HR Outsourcing – What should stay and what should go?
Posted September 7th, 2008 by Yvan
“While HR outsourcing has remained relatively flat since 2005, it is expected to increase in 2008, according to the Everest Research Institute's annual Human Resources Outsourcing (HRO) market study. The most commonly outsourced HR functions include payroll, benefits, employee data management, information systems and contact centers (November 6 2007)"
The above statistics are really interesting but only reflect the market tendency. I also know that many organisations are still reluctant to outsource their Human Resources for various reasons. So rather than stating what is currently happening, I would like to hear from you
- what do you think could be outsourced successfully and what should stay in-house?
- what are the reasons?
Patrick Cunningham (Director Info Mgt, Collection & Preservation
My experience in working for a large HR outsourcing and consulting firm is much the same as others have noted. Transactional, rules-based work tends to move easily. Other work that moves easily is anything that has a cyclical nature (benefits, recruiting, and payroll transaction primarily).
Employee relations generally does not move well. Training feels like something easily outsourced, but often brings a tremendous level of complexity to the deal. New hire intake is also often problematical, with complex linkages to a multitude of activities required to be in place prior to the start date.
Another consideration is call center location. Even with carefully scripted plan documentation, many offshore call centers do not understand the complexity of US benefits plans and call center reps struggle through an understanding of things taken for granted in the US.
Record-keeping is something that often gets short shrift in these deals, particularly considerations of managing paper records and the complexity of bringing order to badly managed paper records.
Michael Withey (Vice President at Cap Gemini Sogeti)
At a high level, the reason why outsource providers bring value is twofold. Firstly, this is their core business and therefore the scale, experience, enabling technology and practices mean they can simple do the job better. Secondly, global providers bring the option to access low cost locations which not only saves cost, but also provides a higher academic skill set to perform a role. Many advisors call this "more for less" or "more bang for your buck".
As a guide of what to outsource, the following is generally true. If a process is rule or policy based it can be outsourced. If judgement is required then retain within the business.
Naresh Vassudhev (Service Delivery, HR, Talent Expert)
I would tend to agree with Sujatha. Organizational Development and Employee Relations will stay and the other functions will get outsourced - These are strategic and will require expertise from within the organization. These will therefore stay at home. All other HR functions will get outsourced.It is a matter of time.
T C Vijaykumar (Sr. HR Analyst)
The primary need is that 'outsourcing' should be recognised as a critical strategy within the hr function of the organisation over a defined time frame. These can vary depending upon organisations needs. Once that is done, hr has lot of scope for outsourcing under each one of its critical components. One Core area within HR where outsourcing should be avoided is planning areas that are closely linked to business strategies.Outsourcing is posiible in many steps of procurement/recruitment, orientation and induction, training and development, compensation /pay roll administration, compliance and legal counsel, data maintenance and personnel records maintenance, court cases, third party counselling, welfare ,asset maintenance, security, laisoning, other boundary management issues, general services like transport, community, housing services, medical and holiday plans and services, pension fund management, seperation policy administration. However as mentioned earlier, Planning, hiring decisions, Policy formulation, seperation decisions, reward management, performance assessment decisions, disciplinary actions, core counselling, recognitions, assessment centres can never be and should not be outsourced. In any case a cost benefit analysis should be done to match with the business strategy.
Yvette Dorman (Senior HR Business Change Manager)
Caution is the key word when deciding to outsource. I have been involved in many outsourcing projects where the belief has been that someone else can do it better and cheaper. In the early generations of the contract being in place it is a rough ride for both the client and the supplier. Commercial service provider organisations seek profits as well as limited liabilities and risks - this often includes avoiding TUPE. Organisations looking to outsource want quality of service, to transfer the knowledge through outsourced staff and transfer the risk. This conflict of interest makes managing outsourced contracts more demanding and costly especially if it is end to end services rather than stand alone services.
There are advantages to outsourcing if continuous improvement is part of the contractual relationship and the client is prepared to include some investment in quality but this comes at a cost.
In terms of what could reasonably be outsourced - the contact centre (tier 1), and certain parts of expert HR advisory services (tier 2) such as payroll, pensions and employee benefits administration, recruitment, training delivery and employment and pensions legal advice.
What must stay in house is the ownership and development of HR Strategy - that is both corporate and local strategies, policy and procedure ownership, HR Business Partnering, OD and corporate risk management on people issues (i.e. ETs, diversity etc).
A big disadvantage to end to end outsourcing of HR is the loss of flexibility and capability should changes be needed either quick time or progressively - waiting until commercial contracts come to an end to make improvements is not helpful. Alternatively you would incur costs through change control which, if not tracked, defeats the object of efficiencies of outsourcing. Loss of control and flexibility will be seen as bureaucratic and frustrating to a progressive organisation and the reputation of HR will suffer.
