2008 Outsourcing Best Practices Guide

Transcription

1 About Ephor Group Ephor Group increases valuations for midmarket businesses. Our approach is proven, pragmatic, and performance oriented. Our methodology, the Perform Business Process fills in the gaps where functional expertise and capital are constraining the business. Ephor has a deep track record of creating wealth for founders, executives, and investors. About the Ephor Group Team Garry Meier founded the Ephor Group to apply the performance improvement methodologies and shareholder value enhancement processes he and his associates developed over his thirty plus year career. Ephor Group is a boutique growth consulting and capital investment advisory firm comprised of seasoned executives with a deep track record of transforming small businesses into emerging leaders. About the Founder: Garry Meier Garry Meier is highly recognized as an industry thought leader in the business and technology services arena as well as the outsourcing sector. Garry is a noted speaker on strategic effectiveness, value creation, industry trends, performance improvement, and outsourcing. Mr. Meier currently focuses on providing board, institutional investment, and C-level guidance to maximize strategic, operational, and equity effectiveness for mid-market technology and service companies. Ephor Group Background Ephor Group s executives have been consultants as well as either investment bankers, institutional investors and /or company operators. Assignment Highlights Achilles Group, HRO Perquest, Outsourcing CCVG, Business Services SmartTime Inc., Workforce Management Certus Corporation, Healthcare Services CentriconHRA, HR Technology and Services Latin American Card Services, Business Services Baird Capital Partners, Private Equity Baird Venture Partners, Venture Capital Personalogy, HR Services Workplace Solutions, HR Technology TalentTree, HR Services The Cap Street Group, Private Equity Outsource International Inc, BPO Medaphis Physician Services, Healthcare Services Global Integrity Outsourcing, BPO Technology Service Solutions, IT Automated Information, IT Ephor Group is highly recognized as an industry thought leader in outsourcing technology and service companies including BPO/HRO/HCM/FAO/CRM/IT and healthcare services. Ephor Group provides capital and growth consulting to guide small businesses on their journey to becoming an emerging enterprise while creating wealth for all shareholders. Ephor Group is an advisor to private equity and venture firms on their investment strategies and portfolio companies. Organizations that maximize people value and ensure activity alignment with the firm s goals outperform others 2 to 1. - Garry Meier, 2006 HR webcast. 1

2 About the Author: Rich Dunphy Rich is a Human Resources leader in the areas of process and system architecture, technology implementation, operational improvement, and a trusted advisor across all functions of human resources. Mr. Dunphy has more than 30 years of experience delivering high valued solutions both insourced and outsourced, in the Human Capital Management (HCM) and Human Resource Outsourcing (HRO) space across a wide variety of industries. For corporations Rich has led team implementations integrating HCM and point solutions and improved employee and manger service levels. Additionally, Mr. Dunphy has provided services for HRO suppliers and HCM/Point Solution Suppliers in the areas of customer acquisition, product enhancement, functional integration of multi-point solutions, service model and implementation improvement and market analysis and planning. Rich currently runs large HCM/HRO projects across all market segments. Great leaders are fully engaged in assisting with transformation of the business - ready with tools such as performance and compensation management and matrix driven workforce analytics and ensuring every process is integrated, easy to use and scalable to support their organization. Rich Dunphy, HR and technology advocate. Rich Dunphy Background Principal experience in human resources including Human Capital Management (HCM) software and services, Human Resources Outsourcing (HRO), benefits, payroll, and outsourcing extending back over thirty years across many scores of client projects. Representative Experience Enbridge Energy Countrywide Hexaware Technologies Fidelity Pfizer ProBusiness Industries Served Automobile manufacturers Business services Chemicals and pharmaceuticals Communications and technology Construction and engineering Energy services Financial institutions Food & beverage manufacturers Government & education Healthcare Hotels and casinos HR providers/suppliers Petroleum, energy, and utilities Retailers Transportation Capabilities HCM/HRO strategy development through execution Analysis of requirements, solution definition, process development, and delivery of HCM solutions and execution of HRO services Implementation of software, services, and methodology execution Product, service, and process review Process and organizational design, change management, and best practice optimization Project assessment for implementation, and software development projects 2

