A brief overview of the 6 elements of right-sourcing readiness (considering not only cost, but culture, business strategy, etc.), how they link to shareholder value and what HR can do to make an organisation right-sourcing ready. Includes case studies.

1. Leverage Human Capital
to Improve Business Performance
Right-Sourcing
The Role of HR in Driving Shareholder Value
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
1
www.iproconhcm.co.uk

2. Leverage Human Capital
The Sourcing Continuum to Improve Business Performance
Outsourced Tasks
Temporary and
Permanent
Core Team
Staff
Agency Staff
Outsourced Tasks
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
2
www.iproconhcm.co.uk

3. Leverage Human Capital
Workshop Structure to Improve Business Performance
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
3
www.iproconhcm.co.uk

4. Leverage Human Capital
Section One: to Improve Business Performance
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
4
www.iproconhcm.co.uk

5. Leverage Human Capital
Creating Shareholder Value to Improve Business Performance
 Right Sourcing creates shareholder value in terms of two categories -
Value Creation and Value Preservation:
Shareholder Value
Improved Opera<ng Improved Investment in Enhance Compe<<ve
Margin Working Capital Advantage Period
Economies of Scale
Reduc<on in Capital Iden<fy and maintain
Expenditure factors which
Exploit Third Party
(Buildings, IT generate order
Core Competencies
Infrastructure etc.) winning product or
Divest Low Margin service facets (Causal
Ac<vi<es Opportunity Cost of analysis)
Investment Budget
Increase work‐force
agility
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
5
www.iproconhcm.co.uk

6. Leverage Human Capital
Section Two: to Improve Business Performance
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
6
www.iproconhcm.co.uk

7. Leverage Human Capital
Traditional Views: to Improve Business Performance
“Outsourcing is Great !!!”
 Always, as much as possible! - Proven wrong by many negative
examples
 Decisions based on cost only! – Shareholder value map illustrates
that there are many different levers
 Everything that’s non-core has to go! - Different results in different
projects show it can’t be that easy:
 We’ll show that even for non-core activities further conditions must be met
 Answering the question as to what’s core? Is more difficult than expected. It’s not
the same for all players in one industry (how could you differentiate from
competitors?)
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
7
www.iproconhcm.co.uk

8. Leverage Human Capital
Section Three: to Improve Business Performance
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
8
www.iproconhcm.co.uk

9. Leverage Human Capital
1. What’s Core? to Improve Business Performance
 NOT the same answer for every player in one industry
 There are obvious things on the surface, but the primary source of
competitive advantage maybe difficult to find
 Causal Analysis is one proven tool to find these primary sources
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
9
www.iproconhcm.co.uk

10. Leverage Human Capital
1. The Role of HR to Improve Business Performance
 HR should identify and understand
the people elements of competitive
advantage
 They need to actively join into the
discussion about core processes to
add the people aspect, most
notably in the fields of:
 Knowledge
 Internal relationships
 Culture
 They may also act as an facilitator for the whole process
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
10
www.iproconhcm.co.uk

11. Leverage Human Capital
2. Define and Assess Capabilities to Improve Business Performance
Outsourcing everything that’s non-core doesn’t work:
Understand the capabilities required for the task

Assess your own level and compare it with industry

Find a provider with a higher capability level

Consider the provider needs a considerable advantage in efficiency

to cover margin, marketing cost, and governance.
For capability assessment you may use tools such as the CMMI in
IT (Capability Maturity Model Integration).
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
11
www.iproconhcm.co.uk

12. Leverage Human Capital
2. HR Capability Framework to Improve Business Performance
The iProCon HCCEM is one
example for a Capability
framework aiming at HR in
particular.
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
12
www.iproconhcm.co.uk

13. Leverage Human Capital
2. Combine Coreness & Capabilities to Improve Business Performance
 The real world is not limited to the
diagonal line!
 The other extremes require special
OUT
Strong Weak
attention and my hide exceptional
opportunities or risk.
 Weak capabilities in a core field:
Capability
 Make it non-core
 Build capabilities
 Leverage with sourcing strategy
 Strong capabilities in a non core
IN field:
 Make it core
High Low  Divest
“Coreness”  Leverage with sourcing strategy
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
13
www.iproconhcm.co.uk

