Mark Trepanier, Managing Director, EquaTerra

Making the decision between custom versus standard HRO solutions is complicated. Below are some key considerations to help guide you through the decision-making process:

1. Does it all have to be custom?

Bottom line, custom means cost. It can be worth it if the customizations deliver value to your business. If, after due consideration, you do require a fully-customized solution, reconsider using multi-process HRO as a service delivery solution. You might be better served with out-tasking specific tasks, or taking a more staff augmentation-oriented approach to leverage the expertise or cost advantages of an external organization.

2. It can all be standard

If you really mean it, you will likely have providers lining up at your door. But recognize you will have a change management challenge since you will be conforming to what may be long-standing conventions to any given provider’s standards. That shouldn’t change your mind; it just means you need to incorporate significant change and expectation management communications into your HRO initiative. And a word to the wise…don’t rely on your selected provider for this communications initiative. While it may be good at doing so, much of it should come directly from inside your organization.
The fact is that the market is trending toward standard solutions with levels of customization at one or more of the process layers, as this represents the most equitable and equally advantageous opportunity for buyers and providers. Which brings us to:

3. Figuring it out with the efficiency versus effectiveness question

Across the spectrum of HR services within a buyer organization, those that are more transactional in nature, such as time keeping and payroll, are generally driven by efficiency – the lowest possible per unit cost. Those that are more consultative in nature, such as recruiting and talent management, are driven by effectiveness – the highest quality level of service. As a result, the first step in determining the appropriate HRO scope is carefully evaluating the services you currently deliver. Those driven by efficiency are more likely candidates for comprehensive HRO, while those driven by effectiveness may be best delivered by specialty providers, or retained in house. Thinking about this now, can you see in-scope process situations in which a standard (yet likely somewhat configured) or custom solution might work for you? Develop a set of scenarios, not more than half a dozen, and consider for each one the rough cost estimates and engendered ramifications of both approaches. For example, if payroll processing changed, as long as everybody continued to get paid correctly and on time, would you really care how the process works? Probably not, likely making a standard solution a good option for payroll delivery. On the other hand, you would likely be very concerned if your recruitment candidate pool deteriorated. With this process, a customized solution is probably your better option.

4. Speak to the provider community

Get a sense of what the market has to offer, and how custom or standard offerings manifest themselves among the providers you are considering. Evaluate each provider’s offerings in the context of the process stack referenced earlier, how they compare and contrast to your current in-house (or outsourced) solution, where you are today and where you want to go, the available configurability options and, ultimately, which offering will best meet your needs. Advisors are a good source of candid, objective information as well.

5. Consider the risks involved with a custom versus a standard solution

In looking at both options, consider the risks. Things to think about here include that standard offerings generally have less implementation risk because you are implementing something that has been implemented before. Conversely, custom solutions will be more accommodating of special requirements for represented employees, e.g. unions, works councils, etc. Evaluate the risks attributable to each of the options. And remember in business, risk is not to be feared. It is simply another business dynamic to be managed. And when managed well, you can deliver a lot of a value.

6. Don’t forget your stakeholders

Engage early-on with your stakeholders, address their concerns as quickly as possible, and turn them into advocates. That will go a long way in helping ensure a successful implementation, no matter what path you take.

To Learn More
For more on this topic, read my recently published paper, “Thinking HR Outsourcing? Custom Versus Standard – the Next Dilemma”.

For the latest from EquaTerra’s HR Practice, visit www.equaterra.com/hr.

Filed under: How to..., Human Resources, Outsourcing by EquaTerra