Aug 12, 2004

HR outsourcing - Govt sector joins the bandwagon

Now what should we make of this report ? Sure, it's a sponsored report by Accenture HR services so one should discount heavily. Even then...this presents huge opportunities to organizations like the new Hewitt/Exult combine to stave off the challenge from the erstwhile IT services firms.


"National and state governments are rapidly joining the private sector in outsourcing key human resources and other functions, according to a new Conference Board report.

The report, sponsored by Accenture HR Services, finds the outsourcing movement is taking hold in governments and government agencies, showing how countries such as the United Kingdom and Australia moved early into outsourcing. The three major drivers: cost savings, reducing capital spending, and transforming fixed costs into variable ones.
But the study notes that governments must carefully weigh negative consequences, such as job losses, skills transfers, unemployment costs and the disruption of local
services against the promised benefits.

'Through technology tools and processes that most public-sector organizations could not afford to build internally, outsourcing can provide much improved and more convenient services for employees,' says Ton Heijmen, Senior Advisor to The Conference Board on Outsourcing/ Offshoring. 'This is a particular concern for public-sector organizations, which generally cannot compete with the private sector's pay packages to attract and retain talent.'

But convenience and cost reduction are not the only attractions offered to public organizations by HR outsourcing. Outsourcing can enable public sector organizations to centralize often complicated and fragmented processes throughout their organization, helping their HR departments keep talented workers and improve service to U.S. citizens.

Some 10 to 15 states are now said to be considering HR outsourcing. The government trailblazers include the U.S. Transportation Security Administration, the State of Florida, Detroit Public Schools and the Texas Health and Human Services Commission.

The study, based on in-depth interviews and case studies, identified three forces that are converging to fuel the HR outsourcing movement in U.S. government. First, IT systems are reaching the end of their life span. Legacy computer systems, which are 25 years old, need to be replaced. With growing deficits and a reluctance to increase taxes, many states are looking at capital outlays of $80 million to $100 million to replace these systems. Financing technology upgrades is too costly for many government organizations, given the rapid rate of technological change and
persistent cost-reduction pressures.
Second, the economic downturn that struck the nation in the late '90s has created severe budget shortfalls throughout the government sector, particularly in state governments. Rising deficits threaten government's ability to perform key services. Also, more government employees want to run their organizations by management principles of efficiency, optimum customer service, and performance measurement that have been long embraced by the private sector.

A number of government agencies in the UK, Europe, and Australia were early examples of public sector outsourcing of all or parts of the HR function -- a trend now growing in the U.S. HR historically has lacked organizational stature in both the private and public sectors. This has only recently begun to change as organizations slowly recognize the strategic value of human capital and other intangible assets in
today's largely service-based economy.

The Office of Personnel Management, the federal government's HR agency, is also weighing the merits of outsourcing HR. In the U.S., the trend is likely to center on the federal and state level, since scale is necessary for organizations to realize outsourcing's full benefits and justify its costs. Despite political sensitivities and union resistance, many in the industry see no abatement of interest from public-sector
organizations. As one study participant observed: "HR outsourcing in government is ready to explode."

"Our experience worldwide has been that once the perception issues about HR outsourcing have been overcome, public sector outsourcing spreads rapidly," said David Clinton, president of Accenture HR Services, an Accenture business that provides people-management services on an outsourced basis. "Governments have built-in cost restraints, limited technology budgets and, like many large organizations, difficulty finding and retaining experienced HR professionals. In many cases, HR outsourcing is the best way to get the best service for every tax dollar."

The HR processes and services that outsourcers provide to government organizations include:

* Payroll and benefits processing
* Web sites and call centers
* Vendor management
* HR process redesign
* Service delivery strategy
* Staffing and recruitment
* Data issues
* Performance benchmarking
* Designing and building IT infrastructure

Various complexities make these functions especially well suited to outsourcing. With some government workforces more than 90 percent unionized, an organization can easily have 10 different benefit packages, the terms of which must all be accurately reflected in employee databases.

Among the choices government organizations must make are deciding what processes to outsource and selecting an outsourcing vendor among "classic" outsourcing firms and "lift and shift" outsourcers, those who take client organizations' existing staff, processes, and technology approaches into their environment but customize their services to work with each client's established technology structure. "