HR Offshoring: A True Global HR Transformation

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HR Offshoring A True Global HR Transformation

• Michael Boedewig
• Principal
• Deloitte Consulting
• Thomas Joseph
• Senior Manager
• Deloitte Consulting

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What is HR Offshoring?

• What is Offshoring?
• Offshoring is a type of business process
  outsourcing (BPO), dealing with the exporting of
  work from the United States and other developed
  countries to areas of the world where there is
  both political stability and lower labor costs or
  tax savings. Offshoring simply means "any country
  other than your own."
• Offshoring and Outsourcing are distinctively
  different concepts
• Offshoring is defined as the migration of work to
  a foreign country. The offshored entity remains
  with the parent company
• Outsourcing is defined as the practice of
  contracting work to an outside service provider,
  who may or may not offshore the work to another
  country
• An important trend in recent years has been the
  growth of offshoring HR activities. Usually,
  offshored HR activities are repeatable and
  rule-based for large groups of employees, such
  as
• Payroll Administration
• Employee Benefits
• Recruiting
• Savings through lower foreign wages continue to
  be the main driver for offshoring. However,
  companies are beginning to leverage offshoring to
  fundamentally transform their business model
• Achieve operational efficiency
• Redirect HR towards business value-creating
  initiatives
• Improve service levels and quality of delivery
• Achieve competitive advantage in new markets

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What We are Hearing in the Market
Lessons Learned
Common Pitfalls
The labour pool here is just perfect. We
reduced turnover and improved processing times,
all with newer, more flexible staff

• Lack of Executive sponsorship and strategic focus
  in operating company
• Outsource option is immature for business
  processes
• 3rd party services or currently outsourced
  processes are often forgotten when considering
  offshoring
• Lack of process knowledge / KPIs and historical
  SLA performance (especially around exceptions and
  unofficial hand offs and support arrangements
  Indian BPO vendors dominated by ex-IT service
  providers)
• Data protection restrictions
• Systems interoperability when outsourcing (i.e.
  legacy platform requirements)
• Adequate Business Continuity Contingency plans
  are not present for many existing offshore
  operations
• Vendor / Partner failure and insufficient step in
  rights

It is easy to convince senior management with an
initial business case, it is more difficult to
get the buy-in of the line management
Recruiting was much more difficult than we
thoughtour estimates were inaccurate, often it
took twice as much time
Implementation plans were created for systems,
processes and physical location strategy to
reduce the risk
A key challenge was our own management
structure, it was difficult to understand who had
responsibility and authority to make decisions
Big bang approach was better than a phased
approach, built the systems quicker, got better
buy-in, helped create a team spirit and
excitement early on
Getting buy-in from people helps bring them
rather than drag them along
Spend extra on training to get consistency and
proper knowledge transfer
The head of operations moved with us and was
essential in creating a positive work
environment
HR is your first risk when relocating, getting
the people you need and the schedule you need
them training is 2nd and tech implementation is
third
Retaining business-critical staff is key, cant
be more than 20 of your people. The rest can be
re-recruited providing you find motivated and
educated people
Good project management with a dedicated project
manager proved very helpful to the success of the
relocation
Some critical staff from various regions were
offered incentives to relocate
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Benefits of Offshoring
HR offshoring offers a number of important
benefits
Cost Savings

• Most HR organizations are initially attracted to
  offshoring by low wage rates, which can
  significantly reduce their operating costs.
  However, wage rates tend to rise as offshoring
  becomes more popular. This reduces the potential
  savings and raises the importance of other types
  of benefits.

• HR aspires to be a strategic partner to the
  business, not just an administrative function.
  Offshoring shifts much of the administrative
  burden to staff in other countries, allowing
  local HR personnel to focus more time and
  attention on strategic issues such as workforce
  planning, talent management, new market entry,
  and revenue growth.

Strategic Focus
New Talent

• Skilled workers including HR staff -- are
  getting harder and harder to find. Offshore
  markets provide a new source of talent.