14. Leverage Human Capital
2. Staffing Framework Corporate IT to Improve Business Performance
Outsourced Tasks
Capability (0-5)
Consultants
Temporary and
Contractors
Permanent
Outsource
Core (0-5)
Comment
Permanent
Agency
Temps
Task
Core Team
Staff
Agency Staff
Outsourced Tasks
Server mgt. 1 2 (X) X
Project mgt. Build capability 5 3 X (X) (X) X
Application
Reduce capacity 4 5 X (X) (X)
Development
Watch for future
SAP NetWeaver 3 3 X X (X)
importance
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
14
www.iproconhcm.co.uk

15. Leverage Human Capital
2. The Role of HR to Improve Business Performance
 Develop capability framework for the whole organisation together with
subject matter experts
 Assess internal and external capabilities
 Manage the change from having Recruitment and procurement as
isolated functions to an integrated view of managing the continuum
based on coreness and capabilities.
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
15
www.iproconhcm.co.uk

16. Leverage Human Capital
3. Consider the external environment to Improve Business Performance
 A purely internal view may lead to unfeasible decisions
 Consider factors for today and for tomorrow:
 Legislation (data privacy & security, when IT outside EU,…)
 Society: anti-globalisation, reaction to layoffs,
 Ecological: higher cost, if supply chain streched
Tax Economic Growth Educa<on R&D
Legisla<on Interest Rates Popula<on Growth Rate Infrastructure
Employment Law Infla<on Cultural Aspects Rate of Change
Environmental Regula<ons Exchange Rates Unioniza<on
Poli<cal Stability Age Distribu<on
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
16
www.iproconhcm.co.uk

17. Leverage Human Capital
3. The Role of HR to Improve Business Performance
 Employment legislation
 Impact on employer branding
 Talent Management – Understand the market’s long-term ability to
sustain or build capabilities (knowledge of education system and
demographics)
 Competition in labour market
 Options for workforce reduction
 Industrial Relations
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
17
www.iproconhcm.co.uk

18. Leverage Human Capital
4. Understand and Align Culture to Improve Business Performance
 Cutting off or outsourcing allegedly non-core activities can often
have unintended impact on strategic assets, most notably
– Creating a situation going against the central values / organisational culture.
– Creating anxiety and insecurity (“who’s next?”)
– Destroying relationships with customers or other external stakeholders
– Destroying informal employee networks, important for the exchange
of knowledge and for innovation
 This doesn’t necessarily mean these activities can not be
outsourced, but must be addressed in the change process, e.g.
– Clear communication about strategic goals
– Promoting cultural change (takes time!)
– Applying a staged approach OR creating a real sense of urgency
– Identifying important relationships and replacing or preserving them
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
18
www.iproconhcm.co.uk

19. Leverage Human Capital
4. Understanding Culture to Improve Business Performance
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
19
www.iproconhcm.co.uk

20. Leverage Human Capital
4. The Role of HR to Improve Business Performance
 HR is the function in the organisation who understands its culture and
acts as a strategic partner to align culture and business strategy
 Cultural analysis
 Building culture into every major change initiative
 Designing change programs for cultural change
 Incorporating the management of organisational culture into the people
management processes (most notably recruiting, talent management,
reward, performance management, metrics)
 Usually requires an external view, but also deep involvement of the
organisation
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
20
www.iproconhcm.co.uk

21. Leverage Human Capital
5. Manage Change to Improve Business Performance
 Outsourcing is a transformation exercise which requires the normal
change activities and capabilities. With the key challenges being:
 Keeping the retained organisation motivated
 Establishing a partnership with the provider
 Accepting best practise …
 Transforming the whole organisation to being ‘right-sourcing ready’ –
i.e. making right-sourcing a source of competitive advantage
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
21
www.iproconhcm.co.uk

