Human Resource Outsourcing (HROs) organizations are focused on staying on top of current and emerging HR practices, laws, and regulations. Their core business is helping their clients to concentrate on mission critical tasks by fulfilling some or all core HR functions.

We interviewed three industry experts to learn more about HRO's with respect to managing the change within client organizations.


What are Some Typical Client Companies?

Company size and industry are some of the key determining criterions for the kinds of HR activities outsourced and to what extent. Our experts shared the experiences stemming from their engagements.

Layne Devlin, the CEO of NetPEO, Professional Employee Organization, indicated that his firm works with companies that include law firms, import and export companies, restaurants, appliance repair, auto mechanic shops, dealerships, long-haul trucking companies, accounting, as well as some franchises.

Sylvia Stokes of the Leadership Connection further expanded the list with companies in manufacturing, state agencies, non-profits, government run companies, educational outlets, and more.

NetPEO's clients range from those that maintain all of their HR services in-house and outsource only a small portion of specific HR work occasionally, to those that completely rely on the third party HR service (latter is also known as PEO and is mentioned in the first article).

Large-sized organizations may outsource some or all of their HR functions and services for reasons that may include simplifying operations, cost cutting, increased compliance, and more.

The types of services outsourced and the structure and function of the client organization determine the relationship with the HRO provider.


The Challenges Navigating The Client Organization

Client companies generally welcome the changes which allow them to focus on the core business activities. In many instances, HR outsourcing reduces costs, increases efficiency, and lowers liability risk. However, some challenges may be present in the relationship with the third party HR provider that stem from either party.

Some of the challenges may relate to the sharing of the information and implementation issues - that is, having control and commitment to implement suggested changes, as well as operating with possible internal resistance. Experts also sited the lack of in house expertise with technologies used by the outsourcing firms, low trust. Finally, failure to understand the corporate culture and values that may be threatened by a third party service provider.


Overcoming the Challenges

Keys to the management of challenges between HRO's and client organizations are the building of trust, mutual sharing of the information, and expectancies management. Our second article details experts' opinions and suggestions to help build trust.

According to Stokes, There has to be a clear understanding of what the intent is. HR professionals and staff, if the client company is established, will be fearful of giving up information for fear of their job, or unfavorable disclosures. Stokes recommended that there be a clear communications protocol of HRO lead activities versus client company lead activities and who has the final say. It is optimal to establish such a protocol at the beginning of engagement.

Legal and operational logistics, such as any necessary non-disclosure statements and privacy protocols, must also be addressed prior to the start of the engagement. It is necessary to establish the scope of the analysis and subsequent implementation, agree on the consistent measurements to use in the evaluation, select benchmarks, and build consensus on the next steps.

Stokes added, "The relationship is optimal if it works as a joint partnership. HRO services providers come with fresh ideas and perspectives, and may be unfettered with a company's set views. In addition to just being able to do the job, they may be in a better position to bring new positive changes into the HR organization, helping every level of the client organization understand that, is the first step towards overcoming the challenges.

Dimitri Flores, the manager at FIMPE, concluded that to secure success an HRO company needs support from upper management as well as the HR organization of the client company.


How Are the Typical Engagements Structured

Typical engagements depend on the kind of services outsourced and the mutual communications between vendor and client. Stokes indicated that third party services could be staged in-house or at the HRO's location. In the case of in-house, the HRO can send a representative or a group of representatives to a client location to provide services on a fulltime or part-time basis. For other types of engagements there can be access to third party software, or to a dedicated staff in an HRO company.

The length of engagement depends on the services that are outsourced and the size of the client company. It can be long term and short term. According to Devlin, relationships that involve data collection, analyses and multi-group implementation tend to be long-term. Also, completion of the service may not necessarily indicate the end of the engagement as some clients may retain third party services for updates, training, and other activities. Dispersion of the client company is another important factor in the length of the engagement. Devlin indicated that a company of 3,000 employees operating out of one location may have an easier time taking over HR services from a 3rd party HRO provider than a company of 3,000 operating out of 30 locations.

Follow-up to an engagement may be as important as the project itself. How companies leave off affects the long-term effects of the third party agent's work - whether the changes were adopted. For short-term services - it is easier. For long-term services such as training or recruiting, it is important to have a "what's next plan in the works prior to starting the project.

Maintaining the data and business rules for the company to keep in line with compliance changes may be one of the ways to keep the relationship going, according to Devlin.


What are the Implications of HRO and Client Collaboration?

Devlin indicated that the HRO industry is better positioned to track and understand where the HR industry overall is headed and to respond to changing trends and laws in order to stay on top of the latest developments. Clients are able to enjoy more of these latest benefits by maintaining the relationship with a third party vendor.

Stokes sees more short-term engagements for one-time services such as policy creation and events planning and sees heavier usage of web-based software by the client HR generalist.

Our experts expect to see client HR organizations decreasing in size and getting more effective, becoming more strategically oriented and increasingly relying on cutting edge software and vendors to manage most of their HR functions. Similarly, they conveyed great confidence in the future of the industry and expressed excitement on its impressive potential.