies and gentlemen, please welcome the honorable Naomi Bloom and her take on the future of Human Resources Management service delivery. Naomi has over four-decades of experience in HR delivery and technology in a number of advisory roles and is widely-regarded as the pre-emeninent authority in HR platform delivery.  Over to you, Mrs Bloom:

During the analyst panel at the HR Technology Conference in 2003, I made a bold (many said foolhardy if not wrong-headed) prediction, that continues to haunt me about the role that comprehensive HRM BPO would play in human resource management service delivery.  I was in a wheelchair at the time, recovering from a bad fall at Machu Picchu, so perhaps I was emboldened by the pain medicine.  What I wished I had said, and what may in fact be the case, is that by 2010 comprehensive HRM BPO will be the dominant approach considered by HR leaders (and their C-suite colleagues) to HRM service delivery as an alternative to "roll your own"via some flavor of shared services.  What I actually said, which was clearly dead wrong, was that within five years (i.e. by 2008) half the Fortune 500 would be using comprehensive HRM BPO. 

How could I have been so wrong about something so important? And why do I continue to believe that comprehensive HRM BPO, where uptake is moving much, much slower than I had predicted just five years ago, will eventually become that dominate approach to HRM service delivery? Perhaps I was seduced by the obvious business case for comprehensive HRM BPO, a business case which, if anything, has grown stronger over the last five years:

   * Expectations for HRM service delivery go well beyond what even large organizations can (or want to?) envision, create, manage, sustain, afford and do reliably on their own -- and those expectations now include global service delivery with local language and regulatory expertise; intelligent, role-based, integrated and content-rich self service; analytics at every level and, especially, re: business outcomes; and deep and integrated automation for both administrative and strategic HRM (a.k.a. talent management) to reduce costs and improve service consistency, quality, breadth and availability.

   * Piecemeal outsourcing and the associated vendor management, governance, and systems integration challenges, especially as to self service and data analyses, are also more than most end-user organizations can (or want to?) handle, and it’s getting tougher as end-users add SaaS-delivered point solutions into their mix of HRM software.

   * We’ve gotten used to trusting vendors for critical applications software development and providers for critical outsourced processes, and we’ll get used to trusting our core HRM data and HRM delivery system to equally valued, comprehensive HRM BPO providers -- what could be more sensitive than health care claims data, and we routinely outsource claims processing.

   * Corporate leaders have better uses for their capital, bandwidth, scarce expertise, risk-taking, frustration tolerance and other resources than to sustain their own HRM delivery system -- much more competitive advantage can be created via HRM strategy and plan, policy, program and practice design than from operating the “factory” that delivers them.

   * The industry's move to Web services and SOA by all the ERP/HRMS package vendors, with the attendant overhaul of thirty year-old data designs and semantics by the established players, will be the kiss of death to in-house implementations -- CEOs just won’t pay to do this one more time no matter how much migration support is promised by the vendors -- but I was SOOOOO wrong, back in 2003, to think that Oracle or SAP would bring their next generation application suites to market by now. Beyond the slow arrival of disruptive next generation HRMS software from the ERPs as well as specialist vendors, the nascent HRM BPO industry is still trying to recover from a number of flawed assumptions which were made by early buyers, sellers, and investors, including:

   * Lift and shift” is not a sustainable business model;

   * Highly customized and configured in-house implementations of SAP/PeopleSoft/Oracle/etc. cannot be easily commercialized, nor can highly tuned (to one company) shared services organizations;

   * Labor arbitrage will not save the day when customer contracts still express their reluctance to accept foreign CSRs and many HRM practices are too convoluted and undocumented to be taken offshore;

   * Global call centers are not as effective as global intelligent self service, and the HRM challenges of running huge HRM operations centers are big and growing;

   * The lack of an agreed and precisely-defined vocabulary (i.e. an HRM domain model) for discussing scope of services, data definitions, processes, expected outcomes, SLAs and business metrics, standardization, configuration, and customization (G-d forbid!), etc. adds big $$ to every aspect of the sourcing and HRM delivery system life cycles;

   * Comprehensive HRM BPO is not the same as ITO, and many of the early pioneers, firms and leaders, came from ITO; and

   * Comprehensive HRM BPO is also not the same as payroll or benefits admin, and most of the rest of the early pioneers, firms and leaders, came from payroll or benefits admin outsourcing.

The flaws in these assumptions are now well-understood and the industry is working hard to undo the damage caused by them, but there remain many deals that were based upon or made captive to these assumptions that have and are continuing to drain the industry's resources. Furthermore, maximizing labor arbitrage, rolling out truly intelligent self service on a global basis, and getting to an industry standard (or even provider standard) HRM domain model are by no means accomplished as yet, and there's a good bit of heavy lifting still needed to overcome the lack of these critical industry enablers.

