In early October 2004 I attended a meeting of the Deutsche Gesellschaft für Personalführung (DGFP), Germany’s principal forum on human resources management. The debate among the senior HR executives present at the conference focused on two key questions: what activities should we outsource − and what is the best way to do it?
The fact that the HR community in mainland Europe is focused on these fundamental issues reflects the immature nature of the HRO market, in comparison to the US. The analogy that springs to mind is of a colony of penguins in a natural history film, poised en masse at the edge of an ice floe waiting for the first of their number to take the plunge in search of fish. Ultimately, nearly all of them will go: the issue is how fast − and how deep.
Getting strategic
In answer to the first topic of debate − what should be outsourced? − the emerging consensus is that HRO should focus on transactional elements such as employee data management, payroll, and the administration of compensation, benefits and training. This enables the HR function to focus on the strategic core activities through which it can really add value to the business, such as HR policy development, talent management, succession development, and managing cultural change in line with the corporate strategy.
In many ways, answering the second question is trickier: having decided what can be outsourced, what is the best way to go about it? There is a wide spectrum of approaches. HR admin activities can be outsourced singly or in bundled groups, or in an overall integrated package. In this debate, the fear of putting all the HR eggs in one basket with a single provider is balanced against the potential complexity of managing a whole raft of separately-outsourced services.
Permeating the debate is a sense of nervousness that without its mass of administration to manage, HR will find its role vastly diminished. In countries such as France and Germany, administration and bureaucracy are what HR has historically been all about. As a result, HR functions in those countries tend to have a big capability gap to bridge between being an administrative service and a value-added contributor to the strategic agenda and corporate bottom line. Therefore, decisions around outsourcing are fundamentally related to decisions about the role of HR function.
Building momentum
This background explains much of the lack of momentum behind HRO in continental Europe. European HR functions need to find the right partner, which essentially means teaming up with an organisation that understands both the European context and the European way of doing business. Since the majority − but not all − of the major HRO providers are based in the US, developing this understanding on the supply side often involves a steep learning curve.
In terms of context, the key is to appreciate that Europe is not a homogenous market. European multinationals operate across a number of widely differing legal, regulatory and tax systems, often reflecting deep cultural variations in the employer-employee relationship. This fragmentation makes the centralisation of HR services in Europe far more challenging than in the US. Also, the more consensual mindset of European companies means successful Europe-based HRO depends critically on having a win-win partnership, not a win-lose supplier relationship.
A less visible − but equally important − element is the distinctive way in which major businesses develop in Europe. What may appear to be a seamless, unified pan-European multinational will often have been built up through a succession of mergers between different national players, each with deep local roots. This bottom-up process of development creates local loyalties and identities which are in stark contrast to the more centralised way in which US corporations usually perceive the world.
The underlying message of US HRO providers is clear: Europe − and European companies − are different. It is no coincidence that the US-based HRO providers which have been the most successful in Europe to date are those with an existing European base. Other US HRO players have tended to come into Europe via global contracts with US-based multinationals, but have yet to cut much ice among locally-based corporations. In this fast-moving and increasingly crowded marketplace, the most successful US players in Europe will be those that learn to understand − and speak − Europe’s cultural language.
