Tuesday, March 27, 2012

Digitization, Commoditization and Aggressive Land-Grabbing … 3 Cautionary Dynamics Observed in the HR Solutions & Services Arena

As a global buyer/practitioner and implementer of leading-edge HR solutions and services in the 80’s and 90’s, I had an opportunity to observe some interesting dynamics around which elements typically led to successful initiatives and sustained customer satisfaction. Then, as a global HR solutions and services vendor executive and advisor during the last decade, I had a further opportunity to validate some of those observations made on the other side of the desk – or, in some cases, rethink them.

I’ve written articles in the past about a concept called Total Realized Value (“TRV”), a metric I created which highlighted dependencies or inhibitors to achieving maximum business value from an HR solution/service implementation. A “TRV” model assessed the degree to which those factors were present. I’ve also blogged about key aspects of HR technology initiatives which should never be short-changed.


Obviously, a customer’s unique business context always plays a significant if not primary role in that customer’s ultimate success and satisfaction with a solution and its providing vendor. For example: Are there concurrent initiatives in-progress which compete for the same project resources? Has an optimal talent management and HR service delivery strategy been clearly defined and implemented before investing in new technology and/or services to help achieve that strategy? Is change management (planning and execution) a core and foundational component within the HR initiative’s rollout?

In this blog post, I’m highlighting 3 dynamics observed in the HR solutions and services arena over many years and from very different vantage points … dynamics which seem to have some correlation with customer success and satisfaction.

1. Digitization of key HR information is not the total answer – and can create a false sense of being the answer.

As one example, let’s look at the background checking / employment screening industry …

Background checking based solely upon accessing public databases (i.e., digitized information) can potentially result in major issues in terms of timeliness, completeness, and accuracy of the information. As an example, the criminal arrest and court records in a vendor’s database may not go back far enough, and most vendors update these records monthly at best. As a result, a job applicant’s most recent criminal offenses are the least likely to come up in a database search used for employment screening purposes. Criminal database searches should therefore indicate to a background checking associate or researcher where else to look, what potentially conflicting information to reconcile and resolve, etc.

Case in point: A state audit in Texas revealed that while Texas law requires courts and prosecutors to submit criminal arrest information to the state within 30 days of receiving it, prosecutors and courts were failing to submit disposition records on about one of every four arrests. So in considering something as seemingly straightforward as a background check service provider -- or perhaps moving upstream in business value to a consulting/advisory firm offering more Advanced Due Diligence services (e.g., on key executives, potential suppliers or business partners, M&A targets, etc.), the first “success / satisfaction dynamic” that I want to underscore is the following:

Over-reliance on digitized information to the point of eliminating human factors such as judgment, critical thinking and customer advocacy is, VERY simply put, a bad idea.

2. Increased commoditization within an HR solutions / services market niche should be a yellow flag to customer buyers.

Let’s once again use the background checking / employment screening industry and how it has evolved to showcase how commoditization creates both benefits, but also risks for customer buyers. When major sources of differentiation get blurred to the point of viewing the services provided in an industry as equal or comparable … thereby making ‘price’ and ‘size or perceived stability’ the major grounds on which to select vendor partners, market commoditization has clearly taken place.

The major benefit to customers in a commoditized services market is clearly lower prices, not immediately, but eventually. The forces resulting in lower prices are arguably twofold: downward price pressure from both customers and vendor competitors; but also the changes vendors have to make to remain profitable with lower prices. Those changes are where increased business risk and lower satisfaction for customers potentially arises.

Three of the major changes solutions / services providers make to remain profitable amid downward price pressures – changes which are very inter-related:

(a) Automate as much as possible relative to providing information
(b) Reduce the number of people involved in service delivery (i.e., convert to a lower-touch delivery model), and
(c) Standardize solutions and services to the maximum extent possible

So, the second “success / satisfaction” dynamic: Over-reliance on automation, lower-touch service delivery models and standardized solution concepts (‘one size fits all’ solutions which may not allow for different customer needs) is, VERY simply put, a bad idea. One other point that ties together these first two observations: “If it can be totally digitized, it can usually be totally commoditized.”

3. The third success / satisfaction dynamic is another caution for buyers and implementers of HR solutions and services: Beware of HR solution / service providers that show signs of an “aggressive land-grab” growth strategy.

While this dynamic is also readily observed in the same industry discussed above – or any other industry experiencing major vendor consolidation, the HR Outsourcing industry will be used to illustrate this point. Arguably the poster child for the way the HRO industry learned from some of its mistakes was the Convergys HRO business called Convergys Employee Care. For the unfamiliar … consider this startling sequence of events:

At the end of 2005, Convergys Employee Care secured the largest HR Outsourcing contract in the world when they signed DuPont to a 13-year multi-process HRO deal worth in excess of $1 billion over the life of the contract. DuPont was added to Convergys’ already impressive portfolio of private and public sector clients, effectively catapulting Convergys Employee Care to the #1 spot among HRO providers. Only 3 ½ years later, Convergys sold its entire HRO business to Northgate Arinso for only $100 million!

So, what happened?

What happened was perhaps the convergence of the first two dynamics discussed above --- coupled with what many people feel was a vendor’s attempt to “aggressively land-grab” as much market share as possible, as fast as possible. The annals of “aggressive market share land-grabbing” across most industries tells us that this strategy is usually achieved by such means as:

(a) Major pricing incentives … which inevitably results in the vendor scaling back on more personalized service delivery (e.g., to employees and managers using that service);

(b) M&A on steroids … which typically leads to disparate and/or redundant systems and operations being maintained for many months or even years – often creating dissatisfied customers and major inefficiencies; and/or

(c) Offering services/solutions which are not yet ready for prime time; i.e., “flying the plane while it’s still being built”

The fallout for Convergys’ HRO customers from their “aggressive market share land-grabbing” efforts included poor adoption / low usage of newly defined HR business processes and systems managed by Convergys. The new processes, systems and self-service-centric operating models (augmented by offshore HR Service Center reps) were designed to significantly reduce HR admin costs for customers, so this vision was clearly not fully realized.

So as a concluding question … Is it always very risky to partner with an HR vendor in aggressive (market share) land-grabbing mode, operating within an increasingly commoditized industry … a provider that relies almost exclusively on digitized information access over human involvement with customers? Based on dynamics generally observed in the employment screening and/or HR Outsourcing domains: Not always -- just usually.

Steve Goldberg
HR Technology & Transformation Advisor
March 2012