Florida has signed a seven-year contract, worth $280 million (around 180 million), to pave the way for the outsourcing of many services. Over the course of the deal, which aims to streamline the states entire human resources operation, state officials estimate that savings of up to $173 million (around 111 million) could be generated. The savings will come from a combination of better use of online technology and a reduction of the HR function to between 350 and 400 staff.
Floridas public sector employees are being promised the opportunity to manage, through the internet, their own personal information, such as addresses, emergency contact information and any notable life changes, such as getting married. They will also be able to access up-to-date training information, which will be delivered in classrooms and over the web. The systems, supplied by Convergys Corporation, will also provide staff with the latest, relevant benefits programme information, which they will be able to access through a self-service portal.
This outsourcing initiative fits with governor Jeb Bushs vision of imitating the best practices of corporate America. The business philosophy is that organisations should focus on what they do best and outsource the rest. Its a philosophy which Morris Applewhite, vice-president of sales and marketing at Convergys, strongly adheres to. In his view, human resources organisations have to find partners who can support them and add skills and expertise. The way to win in the marketplace is through collaboration, he says.
But implementing an HR project of this size is going to be far from straightforward. Aside from the issues of integrating technology systems and identifying and preparing information to be shared online, the success of the outsourcing requires a major communications effort to all the state employees affected by these dramatic changes. This effectively amounts to the 120,000 staff employed by the State of Florida, including 1,384 HR professionals.
The success of this system will be based on effective communication and efficient implementation. We do not take it lightly. We will focus strongly on the educational side of this project, says Cynthia Henderson, secretary of Floridas management services department. Henderson points out that a communications programme began back in November 2000 to make staff aware of the changes and its benefits. The communication has been two-way: already staff are receiving assurances over their concerns about the security of confidential information which will be made available online.
From Hendersons perspective, the proposed benefits of the new technology far outweigh any of these short-term problems. For example, thousands of Florida employees currently write their timesheets by hand. Being able to transfer these activities to the web will make the process more efficient and cheaper.
Searching for jobs should become easier, too. Rather than laboriously filing applications with numerous government offices in the state, the search for jobs will become more streamlined and consistent across the whole of Florida. We want to improve the recruitment system and make the State of Florida more attractive to people looking for employment, she says.
As well as its impact on employees and on the running of the state, the new technology-based services will have a profound impact on the role of the human resources officers. Henderson believes that the outsourcing initiative will re-define their roles, but in a positive way. Its about being able to focus on the strategic side, rather than getting bogged down in the transactional.
There are limits to the deal, in spite of its size. A number of core strategic HR services will remain in-house. These include wage agreements, employee appraisals, change management and employee relations and communications.
Deloitte & Touche is providing consultancy services to the outsourcing project and is preparing internal processes for the transition. A very large change-management exercise has to be undertaken in terms of communicating and managing the expectations of employees, says Brett Walsh, Deloitte & Touches head of human capital in the UK.
One of the biggest challenges facing the project will be reviewing all the current information around existing human resources practices and establishing clear procedures which can be understood more easily by employees.
Walsh, like Henderson, sees outsourcing as the key to relieving HR professionals of low-value activities so they can make a greater contribution to the profitability and efficiency of both businesses and public-sector organisations.
One of the problems many organisations face is that they dont have the time or capacity to create better alignment between HR strategy and business objectives, Walsh explains. He foresees that outsourcing, typified by what is now happening in Florida, will be able to correct this tendency.
The State of Florida agreed to outsource its human resources services last summer. Now teams from Convergys are visiting the different agencies in the state to assess current practice and identify issues that might arise. The first stage of the project, which will provide staff administration services, will go live in May 2003.
The state administration has said there will be no job losses as a result of the outsourcing, and Applewhite says that HR staff could be hired to provide support for new call centres. Were planning to work closely with the State of Florida to find job opportunities for any displaced employees.
Applewhite acknowledges that is imperative that staff agree this is the best way forward. Everybody has to buy into the fact that this is going to work, he says. And as the technology supplier, he knows it is equally important that the company has access to key individuals within the state.
Other US states have undergone smaller HR outsourcing initiatives, and this clearly aligns with current business practices in corporate America, and it seems that the UK may not be far behind. Deloitte & Touche believes that the outsourcing of human resources services will develop further in the UK over the next five years. There is now a large number of providers and vendors of HR outsourcing services competing for business in the UK.
The Convergys contract has set new standards for the HR outsourcing market, says Walsh. It will create significant cost and service benefits that will be of interest here in the UK, especially from public-sector organisations with similar pressures to reduce costs.
Walsh says outsourcing activity has tended to be most prevalent in central Government. He believes there is scope for more outsourcing by UK local councils, but only if they are prepared to club together. At the moment, they dont have the critical mass to create big savings from outsourcing, says Walsh.
For several years, outsourcing in the public sector tended to focus on single processes such as payroll or benefits administration. However, in the past three to four years, advances in technology have widened the potential scope of outsourcing.
The prospect of significant cost savings are also driving growth. Some vendors of outsourcing technology solutions actually guarantee savings of between 20 and 40 per cent, which is difficult for any chief executive or HR director to ignore.
When considering HR outsourcing, Walsh believes it is important to have a clear and full understanding of the service delivery models that are going to be introduced. He says that outsourcing on the scale of Floridas could happen in the UK, but a successful transition will depend on how well they are communicated and managed internally.
Convergys is already in talks with interested parties in the UK. The ink is still barely dry on the agreement with the State of Florida, but if the outsourcing initiative is a success, then it could provoke a comprehensive re-appraisal of HR service provision on both sides of the Atlantic.