Quickly emerging are three clear types of HRO services. There is the basic HRO, full HRO and integrated BPO. Basic HRO is mostly for mid-sized organizations and organizations with fewer than 20K employees. Full HRO may be for any larger organization with a more developed HR function while integrated BPO serves the same market.
What’s the basic HRO package? Well, there are specific vendors out on the market that are trying to capture the non-complex HR market by offering payroll, benefits and HRMS services only. These vendors (ADP and Ceridian) are well positioned due to their dominance in the traditionally outsourced payroll market. Each vendor also has strong offerings in the outsourced benefit arena, although there is much more natural competition in this market. ADP probably has stronger core HRMS functionality, but Ceridian has broader partnerships in talent areas. Each vendor has also wrapped employee call center technology around these offerings, leveraging call center support from their payroll and benefits expertise.
The full HRO package is similar to the above, but broader functionality is offered, more services and customization. The expectation is that full HRO also provides the ability to identify process inefficiencies and apply appropriate best practices. In terms of functionality, the roll-out of a full talent management suite would not be unexpected. Management and services to some functions might also be included, allowing the client organization to eliminate certain types of staff. So while compensation analysis and benefit plan design may not be removable from the HR staff, production support for functions like recruiting (RPO) have gaining acceptance. The vendors for full scale HRO haven’t changed and are still Accenture, Convergys, Arinso, ExcellerateHRO, and Hewitt.
Emerging mid-market HRO offerings are coming down-market as vendors see profit potential. These offerings provide less robust core HRMS applications and less customization, but the same levels of process outsourcing as other large HRO agreements.
Integrated BPO? There are actually only a few organizations that can offer this if the client is willing to single-source their entire outsourcing strategy. Therefore, an organization looking to leverage finance, IT and HR can really only go to IBM, ExcellerateHRO (EDS) or Accenture. Any large organizations willing to outsource all these functions should search out one of these vendors, but I find it highly unlikely that any company would single source all outsourcing.
5 responses to “3 Levels of HRO”
3 Levels of HRO June 14, 2006 on 2:49 am | by Systematic HR Quickly emerging are three clear types of HRO services. There is the basic HRO, full HRO and integrated BPO. Basic HRO is mostly for mid-sized organizations and organizations with fewer than 20K employees.
If you use the term HRO to really mean various levels of comprehensive HRM BPO, then what term do you use when you’re referring to all the other kinds of HR outsourcing that an organization does? To try and get some clarity here, may I propose the following:
HRM, human resource management, is the subject matter domain, like financial management or customer relationship management, and doesn’t imply anything about how, where, by whom or to whom the relevant processes are delivered.
HR, human resources, is used colloquially to mean the department, as in HR department, the functions of that department, as in HR activities, or the actual people who do or could do work (regardless of their legal relationship to the organization), as in “we have competent human resources”. This term is also used colloquially to mean the domain, but not here.
HRMDS, the human resource management delivery system, is the combination of people, processes, and technology which, taken together, deliver the domain, i.e. make specific HRM policies and plans operational. The HRMDS is implemented through a combination of automated and manual processes, organized via a combination of shared services, centers of excellence and strategic leaders and partners, and deployed in-house or via comprehensive HRM BPO, both of which involve a range of outsourcing relationships to deliver specific processes, data, consulting, content, software, etc. Regardless of the degree and quality of automation, of self service, of cost-effectiveness, of service levels, etc. of it’s current state, every organization has an HRMDS.
HRO, human resource outsourcing, is the use of an external provider to do any aspect of what we need done rather than doing it ourselves, so this includes software package vendors (to whom we outsource the design, development and maintenance of software) and training course providers (regardless of delivery technology), compensation plan designers and staffing strategy consultants (to whom we outsource in a pure consulting manner), every flavor of IT outsourcing (i.e. hosting, managed services, ASO, implementation services, etc.), every flavor, however narrow, of BPO, business process outsourcing (from being our payroll office to doing our background checks to providing whole chunks of our HRMDS).
HRM BPO, human resource management business process outsourcing, is my term for having an HR outsourcing provider deliver the end results of a business process, i.e. providing the people, processes and technology needed to deliver those end results, e.g. background checking, tax filing, from single benefit plan administration to much more comprehensive benefits administration (assuming that this isn’t just about systems but includes responding to employee/manager questions, either online or via a contact center, and providing related analytics), payroll (but not on a service bureau basis, which is much more of a managed IT service, but rather as if they were our payroll department), job board delivery of vetted applicants, search firm delivery of qualified candidates, RPO (recruitment process outsourcing, a much broader BPO that encompasses much beyond sourcing), etc.
Comprehensive HRM BPO is having a single provider deliver so much of the core administrative HRM processes (i.e. personnel recordkeeping, payroll administration, benefits administration, employee life cycle data management, organizational design structures and data management, e.g. job, position, work unit, work location and their relationships) that they also take on responsibility for at least the HRMDS’ portal/self service customer view, the core functionality of the HRMDS platform, the within scope tier one and, perhaps, some tier two customer care, and the whole operational infrastructure for setting up and running the relevant components of the HRMDS. The scope of comprehensive HRM BPO may also include the more strategic HRM processes, e.g. staffing and workforce development. A PEO, used by small organizations, is a special case of US-only comprehensive HRM BPO in which there is dual employment responsibility and an insurance sales component.
Until we get a very rigorous and consistent terminology for these quite separate concepts, I don’t think that our discussion of them will be as effective as we need it to be. Just some food for thought.
Naomi
Naomi: I don’t disagree with you in any way. In my mind I’ve always used the term HRO to mean HR BPO with more than 3-4 services outsourced. So HRO to me means totally outsourced HRMS, payroll, benefits, recruiting, etc all in a package.
I’ve used the term “traditional outsourcing” for less than that as well as for traditional models like ADP payroll.
While I don’t mind your terminology, I’m not sure the industry would quickly adopt it. If you go to hrotoday.com/, they don’t use the term Human Resources Outsourcing to mean outsourcing broadly – it’s really HR BPO. However, I have to agree with your sense that HR Outsourcing should refer to outsourcing broadly.
Every time I run across your articles, I find them useful. Thanks.
Re: your article on 3 Levels of HRO — you talk about the processes. But what about the outsourcing of the technology infrastructure: the application, database, hardware/servers, network, etc. Lots of organizations (large to small) are “outsourcing” the infrastructure but keeping the process support internal. This is called managed services. Just another thought about
[…] […]