Human Resources Business Process Outsourcing (HR BPO) has traditionally been seen as a business strategy for Fortune 500 companies looking to cut costs and streamline operations. Mid-market executives, however, are now starting to look at HR BPO as a valuable option for bottom-line improvements. As these companies examine HR BPO, however, they'd be well-served to take a fresh look at the realities of the HR BPO market.
It's not just about money
Most mid-market companies run leaner, more centralized HR departments than Fortune 500 companies, thereby eliminating portions of the potential operational cost savings of HR BPO. Thus, mid-market companies must look at more than just operational cost savings when evaluating HR BPO. They have to view it as an agent of transformational change and an investment in their human capital, capable of producing both top- and bottom-line returns.
An MIT Sloan Management Review study supports this fact. The study examined 17 companies that engaged in transformational outsourcing, and found that 76 percent had "achieved dramatic organization-level impact." While the study did not focus exclusively on mid-market companies, it strongly supports the benefits of integrating transformational change into HR BPO engagements.
Is HR BPO right for your company?
With these factors in mind, how do you determine if an HR BPO engagement is right for your mid-market company? The first step is to create both a financial and a cultural base case that gives you a starting point from which to measure potential savings and performance improvements. In your base case, consider metrics such as total HR costs and the quality, productivity and change readiness of your employee base. A well-researched, well-defined base case is the start of building a successful business plan for HR BPO and making a strategic, informed decision of your company's path to outsourcing.
When creating the financial base case, most of the data needed is available but difficult to assemble. The cultural analysis, however, consists of data that is not typically measured or reported by an organization. The challenge is to determine the right metrics to assess culture and change readiness, and then compare your organization against those metrics. Models such as the Denison model, which focuses on measuring cultural metrics like adaptiveness, consistency of values, and employee empowerment, can help you determine the appropriate measures for your organization.
While these analyses can be conducted in-house, most companies find the processes time-consuming and challenging, and are rightfully concerned about achieving unbiased results. Many mid-market companies look to independent advisory firms to assist in conducting this analysis to ensure an honest baseline is obtained.
Evaluating the potential results
Once you've established your financial and cultural baselines, the next step is to measure the potential benefit of an HR BPO engagement. Comparing your financial base case against industry benchmarks should be a straightforward analysis and yield some immediate areas of improvement. When examining the cultural base case, measure it against industry benchmarks and data from top competitors to determine performance gaps. Comparing metrics such as revenue per employee, total cost per employee, turnover and employee satisfaction will yield focus areas for transformational change, leading to performance gains beyond operational cost cuts.
HR BPO Success
An HR BPO engagement can bring your company measurable success. Remember to look at HR BPO as not only a chance to cut operational costs but also as a great chance to achieve real transformational change within your company. Ultimately, an HR BPO engagement will both reduce direct costs and lead to top line improvements.
Randy Cooper serves as co-founder and chief executive officer of Empagio, headquartered in Atlanta. Cooper's career spans more than 20 years in services delivery and technology providing leadership and vision in human resources, benefits and payroll. To learn more about Empagio, visit www.empagio.com.
