Issue link: http://www.e-digitaleditions.com/i/210252
10th Anniversary Special A Marathon, Not a Sprint It's been a slow evolution of change in the last decade of HRO. By Kevin Barrow Ten years ago, we took a close look at why the growth in fullservice HR outsourcing (HRO) in Europe had been relatively slow compared to the United States. What was holding HRO back? A mixture of culture and regulation. Europe was thick with regulation within the workplace, and an attitude in many continental countries that unless something was expressly permitted, it was prohibited. And because all aspects of full-service HRO were not expressly permitted, many had a prejudice against it. Plus, each European Union country had its own workplace laws and tax regimes. This reduced the ability of suppliers to scale their operations in a way that would allow them to pass volume-based savings to clients, which in turn made it harder for them to offer obvious cost savings. In Europe, there were also wide-ranging privacy and dataprotection laws limiting the freedom with which an employer could pass data about its European employees to a U.S.-based outsourcing company. This regulatory problem was exacerbated by the fact that, unlike in the U.S. and U.K., there were often very few—if any—local advisers willing to give clear advice about what was suitable to do by way of HRO. The lack of a common language had a similar affect. In the U.S., major efficiencies can be taken for granted because a population of 350 million speak one language, more or less. That is not the case in Europe. Culturally, there was a strong aversion to outsourcing in many countries. Work councils representing employees had a great say in decisions around outsourcing—it was seen purely and simply as a way of cutting jobs and/or worsening working conditions. As a result, many large companies were keen to keep their workforces happy and were very careful to avoid any perception of outsourcing consideration. I met the head of outsourcing at a very large company based in Germany at an HRO conference eight years ago and he admitted to me—over a late night beer—that he was against all forms of outsourcing. And he was head of a huge company's outsourcing strategy! Last, but not least, HR professionals 10 years ago seemed to be very averse to one-stop-shop HRO. They didn't necessarily see themselves as a service line, often having joined HR because ``they liked people.'' Outsourcing something to increase cost efficiency was an alien concept. What's Happened Since 2003? To be honest, most of the above factors still apply. Regulation is [44] HRO TODAY GLOBAL | AUTUMN 2013 still not standardised and in many cases, national discrepancies have become greater. For example, each European Union country has implemented equal-pay rules for contingent workers (the Agency Workers Directive) in a slightly different way, and local interpretation of the Acquired Rights Directive (which preserves rights of affected employees in an outsourcing engagement) varies. Workplace tax, pension, and social-security obligations of employers haven't been standardised either. And data-protection penalties are becoming more severe and compliance issues in the world of big data are exploding, making the outsourcing of data handling harder, not easier. Still, the pressure for change seems inescapable. Chief financial officers of major global organisations just want to improve HR services, and that means making them more cost efficient and state of the art. Outsourcing is frequently seen as the answer to this. Labour markets are in many ways less regulated than they were. Also, talent is increasingly mobile, with candidates for hard-to-fill vacancies coming from all over the world. Why should the HR teams managing HR issues relating to this mobile global workforce stay stuck in national in-company silos? Obviously it's impossible to cover too many examples of how this pressure has led to results. But in the world of recruitment, it is clearly the case that major employers are increasingly outsourcing the management of the recruitment process to single suppliers, and leveraging global know-how and specialist software. Even the growth of recruitment by social media, which might suggest that organisations can attract candidates directly, is driving outsourcing with major organisations increasingly needing a supplier to manage what might otherwise become an anarchic and risky ``direct'' recruitment process. The high sums paid in the last year by companies like IBM for specialist international RPO companies speaks for itself. They clearly see the market growing. This interest by outsourcing companies like IBM in specialist HRO providers seems to prove another change that has happened since 2003: the realisation that many HR functions are not easy to perform by ``generalists." This has led in the last 10 years to many HR outsourcings (payroll, recruitment, staffing) being outsourced on a single-function basis to specialists. Maybe the next 10 years will see the generalists build further their ability to do the ``specialist" bits of HR. Kevin Barrow is a partner at Osborne Clark.