Has outsourcing your HR functions failed for you?

It seems that HR Outsourcing is evolving today. More and more organisations believed in the advantages of outsourcing their HR functions. More and more companies have already taken their chance. I thought it would be interesting to understand more about their past experience and their lessons learned. So I have recently spent some time reading online articles, downloading whitepapers, researches, gathering some of my conference notes and came up with a pool of feedbacks from people that had experience with HR Outsourcing. Here is what it looks like

COST

• Identification of hidden costs for services that were believed to be in the contract
• Lack of transparency often resulted in the payment of additional costs
• Few economy of scales due to the size of the outsourcing deals
  
  • Large outsourcing projects tend to be “tailored” reducing the ability to standardize 
  • The economies of scale provided by the vendor ended to be similar to the one already achieved in-house
• List of costs underestimated: vendor raw cost + contract administration + profit margins + in-house management
• “Everything takes longer than you plan”

COMMUNICATION

• Lack of communication about the outsourcing impact on the in-house employees
• Lack of vendor regular communication/updates about ongoing activities
• Language issues
• Cultural challenges (i.e. priorities differ from one country to another)

RESOURCE

• Vendor high turnover resulting in lots of ongoing training 
• Knowledge loss due to high vendor turnover
• Lack of vendor resources initial skills/knowledge/experience 
• Lack of vendor resources commitment

PROCESS/SERVICE

• Customer damage and business losses caused by service disruption
• Outsourcing introduced complexity and rigidity where flexibility, capacity and scalability were expected
• Loss of flexibility impacting the organization responsiveness to market changes (business growth, service delivery quality and speed)
  
  • There is a trade off between flexibility and lowering cost
• Functions identified as non-strategic were recognised strategic once outsourced
  
  • “We came up with a rule: If it is a ‘rule based’ process, it can be outsourced; if it is a ‘decision-based’ process, it is not outsourced.”
• Loss of control over outsourced functions (i.e. limited transparency, vendors subcontracting, etc…)
• Lots of time spent correcting vendors mistakes
• Lack of initial understanding/clarity about the in-house processes to be outsourced resulting with an unclear knowledge transfer to the vendor
• On the other hand lack of vendor understanding of the client processes 
• Disappointment around certain key areas: Best practise, Quality, Innovation
• Time zone issues

COMPLIANCE

• Confidentiality and Intellectual property right violations

MANAGEMENT/GOVERNANCE

• More governance/senior management attention than expected related to security issues and contract management
• More record keeping due to heavy control/check/verification strategy 
• Loss of bargaining power: handover of control and knowledge to the vendor creates ongoing dependency and weakens the organisation 
• Lack of client experience in operational management (contract management, capital expenditure, human resources, developing new metrics, relationship with vendor, etc…)

VENDOR

• Vendors and organizations have conflicting objectives (innovation, cost savings, quality)
• Lack of vendor previous experience. 
  
  • There is a difference between having experience in process improvement and experience in the actual service delivery.
• Lack of Vendors work around 
• Underperformance 
• High turnover/training