Practice Network
BPO: Yet Another Acronym?
Michael M. Harris
University of MissouriSt. Louis
The days are getting shorter (but still humid and warm in St. Louis) as I
write this column under the new, highly skilled editorship of Debra Major
(Debbie: Dont forget the $15.00 you promised if I said nice things about
you!). I hope that you, my faithful reader, didnt worry that I had stopped
writing this column because the previous issue of TIP did not include a
contribution from me. Or, did you suspect that I was politely asked to resign?
No such luck! (I hope you at least noticed I didnt have a column in the last
issue.) I merely asked to write this column semi-annually, rather than four
times per year, so that I can work on other projects that merit attention.
Rather than tell you what those other projects are, however, I will leave
you in suspense and get back to the topic at hand.
Lets start with a quiz. Do you know what BPO is (2 points for the right
answer; see below)? Do you know what BPO stands for (1 point for the right
answer; see below)? By now you are probably quite curious as to what BPO stands
for, and I wont keep it from you anymore.
BPO stands for Business Process Outsourcing. A BPO may be defined as the
contractual service of a functional area (e.g., HR) by an organization (e.g.,
Exult), which in turn completely owns, operates, and manages that
functional area. BPO often relies on information technology to a great extent.
One recent report estimates that by 2004, companies will spend more than $75
billion annually on HR BPOs, a large increase from 1999, when companies spent
$17 billion on HR BPOs. In the last 2 years, for example, several large
companies have contracted with Exult to provide such services. Bank of America
signed a 10-year, $1.1 billion contract to provide HR and financial services,
including payroll, benefits, and other functions. BP Amoco signed a 5-year, $600
million contract for benefits, compensation, recruiting, legal compliance, and
so forth.
Have you heard of BPOs? Please send me an e-mail (mharris@umsl.edu)
if you have, and tell me how they are affecting your job. Anyhow, I felt that
this might be something worth knowing more about. In order to investigate how
and where the BPO trend is affecting I-O psychology, I contacted four I-O
psychologists. Two of my respondents operate in consulting firms and two of them
operate in large corporations. I will summarize their answers to my questions in
three sections:
1. The effects of BPO on our field;
2. The effects of BPO on our skill sets; and
3. The future of I-O psychology as a result of BPO.
What Are the Effects of BPO on I-O Psychology?
BPO will have a variety of effects on our field, some potentially good and
some potentially bad. Or, to borrow some terms from strategic management, BPO
provides both threats and opportunities to I-O psychology. On the opportunity
side, one respondent observed that if I-O psychologists control the HRM business
process, it will be much easier to do things such as validation studies. Also,
if an I-O psychology firm obtains the BPO contract, there is an opportunity for
I-O psychology principles and practices to be used to a far greater extent than
has heretofore been the case. Imagine, for instance, a firm with I-O
psychologists who contract with the organization to assume the staffing side of
HRM. The BPO firm might recruit, select, provide an realistic job preview, offer
new employee orientation, and conduct training programs. Imagine that
opportunity to apply our I-O psychology know-how.
On the negative side, one of my participants noted that in-house I-O
psychologists could potentially lose their jobs if the HRM department is
outsourced. This was perceived to be particularly true given that I-O
psychologists are often viewed as expensive specialists. By way of analogy,
think about HMOs and why they often require one to see a primary care physician,
who acts as a gatekeeper, first. If you want to cut costs, one strategy is that
you go to the generalist first, and only use a specialist when you must! Of
course, for those of you who have had to fight to see the specialist, you
probably have first-hand knowledge of the expression, A jack of all trades
and a master of none. If that isnt reason enough, one respondent noted
that companies often downsize by mere head count and given that I-O
psychologists are usually viewed as staff, they are moving targets for
replacement by a BPO. I would say that this view is probably the most
pessimistic perspective. Nonetheless, it probably has already occurred to you
that even the outsource companies will need I-O psychologistsor will they? On
the positive side, I checked the Web site of exult.com and found that the
advisory council includes Ed Lawler. So there may be some involvement by I-O
psychologists. On the other hand, having spent quite a bit of time looking
through names in the SIOP directory, I cant recall seeing anyone listed with
employment at Exult or another BPO organization. (If you are employed by such an
organization, and you are an I-O psychologist, please contact me!) Yet, some I-O
firms, such as DDI, are offering outsourcing for at least some HR functions.