You will no doubt receive conflicting ideas about should it be in or should it be out - only you know your organisation and the appetite to risk.
Sujatha Merchant (Quality Assurance Professional)
Of the HR areas of Benefits,Labor Relations,Compensation,Organizational Development,Diversity,Recruiting,Employee Relations,Staffing,Global Business,Training,&HRIS (Human Resource Information Systems), Labor relations&ER are the only functions that may not (read should not)be outsourced. All the above functions except the two are geography/culture independant. For most of these functions there are certain policies procedures, numbers and targets decided as part of your fiscal plan and that can be met and exceeded from anywhere. Whereas for the 2areas,interactions with employees has to be close home where issues and concerns can be discussed and closed in real time and with a face to talk to, and not a call/ chat. In fact if I have to be more meticulous, I would separate the audit function from the organization development area and keep it closer home whereas the rest of it can be outsourced.
Dick Assink-Hille (Technical Instructor / Consultant)
If you ask for my personal opinion, I think utmost care should be taken when outsourcing or even offshoring HR related processes. Oh, sure, I can see the financial advantages of offshoring HR related processes, though (for bigger company's) I can't understand how outsourcing can ever be financialy viable.
Just think about this: If my HR department needs 6 people and I outsource my HR department, the 6 people will still be needed to service my employees. The 6 people in the HR department will still want the same remuneration and the company that has taken them in, will also want to make a profit.
Sure, there is advantages in my bookkeeping, but most of the time, I will have less service to my employees and I will still pay more in the end.
When I offshore, I could in fact get cheaper labor to do the work, but especially in HR you will need to take care that the "new HR department" is available during my own business hours, which severely limits the "low cost" country's that will be able to provide proper services.
Oke, let's forget these practical and financials issues and just go with the flow.
What I would not want to offshore or outsource, is the advisement functions that my own HR people have. Think about areas like education of my employees but also succession planning and recruitment.
What would I outsource: Payroll (Which in the Netherlands typically is outsourced already.) Employee data management, the information system. The contact centre might be outsourced as in first line support for self-service and basic employee data management. (This keeping in mind that I would like to keep part of my contact center in house.)
The HRCI has articulated HR competencies into six categories
Outsourcing in general and offshore outsourcing of late are vital strategies for growth corporations in today's competitive marketplace. The key to successful outsourcing, is to only outsource the non-strategic functions. This allows your in-house, dedicated talent to focus on strategic activities which create competitive advantage for your firm.
This principle holds true for HR outsourcing as well. Only short-sighted businesses will allow a decision to outsource human resource functions to also signal the end of strategic in-house HR functions. The Human Resource Certification Institute has articulated HR competencies into six categories (additional details at www.hrci.org). One of these can never be effectively outsourced and two others pose some unique challenges to outsourcing efforts:
1- Strategic management (can NEVER be effectively outsourced)
2-Workforce planning (difficult to outsource) and employment (can be outsourced)
3-Human resource development (most aspects can be outsourced effectively)
4-Compensation and benefits (can be outsourced)
5-Employee and labor relations (difficult to outsource effectively)
6-Occupational health, safety, and security (can sometimes be outsourced or transferred to operations)
It is unrealistic to think that a typical outsourcing vendor will strategically put a client’s interest ahead of his own when push comes to shove. Even the best vendor is incapable of understanding your business (and her 50 other clients) well enough to substitute for in-house strategic management. Businesses that try to outsource these strategic activities, will either suffer in the marketplace or end up transferring these burdens to line managers who may or may not be adequately trained to handle the new assignments.
The key responsibility of an in-house human resource generalist in an outsourced environment is to serve as a strategic business partner to the organization. Armed with a thorough understanding of how your business operates, this lean and vigorous partner is the steward of corporate ethics initiatives, performance management (including workforce planning) systems, employee relations efforts, and risk management strategies. This individual or team must also understand enough about each outsourced function to manage vendors and ensure changing organizational needs are able to be met.
The most effective HR business partners I know combine strategic business management skills with demonstrated competency in the other five areas of the HR body of knowledge. I believe the easiest way to measure these competencies in an applicant for such a position is to look for a Senior Professional in Human Resources (SPHR) certification coupled with either a business degree (preferably from an AACSB accredited business school) or significant management experience.
Professor Marty Val Hill, SPHR (hillmv@uvsc.edu)
Utah Valley State—School of Business
Professional Speaker on Skills for the Concrete Jungle and
Owner of Professional Developments, LC (a consulting and HR outsourcing firm)
Links:
http://www.martyvalhill.com
http://www.hrci.org/Certification/2006HB/APX-A/