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Introduction

Many organisations use business partnering as their key HR operating model. Business partners are aligned to and work closely with business leaders to enhance workforce performance, foster and nurture strategic people enablers such as talent, leadership, learning and culture, as well as develop people solutions, to achieve the organisation's objectives.

This factsheet explores what business partnering is and how it works, both as a model and a mindset. It covers the roots of business partnering, the role of the business partner, and the original business partnering model. It also offers guidance on implementing business partnering and how it can help businesses shape positive change to people, performance and business practices.

How can business partnering be implemented?

There's no standard way to implement business partnering because context is incredibly important - what works in one organisation may not be right in another. However, the two most common ways it's been implemented (depending on the needs and budget of the organisation), have been either aligning individual business partners, or the 'three-legged stool' model.

Standalone business partners - attached to or aligned to a business unit. This role is the focus of the relationship between HR and L&D and the business, ensuring HR and L&D are aligned effectively with the teams and individuals they support. BPs are facilitators and business consultants, ensuring that the HR value proposition is both relevant and effective.

Three-legged stool model- where the HR service is split between three areas of expertise:

Shared services - usually a centralised service group that handles routine 'transactional' services across the organisation, for example recruitment administration, payroll, absence monitoring, template generation and advice on simpler employee relations. Shared services are a first line support and administration hub.

Centres of excellence - usually small teams of experts with specialist HR knowledge. Centres of excellence deliver business and people benefits through effective innovations, interventions and initiatives, in areas such as reward, learning, recruitment, employee engagement, organisation development and talent management.

Strategic business partners - senior and experienced people professionals who work closely with business leaders or line managers, usually embedded in the business unit, influencing, steering and implementing both the business and people strategy by aligning HR capabilities across the whole organisation.

Both options have their strengths and weaknesses. There are many different types of organisation, so this means that there are many ways that HR can be expressed as a functional model. However, HR becomes a true business partner through understanding the business model, the operating context, shaping the people strategy and creating the right HR services to deliver a positive impact on the organisation, its people and wider communities.

​

This factsheet was last updated by Giles O'Halloran and Stuart Haden.

Giles O'Halloran: Lead Tutor for the CIPD's Business Partner Programme

Giles has over two decades of experience working in HR and recruitment. He currently works as a freelance HR strategist, mentor, and strategic business partner. He has developed, led and consulted on a number of CIPD programmes, and is passionate about business partnering being fundamental to HR's capability. Giles maintains an active interest in strategic human capital subject matters, and has led seminars on the Future of HR, the Future of Recruitment, the Future of Work, Digital HR and the Digital Workplace.

Stuart Haden: CIPD Programme Manager

Stuart builds proposals and designs courses for UK and international clients. He manages the delivery of face to face and digital programmes, continuously refreshing content and producing new products.

A learning and development professional with over 25 years' experience as a facilitator, coach and consultant, Stuart specialises in developing optimal performance with individuals, teams and organisations. Throughout his work he values authenticity, coachability and personal energy.

In 2013 he published his first book It's not about the coach: getting the most from coaching in business, sport and life.

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Many organisations use business partnering as their key HR operating model. Business partners are aligned to and work closely with business leaders to enhance workforce performance, foster and nurture strategic people enablers such as talent, leadership, learning and culture, as well as develop people solutions, to achieve the organisation's objectives.

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Q4 - How HR functions might partner with a major supplier/customer to share best practise in respect to a common challenge

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Q4 - How HR functions might partner with a major supplier/customer to share best practise in respect to a common challenge

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The global economy has changed, making recruiting and hiring the right candidates a lot more difficult. New economic conditions include global competition, lightning fast changing business conditions, high unemployment, skills shortages, and a war for talent. Finding and hiring the right people in this kind of recruiting environment requires keeping up with new recruiting technology and social media, developing relationships with successful candidates, and asking the right questions. Busy hiring managers and employers achieve all that when they outsource recruiting.

Cost containment and the need to focus on core business operations are at the top of the list of several common reasons to outsource recruiting. Outsourcing all of your recruiting or just part of your recruitment process puts the reins in the hands of experienced recruitment consultants, saving you time and money. Other reasons employers choose to outsource recruiting include a need to improve recruiting processes, reduce a high turnover rate, control rapid growth or seasonality that makes it impossible to keep up with hiring needs, develop competitive advantage, and coordinate recruiting and on-boarding .

In a volatile economy, reducing costs rises to the top of the to-do list quickly. Besides labor costs, the costs related to recruiting activities include advertising on job boards, background screening, applicant tracking systems, and recruiting technology. These costs are all rolled into one when companies outsource recruiting. And it's usually less than trying to conduct an effective recruiting campaign in-house.

Cost-per-hire is a key HR metric and when companies outsource recruiting to an RPO, cost-per-hire is often reduced along with time-to-hire because of dedicated recruiting resources. Other ways costs get reduced through outsourced recruiting include shared risk and streamlined processes. Passing the responsibility of expanded or shrinking recruiting needs to a dedicated outsourced recruiter eliminates employing unnecessary staff for recruiting or being short of staff when business spikes. When employers outsource recruiting, they streamline recruiting processes by assigning them to an outside firm (ideally an RPO), eliminating delays ad duplication of tasks, and paying for specific recruiting activities.

2. Focus on Core Business

Whether or not a company has a dedicated recruiter or some kind of recruiting function, most are not in the recruiting industry. Any recruiting tasks and activities will be outside of the core business functions and take resources from core business operations. When the recruiting process is outsourced to recruiting specialists, it doesn't take anything away from core business activities and enables employers to find the talent they need without distractions from business operations.

Human resources staff with recruiting responsibilities can quickly become overwhelmed with recruiting volume and unable to focus on their core HR responsibilities. When this happens, it can have a ripple effect, interfering with human resources productivity and workflows and their ability to provide service for benefits, payroll, compliance, and employee programs.

