Convergence Begins

It is only in the past eighteen months that we have seen the industry take note of buyers concerns surrounding language and taxonomy.  In 2007, two separate initiatives led by competing advisory firms (immediately following their failed merger) were announced:

• OpenDoor HRO: Launched in April of 2007 by the triad of EquaTerra, SAP and Arinso (now NorthgateArinso), OpenDoor was intended to offer best practices and supporting documentation to speed the sourcing process and ensure adoption of common standards.  Unfortunately, the closed-door origination was viewed to have disintermediated several dozen organizations that would have preferred to help shape the standards by which they would be measured.
• TPI HRO Standards Initiatives: Announced in May of 2007, TPI presented a new initiative based upon collaboration with ACS, Convergys, ExcellerateHRO, Fidelity and Hewitt.  Like OpenDoor, the intent was the derivation of a common taxonomy, including pricing norms and service levels.  TPI was recognized for being more industry inclusive, yet did not embrace the transparent presentation of OpenDoor.

The most promising initiative yet is the work of the Industry Standards and Practices Committee of the HR Outsourcing Association (HROA).  In April of 2008, the committee announced the publication of the first approved practices, acknowledged as the largely preexisting work of the TPI HRO Standards Initiatives.  In a mature nod to the best interests of the industry, OpenDoor HRO has joined with the committee to remove any angst or confusion surrounding competitive standards.  Although this signifies positive momentum, one should question whether interests are proportionately represented, for of the thirty one committee members, only six are buyers of HRO services.

Outcomes and Conclusions

Renowned critic and playwright Eric Bentley said it well:

“Ours is the age of substitutes: Instead of language we have jargon; instead of principles, slogans; and instead of genuine ideas, bright suggestions.”

Without overreaching, one such bright suggestion is for HR executives to get involved in this quest for standardization.  This language barrier will not come down in a means favorable to all parties if those who stand to lose the most participate the least.  This initial taxonomy represents only the United States and the English language, so rest assured that much debate remains over how and if each suggested metric could be applied to your countries of interest.

As an industry, we have yet to quantify the efficacy of these recent initiatives.  Although it is tempting to sit back and wait for others to clear a global path forward, we must work together to ensure that the language of the future of HRO is one we can all speak and understand.  Apply your skill, experience and immersion, for much remains to be done and it is this analyst’s opinion that the most difficult work is yet ahead.

Let’s keep the conversation going.

As all students of dialect are aware, interpreting another’s language requires a combination of skill, experience and immersion.  Literal translation may be eminently possible, but deriving intent involves a more detailed analysis of origin, region and culture.  Without such comprehension, mistakes will be made, time will be wasted and inappropriate conclusions will be drawn.  HR outsourcing (HRO) has faced and continues to face these same dilemmas, and clarity must be attained before interpretation is simply left to the intermediaries.

Origins and Evolution

Industry anthropologists do not dig very deeply for the lost ruins of HRO.  Many may discover the transactions consummated by Exult (now Hewitt) in the early 2000s as their only point of reference.  Others claim that such outsourcing has been around for decades, perhaps even centuries, citing the dependency that organizations have always had on external sources in support of the needs of their workers.

Despite its questionable origination, this market continues to evolve at an increasing pace.  Today we find over ten thousand service providers claiming to offer HRO, each with their own value proposition, return on investment and competitive differentiation.  It comes as no surprise that you, the human resources buyer, are faced with unprecedented market confusion precipitated and perpetuated by the lack of a common taxonomy. 

The Quest for Clarity

In April of 2008, attendees from around the globe arrived in New York City for the annual HRO World event.  A seemingly enlightened migration of consultants, advisory firms, analysts, industry press, service providers, association leaders, clients and pundits assembled for this sixth instantiation.  One might expect to see and hear all that is relevant to global HR outsourcing, perhaps uncovering the source of this semantic confusion.  In walking the show floor and visiting with vendors, specimens may be gathered with the hope of a great linguistic discovery.  

In examining the collective, one finds universities, commuter services, pet sitters, applicant trackers, pollsters, employee verification services, health clinics and retailers all speaking of their service to HRO.  Clients stand next to their outsourced providers and explain their often unique and unreplicable path to success.  Advisory firms count the number of transactions this past year, each with their own definitions and criteria for inclusion. And what of the HR executives?  Who represents their needs and answers this quest for clarity?  Who, pray tell, is to blame for such continued confusion? 

