1/3 How to successfully transition to HR BPO Get ready

How to successfully
transition to HR BPO
Christine Stanowski
Michele Gray
Mike Friend
Get ready
Part 1/3
Get ready
Selecting the right HR Outsourcing options
Christine Stanowski,
Page 01
Vice President of Global Consulting, ADP
Getting the business case right
Michele Gray,
Senior Director of Global Consulting, ADP
Page 09
The role of governance in outsourcing contracts
Mike Friend,
Director, Employee Research, Harris Interactive
Page 13
Selecting the right HR
Outsourcing options
Christine Stanowski ‘s
Christine Stanowski,
Vice President of Global Consulting, ADP
Christine is Vice President of Global Consulting for ADP in Europe.
She is responsible for supporting the overall HR Outsourcing sales
process for large multinational companies. Christine heads up
a team of senior consultants in charge of delivering RFPs, RFIs,
due diligence, business cases, service level agreements, transition
plans and service organization. Her professional background
includes the management of French and international payroll
and HR projects. Christine is based in Paris but travels extensively,
mainly across Europe.
She can be reached at: [email protected]
Selecting the right HR
Outsourcing options
Stepping up in HR transformation, and more
specifically HR outsourcing, raises fundamental
questions and requires agreement on
the processes and activities to keep in-house
and the ones to reengineer and outsource.
More generally, HR transformation is about
deciding on the organization to implement
to fit the new business needs.
Designing and managing your retained team
correctly is a critical factor for the success of your
overall HR outsourcing business plan. In particular,
the ability to achieve significant staffing efficiencies
is typically the key to achieving the financial
objectives expected from the outsourcing
relationship. This is often the most difficult
and poorly planned aspect of the transition
to outsourcing HR.
The roles and responsibilities that your organization will need to retain during
and after transition of HR services will depend on a number of related factors:
Scope of services that you will be outsourcing
Day-to-day processes that will be left behind for your retained team
Complexity of Business Unit structure
Diversity of your current information systems and/or service suppliers
Expected timeline for the transition to your vendor
Number of manual tasks that will be automated by outsourcing
Selecting the right HR outsourcing options
The first step to design your retained organization is to understand the different
outsourcing options available on the market. The chosen service model will have
a significant impact on the way procedures and tasks are to be handled once
the HR outsourcing contract has been implemented.
Models and service levels Constantly evolving
HR outsourcing has become an industry.
As demand evolves, new offerings are introduced
on the market with their own names, terminology
and acronyms. A bit of deciphering is required
even before benchmarking solutions.
BPO, SaaS, AMO…What do you mean exactly?
Application Management Outsourcing (AMO),
Application Service Provider (ASP), Software as
a Service (SaaS), Managed Services (MS),
Comprehensive Outsourcing Services (COS),
Business Process Outsourcing (BPO)… A lot of
acronyms, a rich vocabulary, and almost as many
How to obtain a clear definition of each model?
By compiling a list of the available solutions on the
market, an operational nomenclature of outsourcing models can be built. It is based on two criteria:
First criterion:
what responsibility is being transferred?
The first criterion deals with what is actually
being transferred from the enterprise to its service
supplier. Is it just IT infrastructure that is being
transitioned? Will the partner provide application
management? Will the service provider run
processes – such as payroll processing – on your
behalf? Ultimately, is there a complete transfer
of a function or a department to a supplier?
Beyond the type of transfer, the dimension
of responsibility becomes apparent, revealing
the design of the future retained organization.
For example, a supplier that provides access to
an application takes on the responsibility for its
delivery and legal compliance but does not
commit to the outcome of its use. On the other
hand, when a function or department is outsourced,
the service supplier is accountable for measurable,
functional results. This highlights the distinction
between performing a given task and assuming
responsibility for the deliverables of an outsourced
function or department.
A look at pricing
Figuring out the base unit for pricing also helps
clarify the actual nature of the transfer: outsourcing
can occur at four different levels. These levels are
represented vertically in the graph below where
added value increases with the level of outsourcing.
Segmentation of outsourcing options
Business Outcome
Added Value
One-to-One Model
"Lift & Shift"
One-to-Many Model
IT Efficiency
Cost Effectiveness
"Lift & Shift""
the service supplier hosts the IT
infrastructure. The client buys the
service of installing, running, and
maintaining the applications. Pricing
is based on Computer Processing
Unit (CPU) consumption, gigabytes
of memory, and storage and
network usage. IT hosting and IT
Outsourcing (ITO) are at this level.
the service supplier hosts the
infrastructure and the applications
and commits to providing their
availability and maintenance.