3. Improve Recruiting Effectiveness

With a competitive global job market, ongoing skills shortage, and limited locations for recruiting, it's difficult for many organizations to find qualified candidates or improve their recruiting effectiveness with in-house recruiting. They may not be able to achieve recruiting process improvements with existing staff and when urgent recruiting needs start to back up, there is no good way to get caught up with hiring. When they outsource recruiting, they benefit from recruiting firms' ability to reach more candidates, access passive candidates that they may not otherwise be able to engage, and realize more efficient use of recruiting resources.

High turnover costs money in lost and interrupted productivity, lower customer service, and lower employee engagement. But turnover may have less to do with recruiting staff abilities or compensation and more to do with the recruiting function. Companies can address high turnover when they outsource recruiting to get better qualified candidates, and a better recruiting process from experienced, dedicated recruiters. Companies enjoy higher quality hires of candidates who are vetted and well-matched to the company's openings and culture. When ongoing high turnover starts to strain a company's resources, the decision to outsource can be a quicker, cheaper way to stop recruiting-related turnover.

Companies experiencing rapid growth or seasonal spikes that make it difficult to meet recruiting needs often outsource recruiting to better control fluctuating recruiting activity's impact on the business. Seasonal recruiting or periods of rapid growth or expansion strain existing staff and make in-house recruiting a huge challenge. Outside recruiting firms can take over an internal recruiting process with dedicated staff, more experienced recruiters, advanced recruiting technology, and social recruiting methods to meet unusual growth patterns.

6. Competitive Advantage

Small companies and start-ups that don't have the same resources as their larger competitors can compete better when they outsource recruiting. A recruiting firm can more quickly and efficiently find top candidates to help small or new companies build their key staff and keep up with larger companies with more resources.

7. Coordinate Recruiting and On-boarding

If your company is struggling to find and land qualified candidates in a timely manner, it's not necessarily your hiring manager or HR staff to blame. Even the most talented HR professionals can do so much with limited resources. Hiring managers and staff have a lot on their plate without the need to go out and locate the best candidates.

Companies with disjointed recruiting and on-boarding processes can benefit from the services that outsourced recruiting firms provide to integrate sourcing, recruiting, hiring, and on-boarding. When one department is recruiting, the hiring manager is responsible for hiring, and the human resources staff performs on-boarding, interruptions in candidate experience and recruiting efficiencies can cause problems in other areas of the company. Productivity and turnover are among the first business areas to suffer when recruiting and on-boarding processes aren't working.

When companies outsource recruiting, it's usually in direct response to specific business needs. Whether it's to save money, achieve process improvements, reduce turnover, or control an issue of recruiting volume, there are many situations where outsourcing the recruiting process, and possibly on-boarding processes as well, solves business problems. Recruiting firms can dedicate their time and resources to sourcing, engaging, contacting, hiring, and on-boarding top talent that is beyond the reach of small or new companies. Companies can better focus on their core business operations when they are well-staffed with qualified, engaged employees who have been hired with a good recruiting process. Outsourcing recruiting allows companies to meet their recruiting needs without causing other business problems.

You don't have to wait until you have a problem with recruitment before you look into recruitment process outsourcing. You may be at a recruitment disadvantage without even knowing it. Look into outsource recruitment today and learn for yourself what it can do to streamline your operation, fill out and upgrade your staff and help your business grow.

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7 Reasons to Outsource Recruiting - ContractRecruiter

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The global economy has changed, making recruiting and hiring the right candidates a lot more difficult. New economic conditions include global competition, lightning fast changing business conditions, high unemployment, skills shortages, and a war for talent.

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Introduction

Outsourcing any activity to an external provider can offer benefits, such as increased efficiency and access to expertise. But it can also present challenges, such as loss of local knowledge and processes, and fragmentation of the service provided. Payroll is the most commonly outsourced HR activity, followed by providing advice on complex specialist topics.

This factsheet introduces HR outsourcing and its use by organisations, outlining some of the alternatives, such as shared services, employee self-service, and buying-in consultancy services. It highlights the need to consider the business case for outsourcing HR work and the questions to ask in deciding whether outsourcing is the most appropriate solution. Finally, the factsheet offers guidance on selecting a provider and sets out some issues to consider when managing the move from in-house to a third-party service.

​

This factsheet was last updated by Steve George.

Steve George: Digital Learning Portfolio Manager, HR and Projects

Steve joined the CIPD in 2016, bringing his wide experience and expertise in developing online learning programmes. He works across the HR portfolio on managing and developing content for our qualifications, short courses and publications. Steve is an Associate member of the CIPD and a Fellow of the Royal Society of Arts.

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Outsourcing any activity to an external provider can offer benefits, such as increased efficiency and access to expertise. But it can also present challenges, such as loss of local knowledge and processes, and fragmentation of the service provided. Payroll is the most commonly outsourced HR activity, followed by providing advice on complex specialist topics.

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Even though Brexit negotiations have only just begun, the UK is starting to feel the effects of skills shortages in the labour market. The latest CIPD/Hays Resourcing and Talent Planning survey found that three-quarters of HR professionals are already experiencing recruitment difficulties and expect competition for well-qualified talent to increase over the next three years, as a result of the UK's decision to leave the EU.

While competition for talent is undoubtedly stepping up, we're also seeing changes in recruitment methods starting to emerge. This article explores what these developments are, and how organisations can use them to help themselves to stand out from the crowd and be able to attract employees with the best skills and potential for their business.

We're seeing an increasing trend for organisations combining in-house and outsourced approaches to recruitment. Almost half of organisations (44%) are now doing this, compared with just over a quarter (28%) in 2013. There are a number of reasons why organisations might outsource recruitment, which, if used well, can be a useful resource for HR teams. For example, it could be that they need to recruit a larger volume of people than usual due to expansion, or that they aren't managing to access the right people with their current approach, or even that they're trying to recruit for roles with specific capabilities. In the longer term, there is potential for outsourcing to help HR teams alleviate some administrative services in order to focus on more strategic matters.

If your organisation is one of those increasingly outsourcing its recruitment, there are some important steps to take first. You must make sure to carefully consider any downsides that outsourcing recruitment may have on your organisation.

