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Large-Market Outsourcing Changing the Expectations of HR

April 12, 2007
Related Topics: Outsourcing, Workforce Planning
Being an early adopter can be a glamorous, edgy adventure. But sometimes, as Reg Bull sees it, it’s better to hang back and learn from the mistakes of others.

    And so Bull, senior vice president of HR transformation at Unilever, watched as companies that were first to outsource their administration-heavy HR processes struggled to get the HR managers who continued to work for their organizations to think and act like business strategists—something many of them just were not equipped to do.

    So even before Unilever signed its seven-year, $1 billion HRO agreement with Accenture last year, the consumer goods giant launched HR Academy, a formal training program for its 1,000 HR managers. The company has its corporate headquarters in London and Rotterdam, Netherlands, and employs 209,000 employees worldwide.

    "We knew that there were going to be some changes and we wanted our HR managers to understand that their role in the future was going to be significantly different than what they have been doing throughout their working lives," Bull says.

    On average, an employer reduces its HR staff by 54 percent after an HRO arrangement, according to Everest Research Institute. As the HRO market matures, more employers are making a concerted effort to assess the skills of their retained HR staff and train them so they can be relevant in the new organization.

    Many HR managers have never had to think strategically about how their role contributes to the company’s bottom line. And employers have learned that it is essential for them to have these skills if their HRO initiatives are to be successful, says Mark Azzarello, who until recently was director of HR operations at Memphis, Tennessee-based International Paper. Azzarello is now the company’s director of compensation.

    "These are multiyear agreements worth millions of dollars," he says. "We need to make sure that we have the right people and skills in place."

    But getting an HR staff to grasp that business insight doesn’t happen overnight, says Christine d’Mello, learning manager of Unilever’s HR Academy. That’s why companies like Unilever, International Paper and DuPont have engaged in concerted efforts to redefine the skills their new HR staffs need.

    For some HR managers, it means an opportunity to become more involved in the business. For others, it could mean they will act as project managers, overseeing the relationship with outsourcing providers. And some HR staff will decide to leave their companies—or will be forced out—because they can’t or won’t change. But that’s part of the process, experts say.

    "It’s about changing the expectations of HR," says Linda Merritt, HR director at AT&T. The company signed a seven-year HRO contract with Aon Human Capital Services in 2002.

    How companies do this depends on their culture. Unilever chose a more formal face-to-face training program that started with the top HR staff in the organization and was then introduced to the next level down. Unilever will know it’s successful if it can hit its ultimate goal of reducing its HR staff to 900 from 3,200 without seeing levels of service fall, Bull says.

    International Paper, with a culture focused on developing employees’ competencies, decided to change those skill sets for HR managers. DuPont has taken a more informal approach by bringing in business-oriented employees from other divisions to work with HR.

    There is no single right answer, says Helen Neale, an analyst in the London office of sourcing advisor NelsonHall.
"As long as you are addressing the issue in whatever way suits that organization, you are doing the right thing," she says. "But companies need to address the issue if they are going to be successful with HRO."

The formal approach
   As early as 2001, Unilever executives were talking about the company’s need to transform HR, Bull says. Because of the decentralized nature of the company, there were too many systems running and no standards in place, he says.

    But it took time to work out whether the company was going to use an HRO provider or try a shared-services model. What was decided by 2003, however, was that no matter what Unilever did, the role of its HR managers was going to change.

    Unilever has a tradition of conducting functional training for its employees in such departments as finance and marketing, says Rochelle Trow, the HR director who oversaw the academy from June 2004 to August 2006.

    "We knew a transformation was coming, and so the HR leadership team said, ‘Let’s put some of that kind of professional expertise behind HR development,’ " she says.

    Bull and other members of Unilever’s HR leadership team went to work on defining the role of the future HR business partners. They spoke to line managers about what they wanted from HR and conducted an analysis to identify the skill gaps in the department.

"Like most people, all we thought about was the stick, and that gets you a certain level of motivation. But if you want quantum leaps in how your provider serves you, sometimes you need a carrot."
--Warren Pfister, Lockheed Martin

    What they discovered was that the HR managers in general didn’t have a lot of expertise in organizational development, which Unilever recognized was going to be crucial if it signed an HRO agreement, Bull says.

    It meant HR managers had to understand their impact on the business, how to manage change and how to act as a consultant to their businesses. That meant that rather than handle HR administrative tasks in a bubble, HR managers need to use their knowledge and provide workforce data to managers in other areas to help them craft initiatives and meet business goals.

    For example, if a business division is embarking on a new initiative or launching a new product, HR managers should be right there providing statistics and insight into the talent needs and resources to make that initiative work, Bull says.

    With the help of Mercer Delta, an international consultancy, Unilever created four classroom modules. The first two focused on the shifting role of HR and understanding the business environment, Trow says.

    In the first module, participants were given academic articles authored by the likes of Dave Ulrich, professor of business administration at the University of Michigan. In the second module, they attended classes that delved into the issues and focused on organization design and business diagnostics through real and fictitious case studies, Trow says. The third module focused on change management, while the fourth centered on consulting skills.

    When Unilever launched the nine-day program, it was presented as an opportunity for its HR staff to educate themselves and prepare for the inevitable change in their role, Bull says.

    "By offering HR Academy we are saying to our HR managers, ‘We will give you the best chance to survive, but you need to understand what to stop doing,’ " Bull says. At Unilever, that means HR managers who were accustomed to spending their days processing benefits claims were on notice to learn new skills or risk losing their jobs.