Divergent Interests

HRO World is not to blame.  Vilification does not belong to one firm, one person, one assembly or one industry body.  Beginning in 2000, the fervor of growth and determination to secure market share necessitated that each participant attempt to define the language of the HRO industry from their own perspective.  This included:

• HR Service Providers: They began to modify pre-existing price lists to support this new holistic version of end-to-end outsourcing.  Experience was strong in some areas, and weaker in others, resulting in depth but not breadth.
• Advisory Firms: A new category of consultant was born, and these firms had the unenviable challenge of ensuring that RFIs and RFPs were responded to in a common format.  With comparative analysis driving awards, service providers tried to influence any language gaps to their advantage.
• Legal Firms: Dealing with hundreds of pages of text, the lawyers attempted to translate intent into legally binding language that will last through significant changes in context and content over a multi-year period.
• HR Departments: Across a wide continuum of standardization, HR buyers did not have a common set of internal metrics and measurement by which to compare the outsourced solution.  What language did exist was country or region specific, causing strife in areas of global deployment.        

This frenzy erupted a mere eight years ago.  Some might argue that this represents ample time for resolution, and were we not addressing such a varied set of global interests, I would tend to agree.  However, with billions of euros, pounds and dollars poured into the HRO market, many have been either unwilling or unable to pause long enough to ensure that sustainability supersedes short-term interests.

On Monday we will explore the convergence of outcomes and possible solutions to this dilemma.  Let’s keep the conversation going.

“OPM issued a stop work order for the implementation of the calculation engine, one of the three components of the modernization project known as RetireEZ.  In addition to the stop work order, OPM issued a show cause notice to Hewitt giving them 10 calendar days to respond to the performance issues OPM raised.” (OPM)

Commenting on the stop work order, a former OPM employee stated:

“I know that testing of RetireEZ has been going badly.  What Hewitt was trying to do was take an off-the-shelf program and squeeze the government computations out of that.” (GovExec)

A Hewitt spokesperson responded by stating:

“We successfully delivered on our first live date with OPM on Feb. 25, 2008 and as of the date of the stop work order, we were on track to deliver on successive dates as required by our contract.” (GovExec)

Director Linda Springer announced Wave 1 of RetireEZ on her desk page, and on February 25th, approximately 26,000 active employees from the GSA, OPM, National Archives and other agencies went live with the system.  All federal employees were to have been transferred to the system by February of 2009.  It is unclear how the stop work order will effect this timeline, with OPM conveying that the data conversion and change management portions of the project are continuing unabated.  RetireEZ’s home page states that the site is currently down for maintenance.

Let’s keep the conversation going.

This is a very significant acquisition and will have a cascading effect on the HR industry.  In my opinion, Hewitt has effectively boxed out both EAP and HRO providers from potentially leveraging LCG’s Nucleus technology platform and other value-added services.  What remains to be seen is if Hewitt continues to offer distribution and access services to its former outsourcing foes as part of a wisely morphed (and highly focused) transition to be “all-things-benefits” in the HR industry.  I applaud Hewitt for seeing the value in the particular subsegment.

So why all the hubbub?  According to the most recent CCH Unscheduled Absence Survey, while 34% of employees call in sick at the last minute due to “personal illness”, 66% of those are actually dealing with personal or family issues.  Said CCH Employment Law Analyst Pamela Wolf

“Unscheduled absenteeism is a problem that no organization can afford to ignore – either from a cost or productivity standpoint. With the appropriate programs in place, businesses can significantly reduce the number of last minute no-shows, improve the work environment for all employees and realize substantial savings.”

And the LCG/Hewitt combination addresses much more than just unscheduled absences.  Said the announcement:

With solutions including administration and management of all forms of absence, Web-based data integration and reporting, root cause analysis, and innovative return-to-work programs, LCG’s approach identifies and addresses the fundamental causes of unplanned absence to help employers better manage costs and maintain compliance. The combination of Hewitt’s rich health plan usage data and expertise in absence management consulting, coupled with LCG’s absence and clinical information, will allow Hewitt to identify the unique patterns linking health and absenteeism that, when addressed proactively, can lead to improved workforce productivity.

Having personally seen the LCG system in action, I will say that this is a tremendous value-add to the Hewitt portfolio.  So who else is left in the market?  Most of the major HRMS/HRIS systems have basic absence management capabilities, but they lack significant depth in features and functionality.  Absentys is also on the market and had announced a distribution relationship with ACS/Buck in July of last year.  In my opinion, this will continue to be a hot sub-market with tremendous potential ROI.

Let’s keep the conversation going.