Would a loss of local knowledge and processes create problems for your business?

Would a fragmentation of the recruitment process mean strategic direction is lost?

Would the length of the contract be a problem if the business went through significant change?

You must also ensure that any outsourced recruiters are briefed in carefully. Although they are technically a different company, they will likely be potential employees' first point of engagement with your brand and so they'll need to mirror your values and understand your attitudes to diversity and inclusion. Indeed, the CIPD/Hays survey respondents rated 'understanding of our business' as the main factor influencing their choice of recruitment partner. Any outsourced service will also need to be reviewed on a regular basis to ensure that it is still the right option for the organisation and its skills needs.

The Resourcing and Talent Planning survey also found that interviews resulting from CVs and application forms are no longer the most popular method of selection, being overtaken by competency-based interviews. Competency frameworks can be very effective in increasing clarity around the links between individual capabilities, job roles and performance expectations. However, there are also some disadvantages, particularly for younger candidates that lack previous job experience to draw examples from. Organisations should therefore think about how important competencies are for the roles they're recruiting for, or whether another approach might be more fitting. If they do opt for competency-based interviews then they need to make sure that the questions give the candidate opportunity to use non-work experiences - such as volunteering or responsibilities at school - to demonstrate their potential. They can also only be successful if they accurately reflect the job they are being used to recruit for, so will need to be carefully researched and put together in order to produce optimum results.

The survey also found that increasing numbers of organisations are using distance interview techniques, such as Skype or phone interviews, which represents another trend in hiring that has evolved over recent years. While there's no doubt that having the capability to interview people in a more flexible way allows organisations to access a much wider talent pool, it's crucial that all candidates have the same interview experience, regardless of the setup.

So how should you go about incorporating recruitment trends like these in your organisation and ensure they are effective? Engagement is key. Most organisations have a large number of people responsible for recruitment, who all need to feel equipped with the right skills to make effective people decisions on behalf of the company. Speak to them about their experiences, understand which areas they've found challenging, whether they feel they have gaps in capability, or whether the process has problems in practice. This insight can be invaluable in making decisions about what works for you - for example, the CIPD/Hays survey found that more than two-fifths of HR professionals believe the length of their recruitment process has led to the loss of potential recruits in the last 12 months. That's a significant proportion that feel that a lack of flexibility and agility in the process itself is hindering whether or not organisations are able to hire top talent. Information like this will help shape your recruitment strategy and allow you to make meaningful adjustments to ensure you're hiring the right people for the right jobs.

And finally, remember that selecting the right candidate can only happen if the right candidate actually applies for the role, so your recruitment strategy should take attraction into account as well as recruitment and selection. The CIPD/Hays survey found that organisational values are voted year-on-year as most important in attracting candidates, so think about how you are perceived in the market, how respected you are as a brand, how visible you are in the areas where your target audience is, and what your existing employees are saying about you. While recruitment and selection trends may ebb and flow, and it isn't clear how much it will alter in the next five to ten years, you can help your organisation be ready for any challenges by ensuring your recruitment strategy is well-informed, inclusive and accessible.

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Organisations urged to future-proof their recruitment strategies for 2017 and beyond | CIPD

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Even though Brexit negotiations have only just begun, the UK is starting to feel the effects of skills shortages in the labour market. The latest CIPD/Hays Resourcing and Talent Planning survey found that three-quarters of HR professionals are already experiencing recruitment difficulties and expect competition for well-qualified talent to increase over the next three years, as a result of the UK's decision to leave the EU.

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sommai - Fotolia

By

Successful supplier relationship management requires giving the right kind of attention to each type of supplier.

That means, as a supply chain or procurement leader, you need to understand best practices in managing a strategic supplier.

What is a strategic supplier?

Whereas a transactional supplier is typically one that offers a low cost in the short term just to fill a need, a strategic supplier is core to a company's business.

A strategic supplier's incentives are aligned with the company's, and both parties are willing to invest in the relationship over the long term, said Pat Edmonds, a supply chain consultant at Point B, a consulting company located in Seattle. For example, a strategic supplier may offer discounts in exchange for volume purchasing.

"A strategic supplier relationship carries intrinsic value," Edmonds said.

Here are some best practices to protect the relationship.

Understand which suppliers are truly strategic

Starting with supplier segmentation and truly understanding which suppliers are strategic is the first step of managing strategic supplier partnerships.

Maintain a high bar on what you consider strategic given the high level of effort that can go into the relationship, said Josh Nelson, associate principal of strategy and transformation at The Hackett Group, a Miami-based strategy consultancy.

"Ask yourself whether they allow you to create an advantage in the marketplace," Nelson said. "If not, then it would be hard to call them strategic."

You can consider a supplier important, but if that supplier does not provide a competitive advantage, it isn't strategic, he said.

Be sure the supplier knows its strategic status

Companies often determine a supplier is strategic but don't make that clear to the supplier.

Both parties need to buy into the concept in order for it to work successfully, Nelson said. Some organizations may not want to be considered strategic. Perhaps there is a size mismatch; they may have bigger customers that are strategic to them and they don't want to be distracted by your needs. Or, they may not be ready to commit -- perhaps because of bad experiences with your organization. In any case, the relationship needs to start with clarity about your intent, which should yield a similarly forthright response from the supplier.

Define the objectives

Partnerships of any kind suffer when there are vague expectations, and that applies to managing your strategic supplier partnerships.

An important step is to make sure you clearly define the objectives for your partnership, said John Wiborg, CEO of Stellar Industrial Supply, an industrial supplier in Tacoma, Wash.

"A lot of customers come in and have big strategic objectives, but then it still ends up coming down to the piece price," he said.

This occurs if someone in the chain is getting rewarded only on their ability to cut costs. In that case, they aren't inclined to support things that don't help that metric, such as more long-term goals that may not support reduced price in the short term.

"In those situations, companies are walking by hundred dollar bills to pick up a few dimes," he said.

Whereas a transactional supplier is typically one that offers a low cost in the short term just to fill a need, a strategic supplier is core to a company's business.

