NOA HRO roundtable
Human resource outsourcing is becoming increasingly popular within organisations. Businesses are moving away from HR services which once used to exist as internal departments. Recent figures, including the TPI Index, show an increasing trend for HRO services, as recruitment, learning and back office services replace ITO in popularity. The HRO roundtable event was held to receive expert opinion on the changing face of HRO in a series of briefings. The event included discussion between attendees and speakers, focusing on case studies, with an exchange of views over the latest legislation, strategies and emerging trends in HRO. The session was opened by NOA speaker Paul O'Hare, representative for NOA Legal Members.
Sarah Seabury, director, ISG, HR Outsourcing, Transformation and Change Management Advisor, provided a wealth of experience from over 8 years in the sourcing industry. She described that from an advisory position see was seeing a renewed HRO focus in both European and North American markets. The European position takes a delayed lead from the US, following trends in HRO with a delay of 6 to 7 months after their establishment across the pond. Sarah described HRO markets in the Pacific regions, which are new in themselves, as moving to copy the European example and in turn US market developments.
ISG had seen increased renewals for HRO service contracts, revealing that the HR outsourcing trend is still being maintained. Renewals are being particularly focused upon within US as the country continues to lead the way in HR outsourcing. New markets in South America, Europe India and South Africa are increasingly creating interest in the potential of HRO markets.
Developing HRO markets:
RPO- having already seen uptake in the US, accounting for a market value of $1.4 billion in 2012, recruitment process outsourcing is growing in Europe, with contracts moving into their second and third generations as the market develops in flexibility and scope
Workforce Analytics- while coming into the HRO market, at present not enough information exists around the service to see mass market uptake, continued uptake and future developments in infrastructure mark this as one to watch
SaaS HRO- becoming increasingly popular as SMEs drive the benefits of agile service as cloud infrastructure develops
The market has become increasingly competitive as SMEs seek increased flexibility and agility. HRO contracts are moving away from macro deals to multi-sourced contracts, based on the increase of specialist suppliers who are able to deliver key services.
In recent outsourced HR contracts, the value of IT to the delivery of the service is becoming increasingly important. A strong IT HR platform is becoming a stand out difference between a successful HRO service and a failed one. HRO contracts are now reaching on average three to five years in length, a reduction from the very large contracts of the past. Three years remains at the short end of contract lengths, with anything less becoming difficult to establish an accurate contract price. Sarah commented that ISG would always advise on pushing on a five year contract, adding that she had, “seen many walkaways from small deals.”
Harry Parker of TLT, discussed from a legal perspective, the developing regulation surrounding HRO, and its impact on suppliers and users. Prior to 2006 there was uncertainty within HRO however Transfer of Undertakings (Protection of Employment) Regulations or TUPE helped to clarify market regulation. Uncertainty within the UK has now returned due to newly established legal precedents.
Harry provided recent case studies demonstrating a significant legal test for TUPE, regarding the use and migration of dedicated workforces. This has had the effect of calling UK employment regulation into question. In one case haulage company Eddie Stobart, was ruled against by a UK employment tribunal over the migration of staff between contracts. This went against past practices regarding a use of dedicated workforces. The result of the ground-mark ruling found suppliers now finding it necessary to look at exit costs and the exact contract specification surrounding staff migration.
Basic HRO services such as the outsourcing of payroll are open to increased risk from the precedent set by such rulings, with increased risk driving costs for users. Not every HRO service faced the issues posed by the employment tribunal rulings, with for significant impact restricted to large single contracts. The lesson that both suppliers and users of HRO should take, not just in workforce migration, but in general HRO regulation, is that legislation can vary dramatically and is often country specific.
The overly bureaucratic nature and ‘gold plating’ of TUPE within the UK has now been recognised as being of concern to UK businesses. The government is now consulting on the reform of TUPE, stating that, "If the consultation supports change" the UK’s enforcement of TUPE will be changed. The consolation will run until April 11th.
HRO can be complex when coordinated across multiple nations. The economic squeeze of the global recessions has pushed some companies to inshore HRO services, at the same time reduced funds have also helped push other companies to move in the opposite direction and outsource HR.
Challenges affecting users in employing HRO include retaining control and visibility. HR services such as payroll do not lend themselves to single systems, with models varying from country to country. The lack of a single system presents a major challenge in the application of HRO when seeking to ensure regulation compliance. The specific challenges of global payroll represent a critical component in helping multi-nationals achieve their HRO strategic objectives.
HRO is particularly vulnerable to leakage, this can include broken processes, including instances of fraud. Effective governance is necessary to identify and minimalize such vulnerabilities. Best practice in HRO to reduce the opportunity for leakage includes the clear segregation between HR departments and other departments, with Sarah, ISG, acknowledging that: “one of the issues is governance, which we’re not very good at doing in HR.”
The employment of a dedicated service team is also becoming increasingly popular in restricting security vulnerabilities. This is particularly true when the HRO service concerns high level functions. This is commonly due to users wanting to restrict HR teams from working with competition while promoting confidentiality.
Ashley Carter, Director, Global Outsourcing, BDO LLP, detailed the findings of a global trends survey of multi-nationals, with more than 50 percent looking to expand and employ some element of shared services. Nearly 60 percent of respondents outsource services with the main primarily driver being cost reduction. The survey also revealed that a large percentage of respondents are not planning for change, whether outsourcing HRO or bringing services back in-house. Many enterprises are simply maintaining current service practices.
End of session roundtable questions included a series of discussions regarding the challenges of employing an offshore workforce. This included the complications and potential obstacles posed by cultural differences, and how the identification and recruitment of staff while nurturing development is vital to HRO. A reaction to offshore complications is an increasing trend of inshoring HRO functions back to the UK from destinations such as India, due to the attraction of close proximity to the service providers, along with cultural fit, the avoidance of language barriers and issues of negative feedback.
As HRO becomes increasingly popular in a variety of markets the NOA’s HRO roundtable shows that suppliers and users must keep abreast of the constantly changing regulation to ensure compliance. At the same time governments need to inform themselves of the risks of over bureaucracy and the obstacle it can pose to market growth. While HRO is on the up there is a worrying amount of indifference at enterprise level regarding new regulation and the potential of developing innovation, users need to become aware, or risk losing the full capabilities of HRO.
Speakers:
Paul O'Hare , representative for NOA Legal Members
Sarah Seabury, Director at Information Services Group, HR Outsourcing, Transformation and Change Management Advisor
Harry Parker, Senior Associate, TLT
Ashley Carter, Director, Global Outsourcing, BDO LLP