VideoTwo years ago, BP America's human resources department was like nearly every other corporate HR department: waist-high in an avalanche of paper. Indeed, BP's human resources department was so inundated by clerical tasks there was little time to do anything but push paper. Recalls Don Packham, senior vice president of HR in the Chicago office of BP America: "We were bogged down, big time."
These days, you'll be hard-pressed to find towering stacks of paper or manila folders in Packham's department. BP America, the North American arm of integrated oil and gas giant BP PLC, now outsources more than a dozen HR functions to several outsourcing service providers. Ultimately, the company plans to outsource every HR function (except strategy) to a single service provider.
The soup-to-nuts approach is already paying dividends. BP America's HR departmental headcount has been reduced from 200 to 35 in the last two years. The slimming down has freed human resources executives, enabling them to focus on workforce productivity and recruitment issues. Packham says the outsourcing has also pared some $50 million from the company's bottom line.
While BP has signed deals with several HR outsourcers (including Hewitt Associates and Fidelity Employer Services), the bulk of the work has gone to Irvine, California-based Exult. In fact, the $600 million service agreement between Exult and BP was a landmark: the first large-scale, multi-function HR outsourcing partnership.
Exult recently inked a similar deal, a $1.1 billion service contract with Bank of America that covers more than 150,000 U.S.-based employees. "Historically HR has been very fragmented," asserts James C. Madden V, CEO of Exult, "There's lots of payroll cycles, training vendors, recruiting and staffing solutions. We integrate all these services through a single point of contact."
BP America and Bank of America are early adopters of what's now being called "end-to-end HR outsourcing." Only 14 end-to-end programs are currently in place. But many industry watchers believe these mega-deals represent the future of business process outsourcing (BPO), particularly for human resources. Mark Hodges, managing partner of BPO at TPI, a Houston-based outsourcing advisory firm, says the 14 end-to-end HR programs represent a cumulative $8 billion in total contract value and cover some 1.2 million active employees worldwide.
Predicts Hodges: "We're still in the early stages of what will be a huge market."
Forget FICA
While end-to-end HR business process outsourcing is just starting to catch on, the shopping out of discrete HR functions is business as usual at many large U.S. corporations. A recent survey by Gartner ranks HR outsourcing as the number one BPO activity among U.S. companies that outsource at least one function. Finance and accounting were next on the list.
Gartner's annual survey of outsourcing indicates that more than 75 percent of companies now let somebody else handle various parts of their corporate HR functions. In the consultancy's previous survey, that figure was more like 50 percent. "Overall, demand for HR outsourcing has boomed in the past year," says Rebecca Scholl, a senior analyst at the Stamford, Connecticut-based technology research firm.
According to the study, the most commonly outsourced HR process is payroll. About half of the respondents said they outsource the function entirely, while another 30 percent indicated they outsource payroll partially. In addition, close to half of the respondents said they outsource some of their benefits administration.
Interestingly, the majority of the respondents in the Gartner survey indicated they plan to increase the slice of their budgets dedicated to HR outsourcing in 2003. "By far, HR is the one business process at companies that has made the deepest penetration into the outsourcing market," Scholl notes.
This raises the question: Why is that? "There are two things driving HR outsourcing," asserts Tony Martin, senior vice president at Mellon HR Solutions, a Fort Lee, New Jersey-based BPO provider. "Technology and the move toward enterprise resource planning."
Certainly, scut work that once was done manually by HR staffers is better handled electronically. And with the Internet, human resources tasks like payroll and benefits administration can be done remotely.
Industry watchers also point out that senior executives at many companies are taking an enterprisewide picture approach to managing their specific corporate functions. In the same vein, they want their human resource executives focusing on big picture items, not FICA deductions. Says Exult's Madden: "Companies want senior HR management to be a business partner not worrying about running payroll or benefits."
Gartner's Scholl agrees. "Managers were becoming more and more involved in administrative tasks and couldn't do their jobs," she points out. "They're not clerics by profession — they're highly-educated experts in human relations."
Headshrinker's Ball
While a la carte HR outsourcing has its advantages, consultants say it doesn't provide the wallop of soup-to-nuts HR outsourcing. (For example, shopping out all or most of the 22 HR functions undertaken by companies. See "What Does HR Actually Do?" at the end of this article.) "When you outsource most HR functions to a single vendor," says Scholl, "there are tremendous synergies and cost savings."
Reader Comments» Post a comment