The client makes use of these
applications and remains responsible
for operating activities. Pricing is
either based on infrastructure and
resources engaged or on application
usage (pay per use). Application
Management Outsourcing (AMO)
and Software as a Service (Saas)
fall under this definition.
the client outsources the management and execution of a single
business process. Performance
metrics are primarily linked to
accuracy, timeliness, and compliance.
The pay-off begins here. Processing
Services is a typical outsourcing
offering at the process level.
the entire function is outsourced.
This is Business Process Outsourcing
(BPO). The service provider is in
charge of the end-to-end value chain
for its client and is fully committed
to results. “Lift & shift” outsourcing ,
Managed Services and Comprehensive Outsourcing Services are BPO
models. In the case of Managed
Services and Comprehensive Outsourcing Services, pricing is based on
the number of employees managed.
In a “lift & shift” approach, pricing is
based on a due diligence assessment.
Second criterion:
is outsourcing shared or dedicated?
The second criterion deals with the environment
for delivery of service set up by providers. This
critical differentiator, one among many outsourcing
options, is depicted horizontally in the graph.
The service environment is dedicated – this is the
one-to-one model. The provider sets up
a specific environment for each client. Only
a steep learning curve and the reengineering
of internal processes will generate economies
of scale and, hence, cost savings.
The service environment is shared – this is
the one-to-many model. The provider serves
multiple clients with the same platform and
application environment. Using shared
and more standardized tools can generate
significant cost savings.
One-to-one versus one-to-many
If we consider the process or function level,
the “lift & shift” approach, Processing, Managed
and Comprehensive Outsourcing Services illustrate
the difference between one-to-one
and one-to-many models.
With the “lift & shift” approach, teams and
infrastructure remain dedicated to a client as in the
one-to-one model. On the other hand, Processing
Services, Managed Services, and Comprehensive
Outsourcing Services are one-to-many service
models. They are based on shared infrastructure,
application, and teams for delivering a service
to multiple clients. Such models offer
a combination of commitment, strong expertise,
and economies of scale.
How can we pick and choose
among one-to-many models?
As one of the key drivers for outsourcing,
cost control has generated interest in solutions
designed according to the shared, one-to-many
models: SaaS, Processing Services, Managed
Services, and Comprehensive Outsourcing
“transforms” the information provided by its client
and is responsible for delivering results.
Processing Services, Managed Services,
and Comprehensive Outsourcing Services
The fine line between SaaS
and Processing Services
SaaS and Processing Services may look very similar.
They both provide services online, delivered from
a shared environment and billed on a transaction
basis. But one difference stands out: with SaaS,
the supplier – usually a software vendor – provides
only the system.
With Processing Services, the supplier performs
tasks for its client. In this case, the supplier
At first sight, the differences among Processing
Services, Managed Services, and Comprehensive
Outsourcing Services seem to lie in the parts of the
HR function value chain that are transferred and the
level of risk shouldered by the supplier. In fact,
the differences are greater.
If we take payroll as an example,
Processing Services corresponds to outsourcing
the central – most transactional part – of the payroll
value chain (see graph). This requires a strong
commitment to service levels:
Processing, Managed and Comprehensive Outsourcing Services
Comprehensive Outsourcing Services
Managed Services
Processing Services
& Offline
Data Entry
Answering Enquiries from Employees, Managers and Third-Parties
Payroll is processed on time and accurately,
in compliance with legislation, collective agreements
and the client’s rules
The client company benefits from a support consultant who brings payroll expertise, not only software
Processing Services, initially the model for payroll outsourcing, has evolved towards higher levels.
Extending the scope of responsibility
Managed Services and Comprehensive Outsourcing
Services encompass the entire payroll value chain.
The client controls compensation policies, time and
activity, etc. but outsources all the burdens
associated with payroll management. Managed
Services and Comprehensive Outsourcing Services
minimize risks and free organizations
from compliance concerns.
But, Managed Services and Comprehensive
Outsourcing Services don’t mean a loss of control,
or that there’s no retained organization on the
Managed Services can be extended to handle
employees’ queries and services to manage
payment to employees and third parties.
This is called Comprehensive Outsourcing Services.
Managed Services and Comprehensive
Outsourcing Services are becoming the preferred
models for outsourcing.
Impact of the HR outsourcing options on the retained organization
Does HR outsourcing always mean cutting the HR
organization to the bone?
One may consider that the direct consequence
of HR outsourcing is to enable companies to benefit
from a stripped down organization. Reality is often
more complex.
