HR Outsourcing

January 4, 2022
Posted by: principlegroup
Category: Uncategorized

Everything you need to know about HR outsourcing. Outsourcing is a force behind the virtual organization movement.

Outsourcing is simply obtaining work previously done by employees inside the company from sources outside the company. If someone has specialised in an activity which is not strategically critical to our business – and is able to do that cost effectively, it is better to get it from outside.

Human Resource Outsourcing is a process in which a company utilises the services of the third party to take care of its HR functions.

A company may outsource a few or all of its HR related activities to a single or combination of service provides located in offshore destinations like India, China, Philippines etc. Generally those HR functions which are not critical and confidential are outsourced.

HR outsourcing helps an organization to gain cost and time efficiencies and provides cutting edge over their human resource strategies and improves services to their employees. HR is an essential partner in developing and executing organisational strategy.

HR Outsourcing: Meaning, Need, Types, Forces, Outsourcing HR Services, Benefits, Barriers and Future Development

Contents:

Introduction and Meaning of HR Outsourcing
Need for HR Outsourcing
Types of HR Outsourcing
Forces for Driving HR Outsourcing
Outsourcing of HR Services
Benefits of HR Outsourcing
Barriers of HR Outsourcing
Future Development of HR Outsourcing

HR Outsourcing – Introduction and Meaning

Outsourcing is a force behind the virtual organization movement. Outsourcing is simply obtaining work previously done by employees inside the company from sources outside the company. If someone has specialised in an activity which is not strategically critical to our business – and is able to do that cost effectively, it is better to get it from outside.

The organization gets benefited in the form of excellent quality, reliable supply, and rock bottom price. It can also focus exclusively on doing what it is good at – thereby enhancing its own competitive advantage.

People are the most important asset of an organization. Leading companies around the world are taking more strategic approach to managing their human resources. They are outsourcing day to day human resource functions so as to focus on strategic HR issues that impact corporate performance and shareholder value.

Human Resource Outsourcing is a process in which a company utilises the services of the third party to take care of its HR functions. A company may outsource a few or all of its HR related activities to a single or combination of service provides located in offshore destinations like India, China, Philippines etc. Generally those HR functions which are not critical and confidential are outsourced.

Recruitment and selection, payroll and compensation management, staff training, employee benefits and service, job evaluation are examples of such functions. The decision by Unilever, for example in 2006, to outsource its HR activities – mostly transaction oriented such as pay roll administration, applicant tracking, training and development, record keeping, performance appraisal follow up etc. – to Accenture appears to be in the right direction.

These are basically people and effort intensive activities but are routine in nature. Such repetitive work can easily be turned over to a third party specialist-who would be able to deliver excellent results, leading to significant savings in cost and effort. Through standardisation of processes the specialist is able to deliver service at unbelievable speed also.

At the same time, the organization should continue to perform transformational HR roles – such as attracting and retaining talent, bringing about strategic change in partnership with line managers, championing employee concerns etc. Across boardrooms and business schools HR is primarily viewed as a powerful tool to attract and retain talent, build workforce capabilities, handle grievances and bring out the best in people.

With high attrition rates still haunting most people intensive industries, an active and vibrant HR can be a key differentiator between mediocre and high performance organization. Seen against this backdrop, it is not surprising to find that routine activities such as pensions/benefits, stock options, health benefits and payroll are among the most popular HR programs being outsourced partially or completely. HR outsourcing is growing as HR programmes and services become more complex.

Price Waterhouse Coopers has developed a Total Human Resource Outsourcing Model which offers companies end to end HR services and a single delivery capability. According to a Survey by “The Conference Board and sponsored by Accenture, more than three fourths of executives in large North-American and European firms currently outsource more than one HR function.”

Human resource outsourcing is a momentous strategic HR initiative. It helps organization to focus on internal resources towards doing what they do best and simultaneously helps to control the bottom lines. HR outsourcing helps an organization to gain cost and time efficiencies and provides cutting edge over their human resource strategies and improves services to their employees. HR is an essential partner in developing and executing organisational strategy.

As is evident HR is something that is really critical to an organizations functioning. HR responsibilities includes all the related functions that work towards employee wellbeing in the organization including payroll, benefits, hiring, firing, and keeping up to date with state and federal tax laws.

Increasingly many large firms are getting their HR activities done by outside suppliers and contractors. Employee hiring, training and development and maintenance of statutory records are the usual functions of contracted out to outsiders. P&G has signed a 10-year, $400 million deal with IBM to handle employee services.

IBM will support almost 98000 of P & G employees in nearly 80 countries with services such as payroll processing, benefits administration, compensation, planning, expatriate and relocation services and travel and expense management.

The recent competitive challenges of the global marketplace are creating demand for expert human resource outsourcing. The outsourcing providers in order to manage non value adding administrative business function of their businesses thereby facilitating the businesses can concentrate on their cost competencies.

Outsourcing is work done for a company by another company or people other than the original company’s employees. Outsourcing entails purchasing a product or process from an outside supplier rather than producing this product or process in-house. The business that is outsourcing will train outsourcing provider to form a supply chain partnership.

