Multi-Process Human Resources Outsourcing Providers: Highlights From the New Digital World Class® Matrix – Transcript

John Sheridan:                 

Generative AI or AI in general – everybody’s talking about it, and it has the capability to really be a game-changer going forwards. We’re seeing it in employment of various tools, self-service, particularly in the HR environment where users have the ability to access tools that now use AI to generate responses and avoid having to trail through a variety of different sources.

Announcer:                       

Welcome to The Hackett Group’s “Business Excelleration Podcast.” Week after week, you’ll hear from top experts on how to achieve Digital World Class performance.

Andy Warzecha:              

Hello and welcome to The Hackett Group’s “Business Excelleration Podcast.” I’m your host, Andy Warzecha. I’m a principal and the North American Advisory practice leader here at Hackett. Today we’re going to be talking about our new,  multi-process human resources outsourcing Digital World Class Matrix study. And I’m joined by a couple of guests – so Greg Morgan, a director in our North America Transformation HR practice, and John Sheridan, an associate principal in our European Business Process Outsourcing practice. Welcome guys.

 So let me kick this off on why we did this research study. And following the work that we did earlier this year around our finance and accounting outsourcing study, we had a lot of client interest from our HR and payroll customers related to what’s happening in the HR space. So let me start this off.

John, why is this study different? What’s unique about it?

John Sheridan:                 

I think for anyone not familiar with Hackett’s research, we’ve now published a whole suite of Digital World Class Matrix studies, and they’re covering a wide variety of platform, application tool, service provider solutions, and spanning a wide range of business process areas.

Other advisory and research firms publish similar market-facing studies, but I feel they typically fall short. They tend to focus on capability and features generally driven by supplier-provided data and information. And what makes our approach unique is that we not only assess the scope, the capability, and the maturity of the individual service provider solutions, but we also bring into play how the experience of individual clients compares to Hackett’s Digital World Class performance standards. What value are they realizing? How are they balancing the delivery of efficiency and effectiveness alongside achievement of real business value?

And that means we talk to clients directly. So we survey and interview a large number of clients to gather their personal input – clients who are using these services and solutions. And we asked them about their original goals for the relationship – what were their expectations, whether this expectation is met and what value was delivered – and value in terms of reduced cost, improved service or employee experience. How are their service providers driving and enabling transformation, and bringing relevant and timely thought leadership? And they’re providing valuable business insight to help inform key decisions and drive delivery strategy.

So I guess the differentiation really is in those two key areas, leveraging Hackett’s deep benchmarking and process knowledge, and then capturing and validating the value being expected and realized by customers that are using those solutions.

Andy Warzecha:              

Thanks, John. And Greg, maybe we can go a little bit deeper since you did the scoring itself. What level of rigor did we go into?

Greg Morgan:                   

We actually did do quite a bit of rigor. And we had 12 suppliers that are HR outsourcing providers, and we invited them to fill out a request for information so that we could get their data. We also had strategy sessions with them to go over and see what their solutions look like.

We also did our own research that was publicly available information. And then, as John said, we talked to their clients, and we found clients of theirs either directly from them, from the supplier, or through a third party that helped us to identify client organizations.

So after these surveys and interviews with the clients, we went back and looked at the results and analyzed them against … each supplier against each other. Using the survey data and interview information, we used that all to place them on the grid to show which ones are in the Digital World Class and then the other categories as well. So it was a very iterative kind of process that we went through. So bottom line is it was both scoring and interview results were how we came up with the placements.

Andy Warzecha:              

And John, on the takeaways, what were the major takeaways that we found?

John Sheridan:                 

So as you’d expect, most solutions are going to be driven by a combination of cost reduction, some business enablement, increased employee experience, and the need to manage and respond to a lot of the regulatory compliance that sits across the whole sort of HR and payroll.

And as with other business functions, we’re seeing the adoption of innovation that’s enhanced through the deployment of digital applications. A lot of integration of third-party solutions into human capital management – HCM platforms – it’s becoming a lot easier. And then that’s topped up with the increasing use of AI to automate HR tasks. And they’re all driving enhanced value service offerings, and those service providers are bringing those offerings to their clients.

There are different levels of maturity across the supplier community, and those suppliers that don’t necessarily have that capability fully embedded in the solutions today. They’re building out their solution road maps, and they’re bringing it to market in a very managed and invested way.

And I know we’re talking about service providers, but if you look at the HCM market and the solution vendors themselves, and we’ve also just published our HCM study, the investment that those vendors and the solution providers in general are making for both in-house and outsourced solutions is going up dramatically, especially around the acceleration of AI technologies and in general, the ability of service providers to incorporate digital technologies into a really efficient service delivery mechanism. It’s still in its early stages, so it’s not necessarily a reflection of their capability, but it may have something to do with our client’s objectives – the overall ability to handle change.

We spoke to nearly 50 clients as part of our study. What surprised us most was how fragmented the market is. The majority of clients we engaged with, they’re not using the full potential of the service providers, and they’re often contracting for either single or discrete services. So it’s much lower scale and scope.

A lot of those clients are seeking to combine global presence with local support, and that can result in a number of multiple or individual contracts that address their global requirements, but then also cover specific local culture and regulatory requirements.

But overall, I think we see this as a high-growth segment in the BPO marketplace, with potential to expand existing relationships or even consolidate services currently delivered by multiple service providers.

So I think to sum up, the multi-process HRO marketplace reflects a maturity and the capability of service providers. There’s a growing availability of digital technologies and the tools to drive value. However, many customers, they’re not taking full advantage of the solutions available, which gives the impression of immaturity in the marketplace. And we don’t think that’s correct.

I think there’s a real opportunity for HR outsourcing to play an increasingly important role in supporting and enabling client organizations as they’re looking to deliver increased value and generate insight from their HR function.

