Posted: 13 Jun. 2023 6.5 min. read

HR business process outsourcing

Six HR competencies to guide service provider selection

Authored by Daniel M Brown, Joel Thompson, and Dave Smith.

Following the disruptions of the COVID-19 pandemic and ongoing economic uncertainty, many organizations are again revisiting their human resources outsourcing (HRO) strategy.

On paper, HRO offers predictability of cost and access to resources. It augments an organization’s workforce ecosystem, which allows leaders to achieve critical goals such as cost optimization and work efficiency. As noted in Deloitte’s human capital cost optimization point of view, organizations can use HR outsourcing as a lever to reshape the composition and scalability of their workforce. However, there are talent pressures that require new expectations for any service provider relationship. As organizations also work to attract and retain talent, they must seek a service provider that offers the right customer experience for their employees as well as the agility to keep pace with disruptions in their business and workforce. Recent research from the Everest Group noted that customers were mostly satisfied with their HRO providers' ability to respond to the pressures and disruptions caused by the pandemic over the past two years.1

Understanding that business and talent are not static, organizations should aim for relationships that not only deliver transactional “execution” but other needed HR competencies as well.

  • Experience: Today’s workforce expects a “consumer” HR customer experience—the ability to get answers, make choices, execute transactions, and otherwise fulfill HR requirements when they want to, from where they are, and with the device in their hand. This is the same expectation we have of major e-tailers. Your service provider should be able to deliver on this expectation and provide needed “white glove” services for complex or sensitive “moments that matter,” such as onboarding, leave of absence, or survivor support.
  • Automation: Effective automation (e.g., process automation, artificial intelligence, or chatbots/virtual agents) can reduce costs while also improving quality. When selecting a service provider, be sure to understand their automation strategy and how the strategy will affect your costs and service quality over time. Gainsharing should be baked into any long-term relationship. Also, be prepared to invest in and accommodate efforts to standardize and simplify your required HR processes.  Streamlining and simplifying these processes increase your automations’ chance of success, and make it easier to maintain automated capabilities over time.
  • Analytics: Your HRO provider will have access to most of your workforce data and should be positioned to turn that data into actionable information that will provide decision support, strategic insights, and opportunities for change. What analytics capabilities does your prospective HR outsourcing partner have in their business process? How will they help you better serve your workforce and business stakeholders?
  • Agility: Thinking about agility, you can ask the following questions. What capacity do they have to support projects delegated to you by your business leadership? How did your prospective service provider respond to the pandemic? How are they measuring and responding to market trends on your behalf? This kind of provider “agility” should be expected of your prospective partner as it is the same “agility” expected of you by your organization.
  • Innovation: Technology advances rapidly, and your service delivery model can quickly become outdated without innovation and continuous improvement. Is your prospective provider a market leader or a market trailer? Do they invest in research to understand market trends, and are they investing in current state improvements and future state technologies, services, and partnerships that will keep their services to you fresh and leading-edge?
  • Integration: In any service delivery model, there are a host of technologies, service providers, and other stakeholders. The model is an ecosystem of many moving parts where integration is key to service timeliness, quality, and a seamless workforce experience. Evaluate your prospective service partner for their own relationships (e.g., subcontractors) and ability to integrate their services with your HR function and your other service providers.

While securing these HR competencies and capabilities in a single service provider relationship seems like a lofty aspiration, it is made more achievable through a strong commitment to partnership with a HRO provider and creative, dynamic contracting.

Historic outsourcing contracts have defined a static set of services and service level agreements with set fees for 5–7 years. Moving forward, contracts must set goals for ongoing innovation and improvement that benefits all parties—improved services for your workforce, lower costs for employers, and improved margins for service providers. Goals should be defined for each year, with both the organization and the provider committing to investments that will increase service efficiency and effectiveness progressively over the duration of the outsourcing deal. The benefits of achievement should be realized by both parties as partners in the venture.

Business has never moved more quickly, and the expectations of the workforce have and will continue to change. To keep pace, your outsourcing process and partnership must look ahead—and stay ahead—to keep your HR function, business, and workforce positioned for success.



1 Multi-process Human Resources Outsourcing (MPHRO) – State of the Market Report, Everest Group Research, February 2021.

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