Outsourcing, Technology, HRO, Human Resources, Added Value

Outsourcing IT to get the most out of your HRO

16 Feb 2006 | (Thinking Point) | Jason Quisenberry

Organizations are implementing Human Resource Outsourcing (HRO) deals in large numbers. In 2005, the number of HRO engagements occurring globally has increased by over 32%. Often, the primary objectives of an HRO strategy are to: a) reduce delivery costs, b) improve service quality, and c) refocus HR staff.

In many cases, companies have been able to leverage IT applications such as Employee Self Service/Manager Self Service, Knowledge Bases, and eLearning in order to add value and bring about improved employee service at a reduced cost.

In order to tap the true value out of their HR Outsourcing, it is important for organizations to consider the best way to approach their Information Technology assets. Although many HR Outsourcing deals can bring out benefits for transactional services, the most significant returns come when an HRO Provider can leverage best of breed technology. IT departments and services are directly on the line for equipping the HRO to be truly successful. The most obvious choices that companies have available when assessing how to deal with Information Technology during an HRO are fairly straightforward - build and maintain in-house, or Outsource.

Option 1- Build and Maintain In-house

One option to be considered is maintaining an existing in-house ERP or Human Resource Management System (HRMS). In this case, a company would continue to leverage their existing investment in IS to support HR activities. This option is often well suited for organizations tied into long term ERP license contracts or those who have recently completed implementations of newly released software modules. Such situations do not hinder the outsourcing process; rather, the HRO Provider operates directly on these systems in the same manner as an employee would. In the event that the in-house system is equipped with the requisite features, there is very little risk to the organization short term in pursuing this strategy.

Companies could provide this service to their employees while maintaining the ownership and delivery by implementing new systems or functional upgrades in-house. However, this could potentially be cost prohibitive due to upfront fees. In many cases, there are often significant labor, consulting, and project management costs that can easily get out of hand.

Option 2 - Outsource

A second option is to outsource all of the Information Technology components of the HR services. In this scenario, HRO Providers will own, manage, and support all application hardware, software, database and connectivity between the client's location(s) and the their hosting facility. The Provider delivers the functional and technical expertise and is responsible for accomplishing most technical tasks related to the systems.

If implemented properly, this option can deliver many benefits to both the HR and Information Technology teams.

Advantages to HR Service:

• Feature Rich Systems. Many Tier I HRO Providers have made significant investments into user friendly, highly functional HR systems, whether that be large commercial ERP's (Peoplesoft, SAP, Lawson, etc.), or comprised of many niche products integrated into a suite.
  
• HRO Providers are contracted to provide their clients with key upgrades, patches, and functions based on a defined schedule. This allows the HRO to deliver new services in a faster manner.
  
• System Stability & Accessibility. HRO Providers are governed by a set of service levels that frequently surpass those of other internal IT organizations. As a result, these systems offer high availability, performance, and accessibility.

Advantages to IT:

• Disaster Recovery. Most ASP solutions provide companies with regular backups, offsite storage, and comprehensive disaster recovery plans.
  
• Security. HRO Providers host these systems from within hardened data centers, and have often obtained SAS 70, ISO 9001, security policies and procedures. System architectures utilize firewalls, DMZ, and encryption to limit unauthorized access and ensure data integrity. In most cases, access to these data centers is delivered over a Virtual Private Network (VPN) requires three factor authentication.
  
• HRIS' are often comprised of many interfaces, either to internal Finance modules, or to external benefit providers. Outsourcing HRIS means that companies do not have to use valuable IT resources monitoring or debugging nightly interfaces, or overseeing daily operational tasks.
  
• Decrease the cost of service. The cost savings come in multiple forms: infrastructure, less hardware, bandwidth, rack space, application licenses, and labor.

First and foremost, the cost advantage to this option is often simply compelling. IT costs per FTE in an Outsourced HRO are typically 45% less than an in-house delivery. Companies can realize a degree of cost predictability, as the fees for IS services are locked in over the length of contract. Additionally, in some cases, these costs can be amortized over the duration of the contract rather than hit up front at one time. Most CIO's are under continual pressure to reduce IT costs and overheads. Companies looking to reduce their overall IT footprint and portfolio could find this option a blessing.

Secondly, operating the business of HR can be very regional, regulated, and highly susceptible to changing regulations. This can be especially true for organizations with global footprints and those expanding into new countries. Outsourcing helps ensure that your company can operate and comply with changing policies without causing internal fire drills.

Certain organizations are better suited to take advantage of these benefits than others, particularly those organizations running legacy or older, custom-built applications. In this case, outsourcing to an HRO Provider provides an excellent opportunity to retire existing platforms and re-deploy IT resources on to better projects.

A Word of Advice

Before companies jump in and utilize HRO Providers' IT services, they would be wise to investigate some of the potential pitfalls.

1. Understand the upgrade policy. Not all functions may be included in the basic Service Levels. In many cases, it is fair to expect that Providers will remain within one full version of the current release or a commercial package, or upgrade every two years for custom suites. Companies need to ensure that their expectations are set properly and understand what features and functions they are buying.
   
2. Dedicate the appropriate amount of internal IS resources to participate in the transition. The difficulty in implementing application interfaces is often underestimated.
   
3. Plan change management activities. New applications require training & documentation in order to be utilized fully.

In Conclusion

HR Outsourcing is an excellent way for organizations to reduce costs while increasing employee satisfaction, and the best way to achieve those benefits is to marry the strengths of both HRO and Information Technology together. 

Source: Alsbridge

Author: Quisenberry, Jason
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