22. Leverage Human Capital
5. The Role of HR to Improve Business Performance
 Act as Change agent
 As set out by ‘Ulrich; as one of the 4 principle roles of HR (HR may need
transformation to get there).
 Outsourcing part of HR activities can serve two purposes: getting free
capacity in HR to do this more strategic work AND proving that HR is able to
manage change and takes the lead towards right-sourcing.
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
22
www.iproconhcm.co.uk

23. Leverage Human Capital
6. Manage the Relationship to Improve Business Performance
This is as important a step as the other five.
However, as you will have heard and
read about them every time
sourcing was addressed as a topic,
we will not focus on these
points today.
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
23
www.iproconhcm.co.uk

24. Leverage Human Capital
Summary to Improve Business Performance
Challenge Tools Role of HR
1.Outsource non-core CAT – Causal Analysis Tool Understand human capital
elements of source of
competitive advantage
2. Consider Capabilities Capability Framework Identify and build capability
HCCEM
3. Consider environment PEST (plus others) Understand and manage the
external environment factors
4. Understand culture Culture Web Understand and manage
cultural transitions
5. Manage change “Multiple Tools” such as change Change Agent - Ulrich
kaleidoscope and stakeholder
management
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
24
www.iproconhcm.co.uk

25. Leverage Human Capital
Section Four: to Improve Business Performance
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
25
www.iproconhcm.co.uk

26. Leverage Human Capital
HRO vs. Shared Service to Improve Business Performance
Manuf. (10,000 EEs)
Bank (2,000 EEs) Telco (100,000 EEs)
 Low cost HR
 Historically “luxury” HR  HR shared service exists,
 Strong traditions but not consolidated
 Little standardisation
 HR on site: personal across group
 Flexibility in Payroll
relationships, no  Non core at 1st sight
considered core service
standardisation  Call centres are core
 HR-IS highly customised  Better part of HR could offering
 Pressure on cost technically be outsourced
 Group includes IT and HR-
 Further cost cutting
 20% savings via HRO
IT provider
required
 But standardisation
 Leverage capabilities to
 Step considered too
against basic
build consolidated HR
large as against caring
assumption
SSC
culture
 € saved no strong case
 Move to national shared  National HR SSC on
 Define HR strategic service standardised IT platform
contribution  Outsource some elements  Special solution for small
 “Developing top talent & of recruitment (no impact group companies
leading change” on current Ees)
 Outsource transactional
HR and HR-IS
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
26
www.iproconhcm.co.uk

27. Leverage Human Capital
2-tiered HR Shared Service to Improve Business Performance
High Process Variation  Initial design provided
flexible and complex
solution (process & IT)
 Good fit for larger entities
Flexible, but Flexibility trap:
complex many small (>1000 EEs)
High number of clients
Low number of clients
solution for clients, but no  Far too expensive for small
large clients standardisation
entities (5 – 100 EEs)
 Most small entities struggled
to get out of this service 
even more expensive for the
remaining clients
Volume trap:
standardised, Simple  Define portfolio for this
package for
small clients, segment and derive
but no scale small clients capabilities to deliver
economies
 Offering a package for small
clients at less than 50% of
cost
High Standardisation
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
27
www.iproconhcm.co.uk

28. Leverage Human Capital
Bank HRO: Overcoming Resistance to Improve Business Performance
Involvement of employees affected by HRO
As-is analysis Task catalogue for RfP
Transparency through detailed RfP
Allow internal service to compete No provider checklists etc. accepted
based on same requirements to allow for clear comparison
Get rid of entrenched mindsets to accept best practise
Reduce cost through scale Improve quality through proven tools
efficiencies and processes
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
28
www.iproconhcm.co.uk

29. Leverage Human Capital
to Improve Business Performance
QUESTIONS
iProCon Human Capital Management Limited
5 Wormwood Street, London, EC2M 1RQ
29
www.iproconhcm.co.uk