What else stands in the way of comprehensive HRM BPO becoming everything I predicted it would be? One glaring barrier is that we are taking far too long, as an industry, to figure out what in HRM should be standardized, within and across organizations, and what MUST be unique in order to create/sustain competitive advantage. We're also taking far too long to create and deliver Amazon.com-like HRM self service (in your language, with your cultural and regulatory sensitivities considered, and by cell phones, smart phones, or whatever our customers have at hand). Doing so would not only get rid of those pesky CSRs and allow the BPO providers and their clients to focus on the few but highly skilled HR generalists and COEs needed to handle what can’t be done self service, but it would also allow those BPO providers who have the right KSAOCs to deliver the insights and advice on improving HRM which were promised.

We are also continuing to pay a very high price for not having, particularly at the high end of the market, HRM BPO software platforms that are the best possible fit for this business. We're running factories here, and you can't make M&Ms profitably in an oil refinery any more than you can make profitable HRM BPO using software designed to be implemented and operated separately for a single client. I've written monthly since 2003 in HROToday about our software platform needs for comprehensive HRM BPO, but so far none of the major ERP/HRMS vendors have committed themselves to meeting my HRM BPO architectural requirements.

The biggest barriers to greater adoption of comprehensive HRM BPO are (1) the lack of proven, high capacity, and profitable providers across all of the relevant markets who are offering compelling, global and integrated HRM delivery services, (2) the lack of HR leaders and their teams who are ready to accept standard HRM service delivery processes and even some lower value HRM business rules where uniqueness carries no competitive advantage, and the lack of truly BPO-ready software platforms. The best providers are working tirelessly to overcome the sins of the past, and new entrants are learning from those early mistakes so as not to repeat them. Since no factory can achieve high quality at low cost without a very high degree of reuse and repeatability, the providers really need their software partners to deliver BPO-ready architectures and their customers to deliver BPO-ready expectations to make this new business model as successful for all interested parties as I believe it must be.

Am I embarrassed by the prediction I made in 2003? Of course I am. But to me the end game is still very clear. Even with the tremendous growth in SaaS among HRM software vendors taking a large chunk out of the TCO (total cost of ownership, alias the direct IT costs) of using that software -- and I'm a staunch supporter of this software deployment option -- end-users are still faced with minimizing the TCSD (total cost of service delivery, alias the full process costs and attendant liabilities), and that can only be done through effective, comprehensive HRM BPO.

Naomi Lee Bloom (pictured) is managing partner of Fort Myers, Florida-based Bloom & Wallace

Comments

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[Stephen Cohen]

Naomi,

Thanks for the excellent piece - what do you think of some of these emerging SaaS offerings in the HR space?

Stephen Cohen

[Subir Sarbabidya]

Naomi's views are right on the money. I am so glad you wrote this piece and brought such a comprehensive highlight on the much deliberated topic.
My views are as follows –
TCSD – Total cost of Service Delivery will be and already is the prime concern for mature outsourcers looking at renewing their existing HRO contracts. Contracts coming up for renewals in the next few years will find clients asking for putting such metrics in the contract with incentives and penalties for service providers around it. First time outsourcers of HRO have limited understanding of the concept and it’s the onus of the potential provider to educate them, be their evangelist and show them the path with credible promises of healthy return.
HRM Suite Application Providers – Are torn between the revenue potential of the HRO platform model and a much dreaded cannibalization of their traditional perpetual/user/server based license ownership models. They are stitching up carefully drafted alliances with some of their key and trusted system integrators to take a cautious trade down the platform path and are not opening up the platform pricing model to their enterprise sales forces lest it threatens their core business model faster than the platform model gains a credible currency.
The Mid Market – Is and will be the smartest and the most demanding buyers of comprehensive HRO suite as outlined by Naomi. They will be the driving force behind the TCSD driven standardized process and application architecture adoption in HRO.
HRO Service Providers – The big ones can see the writing on the wall but are driven by the greed to milk more revenues from their legacy platforms before making significant investments towards rearchitecting it, thus dragging their feet. The emerging ones are grappling with the scale and breadth of the HR competency dimension required to power it, are keen but cautious and want to see some pioneer succeed than be the first mover.
There is a clear writing on the wall, and there will be some first movers soon to occupy the space. Once again - Thanks Naomi! For coming out and belling the cat!

[Naomi Bloom]

Phil, thank you so much for the kind words and the opportunity to speak from your blog. I'll look forward to a future visit.