To address that challenge, companies need to understand their own organization and ensure they are really aligned around the strategic goals they are promoting, he said.

Align internal and external needs

Building strategic relationships requires understanding what the business needs and using that information to create understanding with suppliers.

Take the time to understand business stakeholders' objectives before going out to vendors, said Len Riley, practice leader for IT sourcing at UpperEdge, a sourcing consultancy based in Boston.

Alignment is crucial across internal and external partners, and that requires true listening and understanding to avoid misunderstanding and unnecessary vulnerabilities.

Seek first to understand

When something goes wrong, your instinct may be to direct the blame toward your supplier -- but starting with self-reflection is far more helpful.

You may find your company spends little time reflecting on its partnership approach due to negotiation fatigue or competing priorities and politics associated with a "post-mortem." But that's a mistake.

"Successful companies take a step back to analyze internal issues, reflecting on their challenges," Riley said.

In addition, you might want to consider the following points:

Understand past relationships that people at your company have had with the supplier.

Recognize existing stakeholder expectations.

Trust your relationship as a journey, not a one-time event.

Know your company's reciprocal relationships.

Consider any IT and procurement disconnect that could contribute to a problem.

Focus on managing a dynamic strategy.

Know what "good" looks like -- in other words, don't be unreasonable.

Don't neglect communication.

Collect supplier feedback

Building a good relationship with a strategic supplier should include periodically collecting feedback. Ask what value they hope to achieve from the relationship and how your organization might support those expectations.

"Some buyers might explore additional partnership options beyond the terms of the current relationship," Edmonds said. "[These could include] expanding the categories of supplies or services offered, or entering into a joint venture together to create a third-party organization."

Build trust

Credibility is an essential foundation of strategic supplier relationships.

You need to model that in terms of your personal behavior and dealings with suppliers, Riley said. That also means that organizational practices should build and uphold trust. He added that it is important to assemble a team who can undertake a complex negotiation with the vendor.

In addition, be prepared to do the following:

Conduct an end-to-end relationship assessment over the years, and evaluate what you can do to improve it.

Know the vendor thoroughly.

Stay relationship- and principle-based: Come to the table with an informed point of view, and adjust your perspective of value based on the conversation.

Consider further investments

In some cases, it might be advantageous to invest financially in maturing the capabilities or capacity of a strategic supplier so that they can be an even more effective partner to help you achieve your goals.

For example, you could consider reducing a strategic supplier's expense structure, thereby preserving the supplier's margin while lowering the buyer's costs, Edmonds said.

Perform adequate due diligence

Supply chain-related risk is a growing concern for many organizations, and strategic suppliers are an important piece of the puzzle. With transactional relationships, the problem is lessened -- such suppliers can be replaced easily if there is a problem.

Performing due diligence on suppliers is important, said Fabien Joly de Bresillon, general manager of Ethic Intelligence, a boutique audit and certification agency in Paris. But relying on standard due diligence reports that are built on publicly available information may not be sufficient.

Instead, businesses need to go further to make sure they're not opening themselves up to problems.

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10 best practices for managing strategic supplier partnerships

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sommai - Fotolia By Successful supplier relationship management requires giving the right kind of attention to each type of supplier. That means, as a supply chain or procurement leader, you need to understand best practices in managing a strategic supplier.

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EDITOR'S NOTE: Our online version of this article contains information that has been updated and corrected since the print edition was published.
When Jessica Lee, a talent acquisition executive at Marriott International, wanted to launch a customized mobile site two years ago through which candidates could apply for open positions, she didn't share the details of her plan with her existing vendor partner, Oracle -even though Oracle provided mobile products. She didn't see why she should. After all, Oracle didn't offer the beautiful employer branding her team sought, nor did it deliver the user experience Marriott wanted to provide. Plus, she already knew that, as a software-as-a-service (SAAS) provider, Oracle didn't create customized mobile solutions for its clients.

"We wanted to implement a specific mobile experience and didn't think that [the Oracle] product was where it needed to be," Lee says. Although she felt guilty about the decision-like she was "cheating" on Oracle-Lee moved forward with exploring other options.

That turned out to be a mistake. The mobile product they were considering with another vendor would likely have been incompatible with the company's existing Oracle software-a potentially catastrophic problem that should have been addressed from the outset. As a result, Marriott wasted time focusing on technology that would have been too complicated and costly to implement.

Few corporate partnerships are more fraught than those between HR and its vendors. That's because human resources is hugely dependent on these relationships. According to the Sierra-Cedar 2015-2016 HR Systems Survey, more than half of all core human resource management systems are now SAAS solutions in which the technology is externally hosted. The employee relations space is transforming at breakneck speed, and HRIS is taking center stage in everything from recruiting and onboarding to retention and benefits. As a result, it has become increasingly critical for HR's relationships with vendors to be managed strategically, with trust and transparency on both sides.

For Lee, it was a lesson learned. Once the teams from Marriott and Oracle sat down to talk openly about needs and expectations, they were able to move forward.

"It's almost like you need a Venn diagram," Lee says. "What are your needs? What are your priorities? ... Then on the [vendor] side, they have to map out their strategic priorities and the things they're looking to do. You have to find the overlap with one another-the sweet spot where you really get your great results."

Fortunately, Lee's story has a happy ending. Working toward mutual transparency turned out to be a win for both organizations. Marriott's demanding requirements for the mobile site spurred Oracle to accelerate its development process. "In addition to Marriott being happy with the results, so were our other clients," says Deepak Rammohan, Oracle's vice president of product management. "We like customers that push us to innovate."
Getting on the Same Page

9 Tips for Building Successful Relationships with Your Vendors

1. Understand what you want to accomplish. Be specific in defining and documenting departmental requirements as well as the goals of the project.

2. Develop effective internal relationships. Strong partnerships with IT, finance and the senior executive team create alignment and build the foundation for airtight contracts.

3. Research potential vendors' reputations and offerings by connecting with colleagues in your professional network. Their feedback can be invaluable.

