Most human resource executives now realize that many HRO providers have been selling technology as the means to unlocking the strategic value of the HR function. This is not totally without merit. But it is incomplete. The concept of HR as a business partner grew up at the same time HRO surfaced as a growing strategy for driving more value from administrative business functions. The idea was to get HR to the table as a strategic contributor. The rush to demonstrate HR’s value proposition to C-level executives through outsourcing created the myth that technology is the path to value creation.

In reality new technology adds new complexity – not just new tools for getting the HR job done, but also new challenges that arise from the inability to take full advantage of what HRO offers. What is needed is applied Organizational Change Management (OCM) so that technology helps achieve speed-to-value, rather than slow the organization down.

The 3 Rs Solution

Most of us know the three Rs as; Reading, Writing and Arithmetic. These are considered to be foundation principles for a good education and we all received a healthy dose of each. Building a solid foundation is fundamental to every worthy pursuit and often is the difference between success and failure. HRO is no different.

People, process and technology have long been considered staples for business optimization. While they are important in combination, most of the emphasis has been placed on technology. What has been misunderstood is that technology does not improve productivity – it accelerates processes. Consider what happens when processes are accelerated without enabling people to take advantage of this acceleration.

You may recall the episode on “I Love Lucy” where Lucy is working in a candy factory wrapping chocolates and becomes overwhelmed with a build-up of chocolates as the candy making process is accelerated. To keep up she begins stuffing chocolates in her mouth, hat and down her blouse. While the process was accelerated with the intent of improving productivity, the results were both hilarious and disastrous. In business the results are seldom hilarious and far too often are disastrous.

Experience demonstrates that 70 to 80 percent of technology projects fail because OCM is not a fundamental component of the transformation strategy. So, why does OCM matter so much? Largely, it is due to the fact that people are not READY for change, provider/customer RELATIONSHIPS are under-developed and organizations are unable to RETAIN critical talent, business knowledge and capability during the transformation process. These factors make up the 3Rs HRO change management model.

While it is not the intent of this article to diminish the value of technology and business process redesign; technology and process do not carry the same weight in the success equation. In order to take advantage of changed processes, the 3 Rs have proven to consistently account for the critical 20 percent (80/20 Rule) of the transformation effort that determines the difference between success and failure. Here is the equation for success:

(R1 X R2 X R3) + T + P = V

• R1 = Readiness
• R2 = Relationship
• R3 = Retention
  
• T = Technology
  
• P = Process
  
• V = Value

These factors encompass the operational fundamentals inherent in any HRO transition and transformation strategy. In combination they determine the success of both the customer and the provider in realizing the economic gains that form the underlying reasons outsourcing was considered in the first place. So, what is the value proposition for each party to invest in OCM?

Customer Value Proposition:

• Capital optimization and operating expense reductions,
  
• Retention of key talent and critical intellectual capital, and
  
• Speed-to-operational gains, innovation and quality improvement.

Provider Value Proposition:

• Reduced transition costs over a shorter transition and transformation period,
  
• Retention of key talent and critical intellectual capital, and
  
• Speed-to-revenue recognition, achievement of SLAs and delivery optimization.

If these economic, human resource and operational incentives are not enough, consider the millions it costs to unwind a relationship that was misaligned from the beginning.

Readiness

Readiness begins before the deal is closed. It is part of due diligence and should begin with an assessment of cultural alignment. While culture is the so called soft issue, it is critical to sustaining life in the relationship.

• Bring the parties together to identify business and cultural barriers to transition and transformation success.
  
• Confront cultural differences within the context of how they may impact the long-term relationship.

Cultural fit does not mean the customer and provider must have the same culture. It means their cultures should be complementary.

• Select Transformation Managers from both the customer and provider organizations.

Because change is an ongoing process and not a discrete event, someone needs to manage it from the beginning. Change management is a joint responsibility.

