Jason Corsello recently posted a great analysis of the state of HRO. His take is that the industry is on it’s 3rd generation of development, and the description of these 3 generations is so priceless that I thought I’d repost it word for word:
I think we have officially entered our 3rd wave of HRO. The first generation is now lovingly referred to as the “your mess for less” era. Next came the lowly-admired, “transform then transition” which was an ill-fated attempt to elevate the HRO value creation but continues to fail miserably due to the lack of preparedness and execution by both TPAs and service providers. Which puts us to where we are today, in what I am now referring to as the 3rd generation of HRO also to be known as the era of ”changing the wheels of the car while driving 70 MPH”. ((Corsello, Jason. June 6, 2007. “Is Johnson & Johnson Changing Current Expectations of HRO?”))
And I’d have to say that I agree with Jason’s description of the spirit of these phases. You’d like to think that HRO would have gotten better over time, but the competitive pressures and client demands have counteracted each other disadvantageously. Phase 1, or “your mess for less” didn’t last all that long. This was really the Exalt model that was eventually purchased by Hewitt. While it sounded good and everyone around HR knew that it was the beginning of a great idea, simply doing the exact same thing with mostly the same people (many in-house staffers simply got transitioned to the outsourcer), costs and efficiencies didn’t really get a whole lot better.
For the second stage, Jason and I might just disagree a little bit. Before “transform then transition” comes the idea that we could do large $500M and $1B deals in the traditional payroll outsourcing model. This just meant that the outsourcers were pitching call center and technology efficiencies to provide significant cost savings. At the same time, they would apply “best practices” to enhance the client’s overall effectiveness. What it comes down to is that $500M deals can’t be put into the same model as a $200K payroll deal. They are not serviced the same, and obviously they have much different client demands and expectations. The “best practices” will always stay in quotations. Really these were an attempt by the HRO vendors to standardize everyone into a very small box. Unfortunately again, for large employers with $500M deals, this simply was not going to work.
On a parallel path, maybe I’ll call it HRO generation 2.5, there is a realization that some of the fault lay with the clients themselves. They simply were not adequately prepared do undertake the massive transformation that was about to happen. Looking to their vendors to guide the governance, metrics, and change management of the entire deal wasn’t the right idea. First, the vendor was too wrapped up in implementing technology, people and process. Second, the vendor didn’t usually have the right skillsets to do so. Third, the vendors were biased organizations and anything they could have implemented would be for them, not the client.
I love the imagery Jason gives us for the 3rd generation. ”changing the wheels of the car while driving 70 MPH” is pretty good, although I’d question if it’s changing the driver of the car. All the while, the point is there is no pit stop going on here, and the danger level is incredibly high.
In the end, the verdict on HRO is still out. There are some good relationships out there, but most are pretty negative. The vendors could be much healthier, but we’ve reached and understanding that there is some client culpability. Again, Jason is correct with the unspoken (unwritten) hope that the 4th generation is improved over the prior three.