3 2008 Outsourcing Best Practices Guide USE OUTSOURCING TO GRADUATE Thousands of organizations have used outsourcing to replace the significant amounts of time and money they are devoting to technology and internal non-revenue producing resources as they optimize their business processes. Here are a number of drivers that companies have considered as they have reviewed outsourcing: OUTSOURCING DRIVERS - 7 REASONS TO OUTSOURCE 1. Ability to scale up and down more efficiently than through the use of internal operations by shifting the risk of scale to outsourcers (document procedures, M&A experience, incentive pay for productivity and quality) 2. Ability for growing companies to outsource and gain best practices, access to Shared Services models, and implement repeatable and scalable processes, while reducing operational costs during growth years where working capital is at a premium 3. Utilize technology without paying for setup and implementation and wasting employee time implementing, operating and supporting systems; thereby eliminating costs (workflow, portals, employee usage, T&A, talent management, HRIS, etc.) 4. Improve competitive positioning (offer more efficient processes, higher quality, better technology, and produce lower costs) 5. Reduce redundancies and costs: Implement quality programs, tools (Best Practices, TQM, Six Sigma, etc.), and simplify the governance process with a single point of process 6. Operate multiple processes from a single platform - Reduce errors, software/hardware redundancy, development, maintenance and licensing costs 7. Improve performance: Ensure industry standard service levels, automate manual processes and activities 3

4 WHAT IS BEING OUTSOURCED BY COMPANY SIZE: Company Size Where Outsourced Function Adoption Occurs (# of employees) Payroll Benefits 5+ Recruiting 9+ PEO 9-40 Bookkeeping 9-49 IT desktop/ 9 49 Website and online marketing 20+ CFO / Financial engineering 20+ HR director outsourcing IT network administration 50+ Marketing / lead generation 50+ Accounts receivable 99+ Talent management 200+ HRIS 250+ CIO / IT strategy 250+ Compensation planning 500-1,000 HRO 1,000 + Organizations that identify the underlying issues and approach the solution from a holistic, strategic, tactical, and operational perspective, create wealth. - Garry Meier, 2007 HR webcast. 4

5 WHAT STAYS AND WHAT GETS OUTSOURCED OVER A FIRM S LIFECYCLE: Internal vs. External HR Activities Benefits Self-Service Payroll HRIT Recruiting Employee communication Data records and Compensation Labor and employee Performance management Workforce analytics Vendor management Turnover administration Training M&A Policy and legal compliance Succession planning Employee development Organizational development HR strategy 0% 20% 40% 60% 80% 100% Internal External BUILD INTERNAL OR OUTSOURCE? There are many advantages to both building operations in-house and outsourcing and the decision should hinge on a firm s capabilities to adapt to change, while taking into account strategies, company size, growth plans and economic specifics. Many firms will elect outsourcing for a period of time to reap the best of external practices while managing firm changes, training internal employees and installing best practices and processes. Typically the amount of time to implement best practices internally from an outsourcing partner can be 1 to 4 years depending upon scope, breadth, and how fast a company is growing. 5

6 OUTSOURCING SCORECARD FOR SELECTING A PARTNER OR VENDOR CRITERIA Cost benefit analysis of costs versus outcomes (ROI, EVA, value-add etc.) Organization and cultural fit Features and functionality match to needs Service level agreements Breadth of solution covering current and future needs Scalable solution Best practices that are appropriate for the business Technology platform Partnership integration Service quality WEIGHT (%) Ranking (On a scale of 1 to 5 with 5 being the highest) The criteria for decision making should be weighed according to the business goals and their long-term effect on a business objectives and goals for valuation. BRINGING AN OUTSOURCED FUNCTION BACK IN-HOUSE Insourcing is a business decision that is often made to improve control, while outsourcing can be easier to manage and measure because it creates standardized, repeatable processes under one integrated governance structure that ensures maximum performance at lower sustained costs. High performance organizations utilize a mix of both to ensure the very best processes, technology, and best practices permeate their organization. For example many organizations outsource benefits and insource all other processes. Market leaders continually assess new opportunities to outpace market rivals. Insourcing and outsourcing function best as part of a business change management process as organizations cannot drive the scale of change necessary for such projects without a key driver. 6