Perhaps down the road, some I-O firms will offer to completely operate an
organizations HR function.
How Will BPO Affect I-O Psychologists Skill Sets?
It wont surprise you that BPO trends are likely to broaden our necessary
skill sets. As one of my respondents pointed out, the decision by an
organization to outsource a business process has nothing to do with I-O
psychology. In order to understand whether or not an organization should
outsource the HRM department, it would be important to understand the factors
that go into these decisions.
The problem, however, is that I-O psychologists are not really trained in the
factors that might affect this decision. As one respondent observed, I-O
psychologists have not been particularly cognizant of considerations such as
cycle time, cost, durability, and other system design features. Thus, we need to
become more familiar with how to design and build effective processes.
A second way in which BPO will affect our skill sets is in the importance of
strategic thinking. While I-O psychologists focus more on the managerial (e.g.,
designing a validation study) and the operational side (e.g., administering an
assessment center), the BPO model focuses on making strategic decisions. A good
example of a strategic decision would be deciding whether to outsource the HRM
department or to keep it in-house! Would you believe there is even research on
this topic (e.g., Klass, McClendon, & Gainey, 2001)?
Respondents also pointed out the importance of breadth in addressing BPOs. It
was argued that we need to know much more about a broad range of topics,
including health and safety, teams, OD, and so forth. We tend to be narrow
specialists; this trend would suggest that at least for some roles (e.g.,
in-house I-O psychologist) we need to become broader.
Finally, a respondent suggested additional skills needed for an in-house I-O
psychologist who deals with BPOs, such as project management competencies,
contract negotiation abilities, vendor management, database management, and
knowledge of HTML.
Before you despair completely, though, I would like to point out that no one
argued that I-O psychology knowledge and skills would become obsolete. As one
respondent pointed out, he used to spend his time creating I-O tools. Now he
spends his time making sure that the vendors are correctly delivering their
products and following company procedures. It was clear that while the nature of
his job has changed in some sense (i.e., no longer creating the tests, but
monitoring to ensure that they were properly created) and the competencies
expanded, an I-O psychology background is still needed.
Is There a Future for I-O Psychology After BPO?
Either I had done a poor job in my e-mails and telephone calls, or my
respondents dodged the question, so I had little direct information as to the
impact of BPOs on our field. Nevertheless, I will try to address it, based on
what I gleaned from my respondents, as well as what I have read about elsewhere.
So, I am going to stick my neck out and argue that the BPO trend has
the potential to significantly change the way in-house I-O psychologists
function, though I expect it will have less influence on the way external
consultants will operate. As a proof, last week when I was in the airport, I met
a friend of mine who works for a large I-O consulting firm. After exchanging
pleasantries, we began discussing why we were both in the airport. My friend
revealed that he was going to present a proposal to an organization to sell the
consulting firms tests for a selection project. I asked him who he thought
their biggest competitor would be for this project and to my great surprise, he
answered with the name of a staffing firm that would supply the actual
candidates, rather than just provide a test battery. Would anyone have answered
that way 5 years ago? I dont believe so. I think that BPO will alter the way
we function as I-O psychologists, particularly for in-house positions, though
there will always be a need for I-O skills as part of a BPO. Moreover, I suspect
that 10 years from now, few companies will have full-time I-O psychologists on
staff. While there will always be a need for I-O psychologists, our work will
increasingly be part of a larger set of BPO systems, rather than a
self-contained mini-process. Moreover, I predict that the move towards BPO
will only grow with time. The question for I-O psychologists will be, Are we
invited to the party? I think that the answer lies in making sure that we
keep up to date on these trends so that we are knowledgeable partners.
As usual, please let me know what you think! Contact me by e-mail at mharris@umsl.edu,
phone (314)-516-6280, fax (314)-516-6420, or snail-mail at Michael Harris,
College of Business Administration, University of MissouriSt. Louis, St.
Louis, MO 63121.
I would like to thank the following individuals for their help in preparing
this column: Seymour Adler, ASI; Bill Byham, DDI; Doug
McCormick, AT&T; and
Seth Zimmer, SBC.
Reference
Klass, B., McClendon, J., & Gainey, T.
(2001). Outsourcing HR: The impact of organizational characteristics. Human
Resource Management, 40, 125138.
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