Expert Eye View - Outsourcing Human resources and Learning and Development

The temptations to outsource HR and L&D have never been stronger. A whole new breed of professionals, “the Procurement team”, have sprung up to manage an equally burgeoning team of seemingly expert outsource consultancies. But therein lies the danger - assumptions on what outsourcing can deliver may be foolish, false and misleading. Here Stuart Walkley takes a closer look at the issue.

There is a strong possibility that the bean-counters who dominate all our strategic planning in organisations will see the prospect of outsourcing HR and L&D in organisations as enormously cost efficient. In fact it may well be seen, and here there is an irony, as a “no-brainer”. Designated as a non-core activity it can be safely handed down to procurement to drain the life-blood (value) out of the service and reduce it to a “plug and play” commodity. Rub hands with glee to dismantle the team of HR and Learning experts to save both salaries and office-accommodation costs.

After all there will be no immediate impact on revenue growth and very little immediate impact on retention in these straitened times. Think of the startling and eye-watering reduction to costs “releasing” bottom line operating profit. The old “nice to have versus need to have argument” will be sufficient lip-service and sympathy to those loyal do-gooders in the HR/L&D team.

The Board Presentation making the proposal to outsource HR and L&D will be short, compelling, and should lead to a unanimous decision. Indeed HR may well not be part of the meeting, since they are still not even part of the main Board in some organisations, and if they are present then they may well be engaged in arranging the sandwich lunch and keeping their usual low profile. “Of course, we remain committed to our people and to their development but we shall just show it in a different way” will be the Chair’s assertion as they move on to the AOB section and then to those enticing sandwiches and wraps.

All of which is for some, of course, a Rowlandson caricature, a gross distortion, of the current situation. HR Directors and Learning and Development experts are far more valued, no longer carry in the sandwiches, and play an integral part in business decision-making of organisations. But these are demanding times, hard-decisions must be made, clichés proliferate, and there is an acerbic examination to be made of all those nasty “SG&A” costs (Sales, General and Administration costs). This more than anything will drive decisions on “outsourcing” rather than the strategic advantage, the effectiveness, efficiency, or expertise. “It all boils down to costs” will be one of those enduring clichés.

Such a decision based overwhelmingly on cost considerations will be foolish, false, and dangerous.

Foolish because if “people are our greatest asset” (and what CEO does not rise on his/her heels to make such a claim) why on earth would you risk putting it in the hands of a procurement expert whose motivating interest is in driving down costs and for whom “value” and “investment” are measured solely on spread-sheets and comparisons of commodities.

We all experience as it is the inept tender specifications and process developed by procurement experts and loaded onto those infuriating and exasperating automated procurement systems. They drive things inexorably through a thoroughly fair, cost-effective, transparent, but utterly misguided process to a final outcome which is often dull, devoid of ideas, and of no lasting value.

Fine if all one wishes to procure is steel-tempered 2.5mm widgets, or A4 80gm white office paper, or polystyrene cups for the instant coffee-muck machine. I am sure that such purchasing decision-making and item by item pricing will make eminent sense. But Learning and Development, for example, cannot be commoditised in such a manner without reducing everything to the banal. At best you will get what you asked for: at worst you will end up with nothing worth buying at any price. Be aware that as you strip out costs you run the risk of stripping out value.

You may not know what you need, or what is now available, or how through collaboration and engagement you could have something far more effective, innovative, contemporary and stimulating.

Instead of asking clever questions designed to tap into expertise and creativity of potential suppliers you simply ask them to line-up and respond to your misguided assumptions. So instead of asking for ideas on how to support the development of aspiring managers you ask simply for a unit cost for one-to-one coaching. Instead of inviting suggestions for enabling a workforce to become connected to the new strategy and organisational objectives you request a “best price” offer, inclusive of sandwiches, room costs, all materials, for a one-day change workshop.

Procurement in both HR and L&D is taken over by process, by technology handling the information and making the decisions – surely one of the most exasperating examples of the tail wagging the dog.

False because the assumption that HR consultancies are better placed to provide the service is sheer nonsense. Consultancies may have the marketing hype and rhetoric. They may talk with an air of mystique about their expertise and lay (unsubstantiated) claim to the enormous achievements they have made to other businesses. But they simply do not know your business or your people and have little interest in both, beyond making the right noises in the sales cycle.