4. Be clear and open with each potential vendor about how you want their technology to help you meet your goals.

5. Look for vendors who take the time to listen to you and absorb your requirements. Then have them explicitly demonstrate how your needs will be met.

6. Don't hold back. The piece of information you withhold may prove critical. Your transparency will ensure alignment with HR's existing technology and overall strategy.

7. Understand that it isn't always about money. Let your budget be your guide, but request creative solutions from vendors that allow you to accomplish your goals within your allocated amount.

8. Keep talking. The conversation doesn't stop once a vendor is on board. Continue the dialogue. This should become a partnership, and that involves building trust.

9. Assess everyone's progress as the partnership evolves. Go step-by-step together. The relationship could be a long one, so you both want to get it right.

Jessa Kilgore has experienced the HR/vendor relationship from both sides. Previously employed at a vendor, she is now director of HR technology at G&W Laboratories Inc., which manufactures pharmaceutical products. She has seen the HR department at her company evolve from having face-to-face meetings with employees about onboarding, benefits selection and other HR functions to offering online programs and 1-800 help-desk numbers.

As HR has moved toward more vendor partnerships, Kilgore has observed a lack of clarity about roles and responsibilities on both sides, particularly in agreements that involve small and midsize organizations. Sometimes this occurs because in-house HR professionals are accustomed to more transactional work. They need to understand that digital services-and the relationships that enable them-require care and feeding. The vendor doesn't go away after the purchase is made.

A recurring problem, Kilgore says, is that HR and its vendors have incongruent expectations-and often those don't come to light until after the ink has dried on the contract. "What happens very often," she says, "is that contracts are set up and they're vague."

For example, while working at a vendor, Kilgore once began providing position management-an analysis of the organizational structure needed for each business unit-because that appeared to be part of the contract. During a more thorough vetting of the agreement, however, she realized that the vendor was only supposed to supply technology. She had to pull back, creating a problem for the client, which hadn't thought through the organization's needs on that level.

Sometimes HR professionals don't realize that they'll need any in-house resources to maintain vendor services, Kilgore says. "Unless you're hiring a vendor to also be a consultant, that creates a really big gap." And even if you do go the consultant route, Kilgore advises caution: "You always need somebody in-house who can drive and manage whatever project or services that you're looking for. You can't just hand it over to a vendor." That's where having a strong competency in relationship management plays a key role.

Another problem can arise if HR relies solely on other internal departments, such as IT, to make decisions and those teams have a limited understanding of HR functions. To ensure that the software meets its intended goals, HR needs more control over its digital footprint. That doesn't mean the department must become immersed in the details of the technology, but it should understand how a program works and how it fits into the business ecosystem.
Crucial Communication
However, selecting a vendor must never occur in a vacuum. To create the best RFP, HR must partner with IT sooner rather than later to ensure the document accurately captures the company's technical needs and limitations. Finance must also be kept in the loop so that necessary expenses don't come into question late in the decision-making process. And getting the CHRO's buy-in from the start is a good way to ensure that the agreement won't fall apart under higher-level review.

Communication is particularly critical when it comes to layering increasingly complex HRIS programs and applications, not only within the HR space but in the context of the rest of the company's IT framework. How successfully this happens is contingent on many variables, not the least of which is understanding everyone's requirements and establishing trust with vendors.

That was a slow process for Mike Regulski, head of shared services in HR at T. Rowe Price, a global investment management firm with more than 5,900 associates. "Where we've been as a firm is very paper-oriented and, some would say, very conservative," he says, "so we've taken extra care." As the firm looked to create a better digital experience for its associates, it took a broad approach. "We've not gotten hung up with a traditional HR/vendor thing, but looked at it as the same as how we deliver to our T. Rowe Price clients," Regulski says. "We are aligning the associate digital experience to the full digital capabilities of the firm."

Of course, asking a vendor to provide technology that can seamlessly traverse the company's digital space is a pretty tall order. "We probably wanted it customized too much for us," he says. "And I think, at the time, the vendor trust wasn't there because we hadn't been able to do much as far as comparisons with other companies or even the industry in general."

Communication Breakdown

While communication and trustworthiness may fall under the category of soft skills, failing to foster them when hiring vendors can lead to serious consequences, including:

An RFP or contract that doesn't accurately reflect the company's needs and limitations.

Additional time and money required to fix problems resulting from incongruent expectations or lack of integration between multiple vendor systems.

Damaged relationships with vendors and internal stakeholders who weren't kept informed about how a new vendor product influences the company's IT infrastructure or bottom line.

Vague contracts that may require a more significant outlay of HR's time and resources than initially anticipated.

Damaged credibility with upper management when contracts break down under scrutiny or require additional money and resources.

A confidentiality breach when HR fails to request or enforce nondisclosure agreements.

One of the biggest stumbling blocks came from HR being too siloed, according to Regulski. Engaging in a lengthy dialogue with the vendor helped Regulski's team to realize that, if the vendor had met its needs at 100 percent, problems would crop up in T. Rowe Price's larger digital ecosystem. To ensure the optimal solution for the whole company, HR had to be more flexible. "Now that we're looking at it horizontally," Regulski says, "I can say, 'How can I get to 80 percent of what I need in order to fulfill 100 percent of what the firm needs?' "
Being Transparent
Similar questions may arise when an existing enterprise product can supply only a portion of what HR needs. Should HR chuck the enterprise solution that isn't creating the one desired result and find a new system? Or would it be better to integrate add-ons? To find out, HR must talk with the vendor early in the decision-making process to assess the technology and align the priorities of both parties.

Assimilating HR systems into the larger enterprise requires transparency about what each stakeholder needs-particularly in a company with a culture or procedures that depart from the norm.

At Carfax, for example, a Centreville, Va.-based company with more than 500 employees that provides vehicle history reports, HR's approach within the organization is as far from siloed as you can get. According to Adrienne Webster, vice president of HR, her team engages in an internal process akin to crowdsourcing to make choices. It's a model that is built into the company's DNA. To ensure that the department's goals align with those of the organization, the whole company is involved in all decision-making.

