Is the c(h)ore important?

Manish Sabharwal

MARKET trends in the new business environment are challenging the traditional structure of the vast HR industry. Tasks such as employee record keeping and benefits and payroll functions are increasingly becoming complex, cumbersome, and often very expensive. This is, in part, due to the continuously evolving regulatory framework for employers in HR, benefits and payroll transactions. In addition, the explosion of technology into the arena of HR function is placing a strain on the IT resources of companies.

Very soon, the HR department in a company may deal with just one strategic purpose -- recruiting and retaining a high-quality workforce, which in itself has become a mammoth task. The other functions in the HR industry can be outsourced as they are important but non-core activities.

The outsourcing of HR services can be broadly divided into consulting, administration and technology.

Usually a company has to pick from four options for administration; in-house, technology outsourcing, administrative outsourcing, or comprehensive outsourcing i.e. HR Business Process Outsourcing or BPO.

BPO firms with comprehensive and integrated outsourcing contracts will increasingly assume responsibility for both the technology and functional expertise required to complete one or more HR processes. By offering a common platform whereby data can be shared and sites linked, the empowering effect of the Internet greatly accelerates the attractiveness of integrated outsourcing.

There are three main trends that will come into play when companies look to outsourcing the HR processes.

Single-window gives edge

The first trend would be moving towards integrated providers, towards a single window to outsource HR requirements.

The complexity of multiple arrangements with various vendors, who are specialists in a single category, is becoming difficult to handle. Many companies are now looking for a single window to outsource their requirements since this offers an accountability and responsiveness not available with discrete vendors. BPO firms have integrated platforms for Web-native self-service that offer 24X7 access to general information, employee information and management tools. They have systems that are integrated or tightly linked, leading to lower costs.

BPO firms, over time, transfer their cumulative learning through ``best practices, best-of-breed formats'' and workflow innovations.

Integrated systems such as a single processing engine and database system for core payroll, benefits, pensions and HR facilitates better reporting and real-time information with accuracy and faster turnarounds, for instance the time taken to get deducted contributions to money managers can be cut to less than half with an integrated HR, payroll and pension administration system.

Global contracts make sense

The second trend is that towards global contracts. Companies have begun to integrate global operations by consolidation of support functions. The first wave of integration and harmonisation often covers the supply chain and support services such as financial control, HR administration and supply chain. A new breed of providers, who are setting up global operations and signing global contracts, is challenging the traditional structure of country-wise contracts. Global contracts for benefits administration are driven by many trends:

Re-organisation of companies, where Fortune 500 companies are moving from geographic structures (Asia, Europe, the Americas, etc) to product structures (SUVs, luxury cars, consumer products, etc). This puts all support functions such as HR and financial control in a black box called ``Shared Services.'' This concept simultaneously exposes total costs and does much of the consolidation that is key for a single-vendor relationship. Another factor is heightened merger and acquisition activity with centrally-driven demands for quicker global integration.

Global companies are becoming more sensitive to compliance with local regulations and having multiple vendors often creates issues of accountability. Today, payroll processing and benefits administration is more complex than most realise and requires intimate knowledge of and continuous touch with changing local laws. A single global relationship creates more accountability and allows leverage of the benefits of aggregation.

Global contracts have immense benefits in the form of lower cost, harmonisation and integration, where technology and market forces are forcing tighter integration and the harmonisation of payroll, benefits and other administrative systems. Most large companies have difficulty giving the exact number of employees without offline data manipulation. Due to sound MIS systems, single providers provide a level of reporting flexibility and depth that is usually not available with discrete vendors. Most importantly, single vendors allow for a level of accountability and metrics in service level agreements that are consistent, transparent and enforceable.

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Offshore delivery

Countries such as Ireland, the Philippines and India are becoming attractive destinations for processing hubs and challenge the cost structure of traditional providers. Offshore delivery, the third trend, attacks the key elements of ``total cost'' (technology, customer relationship management, labour) and makes the traditional trade-off between cost and level of service less relevant.

The key elements of ``total costs'' in benefits administration are:

Technology (customisation, programming, database administration, etc),

Interface (employee and/or employer customer relationship management)

Human labour (rule set processing, data manipulation/entry, etc)

Information technology is redefining the role of HR and allows the outsourcing of time-consuming, iterative administrative tasks. Offshore administration allows for the creative use of technology with high levels of customisation.

Customer relationship management offerings such as e-mail, live chat, and call centres are becoming an integral part of benefits administration. The self-service suites or online-benefits office, complemented by offshore, live CRM, have the level of functionality of a live branch with the overheads of an ATM machine.

Companies are starting to quantify the savings associated with self-service systems e.g. GE has estimated that its HR Web site has reduced calls to HR by 25,000 per month, producing more than $2 million in savings simply from the lower call volume. Microsoft found that by using electronic forms for the 401(K) plan, the employee stock purchase plan, and the stock option plan, the company saved about $1 million per year in labour costs.

The realisation of the full implications of the three trends of integrated providers, global contracts and offshore delivery may lead to an entirely new order for the benefits administration industry and its participants. These trends greatly challenge the cost structure and value proposition of traditional benefits administrators.

The author is Managing Director, India Life Pension Services Ltd.