HR Outsourcing is rapidly emerging as one of the world’s most exciting business trends. It reflects the need, recognised by increasing numbers of organisations, to focus on their core areas of business – and to outsource processes that add little or no value in terms of achieving their business objectives.

HR Outsourcing – Need

Many factors will contribute to any organization’s decision to outsource its HR functions.

The following are some of the needs of HR Outsourcing:

i. Enabling businesses to focus on core operations

ii. Delivering cost savings – whether direct or indirect

iii. Helping to create a stable, cost-effective operating platform

iv. Transferring focus from internal processes to achievement of business goals

v. Realising investment in HR transformation and IT systems

vi. Ensuring compliance with legal, regulatory and best practice requirements, and

vii. Transferring risk and liability for people issues.

HR Outsourcing – 3 Broad Types: Application Service Provider (ASP), Business Process Outsourcing (BPO) and Total HR Outsourcing

HR – outsourcing can be broadly divided into three types:

1. Application Service Provider (ASP)

2. Business Process Outsourcing (BPO)

3. Total HR Outsourcing

Type # 1. Application Service Provider:

A host of companies specialise in providing hardware and software applications to support large organisations, including application vendors like PeopleSoft, Oracle, etc. which have developed application packages (PeopleSoft HRMS, Oracle HRMS), for supporting human resource activities in an organisation.

They install, customise and provide support for running these applications. The major disadvantage with ASP is the costs associated with application software. Secondly, the successful implementation of the application software is doubtful.

Type # 2. Business Process Outsourcing:

The major difference between BPO and ASP is that in BPO, the client is in direct contact with the employees through call centres or support centres. MNCs generally opt for BPO as they operate in many countries and employ a large number of people. While certain firms wish to retain the power to control human resources, others hand over the power to the service providers.

Type # 3. Total HR Outsourcing:

In this type of outsourcing, the entire HR function is run by the service provider. There is no specific HR department in the organisation. The client organisation only has senior HR professionals who are also HR- strategists. A host of non-strategic functions and employee contact is done by the service provider.

HR Outsourcing – 3 Main Forces Driving the Engine of HR Outsourcing

When management of a company’s employees is entrusted to a third party, they are expected to provide the whole range of human resource services against payment. There are three main forces that are driving the engine of HR outsourcing.

Firstly, high manpower turnover places heavy challenge on the HR department to design HR services that are similar with their competitors. When employees are changing their employer at the drop of a hat, organisational HR practices for customized services give way to standardised services.

The power of unique organisational culture is not that effective to attract people from outside or to retain the existing employees for long if the prospective or the present employees have no interest to know about it. Faced with depleting stock of talents, increasing number of companies are trying to benchmark their HR practices with one or the other competitors to catch up with them both in terms of their expenditure on manpower and in terms of manpower productivity.

More and more HR services are likely to get standardised as employees change their employers more frequently. This has been a matter of concern for technically qualified managerial employees whose development costs are high and time consuming. Though, such imitative HR practices have no effect on employee turnover intention but companies get cost parity for managing their employees.

A second force for HR service standardisation is the accumulated research findings in public domain on human behaviour under varieties of contractual and organisational control conditions. Availability of such findings on employee behaviour and expectation shapes not just the domain knowledge of organisational HR managers but also the expectations of potential as well as current employees.

Example – A manager expects and demands bonus from his/her employer because he/she has learnt about such practices from friends working in other companies or he/she may have read about it in a newspaper or book.

A third force that makes the practice of outsourced HR services a popular option is the increasing inroad of IT and modern communications systems in the management of human resources. Availability of low-cost IT and communication has been making the need of collocation of HR service designers and the service users, i.e., the employees superfluous. An external HR service provider could generate such standardised services and sell them too many similar organisations.

As a result of high volume generation, it can support major technological investment which will reduce the organization’s operating cost substantially. Benchmarking of internal processes including HR processes allows one to learn from the good practices of others and avoid the costly exercise of learning by failing. But acquiring and processing this market-related HR information requires specialized dedicated employees which an organization can find too costly because such information is used only occasionally.

Further, since market practices change continuously, an organization spends considerable amount of resources to keep track of those changes which may be used only once in five years. The areas that mark such rapid standardization are employee search services, developmental resource for specialized expertise, industry practice for employee performance appraisal system, compensation and incentive practices in similar industries, and employee management for low value standardized jobs.

An external vendor, because of its dedicated business in these areas, is likely to have better knowledge about such market practices than any single organization. By outsourcing these services from outside, an organization can enhance the knowledge intensity of its HR personnel.

HR Outsourcing – Outsourcing of HR Services: Hiring Services, Developmental Services, Performance Management, Compensation and Benefit Management and a Few Others

Under pressure of competition, a company not only increases its purchase of manufactured parts and services generated by other companies but also considers many other innovations for outsourcing new areas of its internal processes. Human resource outsourcing is one such new area which is going for external servicing.

Like many other support functions, the human resource function is also going through major changes in terms of its content, processes, and outcomes. Concerns for more strategic use of a company human resources and demands for developing their competencies in line with the company long- term business goals are growing.