"We know what may be seen as a traditional HR function impacts many people around the business, and we approach it that way, getting input and feedback from others before making a collective decision," she says.
Maintaining Confidentiality
Carfax's holistic approach has confused some of its technology vendors. For example, when the company converted from its legacy customer relations management system, the HR team didn't fully brief the new partner, which was unfamiliar with its culture. The lack of communication made for a bumpy transition. "Today we start any [discussion] with a clear and forthright conversation about goals and expectations," Webster says. "We also work to onboard our partners much like we do new employees."

Security is a concern for any digital environment, but it's particularly crucial for personnel systems. That said, transparency and confidentiality need not be mutually exclusive.

Janis Simat, chief human resources officer at Risk Strategies Co., a midsize national insurance brokerage and risk-management firm headquartered in Boston, views vendors as extensions of the internal team. "I think it's important for them to understand the challenges and opportunities we have and how their partnership fits into our overall strategy," she says.

Nevertheless, she takes the requisite precautions. "While it's important to have an open dialogue," she explains, "[the company-vendor relationship] still remains within the protections of confidentiality [just as] we would always have for our employees."

Simat ensures discretion by having vendors sign nondisclosure agreements at the outset of the RFP process, before she reveals any detailed or proprietary information. "If they would not have signed, I would not have gone any further," she says, "and I haven't had any refuse to sign."

At a prior company, Simat had an exceptional experience with a change management vendor that was privy to inside information. She spent an entire day with the vendor representative and business heads exploring the challenges the organization faced. No stone was left unturned.

"We brought [the vendor] into the fold of our entire strategy, as well as our obstacles, and it really helped us customize a plan for that business," she says. "We had so much transparency with her that we were able to get a really good result for the people and the business."

This kind of open dialogue helps to avoid missteps with vendors that can negatively affect return on investment. For example, a bungled negotiation can place HR directly in management's crosshairs. In a large corporate environment, such a mistake is less likely to occur because HR is typically well-represented among senior management. For countless others, however, it can impede the process of finding and implementing the best solutions.

Over the years, Kilgore has seen many vendor contracts driven by a CFO or CEO. Her perception is that management is often thinking about cost reduction and shortcuts, and not necessarily the services that are needed. She has also heard vendors criticize HR, grumbling that the department can't even make its own decisions, let alone figure out what it wants from a partner. To gain the respect it deserves, Kilgore recommends that HR insert itself into the discussion early and often.
Elisabeth Greenbaum Kasson is a freelance writer and editor in the Los Angeles area.
That means moving beyond the day-to-day tasks that consume the department and working diligently to build relationships with upper management. Kilgore strongly advises HR to act first in recognizing the business issues and researching the vendors that can provide the best options. Along the way, let management know that the department understands what's needed or is actively seeking providers that can deliver cost-effective technology. "Don't wait until the CFO says, 'You know what? HR doesn't know what they're doing,' " Kilgore says. "Come to them with solutions."

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How to Create Vendor Partnerships Based on Trust

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EDITOR'S NOTE: Our online version of this article contains information that has been updated and corrected since the print edition was published. When Jessica Lee, a talent acquisition executive at Marriott International, wanted to launch a customized mobile site two years ago through which candidates could apply for open positions, she didn't share the details of her plan with her existing vendor partner, Oracle -even though Oracle provided mobile products.

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Procurement and HR: A Critical Partnership in the Supply Chain

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For all the differences between procurement, with its pragmatic, quantitative and best-price-for-best-supply mindset, and human resources, with its qualitative approach to the organization’s people and relationships, a lot more thought should be given to where they come together.

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Join us for eight sessions on-demand at our EMEA Supply Chain Academy around how to reinvent the way you manage your supply chain. We bring together solution engineers, a senior IDC analyst, leading consultants and industry subject matter experts to discuss the real-life examples and use cases, as well as the technology, processes, solutions and best practices to address the unique issues you are facing today.

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Use hybrid cloud and apply AI and blockchain to build smarter supply chains that deepen competitive advantage by easing disruptions and causing better outcomes.

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Globalization compelled supply chains across industries to spread further and further out in search of greater sourcing efficiency and increasingly lower costs. As a result, the pursuit of financial efficiency created a system whose fragility was exposed almost overnight by the COVID-19 pandemic.

As businesses prepare to learn from and emerge stronger in the post-pandemic world, they will need to reimagine how they manage supply chains, supplier relationships, and ultimately the underlying contracts that govern outcomes.

In this paper, we discuss how artificial intelligence led contract management can be a driver for supply chain transformation that empowers enterprises with intelligence to help pivot and respond to Black Swan events and more.

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Download PoV Paper: Supply Chains In A Post COVID-19 World- How Contract Intelligence Can Strengthen Procurement and Protect Your Organization

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Globalization compelled supply chains across industries to spread further and further out in search of greater sourcing efficiency and increasingly lower costs. As a result, the pursuit of financial efficiency created a system whose fragility was exposed almost overnight by the COVID-19 pandemic.

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Power, value and supply chain management | Emerald Insight

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Power, value and supply chain management - Author: Andrew Cox

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Companies with advanced procurement functions know that there are limits to the value they can generate by focusing purely on the price of the products and services they buy. These organizations understand that when buyers and suppliers are willing and able to cooperate, they can often find ways to unlock significant new sources of value that benefit them both.

Buyers and suppliers can work together to develop innovative new products, for example, boosting revenues and profits for both parties. They can take an integrated approach to supply-chain optimization, redesigning their processes together to reduce waste and redundant effort, or jointly purchasing raw materials. Or they can collaborate in forecasting, planning, and capacity management-thereby improving service levels, mitigating risks, and strengthening the combined supply chain.

Earlier work has shown that supplier collaboration really does move the needle for companies that do it well. In one McKinsey survey of more than 100 large organizations in multiple sectors, companies that regularly collaborated with suppliers demonstrated higher growth, lower operating costs, and greater profitability than their industry peers (Exhibit 1).

