IT for Outsourcing: Understanding Sourcing Break-Points

NelsonHall's report "2006 Predictions for HRO: The Year of the Global Deal" was actually published in December, but it just came to my attention -- and it caught my attention by some points it makes about technology as an enabler of human resources outsourcing (HRO).

The report is authored by Phil Fersht, executive vice president for BPO research at NelsonHall, a research firm focused on business processing outsourcing (BPO), with offices in the UK and in McLean, Va.

The technology prediction actually comes into play as last in a series of six:

1. Confidence in HR Outsourcing will rebound
2. Buyers, service providers and consultants will get the HRO balance right
3. We will see increased global HR outsourcing activity
4. Single vendor multi-tower outsourcing contracts will remain slow to emerge but vendor partnership activity across domains will increase
5. Some significant mergers, acquisitions and partnerships will emerge as the Tier 1 service providers continue to develop their HRO delivery infrastructure
6. Technology will remain a key enabler of successful HRO

Fersht makes the point that outsourcing is inhibited in many companies by IT systems that are "optimized for the four walls of the enterprise" and tied to "tightly integrated and monolithic business processes." This condition works against successful outsourcing, which requires that discrete pieces of business processes be broken out easily and quickly, exported to the outsourced facility, executed, then imported and re-integrated.

This report is particular to the outsourcing of HR functions, but illustrates some of the IT issues around outsourcing. Complete and up-to-date HR data is essential to an enterprise -- you don't want it to get broken.

To me, this quote is the core message in NelsonHall's report on HRO as it relates to technology:

"The answer lies in mapping out an organization’s business processes to understand the sourcing break-points where data leaves the organization, thus enabling the outsourcer and its customer to develop flexible systems that can re-use componentized business services within an outsourcing data model. The majority of today’s current IT systems have simply not been built for the modern business era, and the movement towards engaging third parties to provide managed services of core business processes is highlighting this deficiency more then ever before."

Both the client company and the external provider need to have IT systems that are flexible enough to make those "sourcing break-points" seamless.

AB -- 2/2/06