Fall 2012
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The Public Manager

HR Outsourcing Can Boost Savings and Service

Saturday, September 15, 2012

Outsourcing is gaining traction among public HR and IT decision makers. It offers benefits in six important areas: economic, strategic, operational, technology, human resource, and risk management.

The economic turmoil caused by the Great Recession has been unkind to state governments. Despite shrinking tax revenues, state government agencies are still expected to provide critical services to their citizens. This demand places an immense strain on state government workforces, requiring them to do more with less.

While there is always a spotlight on the service state governments provide their citizens, there has been considerably less attention paid to how the government serves its internal workforce. Since employees are arguably the most valuable asset within state government, they deserve the best of care, especially when it can save taxpayers between $5 million and $15 million a year. According to the National Association of State Personnel Executives' HR Architecture Survey 2011, the average state human resources (HR) agency supports 52,846 employees. While multiple entities contribute to the public employee's professional experience, few are as instrumental as the state's HR or personnel department.

It's been very popular since the dawn of the recession to assume that staff reductions are the best method to save costs. However, by driving efficiency and improved levels of service within a state workforce, state HR and payroll departments can realize significant cost savings, improve the roles of HR executives, and increase the security of HR and payroll data. As a result, over the past 10 years, HR outsourcing (HRO) for state governments has emerged as a strategic and proven tool to propel savings, service, and security–all while using only U.S.-based workers.

HR Challenges: Talent and Technology

State governments are faced with numerous challenges including an impending talent exodus, aging information technology (IT) infrastructures, and demands to cut costs while improving service. These challenges directly complicate an HR agency's ability to operate successfully. For example, according to the recent National Association of State Chief Information Officers report, State IT Workforce: Under Pressure, hiring freezes and elimination of vacant positions continue to be the greatest challenge for state chief information officers when developing, supporting, and maintaining IT services for state government. Nearly two-thirds of respondents said they anticipate having to reduce IT staff. HR and IT must work together closely to deliver consistent, safe, and superior data and services by highlighting the devastating impact that these IT vacancies and reductions pose.

Further complicating matters is the aging technology infrastructure that state HR agencies must work within. The HR and IT systems for many state governments are legacy technologies developed over time to meet immediate needs without significant consideration for integration and customization. Use of these systems demands numerous HR executives to manage the plethora of transactional and paper-based tasks necessary to complete a project–producing redundancies, inefficiencies, and confusion. In light of the emergence of cloud computing and better outsourcing solutions, Vivek Kundra, former chief information officer of the United States, noted that public IT executives are "spending more time managing this arcane infrastructure than they actually do serving the American people." Simply put, out-of-date technologies are hampering the advancement and efforts of state agencies.

One way to address these issues is to look to the private sector. Over the past couple of years there has been a push to focus on "New Public Management," the theory that states that public sector organizations should behave more like profit-driven private firms. While not all private sector business strategies are appropriate for state governments, the adoption of HRO is one tool that can offer immense benefits.

Embracing HRO Benefits

Although technology and highly transactional business process outsourcing has already gained traction in the public sector, HRO remains on the fringes of adoption. However, with Florida and Texas proving the value and success of HRO programs, many states are beginning to reconsider outsourcing as a tool to optimize talent, technology, and resources. Moreover, states need not overlook this powerful tool for fears that outsourcing is offshoring. Outsourcing is not offshoring because these outsourced tasks are conducted by American citizens within the United States.

The consideration toward HRO is reflected in a recent survey by HfS Research, which found that 30 percent of public sector respondents expect to start outsourcing HR processes for the first time in the next 12 months. Meanwhile, 20 percent of those who already outsource some HR processes will likely increase the scope or volume of outsourcing over the same time period. In total, analyst firm Tholons estimates that state government spending on outsourcing services will top $11.4 billion this year.

Given the numerous, sustained, and diverse benefits of HRO, it's no surprise that it is gaining traction among public HR and IT decision makers. HRO offers a wide range of benefits in six important areas: economic, strategic, operational, technology, human resource, and risk management.

Economic Benefits

One of the most appealing benefits of HRO adoption is the cost savings it enables. The implementation of a public sector HRO solution usually reduces the total cost of ownership for HR operations by 15 to 30 percent (usually between $5 million and $15 million a year) for the state enterprise.

These savings are made possible by the immense investments HRO providers have made in developing standardized processes and technologies that produce economies of scale that most state agencies are unable to achieve within their limited resources. In addition, HRO reduces capital expenditures required to purchase software licensing, integrate and manage technology, and maintain data center and service center facilities.

Strategic Benefits

The most successful HRO engagements are ones in which the state agency works with the provider to outline a strategic approach that aligns HR resources, policies, and programs with the overall objectives and plans of the HR agency and state government. By aligning HR processes with goals, public HR executives are empowered to streamline administrative tasks and strategically focus on those that advance stated goals.