The newly designed HR organization and the way
a company leverages it to improve service delivery
efficiency, quality standards, and cost control are
directly linked to the outsourced service model
The “1 to 31” approach is a simple and quick
guide to establishing how employees occupy their
working time on a day-to-day basis.
For example:
• On day one, 70% of time is spent collating
payroll input data, 30% is spent on travel &
• On day two, 50% of time is spent handling
employees queries, 50% is spent on accounting
• Etc.
The “1 to 31” approach
At the end of the month, a company can establish
where the majority of time is being spent in the HR
department. Very often, an employee is perceived
as being 100% dedicated to one task or function,
but usually spends time on additional activities
related to the primary task. As a consequence,
this may result in a significant gap in the business
case when it comes to comparing the “as is”
with the “to be” phase in the course of the
outsourcing project.
The first step for a company is to challenge
its current organization and evaluate its own
compelling reasons to outsource before going any
further. This preliminary action triggers the analysis
of the processes in place, documentation of current
HR responsibilities and job descriptions,
and prioritization of targets that must be reached
in the retained organization.
A specific task may take one or two days of an
employee’s time each month, but that time could
be reduced or even eliminated according to the
outsourcing service model option chosen. It is
therefore critical to adopt a structured approach to
the preliminary phase of outsourcing. This will
enable companies to avoid the pain resulting from
a miss-match of choice and solution.
The interaction between the future HR organization
and the chosen outsourced service model makes
them inseparable. For example, why continue to let
the retained organization monitor payroll tasks if
the chosen outsourcing model handles this
client’s side. Providers operate within the scope
defined by the client and steps still require
validation and controls.
Different service models that fit different dynamics
or not complying with data privacy standards.
HR outsourcing can take many forms which may
generate some confusion.
Today service suppliers have gained enough
experience to manage all these points in order
to guarantee flexibility and security for their clients.
In most cases, companies also pursue common
objectives that can be covered by the one-to-many
The decision to make is whether to choose the
one-to-one or the one-to-many model.
The one-to-one model can be particularly
appropriate for big and mature organizations;
companies that want to maintain some specific
processes or IT systems and that are ready to
integrate in their business case the additional cost
related to one-to-one legal maintenance,
customized upgrades, and specific country-bycountry management.
In some cases, the one-to-one model can also be
a good fit for groups that have grown by acquiring
businesses in different domains.
Specific adaptations are required in order to
streamline their processes and organization while
continuing to keep some of the Business Units’
strategic specificities.
Many companies – common objectives
But more often, cost control, cost reduction
and return on investment push most companies
to consider the one-to-many model as the preferred option. Aside from the strategic considerations
that may lead a company to choose between one
model and another, mindset also plays an important
role. The one-to-many model is sometimes viewed
as being too general for a company’s specificities,
lacking flexibility for process change,
For companies that target cost savings,
the one-to-many model is the way to implement
an approach based on rapid return on investment
and economies of scale.
Companies that rely on external growth can use
the standardized, one-to-many approach to quickly
integrate the new acquisitions in pre-defined,
seamless and shared processes to maintain
consistency within the group.
Organizations with various information systems
across countries may opt for one-to-many HR
outsourcing to get rid of complex and specific IT
upgrades and to run their HR operations on
a common platform.
The level of services will then depend on
a combination of targets and timing. Processing
Services is the model of choice for step-by-step
progress in outsourcing. Managed Services and
Comprehensive Outsourcing Services suit
organizations with populations spread across
countries and complex processes, as well
as companies that are organized around shared
services centers and/or that have to manage
offshore activities.
• HR outsourcing can take many forms which may generate some confusion.
• The first step for a company that undertakes HR transformation is to challenge its current
organization and evaluate its own compelling reasons to outsource before going any further.
• Outsourcing is about selecting the tasks that have to be transferred and opting
for the appropriate environment for the delivery of service, according to a combination
of targets and timing.
• The newly designed HR organization’s efficiency is directly linked
to the outsourced service model implemented.
• As one of the key drivers for outsourcing, cost control has generated interest
in solutions designed according to the shared, one-to-many models.
the business case right
Michele Gray’s
Michele Gray,
Senior Director of Global Consulting, ADP
Michele is Senior Director of Global Consulting and is responsible
for pre-sales consulting support for ADP’s HRO global & regional
prospects. She has extensive consulting experience HR BPO,
organizational development and change management. She joined
ADP in 1999 initially heading up the UK-based business consulting
team working with multinational companies that sought to leverage
ERP technologies and outsource their payroll. Athough Michele
is based in the UK, she travels extensively thoughout Europe.
