BMO signs major HR outsourcing deal

Arrangement will cut BMO’s HR department by half

A second Canadian bank has signed a contract to outsource nearly half of its HR function.

In late April, BMO Financial Group signed a 10-year, $750-million HR outsourcing deal with California-based Exult, Inc. CIBC was the first to make such a move in June 2001, signing a seven-year, $227-million deal with EDS.

Beginning next week, Exult will take over most of BMO’s HR transactional work, including payroll and benefits administration, HR call centre management, employee records and other technology-driven administrative functions.

The BMO HR function will be halved as about 250 of its employees move over to Exult which has taken over office space in the BMO building where many of the BMO employees already work.

“Our agreement with Exult will give us the freedom to focus on the strategic management of human resources while continuing to provide leading HR administrative services,” said Rose Patten, executive vice-president, human resources and head of the office of strategic management at BMO.

Industry experts say that while HR process outsourcing has been around for decades it was done only in a piecemeal fashion. But in the past few years, organizations, intent on focusing on core business and value-added activities, have taken a more holistic approach to business process outsourcing (BPO). Firms are willing to hand over multiple business processes to a provider and most often HR has been the function outsourced.

While outsourcing deals of the BMO or CIBC variety are still rare globally, many organizations are starting to ask questions about it, though a great deal of uncertainty remains about the benefits.

“Increased awareness and adoption of BPO should not overshadow the fact that BPO services are still immature and that, in many instances, early adopters of BPO are still trying to understand their cost and business benefits,” wrote Rebecca Scholl and Lisa Stone in a report for Gartner Dataquest. “Even today, the BPO market shows the dynamic characteristics of an ‘emerging market.’”

They also noted that in 2002, executive-level interest in BPO rose dramatically.

In another deal announced last month, HR outsourcing and consulting firm Hewitt Associates bought out long-standing payroll provider Cyborg Worldwide, giving Hewitt a more complete HR BPO operation.

“There is a lot of talk and a lot of organizations are looking at it (HR BPO) but they are in the process of trying to learn what it means to them,” said Roger Duguay, a senior outsourcing consultant with Hewitt. “There are not a lot of deals on the table, but I would say it is coming.” He said Hewitt’s target for large-scale, multi-process outsourcing is organizations with 15,000 employees or more.

“The HR BPO space has become hotter and hotter,” said Mike Salvino, executive vice-president North American client sales and accounts with Exult. Last year, a lot of organizations were too busy just responding to a faltering economy. “But there was a lot of analysis done in 2002 and that will fuel a lot of deals in 2003,” he said.

The Exult market is usually organizations with 20,000 employees or more.

By taking most of the BMO employees, Exult instantly establishes the foundation for a client service centre in Canada. Exult needed most of BMO’s employees, but in future deals the need to bring over the client’s employees will diminish, said Salvino. By leveraging its technology and HR service infrastructure and expertise, Exult can deliver what are for the most part generic HR services to many other clients without adding head count every time.

The technology BMO had is not as advanced as Exult’s, so the administrative support being delivered to HR people on the front lines doing problem-solving or recruiting was not as efficient, explained Patten.

By upgrading HR administration, “I see a freeing up of time to do what I call value added things,” she said.

The decision to outsource HR administration came only after a thorough due diligence process which included careful analysis of potential vendors and consideration of what should and should not be outsourced, said Patten.

When Patten took over BMO’s HR portfolio in November 2001 she identified five important objectives for the organization:

•improve talent management;

•improve the performance management and compensation system;

•increase employee engagement;

•ensure the bank’s institute for learning was meeting its goals; and

•run the HR department more efficiently.

“When you are in a big bank, you have a big division and you have to make it as efficient as possible,” she said. “You are still running a business and so my fifth objective was to really make that business as effective as possible.”

The options were to maintain the status quo, upgrade the technology, introduce portals for self service or look at suppliers that “only do this for a living,” she said. The costs and benefits of each route were explored including the cultural impacts. By November last year, they decided to go the outsource route.

Five potential outsourcing partners were considered. That was narrowed to a short list of two: Accenture and Exult.

Part of the due diligence process included lengthy conversations with other organizations like Bank of America and Prudential which provided some useful lessons. One of the things emphasized was the importance of carefully choosing what would be outsourced. “Draw your lines carefully and take your time with it,” they told her.

After deciding on Exult, BMO took about eight weeks to decide what would be kept in-house and what would be outsourced. It wasn’t easy, she said. “Where do you draw the line between strategic and transactional?”

For example, BMO had the option of handing over its employee assistance program. “A lot of companies have done that, they have fully outsourced it. I chose not to outsource that. To me that is too much a part of your culture.”

For more on how outsourcing is changing HR, including a look at the impact at CIBC, see the June 16, 2003, issue of Canadian HR Reporter.

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