Despite the value at stake, however, the benefits of supplier collaboration have proved difficult to access. While many companies can point to individual examples of successful collaborations with suppliers, executives often tell us that they have struggled to integrate the approach into their overall procurement and supply-chain strategies.

Barriers to collaboration

Several factors make supplier collaboration challenging. Projects may require significant time and management effort before they generate value, leading companies to prioritize simpler, faster initiatives, even if they are worth less. Collaboration requires a change in mind-sets among buyers and suppliers, who may be used to more transactional or even adversarial relationships. And most collaborative efforts need intensive, cross-functional involvement from both sides, a marked change to the normal working methods at many companies. This change from a cost-based to a value-based way of thinking requires a paradigm shift that is often difficult to come by.

The actual value generated by collaborating can also be difficult to quantify, especially when companies are also pursuing more conventional procurement and supply-chain improvement strategies with the same suppliers, or when they are simultaneously updating product designs and production processes. And even when companies have the will to pursue greater levels of supplier collaboration, leaders often admit that they don't have the skill, lacking the structures they need to design great supplier-collaboration programs, and being short of staff with the capabilities to run them. After all, what great supplier collaboration necessitates is much more than the mere application of a process or framework-it requires the buy-in and long-term commitment of leaders and decision makers.

A shared perspective

To understand more about the factors that hamper or enable supplier-collaboration programs, we partnered with Michigan State University (MSU) to develop a new way of looking at companies' use of supplier collaboration. The Supplier Collaboration Index (SCI) is a survey- and interview-based benchmarking tool that assesses supplier-collaboration programs over five major dimensions (Exhibit 2).

During 2019, researchers from McKinsey and MSU rolled out the Index in a pilot project involving a dozen leading consumer-goods companies in North America, along with ten to 15 of each company's strategic suppliers. We collected more than 300 written responses from more than 130 organizations, and conducted in-depth interviews with around 60 buyer and supplier executives. The work provides some important insights on the state of supplier collaboration today, revealing the elements of collaboration that companies and suppliers believe are working well, and the areas that present the greatest challenges.

The results of our consumer-industry benchmark are summarized in Exhibit 3, with average buyer and supplier perceptions of their own collaboration programs rated from one (low) to ten (high) in each of the five dimensions.

Overall, the research reveals close alignment between buyers and suppliers on the relative strength of most dimensions. It also shows a clear drop in perceptions of strength as the discussion moves from theory (strategic alignment) to execution (value creation and sharing, organizational governance).

The in-depth interviews conducted with senior buyer and supplier personnel as part of the SCI data-collection process provide further insights into the challenges companies face in each of the five dimensions, while also revealing some examples of best practices that lower-performing companies can emulate.

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Achieving strategic alignment

Benchmark participants understood who their strategic suppliers are, although they do not all use formal segmentation approaches to categorize their supply bases. Likewise, suppliers understood their strategic importance to their customers. Buyers and suppliers agreed that there was good alignment on the pursuit of sources of value beyond cost-but also agreed that their efforts to capture these value sources were not always successful.

The first step for an organization is to define what it wants to achieve from its collaboration efforts, and what it needs to do to realize those goals. Internal alignment and commitment by senior managers to ensure appropriate resources are available is also critical. For example, in a quest to develop more sustainable detergents, Unilever partnered with Novozyme-a major supplier of enzymes- to jointly develop new enzyme solutions. The collaboration leveraged each party's strengths, merging Unilever's understanding of which types of stains and materials were most relevant with Novozyme's reagent-optimization capabilities. The partnership resulted in two enzyme innovations that improved product performance, increased market penetration, and allowed the company to target premium-branded competitors. Moreover, the new formulation performed well at lower temperatures, helping customers save energy and reduce CO2 emissions.

Other organizations participating in SCI have introduced formal methods to promote greater strategic alignment, such as by introducing a joint business-planning approach. The buyer and supplier align on short- and long-term business objectives, set out mutual targets, and jointly develop plans to achieve objectives. Areas of opportunity for collaboration include growth, innovation, productivity, quality, and margins (see sidebar, "Joint business planning").

Communication and trust

Buyers and sellers both describe high levels of trust in relationships that they consider strategic. In most cases, that trust has been built up over time, based on longstanding business relationships. Companies involved in collaborations tend to appreciate each other's capabilities, understand each other's businesses, and believe that their partners will stick to the commitments they make.

Companies are less convinced, however, that their partners will be ready to put the interests of the collaboration above the interests of their own organization. Many interview participants noted that greater transparency over sensitive areas such as costs was key to attaining the highest level of collaboration, but said that this goal was often difficult to achieve.

Building trust takes time and effort. Often this means starting small, with simple collaboration efforts that deliver results quickly, building momentum. This way, companies can demonstrate a serious approach to collaboration and their willingness to share gains fairly. More importantly, companies should base their relationships on transparency and information sharing as a foundation, with the expectation that greater trust will follow.

Cosmetics company L'Oréal follows this approach to encourage collaborative innovation. Through open dialogs concerning company goals and long-term commitment, L'Oréal has been able to establish an effective codevelopment process. The company's annual "Cherry Pack" exhibition, for example, offers suppliers a preview of the consumer trends that the company will be working on, and asks them to develop packaging solutions in harmony with these trends. During the exhibition, L'Oréal creates a trust-based forum for suppliers to present the ideas and products in development-including ideas that have yet to be patented. The forum thus gives suppliers access to practical short- and long-term ideas and projects that ultimately accelerate packaging innovation.

Cross-functional engagement

To generate value from changes in manufacturing methods, quality-assurance regimes, or supply-chain processes, representatives from the respective functions on both sides of the partnership will need to work together. Yet this type of cross-functional engagement is something most benchmark participants find extremely difficult. Executives reported that while traditional relationships-such as those between buyers and supplier sales teams, or suppliers and buyer R&D functions-were strong, wider cross-functional engagement was patchy and poorly managed at best.

Improving cross-functional engagement is a leadership issue. Organizations with the most successful collaboration programs use a formal approach to manage cross-functional teams, with clearly defined roles and responsibilities on both sides of the partnership, backed by changes to internal incentive systems to promote full participation in collaboration projects.

