Offloading the admin: an HR guide to outsourcing

As head of HR at BP, Nick Starritt oversaw the 400 million-plus deal with Exult to outsource HR. Based on this experience he offers advice to others contemplating the outsourcing route

When you decide to outsource, there are two basic issues that you will need to address: selection of a service provider and formulation of a compelling business case.

When BP first went looking for a partner, it already had experience of outsourcing other business functions. We were keen to explore new possibilities, and because we had made a number of acquisitions, needed to consolidate a number of inherited HR processes.

Not all companies share these imperatives. Treading a new path can be a daunting challenge. In a survey of 125 medium-to-large sized companies, US firm Dataquest found that the principal objections to outsourcing were perceptions of higher cost, lower quality and a fear of losing control.

To set your mind at rest, you should talk to others who have already started on the journey, ensuring that you understand the risks and rewards well enough to mitigate the former while measuring the latter.

Make sure you also have a series of in-depth conversations with potential outsourcing providers regarding their financial state, their capability of delivering, systems experience and overall service philosophy. Treat the outsourcer you select as a partner. My own experience in negotiating both HR and accounting deals indicates that good suppliers are alert to the risks and the culture within prospective client organisations. They will want to talk to a selection of the companys senior executives, to understand the business imperatives and aspirations, just as you will want to visit their other clients and take up references.

Equally, companies need a pre-determined list of attributes against which to measure suppliers. As well as financial and capability considerations, remember to include questions such as, Can we work with these people? or, Are they committed to our success?

Signing the contract

Partnership notwithstanding, a good commercial contract must be a fundamental feature of any deal. Likely to be between five and 10 years duration, the contract should address key issues such as guaranteed savings (where a saving of anything up to 25% of the existing cost of these services over the term of the contract may be reasonable) and incentives to either party for savings beyond that; service delivery measures; how different business activities will be handled when, for example, businesses are bought or sold by the parent company; who will pay for implementation costs; how existing third-party suppliers of HR activity will be integrated into the deal; and how transferring staff will be handled under the relevant legislation.

Again, a good supplier will have addressed all of these issues beforehand and will be able to answer questions such as, What will you do to simplify our current process? or Can you tell me about a time when delivery didnt go as planned what did you do to correct matters?

At this stage, addressing matters of key risk such as failure of payroll or major systems disruption is clearly prudent. One way I have found to do this, together with the outsourcer, is to run joint workshops on risk awareness and mitigation. These proved especially valuable in the deal with Exult and provided an opportunity for both sides to express major concerns for example, Exult had worries about how to involve the BP line managers in the deal, while BPs concerns centred on the physical transfer of HR processes.

You should also include an exit strategy, which will need to address the possibility of alternative suppliers or even a return to in-house service provision. In the former context, which is arguably more realistic than taking back the work, written guarantees regarding the transfer of work and data from the present supplier to another supplier should be obtained, including how affected staff may be handled in any subsequent transfer of undertaking (although this is an area of debate under the present regulations). Given the length of most outsourcing contracts and the burgeoning market, companies should have increasing choice if an exit becomes necessary. But embedding sufficient measures of quality and cost in the original contract and accompanying them with a robust control process should avoid a nightmare scenario.

Putting the plan into action

At the implementation stage, project management becomes of paramount importance. A mix of good people with both HR and project management experience is self-evidently necessary. Releasing the best talent from within the company to work alongside the outsourcers transition team ensures internal knowledge but also signals top management commitment to the process. Equally, a joint team will quickly foster trust and develop a shared accountability for the projects ultimate success.

Internal communications, as always, can help or hinder the success of the endeavour. Segmenting the various audiences for example, top management, business unit leaders, employees and affected HR staff provides a good way to develop focused communications. This will help you be clear about who needs to approve the deal versus who needs to be involved in it.

When you create your external service centre, the best option is for the outsourcer to take over your existing staff. Continuity of staff and a defined set of activities will provide strong assurance for your employees. Set against this, the outsourcer will inevitably need to change the present delivery, bringing increased commercial focus and rigour. A deeper challenge may appear: culture change, for both the staff that transfer and for your other employees. A competent supplier will develop a training programme which addresses the measures, rewards and management process inside the new organisation. In this country, the compensation and principal terms of employment will of course remain the same post-transfer, but this is not always the case under other jurisdictions.

Because of the substantial nature of the change inside BP, which involved relocating and consolidating services into a new location, we decided to create as much choice for the affected employees as possible. We gave them a number of options: move to Exult, either directly or via a temporary secondment; stay in BP and look for an alternative position elsewhere in the business; or accept generous redundancy terms. In fact, relatively few BP staff ended up transferring to Exult, mainly because of the physical relocation involved but that was a unique situation.

How e-HR can help

Part of outsourcing will involve the provision of e-HR. The technology now available creates new channels to reach employees allowing each company to differentiate itself in how it attracts and retains talent. We can now create cheap and fast delivery systems that allow each employee better access to data, either individual or aggregated. Ease of access, speed, simplicity and a version of cross selling, where content from other domains like news, employee assistance programmes, or even approved external services is integrated onto e-HR screens, are characteristic of the new technology.

Experience shows it is perfectly possible to customise these systems to reflect individual interests and needs, while still operating within a defined set of HR policies. A good e-HR site can also take some of the load from a service centre, by answering basic questions about company employment terms, or by affording employees the chance to complete administrative process online.

But do employees actually want e-HR? Employee surveys from my time at BP indicated significant approval levels of the new systems, although it must be acknowledged that not all managers or employees embrace this new technology. Yet increasing use of internet-based recruitment process and web-enabled personal benefits statements, to cite only two areas, suggest that properly defined sites can attract and satisfy talent even if a great place to work still requires human interaction.

What now for HR?

When formulating your business plan, bear in mind that outsourcing should provide significant and sustainable cost savings. Coupled with new technology, it should also transform the way administrative HR activities are performed. This alone may be sufficient justification for embarking upon what is still a challenging journey. Yet it may be possible to combine these things with another benefit: a new role for the HR function.

Long an aspiration for HR professionals, being a true partner with the business requires the creation of space to develop the necessary skills. Negotiating and fulfilling a new commercial arrangement for the delivery of HR administration strikes me as a good place to start displaying our business acumen. Beyond this, however, lie significant opportunities to work on a number of more strategic people issues. We are almost spoilt for choice but my preference would be to have the residual HR function focus on three areas:

    The new role for HR

  • Leadership development from programmes which identify high potential early in career, through to executive education which broadens the mind-set of leaders.

  • Building employee commitment theres a demonstrable link between individual commitment, customer satisfaction and sustainable financial results. HR should be able to offer managers insights into how to strengthen the relationship between organisational goals and the work-related aspirations of individuals.

  • Developing new capabilities this may involve organisation-wide interventions, such as diversity initiatives, enhanced performance via peer group process, or innovation networks or simply strengthening the individual learning process.

Increased attention in these areas must surely produce a greater contribution from HR. And of course many HR professionals already attend to these issues. But if basic HR activities can be delivered effectively by an external party, perhaps managers will be more accountable for their leadership skills, and perhaps our function will take more responsibility for actions which demonstrably find, develop and deploy talent within our businesses.

Nick Starritt is now a consultant specialising in HR strategy, leadership development and outsourcing