Often their thinking is a decade out of date, wearily drawing on old models, old examples, and old anecdotes. They are driven by their own business model, to maximise profits, increase consultant utilisation hours, and ultimately make you dependent on what is often simply skin-deep expertise ineptly transferred from one project to another.

Be particularly wary of what consultancies may describe a “re-engineering the vision”. It goes like this.

You have an idea of what you want to achieve. They agree with you (meeting one) and assure you that they have the experience and resources to deliver to your needs. In meeting two, however, having paid gracious homage to your own vision they offer an alternative couched in language general enough to appear to apply to your situation in some unspecified way.

Now this offer is not made because you need it, or because their vision is better, but simply because it is what they can deliver. They define the metrics around success, the delivery methodology, and the programme content all around their own capabilities and strengths. In short, they have taken over and relegated you to the passive recipient of their “we know best” service. In effect they shoe-horn your needs into their delivery model – and it can lead both to bunions and blisters, on your feet, and at your expense, not theirs.

Consultancies do not always know best: what they offer may not always be what you need. It is all too easy to find in the outsourced relationship that you have subjugated your own capability, commitment, and capacity to others who for all their fine words have their own interests, not those of your organisation, at the heart of their actions.

Of course this is, once more, one of our Rowlandson caricatures - and grossly unfair to many really expert consultancies who do a great job. But right now there are far too many consultancies chasing far too little work and offering just about everything for nothing. It is impossible to keep track of them.

Outsourced L&D consultancies are an unregulated and low-entry point profession where front-end assertion takes precedence over accountable and visible performance. Far too many in-house HR and L&D professionals are too humble, too self-effacing: they assume greater knowledge “out there” and take at face value what consultancies say they offer is what they will deliver and that it is what is truly needed.

By all means value the expertise, experience, and sheer capacity of consultancies to help you achieve your strategy - recognise (and pay for) the superb contribution they can make. But keep it under control and in clear perspective. Do not ask it to do your job - ask it to enable you to do it.

Dangerous because for the sake of some short-term saving on costs our organisations risk losing the value HR brings to them at a time when it is crucial to their future success. It has taken years to demonstrate the value HR brings to organisations and it is by no means established firmly enough. But where it is in place it has been shown that HR has an outstanding part to play in the recovery and growth of businesses through its general activities and through its Learning and Development commitment.

This value is not in terms of what HR does but rather the impact it can have - the “outcomes” rather than “inputs” that HR can achieve.

In the knowledge-based economy where “talent” truly matters in terms of delivering to the customer and to the shareholder then HR and L&D play the absolutely crucial part in recruiting, managing, developing and leading that talent. Without it organisations are doomed to failure, to being “followers” not “leaders” in their market: with it they define market-space, craft solutions, create value for others, and deliver outstanding results. This is where there has to be real substance behind the notion that people are “our greatest asset”.

Dismantling the in-house capability is to place at the outsourced periphery of an organisation the essential tool for organisational growth and recovery, those in HR and L&D who nurture and guard those prize assets. I am with Ulrich on thisⁱ HR does far more than deliver an internal service, it can and must reach out to the external stakeholders – investors, business leaders, customers, and employees.

Conversations with investors will focus on how investors gain market value from HR services. Conversations with key customers will focus on how the customer receives unique products and services because of HR investments. Conversations with business leaders will focus on accomplishing their business strategy through the creation of organizational capabilities. Conversations with employees will focus on making sure that employees have the abilities they need to do what is expected of them. (p.18)

Surely it is far too risky to an organisation to hand over this capability to others or to put it at arm’s length from the organisation. It should not sit, devalued and scorned on the “reluctant costs” of organisations seeking short-term savings but should be seen for what it is – a critical business driver for long-term sustainable commercial and organisational success. And why, for pity’s sake, would you put this in the hands of others rather than clutch it tightly to your heart as a treasure beyond repute.

Dave Ulrich and Wayne Brockbank HR the Value Proposition Harvard Business School Press 2005, Boston, Massachusetts.