Unlocking enterprise efficiencies through zero-based design

Some companies, such as P&G, have taken a step further in creating cross-functional teams solely focused on joint innovation with suppliers. By creating a practice of "open innovation," P&G aimed to coordinate its efforts and leverage the skills and interests of people throughout the company to assess the competitive landscape, identify types of innovation that can help develop disruptive ideas, and identify appropriate external partners. For innovation to work, P&G has stressed the need to integrate cross-functional teams that, in turn, integrate business strategy with operations-which requires a broad network of interactions.

Value creation and sharing

The pursuit of shared value is the reason buyers and suppliers take part in collaboration projects, so unsurprisingly procurement executives consider it the most important dimension of their collaboration efforts. Yet few participants in our study track the impact of collaboration on sources of value beyond cost reductions. Where companies have tracked the impact of collaboration projects on revenues, margins, or other metrics, they have done so only for a handful of high-profile projects.

For buyers, additional volume remains the most common way that the extra value created by collaboration projects is shared. Some partnerships had made use of other types of value sharing, such as performance-based incentives for suppliers. Where these approaches were employed, both buyers and suppliers were happy with the results. That suggests significant opportunity for companies to expand their use of such approaches, provided they can reach agreement on cost baselines and incentive structures.

Cost transparency is a critical enabler here. Some companies have found cleansheet cost modeling to be a very effective way to conduct fact-based discussions on costs and improvement opportunities with their collaboration partners (see sidebar, "Cleansheet cost modeling").

ASML, a lithography-equipment manufacturer for the semiconductor industry, operates a value-sharing mechanism for its suppliers. The company allows suppliers to maintain healthy margins (as a volatility buffer), provides financing for the infrastructure needed to make its products, and offers staggered purchase guarantees. In this way, ASML incentivizes and rewards its strategic suppliers for prioritizing its business, gains access to cutting-edge technology, and reduces costs and improves stability in an industry with short lifecycles affected by substantial swings in demand.

Throughout its long history of collaboration with suppliers, P&G has used a wide range of commercial models to partner with suppliers across the entire R&D chain. Its value-sharing models range from shared fund pools for codevelopment of products to licensing agreements for commercialization. The flexibility to employ different mechanisms has allowed P&G to tap into supplier innovation without the need to overinvest in the development of deep partnerships with every potential collaborator.

Organization and governance

Like cross-functional engagement, the organization and governance of supplier-collaboration programs suffers from a lack of formal structures and processes. Interviewees admitted that their companies, both buyers and suppliers, were relatively lax in tracking and valuing their supplier-collaboration efforts. Few organizations had done anything to align the incentives of project participants within their own organizations, and most relied on informal mechanisms to share feedback or review progress with partners.

Introducing a clearer governance structure for the overall supplier-collaboration program and for individual projects has the potential to significantly improve outcomes in most organizations. Two-way scorecards, for example, allow buyers and suppliers to let each other know if they are effectively supporting the goals of the program. Governance of collaboration projects should be cross-functional, with appropriate incentives introduced throughout the organization to encourage full participation and ensure both parties pursue long-term win-win opportunities, not just short-term savings.

Several leading organizations have created supplier advisory boards to provide high-level support and guidance for their supplier-management and supplier-collaboration programs. These boards act as a forum for the supplier base to advise on key issues and collaborate with the organization to further its business agenda. Companies use their supplier advisory boards to help manage risks and disruptive threats to the supplier ecosystem, and such boards also serve as a neutral space for the exchange of ideas between the host company and a group of strategic suppliers (see sidebar, "Supplier advisory boards").

Toyota has been a prominent example of supplier collaboration, whose success can be explained in part by the use of clearly defined targets and supplier-performance metrics. These are built into contracts that hold suppliers accountable for continued improvements in quality, cost, and delivery performance. The company governs supplier relationships using a steering committee, staffed with relevant senior stakeholders from both organizations, to define the scope and objectives of the collaboration, review progress, and take action to remove roadblocks and resolve issues as they arise.

The Supplier Collaboration Index has already revealed several major opportunities for companies seeking to expand and improve their supplier-collaboration efforts. Some of those opportunities are quite straightforward, such as more proactive management of cross-functional teams involved in collaboration projects, or the introduction of formal governance systems to manage those projects. Others, such as greater cost transparency between buyers and suppliers, or the use of performance-based supplier-incentive mechanisms, may require more time and effort to achieve.

Excelling at supplier collaboration requires a more active and engaged working relationship with suppliers. It also calls for a change in mindset, encouraging both buyers and suppliers to commit to the long-term pursuit of value from their collaborative relationships. We end with eight steps that any organization can take to put its collaboration efforts on the right track.

1. Start by identifying those suppliers that offer unique joint opportunities to create and retain significant value.

2. Align strategically with these partners to define joint objectives and develop a compelling business case for both parties.

3. Adopt a methodical and structured approach to define the scope, pace and targets for joint projects, including a clear methodology on how to measure value creation.

4. Define simple, clear value-sharing mechanisms, and align incentives of the cross-functional team accordingly.

5. Invest in allocating the appropriate resources and building the required infrastructure to support the program.

6. Create a governance model focused on performance, implementation tracking, and hardwiring supplier collaboration into core operational processes.

7. Foster a culture founded in proactive communication, transparency, consistency, and knowledge sharing, to strengthen long-term partnerships.

8. Invest in building world-class organizational capabilities to ensure sustainability over time.

For any organization seeking to improve the performance of its procurement practices, supplier collaboration can no longer be considered a nice-to-have. As companies reach the limits of conventional purchasing practices, further progress will require a new approach based on close relationships, cross-functional engagement, and the shared pursuit of new value.

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Taking supplier collaboration to the next level

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Companies with advanced procurement functions know that there are limits to the value they can generate by focusing purely on the price of the products and services they buy. These organizations understand that when buyers and suppliers are willing and able to cooperate, they can often find ways to unlock significant new sources of value that benefit them both.