7 What is needed after deciding to bring a process back in-house? First of all management needs to clearly understand the reasons for bringing the function(s) back inhouse: are they service related transitions, requirements brought on by legislation, company changes, service or financial reasons? How do you decide what functions to move or do you move all the functions? Start planning for the move as soon as this change is being considered. Immediately create an overall strategy, goal, budget, plan, timeline, and start building consensus. This change should be driven by the company s senior management team. Rational for any change will need the assistance of both finance and IT senior management. The criteria for change will include: Strategy and integration with overall corporate strategy Insourcing Best Practices Bringing a function back in-house after outsourcing: 1. Roles - HR should be the lead in bringing these functions back in house, but will need senior executive buy-in as well as input from managers, key employees as well as finance and the IT management teams. 2. Identify the Strategy: What are the expected outcomes, what is management s motivation, what is driving this and when is the desired deliverable needed? Finally how does this fit into the overall corporate strategy? Point of Failure Analysis - If the outsourcing relationship failed organizational communication will be imperative, rather than in cases where the contract was not renewed for other reasons. Consult with their peers in finance and technology to gain their input. Consult the team that decided to outsource in the first place if they are still available. 3. In Starting: Identify Gaps, Challenges, and Define Goals and Objectives a. Identify business requirements: how are the various business functions handled by the supplier and any handoffs that occur whether it be processes, data, and/or technology. b. Examine the real cost of bringing the function or functions in house - many times the supplier has reduced cost of services by more than 30% - can the internal function be cost competitive with this model? c. Gap analysis - Why insource? What measures will be put in place to be certain that cost are not out of control, service levels will be maintained and that jobs will continue at or above current service levels? d. Resources Who will do the work? Often when a function has been outsourced the staff supporting those functions has been reassigned our replaced. Can resources be reallocated or be located? 4. Develop Action and Communication Plan - The strategy, plan, total cost and resource impact must be communicated to senior management as soon as possible. Change will be public and corporate communications will need to delineate the reasons and impact to employees and shareholders. The changes must be communicated to all levels early and often. 7

8 Costs Goals Timeline Impact on the organization Ability to support organizational change or business direction including potential acquisitions/divestitures A consolidation of the above into a strategic plan Organizations who have considered outsourcing have examined all internal approaches to gain maximum value and deliver high quality service but from one perspective or another failed to achieve their goals. It is at this point that they consider the outsourcing alternative. SHARED SERVICES Shared Services enables businesses to gain additional staff, specialist expertise, avoid redundant staffing, and achieve significant economies of scale. With Shared Services managers are free to focus on operational improvement and revenue enhancement. Over 60 percent of companies with Shared Services functions improve client satisfaction, staff productivity, and overall quality while also achieving cost reductions of 20 to 80 percent. 1 Furthermore, companies spend $400 less per employee per year on human resources services when they utilize these models. In today s world of automation and outsourced services, SMEs have the same opportunities to reduce employee administration costs as do their larger counterparts. But owners and executives at most SMEs do not have on-demand access to expertise in training, recruiting, employment law, compensation, performance management to list a few topics that are available in the Shared Services group of large corporations. An SME can take advantage of purchasing these services on an outsourced basis. 2 Human Resource Executive Magazine. HRNEWS section, article: Standardization is key to HR process improvements. 8

