HRO World Europe Annual Conference

Event: HRO World Europe Annual Conference
Date: November 6-8, the Conrad Hotel, Brussels, Belgium

What: HRO World Europe brings together more than 350 executives from more than 20 countries to exchange their views and discuss the challenges they see facing their organizations’ HR outsourcing strategies. The conference is less of a trade show than its U.S. sister event, HRO World. With just a small exhibit hall, this show gives buyers and prospective buyers more opportunity to network and learn from each other.

Show info: For more information, go to www.hroaeurope.com/file/3439/hro-world-europe-2006—future-proof-hr-transformation.html.

Day 3: Wednesday, November 8

Data-driven: Like many European organizations, RBS (formerly Royal Bank of Scotland) decided to do a shared services center instead of an HRO deal. One of the main advantages of this approach is that the bank can keep all of its data in-house–a real concern for the financial services organization, Brian McLaren, director, HR shared services, said during his presentation.

However, what good is having the data in-house if HR managers don’t know how to read it? “HR people in general are not good with data,” McLaren says.

To address this issue, RBS is creating a People Metrics Advisory Group, whose job will be to present the data to HR in a readable format. Being a bank, RBS has many credit and data analysts in-house, and McLaren says he hopes to use some of this talent to staff the new group, which he hopes to make fully operational next year.

Biggest fear: Albert Martens, director of HR services at Ikea, was very upfront about his biggest fear regarding entering an HRO agreement: becoming too dependent on the vendor. That’s why the Swedish retailer decided to only outsource payroll and HR administration to ADP, while keeping things like performance management and recruiting in-house, he told attendees.

Recruiting is just too important a function for Ikea to outsource it. The company gets a million applications a year and expects to grow 33 percent in the next five years.

“Our people are our company,” he says.

Election time: The midterm elections in the U.S. were a hot topic Wednesday morning as the results continued to trickle in. In five states, there were huge debates between candidates who were self-proclaimed protectionists versus those supporting globalization, and four of the five protectionists seemed to have won their elections by early Wednesday morning.

Speaking at a panel discussion featuring analysts, Helen Neale, a business process outsourcing analyst in the London office of NelsonHall, said that while there might be a slight downturn in HRO contracts like there was during the U.S presidential elections, she didn’t anticipate a long-term effect.

After all, most companies realize that if you offshore jobs now, the organization will become more competitive and will hopefully be able to create jobs later, said Mike Friend, an analyst at IDC.

Only time will tell, however.
–Jessica Marquez

Conference Notes: Day 2, Tuesday, November 7, 2006–And the Conference Begins

Word of the day: Transformation was the catchphrase of the day as the conference kicked off. As Jay Whitehead, publisher of HRO Europe and HRO Today, put it “The O-word has become a bad word.” By the “O-word,” Whitehead means outsourcing, and speakers throughout the day instead referred to the “HR transformation.”

For example, in the keynote session, “How Cultural Resources Support Business Transformation,” Geert Hofstede, a professor or organizational anthropology and international management at Maastricht University in the Netherlands, spoke about how country culture and corporate culture can affect a company’s “HR transformation.”

In the next session, “How Unilever is Transforming HR,” Reg Bull, senior vice president, global HR transformation, talked about how his company’s HRO deal with Accenture is helping it to transform into a more efficient operation. For Bull, outsourcing is one means that Unilever is applying to transform its business.

But whatever companies are calling it, Bull says not to underestimate the pain that organizations may feel from the process.

“There will never be a safe time to do outsourcing,” he says.

Time for sales pitches: If Tuesday morning’s panel discussion of vendors, “How to Best Evaluate the Different Transformation Options,” was meant to be informative to buyers, it failed. In fact, a number of attendees were disappointed that many of the panelists decided to use the time to pitch their products.

In his introduction, Whitehead, who moderated the panel of ADP, SAP, Oracle, Hewitt, IBM and Accenture, made it seem that it was going to be an interesting back and forth between competitors.

But for the most part, the panelists did not step up to the plate, choosing instead to discuss the uniqueness of their products yet shying away from bashing one another. In fact, when Whitehead asked each of the panelists which competitor they liked going face to face with, none would provide a name.

The most brazen self-promotion on the panel came from Stephen Randall, an HRO executive in the London office of Hewitt Associates. Despite the company’s troubles, he said: “For Hewitt, HR is all we do, so why would you do anything else?”

The one breath of fresh air on the panel was Mary Sue Rogers, human capital management global leader at IBM. She talked about how companies need to not just think about cost savings when doing HRO, but also think about increasing revenue per employee. As the labor market tightens up because of the aging workforce and it becomes harder to get good employees, she said, companies need to make sure they are getting the most that they can from their current workforce.

“Being able to get rid of payroll processes is easy,” she said. ‘Getting more revenue from employees is hard.”

Hitting your numbers: In a few of the presentations Tuesday, HRO buyers spoke about the challenges of figuring out and attaining the right ratio of HR managers to employees.