Andy Warzecha:              

So Greg, let’s drill a little bit deeper. The solution providers themselves – how are they differentiating themselves in the market?

Greg Morgan:                   

I think the primary way that they’re differentiating themselves is the size of their operations and how many clients they have. As John said, there is fragmentation, but I think that the ones that are doing it the best are the ones that have the tools and the technology, and then they have the large-scale client base that are using more and more of their services.

I think that there’s a lot more capability that they have than some of their clients take advantage of. They only use it for learning and development, support and payroll when the supplier can actually do a lot more. They can do total rewards. They can do employee data management. They can do exit management, recruiting and staffing, etc.

Andy Warzecha:              

So we at Hackett believe generative AI in the broader set of AI is an organizational imperative. And there’s a lot that seems to be going on with the vendors in this space here. But John, why don’t you kick us off on this topic with the broader issues?

John Sheridan:                 

Yeah. Generative AI or AI in general – huge interest area. Everybody’s talking about it. It has the capability to really be a game-changer going forward. We’re seeing it in a deployment of various tools – self-service – particularly in the HR environment where users, employees have the ability to access tools that now use AI to generate responses and avoid having to trawl through a variety of different sources. It improves the quality. It improves the speed of response and generally gives that much greater experience.

But AI is very much dependent on data, and client organizations are particularly protective of their data, especially within an HR environment, which is highly, highly regulated. So I think there may be reluctance for some organizations to provide the kind of access that solution providers might need in order to really provide a personalized service to the individual employee. Until we crack that particular issue, I don’t think we’re necessarily going to see the full benefit of AI and Gen AI within the HR environment.

Andy Warzecha:              

And Greg, can you drill in a little bit deeper on what the vendors are specifically doing?

Greg Morgan:                   

Some of the vendors have built AI into their products already. But all of them – if they haven’t built it in – it’s on their road map, and it’s something that they’re heading toward. It’s a kind of variety of maturity for AI for the suppliers at the moment.

Andy Warzecha:              

Thanks, Greg. And let me expound just a little bit more in terms of Hackett’s position that may be useful for the team here because just waiting for the vendors to deliver capabilities in this space is not an adequate solution, hence the position around AI and generative AI being an imperative. What this means is that as vendors deliver this technology. You’re going to see an all boats float scenario, meaning that everybody gets the same types of technology. And while you can use some prompt engineering or agent capabilities to customize, everybody’s going to have roughly the same type of capabilities from that particular vendor.

Looking from a tops down view and looking at more than just incremental changes, but where you can get transformation or breakthrough capabilities, that’s really what is going to drive differentiation going forward. So it’s a combination of embracing what your strategic vendors are doing, including your outsourcers, along with looking strategically across the organization on where are there breakthrough or transformation opportunities.

 Again, we do believe that there is an organizational imperative here around generative AI, and that is embracing both the direct vendors that may be used strategically in-house and those that you may be using from an outsourcing perspective.

 So where is this research available? For those of you that are customers, you can actually get this research out on Hackett Connect. It’s available within your subscriptions and domains, assuming you are an HR or a payroll customer of ours.

We also have made available the ability to do a custom view of this during our inquiry sessions. So if you really want to drill into which of the suppliers is going to be most appropriate – if you say a midsize manufacturing firm in Belgium versus a large enterprise in California – we can actually drill down to that level of detail with you.

For those of you that are not current customers, you can actually go to thehackettgroup.com and you will find a landing page under our Market Intelligence sections, which will allow you to download an abridged version of the study.

John, I’m going to give the final question to you. What action should our listeners take?

John Sheridan:                 

Outsourcing can be a game-changer for HR organizations who are striving to achieve Digital World Class advantage. By leveraging outsourcing effectively, corporate HR functions can free up their resources, they can gain access to expertise, and they really can improve efficiency and enhance employee experience. So I’d offer probably the following three takeaways – the key action areas – in no particular order.

So outsourcing routine tasks can help HR professionals refocus their time and energy on critical digital transformation initiatives and avoid that initiative fatigue. Service providers can also bring their specialist skills in digital HR solutions to support and enable that journey. They can leverage data analytics to improve decision-making. They can use their automation tools to help streamline processes. And then they can develop and deploy digital learning and development programs.

I think secondly, outsourcing can help you accelerate the adoption of best practices by accessing, deploying, cutting leading-edge technology and processes. So using an HR outsourcing provider, they stay at the forefront of HR technology and best practice, and they can provide HR organizations with access to those advancements probably much faster than the organization could do by building them in-house. And that also allows them then to leverage the latest tools and processes to achieve that Digital World Class efficiency and effectiveness.

 And then finally, outsourcing can help you improve your focus on driving an enhanced employee experience. Yes, there are some obstacles and some hurdles that need to be overcome, but deploying digital tools for onboarding, for engagement, for self-service. There are many HR outsourcing providers. They’re offering digital tools for those particular areas, particularly around self-service functions. And those tools can improve the employer experience and again help free up HR professionals to focus on more strategic initiatives.

So my final thought is don’t use HR outsourcing as a tactic or for pure cost reduction. I think it needs to be viewed as part of a broader program of HR process transformation and optimization. And as I said at the top, getting it right can be a real game-changer.

Announcer:                       

Thanks for listening. If you like this episode, please share it. You can find show notes, transcripts and related research at www.thehackettgroup.com/podcast. Subscribe on your favorite listening app so you never miss an episode. We welcome your feedback by rating this or any episode. Or send us an email at podcast@thehackettgroup.com.

The Hackett Group is a strategic consulting and executive advisory firm. Learn how we can architect your digital transformation journey, including Gen AI, at www.thehackettgroup.com.