Previous Article Next Article The cautious approachOn 23 Apr 2002 in Personnel Today Even at BPAmoco, the move to outsourcing in HR has been a faltering affair.HR directors would be wise to be ultra-cautious, writes Stephen OverellThe word ‘outsourcing’ is normally followed by the name BP Amoco. The oilgiant’s decision to farm out its transactional HR to Exult in 1999 was heraldedas the spark that would trigger a boom in HR outsourcing. At that time, many organisations brought in training and development,employment law experts, selection specialists, and the odd consultant or two.But compared with the strategic supplier revolution in procurement, outsourcingsomething as sensitive as HR operations was exceptional. Shortly before BP announced its move, the then-IPD came out with anintriguing survey. Precisely 0 per cent of 153 chief executives had plans tooutsource HR1. BP’s move was “the deal that changed everything”. Exult’s ‘snazzy’service centres in Glasgow and Houston, Texas, would eventually be dealing withthe panoply of HR needs of 100,000 employees in 80 countries in a deal worth$600m (£420m) over five years. Pay and benefits, training, recruitment,relocation, employee data management, redundancy, the lot. It was the then-HRdirector Nick Starritt’s breathtaking, eye-catching, dangerous brainchild. Exult later lured Unisys ($200m over seven years; 36,000 employees) and Bankof America ($1bn over 10 years; 150,000 employees). Other suppliers, too, began to find their phone ringing. E-peopleserve, ajoint venture between BT and Accenture, wooed Cable & Wireless in December2001 in a deal worth £80m over five years. Centrefile won Lloyds TSB, Xchangingscooped BAE systems, and RebusHR pulled in a clutch of medium-sized firms. The usual gaggle of seers jumped on board. Predictions of a global market inHR services of $45m, $58m and even $79m began to fly. Last year Gartner Dataquest said multi-process deals in the US (by far themost active market) would account for a third of HR subcontracting by 2005 –business worth some $11bn2. Ground-breaking, big-name deals bearing hefty price tags have made HRoutsourcing a significant story in recent years. But beyond the pioneers, dothey reflect a wider desire among HR practitioners to chop out as manyessentially administrative functions as they possibly can from in-house HR? According to an on-going joint study by Cranfield School of Management andHR consultants William M Mercer, outsourcing has generally failed to matchexpectations of a boom, although it is expected to continue growing. The most recent report3, published in July 2000, showed far fewerorganisations embarking on outsourcing projects than researchers expected. Outof nearly 4,000 companies, those which had increased their use of externalproviders during the previous three years and those which had not, were splitevenly at 40 per cent each. Only a third used external providers in at least three of the followingareas: training, recruitment, pay and benefits, and outplacement. GartnerDataquest has now revised its prediction of multi-process HR outsourcing dealsfrom a third of all HR subcontracting down to a quarter4. Considering the tides of advice that have bombarded the profession aboutfocusing on core competencies, the outsourcing boom has been a falteringaffair. But then it is still early days. Kevin Delaney, an HR consultant with PwC, puts it like this:”Organisations are coming to understand that just because HR is aheadache, giving it to someone else does not make it less so. Outsourcing isnot a practical thing. There is a reluctance among employees to go on to a PCand call someone up. It is one of those strategic decisions that needs to beworked at. The odd BP Amocos are still the odd BP Amocos.” Ah yes. What news of brave, mad BP? Nick Starritt left last September. Butin a speech to the CIPD in October, John Melo, vice-president of downstreamdigital business for BP, was downbeat. The project was “underreview”. There were “teething problems”. Setting up the e-HRsoftware was simple, but getting people to use the system and input their owndata was a different matter. Melo admitted BP should not have automated all its HR functions, because theneed to standardise policies did not have sufficient flexibility. “The ITand HR community led this project, but you need to start with the businesswanting to do it, not the other way round,” he said. Worst of all, themove was originally aimed at cutting annual HR costs of $300m, but it hadworked out more expensive. “Staff were used to operating in a certain way. When we moved toself-service, we still got people requesting things from our HR team,”Melo added. This is a little too melancholic for a company line, so BP and Exult have reappraisedthe revision. Chris Moorhouse, Mr Starritt’s replacement as vice-president ofHR, says the company has not achieved everything it set out to, but many goodthings have come from the experiment. Instead of 100 different types of employment contract in the UK, there arenow just 10; Exult is guaranteeing cost savings of somewhere between 10 and 20per cent a year. Some 50,000 staff (about half) are now covered by the system,while about £100,000 (about a third) worth of HR costs come under the contract.Yet some ambitions have not been realised. The company has not managed toextend the system beyond the UK and US. Exult has not been willing to build new service centres to serve south-eastAsia, for example, because it needs more clients to be able to shoulder therisk. Acquisitions of ARCO and Burmah Castrol have also complicated matters, ashave legal headaches: Germany does not allow the processing of employee dataoutside Germany. The result is that the project is still, officially, on hold5.What can the wider world learn from the pioneers? A new report6 from ReedManaged Services sums it up. The justification for outsourcing is the same asever – cut costs, focus on core competencies. But outsourcing is not for everybody and needs cautious handling. Thebiggest problem is “cultural dissonance” between supplier and client;it requires a totally different method of operating to make it work. The relationship between client and service partner must be trusting, notover-managed. The agreement between them must include delivery against cleargoals – measuring the right things – but with sufficient flexibility writtenin. And perhaps the most critical lesson of all is: once you are reliant on anHR outsource specialist, you really do not want the nightmare of bringing itall back in-house. References1 Survey, IPD, March 1999 2 HR Outsourcing: Time to Deliver Results, Gartner Dataquest, March 2001 3 Trends in HR Outsourcing, Cranet, July 2000 4 FT.com, 27 March 5 Details from FT.com, as above, and Exult press release, 18 March;www.exult.net 6 Managing Outsourcing: Managing the Working Life Cycle, Reed ManagedServices, 2002; www.reed.co.uk/clientResearch Viewpoint plusRead related articles on this topic from XpertHR’s extensivedatabase free. Go to www.xperthr.co.uk/researchviewpointJoin the Xperts take a free trialBy calling 01483 257775 or e-mail: [email protected] is a new web-based information service bringing together leadinginformation providers: IRS, Butterworths Tolley and Personnel Today. 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