9 THE SHARED SERVICE ORGANIZATION FIVE REASONS WHY Studies show that top-performing enterprises utilize a continuous process of outsourcing then insourcing to continually revitalize their organizations with the latest best practices. Here are five additional reasons to use Shared Services: 1. Cost minimization via economies of scale, automation, and process improvement 2. Service model allows executives and managers to focus on revenue generating activities not tactical and administrative processes 3. Proactive compliance to minimize risk 4. Access to best-in-class technologies and processes 5. Access to specialized expertise and resources which may not have been available internally when processes were distributed In summary, unburden executives and managers and provide a more supportive and empowering workplace environment for employees. A recent study on the factors that drive performance found that working environments with flexible culture and focus on continuous improvement outperformed the competition on average by more than 20 percent! 2 Clearly, business leaders and management must be responsible for building strong, performance oriented cultures. The end goal of implementation of Shared Services is to centralize all services associated with the delivery of human resource, payroll and benefit processes, technology and operations. This is best described in the following table: Function Quantitative Technology implementation Tight alignment with end users Technology operations online Close planning and estimation of requirements 2 Workforce survey results from McKinsey and Deloitte 2006 studies. 9

10 Technology operations batch Planning for peak periods Support Close alignment with vendor and end user Help desk Both end user and employee support Closely aligned with system enhancements and business changes Operations support Support of reporting including checks and distribution Multiproduct support Ability to anticipate integration of point solutions. TECHNOLOGY The ever changing workforce landscape needs to be driven by increased technology adoption. Today s US economy has a lack of service skilled supply talent especially mid-skill level employees. The baby boomers are retiring and Generation X and Y are smaller in population size than previous generations. The educational system has failed to provide skilled resources and the business world is failing to train and develop the quality and quantity workforce needed. The educational system is not building specialized training to build this new workforce. Too much technology has been administrative and cost containment focused in the past. A significant amount of time and money has been spent on products surrounding automating basic transactional functions. The invested amount on technology depends upon the company size and industry, but most organizations have formalized core HR, payroll, benefits, and a third have efficient recruiting systems. However, information across the organization and for each employee, from personal histories, data, skills, capabilities, experiences to payroll records, is often in multiple and disparate systems, often even on desktop spreadsheets. A hot 2008 trend is consolidating an employee s data record into one baseball card view highlighting their skills, capabilities, career path and training development, resume, payroll, benefits, etc. 10

11 Managers face increasingly complex information issues presented by business and service delivery demands. Frequently these pressures require rethinking the support systems behind these information processes. Before recent technological and computing advancements high capital investment limited the affordability of systems in the small and mid-market. The advancement of technology developed into nine main technology systems and continues to consolidate: 1. Payroll 2. Accounting 3. Enterprise Resource Planning (ERP) 4. Point-of-Sale (POS), Retail IS, or Customer Relationship Management (CRM) or Sales Force Automation (SFA), or Customer Service Management 5. HR management 6. Recruiting 7. Benefits administration 8. Performance and compensation management 9. Time and labor management In today s landscape SMEs have a combination of the following: Strong set of existing business processes, IT architecture, and legacy point solutions Tremdendous demand for performance mangement, competency management, and knowledge systems SMEs must be able to integrate the underlying workflow from multiple applications or decision making will remain elusive. Integration can be done through web services as well as more traditional system-to-system integration. 11

12 THE FUTURE OF OUTSOURCING Outsourcing is a necessary function for all small businesses and growing enterprises to effectively compete with larger corporations. Small and mid-market businesses will continue to: Outsource non-revenue producing functions i.e. accounting, information technology, human resources, and marketing for example Integrate information flows from HR to accounting/finance to front-lines of sales and service while providing strategic overview to senior management Utilize insourcing and outsourcing to improve the organization Improve employee centric decision making while increasing the investment in people, keeping them fully engaged, providing right combination of resources, flexibility, opportunity, and total compensation The key is creating agile workforces that can respond to change so that the business is creating talent for the future both internally and externally. Moving beyond traditional activities is uncertain ground for many by approaching outsourcing from a business value-add understanding common mistakes made it is possible to identify and correct them or avoid them altogether. Did you enjoy this article? Drop us a line and let us know your thoughts on solving the value equation at ephor@ephorgroup.com. About Ephor Group Ephor Group increases valuation for technology and service based businesses. Our approach is proven, pragmatic, and performance oriented. Our proven methodology, the Perform Business Process fills in the gaps where functional expertise and capital are constraining the business. Ephor has a deep track record for creating wealth for founders, executives, and investors. 12