systematicHR

After writing about the #1 and #2 factors for successful implementations last week, I received this comment from Eric on the ability of smaller organizations to understand and focus on good business process. Eric’s comment linked back to a post on his site called “Another Reason Why HR Should Be Totally Outsourced?” and being the constant antagonist, I was truly prepared to wholeheartedly disagree.

First off, I stated that:

So my theory is that what you are before implementation is what you will be after implementation. The only difference is that you’ll have spent some money in between. If your department was doing well before, you’ll hopefully be doing marginally better aftwerwards. If you were an absolute mess, you will have succeeded in giving that mess the your new vendor. The only realy change are for organizations who realize they are an absolute mess, and spend significant time before implementation (or during analysis with the vendor) to truly define what the organization wants. Rather than jsut analyszing the current state, the organization MUST be able to tell the vendor what their future expecatations are. ((systematicHR, April 27, 2006))

Eric responded with:

All in all, I am doubtful that many small to mid-sized companies have the capacity to complete a successful HRMS transition, simply because they lack the process knowledge to do so. When we dig deeper we find that there is frequently little incentive for the HR departments in these firms to develop the necessary process knowledge base. However, there are large incentives for a Total HR outsourcing firm to develop the process mapping skills necessary to facilitate complete and harmonious HRMS transitions. Their competitive edge in the HRO market depends upon it. ((Bradfield, Eric, April 27, 2006. “Another Reason Why HR Should Be Totally Outsourced?” Retrieved from http://hrhomeshoring.wordpress.com on April 28, 2006.))

I will generally agree that small organizations don’t have the capabilities in-house to truly re-engineer their HR business process. In fact, small companies may not really care to do so. When you have 500 employees and 3 people in HR, self service, recruting and health and welfare benefits may be the entire HR strategy. What might be interesting in these organizations is the PEO idea where employers may actually free up some time to allow their HR practitioners to implement better technology and process. However, the thought that there are 3-4 HR practitioners is still troubling in terms of what a limited group of people can get done. The argument gets more interesting in the mid-market.

Once you have 1-2000 employees, the stress of integrating with the business functions increases significantly. However, the staffing ratios may still not be sufficient to truly affect business process change. If we go by the good ‘ol ratio of 1 HR practitioner per 100 employees, that probably means you have 4 in payroll (assume outsourced to ADP/CEN) 3-4 in recruiting, 2 in benefits, 3-4 generalists, and a smattering of other specialists and director/executive types. In this model there isn’t very much room to hire people who have great expertise in change management and business process reengineering. Additionally, these organizations may not have the change management and business process departments in-house either.

I’m also not quite sure that HRO is the answer for the mid-market. At this time, ADP is the only viable vendor in this space. With good, broad systems and a cost model that scales down sufficiently, ADP is positioned for great success in this market. There are several other vendors looking for business as well, but not a single vendor seems to be spending the time up front to do the strategy work. As with everything when you go down market, vendors start cutting corners. From where I sit, mid-market HRO implementations are basically technology implementations without much of the change management work necessary to position the HR organization for true success.

What’s the answer? I think that for small and medium sized companies it goes back to success factor #2: governance and executive sponsorship. The key is not going to be in how much money you can spend on technology implementation or HRO. Nor is the key simply to hire droves of expertise to change processes. For small and medium sized organizations the busines executives must truly buy into the potential value of HR contributions and build HR into the business plan. Without this, no matter “what” else you implement, “who” does it to “what” level of outsourcing, you’re doomed to a hard road.