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 / Summer 2004 / Issue 35(originally published by Booz & Company)


HR on Top

Full-service HROs rely heavily on Web-based “eHR” software applications and systems with self-service HR tools that allow employees to get routine information and submit forms through a company intranet. Self-service tools for managers are used for compensation management, employee transfers, and a growing list of activities that formerly required paperwork and discussion with the HR department.

Self-service is convenient for employees and relieves HR staff from time-consuming paper processing and interactions with employees. A few companies are also beginning to use self-service tools for career development and job searches. Using these tools, employees have excellent opportunities to research and apply for new jobs within their company, sign up for training, and get current information about their company’s business performance. At BP, 50,000 employees have online access to job information, career guidance, and resources for skills development.

Outsourcing nonstrategic HR operations and giving employees self-service tools frees HR professionals to focus on acting as business advisors in organizational design, building management capabilities, assessing the costs and benefits of HR initiatives, and counseling on business strategy formulation and implementation. New HR information systems enable senior and midlevel HR professionals to perform powerful strategic analysis. For example, the latest systems can track and analyze data to link competency development, staffing requirements, and the funds needed to support a new product launch. Using specific competency data, for instance, HR can identify skill strengths and gaps, recruiting needs, and potential organizational changes, as well as control compensation and benefits costs.

Another new IT resource, employee relationship management (ERM) tools, makes it easier to capture and analyze data from multiple sources. The result: insights into the costs and causes of employee turnover, better measures of the return on investment of specific programs such as incentive plans and training offerings, and the ability to track individual employees’ skills development and preferences. Like the better-known customer relationship management systems, ERM tools use advanced data-mining techniques.

Outsourcing Strategies
Outsourcing all HR administration is highly attractive to large companies. My research at BP, Prudential, International Paper, and Bank of America confirms that the outsourcing of HR administration and the use of self-service eHR systems have reduced the companies’ HR administrative costs by more than 15 percent, while improving the quality of HR services. Furthermore, my research shows that companies that engage with a full-service outsourcer facilitate the integration of HR systems and increase the probability that their internal HR group will be liberated from administration so that it has the chance to be a strategic partner to business units.

But handing HR administration to an HRO and implementing self-service are radical actions that warrant close scrutiny. Ultimately, the outsourcing strategy needs to fit both the role top management wants HR to play and the readiness of the organization to adapt to significant changes.

Before entering into any discussions with an HRO, a company needs to know its HR administrative costs and quality. If a company is unsure whether outsourcing HR administration can save money, it probably hasn’t carefully tracked its HR costs or service levels, because there usually is significant room for process improvements and labor cost reductions that can be achieved by outsourcing. An activity-based costing model is one tool that can help determine what is being spent on HR programs and services.

Wholesale outsourcing of HR administration is far more disruptive than outsourcing one task at a time. The HR department that emerges will look and feel very different than it did before. The size of the internal HR staff will be reduced rapidly and dramatically. Managers will have to get along without someone in-house to answer their HR administration questions and do their paperwork.

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