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Outsourcing, like cars, changes body styles every so often to accommodate new needs and tastes. If you've been reading the OutsourcingJournal lately, you've been seeing a lot about full service human resources outsourcing (HRO). Is it time to trade in your old model? If not full service, is it at least time to add more functions to your existing HR arrangement?

This is a real question for many buyers. Globalization initiatives, for example, are a prime driver today for firms adding scope to HRO deals. Even more than managing the mobility of people across borders is the need to quickly achieve value outcomes in recruiting and training.

Buyers typically test the HRO waters by outsourcing one function, like benefits administration or payroll. However, outsourcing a single function limits the value creation possibilities. When you add scope to the value proposition, you generate cross-functional synergies (assuming you use a single provider.)

It's like losing weight. If you cut calories, you lose weight. Or, you can step up your exercise regime and get the same result. But if you combine the two, the results are far superior to either option. You lose weight and develop a more sculpted body, improve your health, achieve the desired results in a shorter period of time, and lessen the risk of failure.

However, increasing the scope of an outsourcing initiative has its challenges. Here are some things to think about:

1. Should I Give the New Tasks to My Current Provider?

First, check to see that the current provider has the capabilities to handle the new task. If it does, you avoid the hassles of managing a multi-supplier situation. Here are some caveats, though. If you have the time, check around to make sure the price for the new services is competitive. Canvass the competition.

At the same time, see if you can use the additional assignments as a leverage point to get more from the provider. You're giving them more work. Use this as a time to ask for things you want in the relationship. Can they do the current work cheaper now that they have a bigger piece of the pie? Or, will they give you a break on the new work to prevent you from going somewhere else?

2. How Do We Manage A Multi-Supplier Environment?

Suppose your current supplier can't take on the additional functions. That means you'll have to find another supplier. Or, you like the idea of selecting best-of-breed suppliers who specialize. Maybe you want to mitigate risk by entrusting these tasks to more than one supplier. A multi-supplier situation is workable, but it is taxing. Since most functions in HR touch other functions, your biggest challenge is to make sure all the providers can work together. It's not uncommon for multiple players to be competitors. Both will fight for any additional scope. It's up to you to ensure they will get along. This is critical because you don't want to operate in a combat zone.

Governance is crucial in multi-supplier situations. This includes a clear delineation of roles and responsibilities. Make the boundaries black and white. For example, if there is an IT problem, who has to fix it? Decide this before there's an IT problem to fix.

Make sure your governance plan includes an effective dispute resolution structure. Because there will be disputes! Let all the players know how you expect them to handle potential problems.

3. Should We Plan for Resistance to the Additional Scope?

Probably. The resistance you encountered when you first outsourced can reappear when you add more scope. Don't assume communication is unnecessary or that everyone is now used to outsourcing.

Effective communications and change management programs are especially crucial if the new scope involves implementing a self-service platform. These systems are not intuitively obvious. You must help your employees adopt the new system.

4. Should We Consider an Offshore Piece?

Most buyers who add on to their existing HRO relationships will encounter the offshore option. Today many HR service providers are moving components of back-office functions offshore. We believe labor arbitrage is a good thing; it's like a turbo charger on a hot rod. The turbo charger boosts horsepower without increasing engine weight or size. The offshore component of the supplier's transaction engine can turbo charge the economics of your existing deal.

Once you decide to add an offshore component, you have to clearly set the performance expectations for everyone, but especially the executives. It's easy to buy into the idea of labor arbitrage when they're doing the math. But that's not enough. You have to explain to management the timeframe in which they can expect to see the benefits and the quality you expect. Explain what measures are in place for security of employee data.

Once again, have a good governance program in place. Avoid this at your own peril. The minute the first thing goes wrong, the execs will push back. Set the expectations for how it's going to work first.

5. How Do We Determine the Outsourcing Sequence?

That's an easy one. Hire Everest Group! Seriously, an independent third-party adviser who has been through this before can help you optimize the value proposition about when to phase in additional functions.

Here are some thoughts. First, determine your overall business strategy. What is the company trying to achieve? (This is different from the question, "What is the HR department trying to achieve?") The corporate strategy will determine the sequence of functions to outsource. For example, if cutting cost is the overall goal, start with the function that will save the most money. If consolidation after a merger is the primary goal, consolidating the HR IT systems might be on the top of the list.

Cars today have so many new features -- GPS systems, multiple outlets for computers and cell phone chargers, laser beams to control your cruise control so you don't have to -- it's a wonder we survived driving cars with chokes. HR outsourcing also has come a long way, baby. Folding more functions into your HRO initiative is the best way to move up the value chain. You just need to be aware of the potholes in the road.

And, if you haven't outsourced any HR at all but are considering doing so, choose your provider carefully. Make sure the company has the capabilities to meet your future needs as well as your current ones. One day you, too, will be adding more scope.

Lessons from the Outsourcing Journal:

• Adding scope to your outsourcing initiative unlocks more value because of the cross-process synergies if you use a single provider.
• If you give the work to your current provider, make sure its price is competitive. Also, try to leverage the additional work into other benefits for you.
• If you end up with a multi-supplier situation, have good governance, change management, and dispute resolution in place. Make sure all the parties can work together nicely.
• If you go offshore, prep executives so they understand exactly what's going to happen, how, and when.

Publish Date: April 2004

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