2009 Trend 6: Addressing the Global Sourcing Challenge

The extent, in which HR is accepted by the business as strategic partner, is based on the credibility of the HR department. If HR operates as a business partner, it must ensure that the HR department is run in a professional manner. Too often the operational tasks of the HR department influence their capability to operate on a strategic and tactical level. HR must keep its tasks under control, and ensure that the department is organized for maximum efficiency and effectiveness. The collective opinion that HR is handling its budget in a business-like manner can significantly contribute to the acceptance of HR as a strategic and tactical partner.

The execution of a sourcing strategy means that every HR service (or HR process) is evaluated based on certain criteria, amongst which the highest quality, the best  execution, the lowest costs and the most added value. The HR service is then executed by an internal (or external) provider that offers the best value for money. The range of services and suppliers that results is called the sourcing mix – also referred to as ‘selective sourcing’. Mix is the key word here: it is a misunderstanding that outsourcing is the only option. It is important to determine which services HR wants to provide, and who best provides these services.

The rapidly changing economic conditions encourage the creation of new, flexible HR service delivery models. We expect companies to be looking increasingly at piecemeal outsourcing: rather than selecting a single service delivery model across all HR processes, companies will be combining different delivery options. One can easily imagine a company combine comprehensive outsourcing (BPO) for HR admin, a standardized managed service for payroll, OnDemand delivery for talent management, and custom RPO assignments to deal with sudden local hiring needs. On this point, we expect the rise of OnDemand models in 2009, as they will bridge the gap between BPO and in-house software solutions, balancing control over process with cost control (Opex versus Capex).

Sourcing strategies

HR Outsourcing of administrative and transactional processes is becoming a common phenomenon for many companies. HR nowadays is more inclined to accept the expertise of the outsourcing provider and implement best practice standards. The traditional “lift and shift” approach is rapidly becoming a thing of the past, as experience has shown that better results both in efficiency and quality can be reached by radically adhering to the new standards offered by the vendor. Despite the current recession,
research show that outsourcing vendors are selected based on their expertise, reputation and reliability, and that the cost factor is of lower priority.

In NorthgateArinso surveys performed 2005-2007, we concluded that 80% of respondents use external parties for HR services. External expertise is contracted in matters such as policy development, training, recruitment & selection and career advice: exactly the services that HR professionals want to spend more time on in their new, more strategic roles. As HR is now hiring external experts to carry out these tasks, the question arises if this is due to a lack of time, or due to a lack of expertise. In most
countries, the number of small companies that specialize in offering value added HR services is still growing.

The success of outsourcing depends largely on good contract management. In our research we found that only 16% of contracts are governed by an SLA. This creates a problem, as without an SLA, HR cannot adequately evaluate the service the vendor offers. This means that it is difficult to assess the quality and the execution of the HR service. It also entails that HR does not have enough insight into the service, and cannot adapt it to the growth or downsizing of the company. Good contract management ensures that HR understands what the outsourcing partner delivers, but equally important, that the vendor understands how the company is changing, and how the services should be adapted to these changes. Knowledge acquired like this can then be applied by the HR department within the company to benefit sourcing strategies in other departments.