    Unilever initially introduced the courses to its 100 top HR managers and eventually extended it to 400 members of its HR staff.

    Now that Unilever has signed with Accenture, the company is expanding the program to include more e-learning, so that more HR staff can participate at a lower cost, Trow says.

    "We could not sustain face-to-face learning for the entire HR population," she says, "so we started from the top."

    The cost of delivering HR Academy, including travel, was £1.6 million ($3.14 million) in 2006, but Trow estimates it will drop to £743,000 ($1.46 million) this year and £557,000 ($1.1 million) in 2008. The additional savings come not only from expanded use of e-learning, which is part of the agreement with Accenture, but also because there will be fewer HR staffers—an obvious and inevitable part of outsourcing. The company still offers master classes for high-level HR staff, but now tries to incorporate a lot of that learning into orientation for new hires, Trow says.

    Unilever also is making a more concerted effort to gauge the effectiveness of its HR Academy. Previously, the company only measured how satisfied participants were with the program, but now it’s starting to test them on what they have learned, Trow says.

    "We haven’t been as disciplined on this in the past, and so we haven’t determined the return on investment," she says. "But now we will be more rigorous."

Driving different skills
   As one of the first companies to adopt HR outsourcing, International Paper didn’t have the benefit of seeing the mistakes others had made.

    Nevertheless, after signing its 10-year agreement with Exult (now Hewitt Associates) in 2001, the paper goods company set to work on redefining the skills its 300 HR employees would need in the new

"We knew a transformation was coming, and so the HR leadership team said, 'Let's put some of that kind of professional expertise behind HR development.' "
--Rochelle Trow, Unilver

    International Paper recognized there were two areas where HR’s skills would need to be redefined, says Azzarello, the company’s former director of HR operations. On one hand, the company would need a group of HR employees to manage the relationship with Exult. At the same time, like Unilever, it would need HR managers to act as business partners to line managers. That means they need to be able to oversee the workforce planning and development behind business initiatives. They have to be able to connect what they do to bottom-line business results.

    Luckily, International Paper had done most of the work in redefining skills for business-oriented HR managers a few years earlier when it centralized HR operations in the mid-1990s, Azzarello says.

    To prepare the HR managers who would oversee the outsourcing relationship, Azzarello and his team worked with executives in other divisions of International Paper that had engaged in outsourcing to identify critical competencies.

    They listed 15 of them, including business acumen, interpersonal skills and managerial courage, Azzarello says.

    "Managerial courage is important because these managers have to be able to discuss things with the vendor," he says. "They can’t just fire people that are committed to a 10-year relationship."

    For example, if the HRO vendor isn’t handling a certain process well, the HR manager needs to be able to address the situation and, if need be, bring that process back in-house, Azzarello says.

    Employees are evaluated on these competencies as part of their annual performance review. Similarly, International Paper looks for those skills in new hires, Azzarello says. Managers create career development plans based on these competencies to address skill gaps.

    "If employees didn’t have the capacity to change, then we made the hard decisions and moved those people out," Azzarello says. "If we can’t change the behaviors, then we have to change the people."
The company decided on this approach, rather than launching a mass training program, because it fit into the corporate culture, he says.

    International Paper measures success based on meeting its headcount and cost objectives. So far the company has done that, Azzarello says. The company now has one HR manager for every 140 employees, down from one for every 80 employees when it began the transition. Its goal is a ratio of one HR manager for every 150 employees.

The informal approach
   Like International Paper, DuPont has relied on making cultural change through informal methods.

    In October 2005, the Wilmington, Delaware-based science products company announced a 13-year HRO deal with Convergys estimated to be worth $1.1 billion.

    Rather than try to teach its 850 HR managers business skills, DuPont has brought in non-HR staff with business experience to work closely with the department, says Ernie Lareau, HR director, portfolio and program management.

    "There is some skill development in what we should have been doing all along," Lareau says. "To address this, we are doing a mix of on-the-job training by bringing people in that have those skills."

    Lareau, who spent 30 years working in a number of non-HR roles at DuPont, now works with the senior HR leaders to hone their business skills.

    "I have brought some business rigor to the HR leadership," he says. If an HR leader has an idea, for instance, it goes on a list. And if that manager can persuasively argue the merits of the idea, then that idea gets executed.
"We are trying to operate HR like we would any other business unit," he says.

    It helps HR executives see the bigger picture and brings a business discipline to HR, Lareau says. "The struggle that traditional HR people have is in relating things back to the corporation," he says.

Lessons learned
   Employers agree that no matter how organizations approach training the HR managers they retain, they need to understand that such training is not a one-time event.

    Companies need to treat HR as they would any other business division and update staffers’ skills as the company’s strategy develops and changes with time, says Trow, who previously led Unilever’s HR Academy.

    To this end, Unilever is periodically evaluating the skills of its HR team and seeing where new training is needed, she says. By implementing e-learning, the company hopes to respond quickly to business trends. Trow says Unilever’s approach to training is one of "limitless learning."

    The other challenge is making sure that once HR managers have the skills to be business partners to the organization, they have time to put those skills to good use, employers say.

    To address this, many companies are expanding self-service options for employees—but there’s more work to be done in that area, they say.

    "Don’t ever let anyone tell you that outsourcing will eliminate all of the administrative activities," Azzarello says. "That’s never going to happen."

Workforce Management, March 26, 2007, p. 35-41 -- Subscribe Now!

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