She can be reached at: [email protected]
Transcript from Michele Gray’s video interview
For GlobalHRstudio.com
Reasons for the business case
[10s – 1mn15s] It is crucial to understand the timing for
the business case as well as its decision-making
cycle. Put simply, the business case makes sense
only if its purpose is clearly identified.
Depending on needs, two types of business
cases can be identified. The first one is a high-level
and indicative business case. Its main purpose
is to evaluate the potential savings that can be
generated from a project. This high-level business
case is often used as a justification for investment.
It is the first step to secure funding for a project.
Another form is the detailed business case.
It is used when the time has come to precisely
detail and validate the project’s costs as well as its
expected savings.
Both forms of the business case are useful and have
to be used according to whether the situation calls
for securing funding at the initial stage of a project
or having the project finally validated by the board
Detailed business case
[1mn16s – 2mn16s] Companies that are working on a detailed business
case are often doing it when they are in the contract
finalization phase with their service provider.
The business case is used to validate the savings
that can be expected in the end.
At this stage of the project, the company has
already agreed on the project’s scope and its
geographical coverage as well as the service level
that will be delivered by the provider. The business
case is designed to determine future costs,
split responsibilities and detail the savings
as well as the way they will be generated.
High-level business case
[2mn17s – 4mn06s] The high-level form of the business case
is often used as the first justification for a project.
In a climate where funding for new projects
is limited, it is crucial to be able to demonstrate
where potential savings can be made.
Nevertheless, considering a business case from
only cost savings perspective would be limited.
Cost savings are with no doubt a prerequisite of any
business case. However, many decision makers are
also looking for the additional business value that
any project can bring.
In other words, the project’s stakeholders are also
interested in the benefits beyond the most obvious
cost savings: strategic benefits that will enable
a company to set-up its future strategy, facilitate
the migration to any new activity or enable it to
integrate new businesses faster and manage its
international expansion.
The role of the business case is to enable
a company to articulate different objectives in
a single document in order to validate the feasibility
of its project.
Gathering accurate data
[4mn07s – 5mn00s] In most situations putting together a business
case is the best opportunity to assess the quality
of the information available in a company.
After all, building a business case is all about putting
the right data together in order to make projections.
Not getting the right data is a problem that can’t be
ignored. In situations when exact data cannot
be collected, companies and their service provider
will have to base the business case on assumptions
and extrapolations. The usual practice is to work
on early studies available in the company or
to extrapolate results based on significant examples
of costs and/or processes that already exist in the
company. This approach is valid as long as the
assumptions and extrapolations are clearly
[5mn01s – 5mn52s] Getting the business case right is all about timing
and purpose. The purpose of the business case
won’t be the same according to your project’s status
and the objectives you want to achieve
in your organization. This is when it is important
to determine what form of the business case to
present as well as to be clear on the data on which
all your assumptions and projections are based.
A business case is also designed to offer a detailed
view of a problem and the potential solutions
for the company. It is crucial to identify the people
who will read it even before putting it together.
The ultimate goal of any business case is
to convince an audience to support a specific
project. Tangible and intangible benefits have
to be clearly detailed.
The role of governance
in outsourcing contracts
Mike Friend’s
Mike Friend,
Director, Employee Research, Harris Interactive
Mike Friend leads Harris Interactive’s Employee Research group
and is responsible for driving global best practice in all aspects
of employee research and benchmarking. Harris Employee Research
is a world leader in employee opinion surveys, establishing long
term relationships with organizations to identify and positively
drive improvements in employee engagement, motivation,
workforce and business performance.
Mike joined Harris Interactive from M3C Consulting, a Human
Resource services research consultancy which he founded.
Previously he worked as a management consultant in Deloitte’s
Human Capital practice where he helped to deliver major public
and private sector HR transformation programmes. His 12 years
experience in the research industry includes six years as Research
manager at IDC, where he established and led the European
Human Resource research practice. He was voted an HRO
superstar in 2005 and 2006.
He can be reached at: [email protected]
The role of governance in outsourcing contracts
Who or what is to blame when outsourcing
contracts fail to deliver on their initial promises?
Customer inexperience? Changing business
strategy? Poor baselining and definition of success
criteria? Vendor overambition or inexperience?
The following article looks at the role
of governance in outsourcing contracts, how risk
can be better managed and some key steps that
customers and providers can take to better
insure against failure.
The role of governance in outsourcing contracts
Living with a loss of control
Customers entering into outsourcing agreements,
knowingly choose to sacrifice direct control
of their business processes in return for lower cost
and/or better quality services. This is a sacrifice that
is easier done where the outsourced HR processes
are highly automated and transactional (eg payroll)
but considerably harder to do when added
layers of complexity are introduced such as the
consolidation of multiple global processes
and their migration to a shared service model.
