HR leaders - take control on HRO

Sometimes conferences go better than anyone expects and occassionally not so well, but judging by the feedback it was difficult to imagine what else could have been done to make last month's SBPOA Conference on Transforming the Finance function even better. Perhaps it was the quality of the speakers, the seniority of the audience, the crisp organisation or the generous welcome from our hosts in Copenhagen. Most likely, it was a combination of all of these factors.

One conclusion above all came out loud and clear. F & A shared services are well established and accepted as an effective way to transform large, complex organizations. Shared services' close cousin F & A BPO is not far behind and a large number of companies represented by attendees confirmed that they already outsourced several transactional accounting activities, frequently offshore to locations such as India.

Yes I know this is an HR magazine, so what has any of this F & A stuff got to do with HRO?

Just a year ago, HRO clearly had the greatest buzz about it, especially if you counted the collumn inches. Sure F & A shared services had been around a long time, but HR outsourcing seemed to be more do-able and every outsourcer who could spell HR seemed eager to get on the bandwagon. I am not saying that HRO does not make sense or that it is not the right thing to do for so many businesses. Quite the opposite in fact. However, it is pretty clear that F & A outsourcing seems to be easier to do, judging by the time it takes between a company deciding that it makes sense for them and the deal being signed with the outsourcer.

So why is it that HR outsourcing transactions seem to take for ever to negotiate and put in place?

During the last week I set about the statistics and looked at several studies by the SBPOA and others to compare the case for F & A and HR shared services and outsourcing. There is little to choose between them. In general, costs savings of between 20% at the low end and 45% at the top end seem to be realistic for both functions. Both F & A and HR transformation promise faster, better service provision, improved compliance, greater employee satisfaction and so on. So no clues here.

Which function is more relevant to the success of an organisation in terms of of the likelihood of reducing administrative costs, finance and accounting or human resources? As this is an HR magazine and you are probably in HR the answer will be obvious to you, but sadly I think the answer is F & A.. Here are the reason's why.

Let's face it, in a corporation with 25,000 employees and 125 HR people, reducing HR numbers by say 30% (37 people) is hardly likely to make much of an impact on the bottom line. Of course 30% saving is worth having, especially if you have to defend the HR budget. But it is unlikely to save the company into prosperity. Generally there are more F & A people around in an organization than HR people and a signficantly higher volume of transactions, so finance has a chance of making a greater contribution to cost reduction through outsourcing. But I do not think this is the real answer either.

Several HR executives I tackled on this topic say the answer lies in a problem evident since the days when personnel management became HR. They cite HRs distance from the top rank of decision makers, its distance from the C-suite and unjust bias that HR people are too often regarded as process jockeys focused on administration rather than direct contribution to the bottom line. Compounding the effect according to some of the HR executives was that HR people find it difficult and maybe even feel it is unreasonable to have to justify HR in terms of hard numbers. No one would ever say this about controllers or accountants!

Most corporations have a pretty clear idea what it costs to run HR, but few HR groups make sufficient effort to quantify the benefits of more effective HR service delivery. What is the true cost to the company of inefficient HR processes. How many work-hours are wasted in handling requests that would otherwise not be made? I am not talking here about time wasted by HR people, but the time taken by every employee. Add these up, put a value on it and suddenly you have a business case that goes way beyond taking 37 HR people out of the function! The economic benefits of HRO suddenly become meaningful dont' they?

Don't wait for outsourcing firms to convince your CEO or CFO that it is time to hand over HR. Make the case for transformation yourself, build the business case and stay in control to take your place in the C-suite.