The implemented solutions and technologies free HR executives from traditional administrative and back-office tasks, thus allowing them to focus on talent management, policy steering, and workforce planning. In addition to improvements to employees' daily roles, HRO also optimizes HR decision making as the advanced technologies provide HR executives with more complete, accurate, and timely data on employee matters and trends.

Operational Benefits

A combination of world-class best practices, advanced technologies, performance benchmarking, and perpetual enhancements help HRO deliver operational benefits through increased effectiveness and efficiency. The sharing and development of best practices allows for better process management, while benchmarking features enable HR executives to track the success of and changes in their operations.

Technology Benefits

It would be very difficult and extremely costly for a state HR agency to develop the high-value technologies offered by HRO providers. Often a state embarks on an internal HR implementation project and valuable features are not activated because the project exhausts its allocated funds. As a result, these HR systems are unable to deliver the anticipated benefits and savings.

However HRO solutions can have a big impact; HRO providers have invested millions of dollars in developing standardized, multi-tenant HR system platforms—including technology and data centers, hosting, hardware, software, networks, and applications—that result in a truly integrated HR solution. Adoption of standardized platforms is one of the most cost-effective solutions for state HR agencies as the department receives the computing power, features, and functionality they need without the costs of building, customizing, and operating large scale-enterprise systems.

Human Resources Benefits

It only makes sense that HRO solutions would provide significant benefits for HR and state employees. Complementing their technical expertise, HRO providers also boast extensive knowledge in HR consulting, line management, and outsourcing experience. This experience empowers them to work closely with the state agency to advise on process and policy best practices, as well guide them through the necessary steps for organizing and managing an outsourcing program.

In addition to helping states develop policies, providers also can implement them on a consistent basis through the use of knowledge-base and case-management tools, which empower the efficient dissemination of content and information to a public workforce. Self-service applications and tools help remove HR as the "middle man" between employees and managers, which improves the manager-employee relationship while giving employees greater responsibility over their careers.


Risk Management Benefits

The mitigation and management of risk is a top priority for all HR departments, especially those serving government. HRO solution providers understand these sensitivities and concerns and have instituted strict risk management polices to identify, assess, control, and mitigate outsourcing risks. These protections are achieved by the establishment of strong governance structures to manage customer relationships, which often includes committees composed of representatives from the provider and state HR agency to discuss the direction, progress, and oversight of the outsourcing relationship.

Additionally, HRO partners ensure they are abreast of any regulatory compliances and laws that may expose employees and the state to risk. In a highly complex and litigious marketplace, risk management programs greatly reduce state HR departments' exposure to operational risk and legal liabilities.

Bringing HRO Value to Life

At its core, HRO empowers public organizations to optimize their workforce and operations. "Simply put, HRO has made our state more efficient and better stewards of taxpayer dollars," said Jack Miles, former secretary of the Florida Department of Management Services. "We eased the financial burden of technology investments, provided employees with instant access to their HR data, and empowered our executives to focus on strategic activities rather than transactional ones. We have provided our HR colleagues and employees with the tools, streamlined processes, technologies, and support to truly be effective despite budget reductions. The HRO model enables our provider to serve those that serve Floridians."

The Right Partner for the Right Solution

The first step when embarking on an HRO program is achieving strong executive sponsorship. Optimizing the HR processes and systems is a major initiative, and senior leadership must be involved to generate organization-wide support and ensure all needs are addressed.

Once sponsorship is secured, the HR agency should develop a clear understanding of its current HR service delivery processes and areas for improvement by conducting a needs assessment. This can be achieved by hiring a third party consultant to:

  • determine the state's cost baseline for existing HR and payroll services by:
    • incorporating centralized and distributed costs (IT, labor, facilities)
    • including annual costs for talents
  • determine what HR and payroll assets are under-utilized
  • assess the quality of the HR and payroll services delivered
  • write and field a HRO request for proposals and evaluate responses
  • compare the costs of HRO solutions over seven years with current model.

When choosing a vendor it's important to ensure they meet your functional and technical requirements but also complement the vision and culture of your agency. By leveraging an HRO consultant, which in some cases can serve as an advisor when issuing a bid and selecting a service provider, state governments ensure all variables have been considered when developing a solution.

Not a Paper Mill

As state governments continue to contend with an increasingly complex world and fewer tax dollars, the mission of state HR agencies must evolve to meet demands. Government is not meant to be a paper mill or a collection of IT systems in a data center. Rather government is to be an incubator of ideas and enabler of solutions for citizens. This requires a focus on strategy that cannot be obtained by focusing on administrative tasks.

By leveraging HRO, states can not only increase and improve their savings, service, and security, but also better serve the employees that serve the public.

About the Author

Brian Andrew is the client executive of public sector services for NorthgateArinso, a global leader in HR outsourcing and processes.

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