In order to combat this uncertainty, customers
are rightly placing a greater degree of emphasis
on governance. However, approaches
to governance vary widely and whilst good
governance structures can have a considerable
bearing on contract performance and will often set
the tone of the interaction between the two parties,
they are no guarantor of success. So what are some
of the key ingredients of successful governance?
Whose risk is it anyway?
When outsourcing contracts fail as they do from
time to time, then the finger of blame is frequently
pointed at the role of governance. This is perhaps
understandable since governance is no more
and no less than a risk management strategy.
It describes a wide range of safeguards, processes
and structures that the counterparties put in place
to maximise the chance of contract success.
Good governance requires the establishment
of a joint contract management committee that
meets regularly to monitor contract performance
against defined SLA’s and address key issues from
a strategic to an operational level. The role of the
customers committee representatives is not
to micro-manage the supplier or to dictate how
the supplier should execute the contract.
Such an approach would immediately endanger
the relationship as well as limit the outsourcers
ability to leverage its expertise in the market.
When contracts are said to have failed,
then by definition it is the risk management
and therefore governance processes and structures
that have failed. For that very reason customers
should spend a considerable amount of time
identifying which risks will pass to the service
provider, which risks the customer will own
and which risks will be jointly owned.
Start early with governance planning
It is an old cliché, but it is not contracts that manage
risk, it is people. Whilst a contract is the product
of two organisations seeking a mutually beneficial
arrangement, the success of that contract comes
down to the dedication of a comparatively small
number of people, how they interpret that contract
and how they engage with one another.
For that reason alone, customers should use
the sometimes arduous request for information (RFI)
and request for proposal (RFP) vendor selection
process to identify the key vendor personnel who
will participate in governance processes,
and commit these people to the governance team.
Customers who fail to dig deep in order to
understand the providers approach to governance,
will significantly limit their understanding of how
both parties will engage with each other, measure
success, approve and cost change requests
or escalate issues. Customers and vendors alike
should use the RFI and RFP process to challenge
how the programme management office will be
staffed, what the reporting lines will be and what
the individual roles and responsibilities of staff
within that structure will be.
Do not underestimate the impact of senior executive sponsorship
Inevitably, the complexity of any contract will
determine its risk profile, governance requirements
and to a large degree its success. Where repeatable
solutions are used, customers will likely benefit
from the experience gained by the outsourcer
and can operate a lighter touch governance model.
That is not to say that customers should entrust
everything to the outsourcer and stand back from
their day to day contract management duties.
All outsourcing relationships go through dips and
troughs and strong leadership and hands
on management of the relationship from both sides
is required to make a five year outsourcing contract
successful for both parties.
One of the greatest potential dangers
to successful governance is the loss of senior
executive sponsorship. As the key sponsors become
diverted by other programmes and initiatives,
so the drive and energy that comes from their close
scrutiny and oversight can dissipate
and timelines slip.
How much does good governance cost?
One of the hottest debating points concerning
outsourcing contract management is
the percentage of the overall contract value
that should be set aside for governance.
Once again, the scope and complexity of
the outsourcing deal will influence the size
of the governance team. The rule of thumb
is however between 4-12% of total contract value,
though upwards of 15% has been known.
Given that this latter figure is approximately half
of the cost savings that an organisation would hope
to achieve over the lifetime of the contract,
then the conclusion to be drawn from such
a disproportionately large investment is that
valuable resources are being diverted from
contract execution and service delivery.
Rather than being overly fixated by such a headline
number, customers should work with a bottom-up
approach, firstly clarifying and agreeing on the
strategy and goals of the outsourcing contract
before clearly articulating how success will be
measured and the relevant measures captured.
Only then will a better idea be gained with regard
to the number of customer representatives required
to sit on the governance committee.
Whilst good governance structures and processes cannot ultimately eliminate failure from
the equation, investment in good governance can significantly improve the chances of success.
Key recommendations for customers include;
Be explicit about the purpose of the contract and how success will be measured.
Agree on the SLA’s and determine how and when that data will be captured
Take time to document which risks will pass to the service provider,
which risks the customer will own and which risks will be jointly owned.
Challenge suppliers about their governance models and approach during the RFP stage,
identifying the key vendor personnel who might sit on the governance team.
Gain senior executive sponsorship for the duration of the contract
Take a bottom up approach to building governance teams,
agreeing on the strategy and goals of the outsourcing contract
before identifying and staffing the team.