Human Resources (HR) executives are used to managing their supplier base within their own domain, without the interference and/or support of their procurement colleagues. However, with the advent of outsourcing and new technologies, areas of budget responsibility in HR are becoming more onerous and complicated. In addition, there is a constant drive by top management for cost savings which is challenging even for the most confident of HR professionals.
Collaboration is the name of the game. Procurement has, in the past, often been excluded from exerting influence on this area of expenditure as it is regarded as emotionally charged and highly sensitive. HR executives tend to get defensive towards “outsiders” getting involved in decision making around the delivery of HR services, mainly because of the impact on employees’ work lives. As a result it has been a poorly managed category of organizational spend.
Opportunities present themselves clearly when we understand the characteristics of the each commodity that we are sourcing.
- The spend: current spend by supplier, by business user, by type
- The service: its content, features, issues, constraints, users
- The cost: the purchase price, internal costs, build a full cost model
- The market: supplier capability, benchmark, who can do this work
- Supplier drivers: his cost structure, competitiveness,
How Procurement can add value
Donald Glade, President of Sourcing Analytics and a leading authority in HR procurement, says procurement can add most value when they
- Understand the sensitivities of the HR department – that is a great start
- Come in as a partner in the process, rather than an expert in procurement
- Use the expertise of the HR professional rather than isolating that expertise
- Be flexible to allow for variation from the traditional RFP approach
- Provide ‘food for thought’ to for better effectiveness in the next HR procurement process
Most HR professionals would agree that they don’t have an in depth understanding of their suppliers’ cost drivers such as profit, overheads, risk and how these impact on return on investment (ROI).
Procurement’s selling proposition to HR is to demonstrate its ability to deliver value by working together and sharing knowledge. Their aim is to become known as a trusted partner, a source of market intelligence and a guide to best practice.
HR executives are used to developing relationships with suppliers and negotiating their own deals. They are beginning to realise the benefits from having their procurement counterparts with them around the negotiating table.
Achieving internal alignment
Sourcing HR services may be different from the norm but some basic principles are the same:
- All engagements must be aligned with company stated strategic objectives
- Must have endorsement at the highest level
- Should follow the strategic sourcing process despite internal influences and its apparent uniqueness
- Requires full buy-in by all stakeholders
- Terms of reference between HR and Procurement must be clearly stated
- Suppliers must fit the company culture and be able to align with our technology
Procurement can help the relationship along by being an effective facilitator of the HR procurement process and educating HR about how their actions impact on the company’s objectives.
Outsourcing of HR services
A recent trend has been to expand on the number and type of services being outsourced to third party service providers. Payroll is a favourite for this, but more and more companies are outsourcing other spend commodities such as resourcing of staff, training and wellness services.
In a recent research study by Bersin & Associates of The Top Best Practices for the High-Impact HR Organization they identified their number 10 as strategic outsourcing.
“High-impact HR organizations use outsourcing to enable their internal teams to focus on things that cannot be outsourced, such as building business relationships and developing custom solutions for business managers. These organizations outsource areas that can be improved through economies of scale, or which require global coordination and expertise. What an organization outsources often depends on its level of maturity.”
HR’s first objectives are to recruit, retain and incentivise employees. Talent acquisition is vastly different from raw materials purchasing. When it comes to buying HR services, decisions are more often based on relationships and the product is not returnable. Procurement is best advised to facilitate and provide the structure and guidance for HR to allow them to succeed in their supplier partnerships.
This article was first published in the Bespoke Sourcing Bulletin.