Bargaining on outsourcing

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Magazine Article, Source : The Manufacturer
Zone : People and Skills
Published : May 2005

HR’s people processes have has so far been largely immune to outsourcing, but all that looks like changing. Annie Gregory finds out if manufacturers are up for shaving 20 per cent off staff management costs.

Companies have been offloading the boring, arduous or legally risky aspects of HR for years. It’s standard practice to get specialists to handle payroll, pensions administration, recruitment, to advise on employment law and to handle training. Traditionally, however, manufacturers have been reluctant to let anyone else in on the ‘people’ processes like performance measurement, appraisals and employee communications that sit close to core business performance.

This could be changing. Analysts unite in predicting a massive upswing in what they term global HR business process outsourcing. In particular, new research from Yankee Group expects spending to increase by 27 per cent this year to over $4.6 billion, reaching $14 billion by 2009. The US leads but Europe is following strongly. Significantly, it’s not being spent in traditional areas. Take the 10-year, £306 million deal recently signed between BT and Accenture extending an existing service to encompass customer contact, recruitment, pension, payroll and benefits and, importantly, performance management administration, health and safety, and HR advisory and information services globally. Yankee Group sees it as a pace-setting model likely to be taken up by all sectors. Its research shows many large-scale enterprises reducing their total HR admin costs by as much as 20 per cent through this approach.

The mighty manufacturers are already biting: General Motors outsourced HR for 75,000 employees across Europe, and a contract from Proctor & Gamble saw 700 HR employees transferring to IBM. Is it, however, something smaller players are taking up? The answer is yes, although UK manufacturers tend to be using external help to handle specific HR areas rather than across the board.

According to Alison Gill, director of talent management company GetFeedback: “We are seeing increasing recognition that companies should be outsourcing more complex areas of HR because it is impossible to have that level of expertise internally.” Typical is the work her company has carried out with Vauxhall. Faced with the urgent need to cut costs while driving results up, Vauxhall wanted to revamp priorities, creating a one-company culture with a sense of urgency and direction. Although it had used 360-degree assessments (in which performance is rated by direct reports and peers as well as managers), they were paper-based which yielded a low rate of return and were cumbersome to administer. So it appointed Getfeedback to redesign and automate the process, taking objectives from the balanced scorecard process, embedding 360-degree reviews and applying it with automatic reminders. Each employee accesses their own report, not only putting personal data firmly in their own hands but also reducing the burden on HR.

By involving a third party, Vauxhall increased the confidentiality of the process, helping to increase employee acceptance. As a unionised workplace, employee buy-in to the project was essential. Appraisal completion rose from 15 to 92 per cent. “Having the data in a coherent format has already highlighted areas for development,” said Richard Pennington, Vauxhall’s head of planning and development. Focusing on employee performance is important to a company wanting to improve performance, but typically companies aren’t willing to spend much when there’s also a need to cut costs. The annual cost of support and individual reports was £50 per person.

Why should any company need external suppliers to handle something as sensitive and fundamental to its operational efficiency as appraisals? Often they are badly done, usually because the manager hasn’t got the vocabulary or the experience to approach issues clearly and directly. But wouldn’t HR’s efforts and budget be better directed at training them to handle them more capably? Gill is adamant that this process can never be regarded as a substitute for conventional one-to-one conversation. “It enriches it instead. By creating definitions of what you are trying to inject into the culture and putting them into a framework questionnaire, you create a language for those things and you give a structure for feedback. It provides a coherent way for someone to start the conversation and points of reference for the things the organisation has decided need doing differently.” It encourages people to give examples, rather than provide feedback in an ad hoc manner. Responses are analysed and presented as both individual reports and overall trends. The data highlights particular areas that score low across the business and Getfeedback will normally follow up with recommendations and programmes for remedial action. If, for example, a sizeable chunk of managers emerge poorly at sorting out roles and responsibilities, management development is clearly needed.

Gill is frequently asked by the HR director to survey HR’s effectiveness, or the HR team will ask for a measurement of its own effectiveness to be built into the mechanism. Typically they come out badly. “It would be easy to point a finger at the profession but, in fact, it’s because they need experience in a lot of different environments to do it well. The breadth HR covers today is massive and you can’t be an expert in all of it.” This form of benchmarking is often used to build a business case for external help in projects like feedback and engagement surveys. “Projects like that touch every single employee and it’s not fair to put an inexperienced HR person on it. It takes many skills: project management; data analysis techniques; supporting IT; and the right communication to attract attention to the process.”

There are even more contentious candidates for outsourcing. Employee assistance programmes (EAPs) are now offered by 29 per cent of employers as a core benefit. Employee Advisory Resource (EAR) is one such specialist, providing information and counselling, under contract from employers, to 220,000 workers across 230 organisations on any issue that may be affecting their ability to work or perform well in their role. As well as round-the-clock advice, EAR also handles absence management, conflict resolution and arbitration issues.

Aventis used its services shortly after being formed by the merger of two pharmaceutical companies. Aventis saw an EAP as a way of helping to bring cohesion to the new entity while also offering real benefits to employees and their families. It was regarded as a way of bringing staff together, while also providing practical help while restructuring was taking place. Line managers could also refer their staff for counselling if they thought it useful. The first year review showed a third of the work-related calls fell into the career change category, including concerns over redundancy, redevelopment, dismissal and termination. Emotional health issues, including job anxiety and the employee's perception of stress in the workplace were the next biggest.

Surely these are all issues that employers should be handling personally? After all, particularly in the context of a newly-formed company, they could be performance makers or breakers that need sensitive and informed assistance. James Bradley, EAR’s information manager, is adamant that the EAP approach is far from passing the buck. He points out that most clients refer themselves, dialling an 0800 number which appears on things like payslips. It means the provider picks up problems as they happen, day or night. “People know it’s confidential and we are able to deal with it in a way that the organisation can’t. Employees might perceive a bullying line manager as ‘in’ with HR so are unlikely to go to either of them. We explore other approaches with them: ‘Is it possible to take someone in with you? Can you go to occupational health? Is there another line manager you can talk to?’ We are helping the individual but also, via our reporting and feedback, we are helping the organisation.”

Personal issues cannot be disclosed unless the session comes from a referral and the client has signed a consent for their release. Any remedial action emerges from general findings in EAR’s summary of activities. “If, for instance, we get a lot of calls from a certain plant about, say, bullying we can highlight the issue and give some generic training to its managers.” In both stress and absence management, Bradley believes EAPs have a greater chance of success than insiders who usually have difficulty coping with the clinical issues. EAPs can also use techniques like stress mapping which are not usually part of the internal HR arsenal.

Is it cost effective? Bradley says EAPs are paid by headcount and it usually works out at £15-£16 per employee with a usage of six to 15 per cent. “Less than six and we relaunch. More than 15 and there are probably workplace issues that we need to address with the organisation.”

Personally, he thinks a lot of outsourcing is legislation led; employers are nervous they aren’t covering all their responsibilities. Aside from that, however, HR finds personal advantages: “Our job is to make employees more productive when they are going through a crisis. There are no more relieved faces than the HR department’s when they can tell someone whose relationship is breaking up to go and see the EAP. In January and February our team is working flat out on post-Christmas divorce issues.” Few HR departments have the time or inclination to deal with that and, probably regard outsourcing as a bargain!