Better Service Quality

• Workers in developed countries often have a
  relatively low tolerance for repetitive
  administrative tasks, which undermines their
  productivity and service quality. In contrast,
  workers in developing countries tend to have a
  higher tolerance for routine work, enabling them
  to perform such tasks more efficiently and
  effectively for a longer period of time.

Foothold in New Markets

• Companies that want to expand their business into
  a new market often use offshoring as a beachhead
  to establish a local presence.

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Key Items to Consider
Is HR Offshoring for me?
Define Vision
Design Approach
Implement Services
Achieve Sustain Value

• What are the key business objectives, and are
  they realistic obtainable?
• What is the appropriate service model to achieve
  the objectives?
• How should senior leadership be aligned to
  champion the change?

• Which services should be considered for
  offshoring?
• Should HR fix underperforming operations prior to
  migration?
• How should services be migrated? Is it more
  beneficial to move in one chunk or via a
  piecemeal approach?

• Would people know who to report to on Day 1?
• How can we minimize disruptions to normal
  day-to-day activities?
• What are the legal and regulatory implications
  when offshoring HR transactions?
• How do we ensure that the organization is ready?

• How can we ensure performance targets are
  achieved?
• What should we do about cultural and language
  barriers?
• How do we develop a steady talent pool and
  minimize employee turn-over?

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Looking Ahead
Three stages of maturation
Stage 1
Stage 2
Stage 3
Efficiency Cost Improvement
Enhancement Operations Improvement
Transformation Business
Performance

• Reduce costs by migrating activities to low cost
  destination

• Leverage organizations core competencies to
  drive business growth by redirecting resources
  towards value-creating activities

• Adopt new business models and reposition
  organization in its markets

Benefits
Vendor management fundamentals
Integrated long-term strategic initiatives
Globalize and aggregate processes
Productivity gains
Labor arbitrage
Global synergy and sourcing mastery
The new organization will not achieve expected
benefits overnight. Senior leadership must be
willing to support the effort long-term to fully
capture benefits
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Top Offshoring Destinations

• As global competition for talent continues to
  increase, the relative cost advantage for
  offshoring has declined. However, this is
  accompanied by a steady improvement in each
  markets business environment, infrastructure,
  and talent capabilities

• In the upcoming years, we expect China to
  continue gaining market share in the global
  offshoring space, due to
• Abundant supply of labor, thus ensuring wage
  costs will remain competitive
• The Chinese governments continuing investment in
  college education, especially in the language and
  technology areas
• Commitment by Chinese companies to improve
  quality of performance

• India, with its availability of skilled,
  English-speaking labor, continues to set the
  standard as the ideal offshoring destination

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Our Story - Lessons Learned

• Deloitte has made a significant investment in its
  Offshoring model over the past few years.
  Deloitte recognized the opportunity to leverage
  the cost savings and talent in India, to develop
  a HR model that would support not only Deloitte
  professionals in India but in the US as well.
  Some of our key learnings include
• Set the right goals A strong foundation of clear
  objectives must be in order to successfully
  organize overseas captive
• Become a Career Destination Companies trying
  to establish off-shore support centers compete in
  a limited talent pool. In a candidates market,
  companies must offer more than an occupation
  they must become a career destination
• Define and communicate an employees career path
• Consider the importance of titles, roles in the
  off-shoring location you select (e.g. In India,
  titles are very important thus several promotion
  levels should be built into the staffing model)
• Ensure employees understand that you are making
  an investment in them and their development
• Know your market External factors influence how
  businesses is conducted. When deciding the
  location for overseas captive, it is important to
  take those factors into account. For example
• Learn the history of the region and the
  demographic of the people
• Understand how the market has changed and
  anticipate how it will mature
• Understand the challenges and successes other
  companies have encountered

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Contact Information

• Thomas Joseph
• tjoseph_at_deloitte.com
• 212-618-4437

• Michael Boedewig
• mboedewig_at_deloitte.com
• 215-246-2587