• Assess strengths and weaknesses of both business line managers and functional HR leaders.
  
• Determine what skills and competencies need to be developed so that line managers and functional HR leaders can take advantage of standardized tools and processes and promote support for change among employees.

Standardization allows the provider to leverage technology. Without it, customer expectations regarding cost reductions may not be realized and provider margins may be eliminated, putting the partnership at risk.

• Determine what training may be required and build it into the transformation strategy. It will be well worth the time and cost in the long-run.
  
• Develop a communications strategy that utilizes two-way communications.
  
• Conduct periodic health checks as part of the strategy to listen and learn.

This two-way communications process provides information for making directional changes along the way to keep the transformation process on target. While any major organizational transformation requires managers to improvise. Improvisation should not be the change strategy.

Relationship

Relationships that begin with misaligned interests are doomed from the start. A strong relationship and governance model is critical to transformation success.

• Formally introduce the Transformation Managers and initiate management exchanges.
• Discuss key roles, reporting relationships, accountability, problem resolution, escalation management, layoffs, retention, talent management, restructuring and innovation.
• Establish the governance structure and balance accountability.
  Recognize there is a difference between contractual governance and relationship building.

While contractual governance defines the T&Cs, SLAs and financial performance, the relationship defines flexibility, risk sharing, synergistic problem solving, contract integrity and partnership. If expectations are to be realized they must be shared, understood, and aligned. Future competitiveness through HRO can only be harnessed through alliances, and relationships that create mutual benefit.

Retention

Outsourcing inherently creates career changing events. It is normal for people to begin thinking about job security. Protracted change, uncertainty and anxiety that last for months are debilitating and drain value and talent from the relationship. To achieve success, both the customer and the provider must focus energy on running the business, implementing technology, innovating and improving processes. To execute effectively both parties must retain key talent and mine operational knowledge. Talent management is a significant challenge in today’s business environment as top talent can quickly move to competitors. In any deal, the impact on talent has to be a top priority.

• Move quickly and deal with first things first.
• Answer the question on everyone’s mind: Do I have a job?
• Develop and execute a communications strategy. Communicate, communicate, and communicate some more.

Providers often fear that early layoffs will mark them as the bad guys. Customers worry about publicity and the image of the company. Be realistic, there is no such thing as an outsourcing partnership that does not include change. So if change is inevitable, get on with it rather than allowing it to diffuse energy and focus.

• Identify key talent throughout the readiness and relationship building processes.
• Formalize the competencies that are required for people to successfully transition.
• Make selection of retained employees based on required competencies not the buddy system.
• If an employee is to be retained to mine operational knowledge but is not a long-term candidate, be honest about your intentions and work out a plan that results in a soft landing for both the company and the employee.
• Create incentives to retain top talent and close capability gaps by putting leaders in place who understand the soft issues; mentoring, teaching, acclimating, leading and communicating.
  
• Send a powerful message by treating those who are negatively impacted with dignity, respect and transition support.

The most effective way to retain talent is to act quickly, act responsibly and shift the focus toward the future.

Solving the Success Equation

The transition will be most effective when:

• People are READY for change,
• RELATIONSHIPS, communication strategies and governance structures are well developed, and the
• Talent and knowledge required to effect the change are RETAINED.

Every transformation is different. But by focusing on the 3Rs, a strong foundation for long-term customer /provider success can be established. While some may contend that OCM:

• Adds cost,
  
• Slows the due diligence process down, and is
  
• Too soft for senior executives.

In practice it:

• Injects speed-to-value,
• Propels the planning process,
• Accelerates implementation,
• Pushes critical decision making and stakeholder actions, and
• Ensures the transformation process meets critical milestones.

Some have solved the success equation and are enjoying the benefits. Others are struggling to get results by adding technology and hoping to multiply process effectiveness. However, the product of leaving out any one of the 3Rs is an inferior outcome.

So, there are really 4 Rs, the fourth is RESULTS.