For Unilever, which signed a seven-year HRO contract with Accenture in April, its goal is to get from 3,200 HR managers down to 900, meaning there would be one HR manager for every 213 employees. “Today we estimate that is competitive, but when we implement it the market might have moved and we may have to re-evaluate it,” Bull said in his presentation.

Claus Fey, senior HR executive at Bayer AG, which implemented a partial outsourcing model, is shooting for a ratio of 120-150 employees for each HR manager. But like Bull, Fey said he isn’t sure this number will change.

“We will keep reviewing it,” he said.

Fey and Bull also agreed on the challenges associated with getting line managers within the business to accept the change.

“Line managers felt that what we were doing was taking their local HR people away from them,” Fey said. “It shows the importance of having change management processes in place.”

At Unilever, Bull and his team made sure to interview line managers about what they wanted to see happen, but at the end of the day the decision to outsource was made by management and the board.

“You should not confuse asking people’s opinions with being democratic,” he said.
–Jessica Marquez

Day 1—November 6, pre-conference workshops

Where do I begin: Not surprisingly, most of the organizations attending Monday morning’s pre-conference workshop, “Assessing and Evaluating Transformation Options,” by David Parry, a Deloitte consultant, were still in early discussions about whether to outsource their HR processes.

In introducing themselves to the group, many executives talked about their desire to understand all of the variables that need to be considered when making decisions to outsource or not.

For example, HR executives at Electrolux Home Products, a Belgian manufacturer of appliances with 57,000 employees globally, say they want to get a better understanding of how to avoid risk when engaging in an HRO agreement.

Similarly, an executive from Deutsche Bank says he wants to understand how implementing an HR transformation is different from implementing a transformation in other business areas.

But Nadia Lambrechts, an HR systems manager at UCB, a Brussels-based bio- pharmaceuticals company with more than 8,300 employees worldwide, says she is just trying to figure out where to begin. Right now the company runs most of its processes in-house, and Lambechts says she is just trying to figure out which metrics she and her team need to analyze when coming up with a business case.

“Everyone here says they are new to the process, but we are even in an earlier stage than all of them,” she says.

Cost questions: At first, Parry’s presentation may have caused prospective buyers to ask why there were even thinking about outsourcing their HR processes. If cost reduction was the sole reason, then that’s not good enough, Parry told attendees.

“Unfortunately, HRO has become synonymous with cost cutting,” he says.

But HR costs generally only make up 1 percent to 1.5 percent of an organization’s entire cost structure, Parry says. For example, one of Deloitte’s clients, a company with more than 100,000 employees, had HR costs of 140 million euros ($178 million). That might seem like a lot, he said, but it was nothing compared to the company’s total IT outsourcing costs of 500 million euros ($636 million) and its real estate restructuring, which cost 1 billion euros ($1.27 billion).

“So when you look at those numbers, HR is not a big savings component,” he says.

When you consider the time and work that go into these deals, the cost savings argument may not be enough for a convincing business case for HRO, Parry says.

Claire Daly, HR project manager at Intel Europe, agreed with Parry, and asked him how should she go about convincing upper management that HRO may make sense even if the return on investment is going to be negative for a few years.

Parry advised attendees to be prepared to provide their executive teams with other quantitative data to support the business case for HRO. These include:

• Cost avoidance. For example, companies are avoiding the costs that they would have incurred on technology upgrades and implementations.
• Service-level improvement—how much can service improve through HRO?
• Increased sales of organization by freeing up employees’ time that they may have spent dealing with HR issues.
• Increased availability of employees.
• Reduction in recruiting costs.

Parry also suggested a number of measurable non-quantitative metrics that HR executives can reference when creating a business case. These include:

• Employee morale.
• Improved service quality.
• More stabile workforce.

Parry’s overall advice to prospective buyers of HRO is to understand that this is a never-ending process.

“There is no point three to four years from now where you can say we are done,” he says. “In reality, HR transformation starts after we [the consultants] have left.”

Buyers’ lament: Chatting between sessions, a few HR executives lamented the fact that the HRO market today is completely dominated by the sellers. Since so many of the large HRO providers are busy absorbing the deals they already have, they are becoming more selective about whom they bring on as clients, says Intel Europe’s Daly.

“It’s completely a sellers’ market,” agreed Sunita Malhotra, HR director for Europe at Electrolux Home Products.

Today, prospective HRO buyers actually have to woo the provider of their choice, Deloitte’s Parry says.

“A lot of organizations tend to procure in an adversarial fashion,” he says. “Instead, they need to be open to vendors and see it as a partnership.”

When it comes down to it, there are only three or four providers that can do global HRO deals, and those companies are either about to or already have signed large contracts. And it’s a huge amount of work for vendors to take on one of these deals, Parry says.

“So buyers need to demonstrate to vendors that theirs is a business that they want,” he says.
–Jessica Marquez