The Desire to Move to HR Cloud Platforms Is Recreating HRO

HfS recently published its HR Operations in the As-a-Service Economy Blueprint. This Blueprint lifts the lid on the true state of the multi-process HR outsourcing (MPHRO) market and identifies at what stage this market is at in its evolution to the As-a-Service Economy.

This evolution is driven by both the buy-side and sell-side of the outsourcing equation and hence why collaborative engagement is such a critical ideal in the As-a-Service Economy. But what is specifically driving service buyers to engage in outsourcing in the MPHRO market? Are the drivers still focused on simple cost take out or has this market evolved to a point at which organizations are outsourcing to actively optimize HR functions and align with business outcomes?

The answer is not a simple one and there are two unique stories to tell, this in itself speaks volumes as to the where the MPHRO market is in its evolution to the As-a-Service economy. HfS has identified the top three drivers for MPHRO adoption:

• Starting at the top, the largest driver in this market is the improvement of process efficiency, which is particularly prevalent in the mature markets of the US, UK, and Continental Europe. Buyers are looking to focus on core competencies and have realized that service provider defined processes are often best. HfS recently identified the use of service provider defined processes as a key element in true BPaaS engagements. Some might argue that this need for process efficiency improvements is simply another way of explaining cost take out. Whilst cost take-out is often a result of these measures, the initial decision to outsource was not sparked by this need, but rather by the imperative to create a more agile and scalable HR function that can respond to changing business dynamics. The improvement of process efficiency includes, but is in no way limited to: the removal of unnecessary paper trails, the use of automation to speed up and remove error from processes and the use of Lean Six Sigma methodology.
• Secondly, and having finally been knocked off its top spot, is the need to remove cost. Cost will always remain a factor in outsourcing engagements, however it is encouraging to see that this is no longer the primary driver in this market. This indicates that the service buyer community is beginning to realize that the value that can be gained from collaborative outsourcing partnerships goes beyond simply removing cost. The ways in which cost is removed however, has shifted in recent years. Labor arbitrage is still being used but with organizations keen to maintain onshore delivery for certain HR elements, RPA and process improvements are becoming more important than ever.
• Thirdly, and arguably most interesting is migration to cloud HCM platforms. In this instance the decision to outsource HR services often comes as an afterthought, initially the need to remove legacy technology is the primary requirement. Following this implementation, buyers often realize that, not only did they have legacy technology but also legacy processes that were no longer optimal in getting the most out of the new systems.

The evolution to the As-a-Service Economy is continuing to play out through the changing MPHRO drivers.

So what are the two stories here?

Well, there is still an element of legacy outsourcing present in these drivers, particularly in the need to remove cost and to a lesser extent in process efficiency improvement. What is interesting though is the boost the MPHRO market is gaining from the technology disruption in this market, not only is the move from legacy systems to cloud HCM platforms changing processes but it is also driving a new breed of outsourcing.