Faced with increasing pressure on its margin, many are trying new kind of employment relations where employees work side by side with different types of employment contracts. There has been increasing demands and suggestions for using new methods for evaluating direct contribution of human resource management services in a company business.

Among these varieties of innovations, perhaps the most radical and notable is the process innovation of human resource management outsourcing whereby a company buys either a part or the full requirements of its human resource services from an external vendor. Even in emerging industrial markets like India, the presence of this business process innovation of HR outsourcing is being increasingly felt.

However, unlike outsourcing of other areas of a company’s internal processes, e.g., maintenance, catering, or IT services, which can be defined and described clearly and can be put into a contract with relatively limited risk on company performance in other areas, the same cannot be said about human resource services.

Human resource services involve the total organization and any inconsistency, shortcut, or opportunistic behaviour on the part of the service provider will seriously impede a company’s long-term competitive advantage. Further, when a vendor makes a contract for supplying certain physical objects or goods, he/she can exercise full control over when and how much of the goods are to be sent to a client’s premise.

But the same cannot be said when a vendor makes supply contract for providing employee services to a client. A vendor or a client has little control over the quality of service given by the contracted employee sent by the vendor.

Company human resource-based competitive advantage is sustainable because it is difficult to duplicate by others. It cannot be replicated because the critical sources of such competitive advantages cannot be seen and can only be managed by undocumented and invisible cultural instruments that are developed over a period of time. Nevertheless, under pressure of competition, outsourcing of HR services is making steady in-roads into business process.

Choice of Services for HR Outsourcing:

Organisational competitive advantage originates from the generation of unit or group level capabilities that emerge from sharing and exchanging of knowledge by different employees. These sharing processes are facilitated by careful deployment and development of employees based on internal assessment of individual employee expertise, aspirations, and personal dispositions.

It is the relational capital of the employees that make them perform efficiently while the same employees may fail to deliver if placed in another group. This relational history between employees are purely tacit knowledge driven and cannot be placed on a contract.

It can only be handled by someone with considerable experience with the employee concerned and the culture of the company. In other words, HR services of a company can be outsourced as long as the responsibility of capability generation is still in the hand of the internal managers.

While outsourcing an HR service to an external agent, an organisational competitive advantage is less likely to dissipate as long as this tacit part of the HR service is kept intact within the internal managers who are familiar with the culture of the company and are bound with the organization under a long-term contract.

Accordingly, the following processes can be adopted for outsourcing a few of the HR services from outside:

1. Hiring Services:

Recruitment and selection are the human resource services through which knowledge carriers from outside are brought into a company. External market gets its supply of human resources or knowledge carriers mainly from three sources, viz., the households, academic institutes, and industries. All those people who look for jobs are available in different types of markets. Prospective employees search for jobs using varieties of means and media.

As such there are varieties of markets where an employer can find its employees. These potential employee markets differ not only in terms of number and qualities of employees available but also in terms of willingness of a new hire to continue the employment relations with the company for a good many years.

With varieties of people joining the labour markets at different stages of their career, organisations find the task of reaching out to the right market for hiring a few good quality employees who will stick with the company for some number of years a very costly and risky affair. It requires good amount of investment to keep track of changing employee profiles of different markets. Furthermore, an employer may use such market specific knowledge assets only occasionally.

Further, with the growing entry of varieties of employment practices, these characteristics of the employee market are also changing very fast. Much of the activities required to get a few potential employees who show interest for the company positions are highly repetitive and are amenable to computerisation.

Thus, specialised agencies have developed data base of potential employees of various kinds which a company can use to fill up its position at a much shorter time. This is one of the reasons why employee search service is one of the first human resource services that has been outsourced to external vendors.

However, a company that hires its potential employees through outside vendor must take adequate protection against losing its competitive edge through such suppliers. There are various ways by which organisational knowledge asset and source of competitive advantage can diffuse to competitors. Firstly, the vendor may be sending the same list of employees to you and the competitors or may be sending better list of candidates to your competitors.

This means the average characteristics of the potential employees received by both the companies can be very similar. Under such conditions, human resource-based competitive edge can be protected only by keeping the selection part of the employee hiring service in the hand of the internal line function. Within a common average there is room for wide variations among the potential candidates.

Only a human learning system that is non-mechanical and tacit knowledge driven can spot the presence of such variability in a pool of candidates. Since organisational capability is generated from the joint efforts of a group of employees, by keeping this final choice in its hand, it ensures that a selected employee has the required learning capability and social relational skills compatible with other employees.

In other words, though explicit knowledge about market is bought from outside but its conversion into tacit knowledge useful for the company is still kept in the hand of the internal management.

Similarly, for a company where employee diversity is one of the essential requirements for implementation of its business policy, the employee selection must incorporate assessment of additional characteristics of the potential employees. This can be done only if the final selection is still kept in the hands of the management.

2. Developmental Services:

In the area of outsourcing of external developmental resources, companies buy explicit market developed knowledge. Since there are many other organisations who are experimenting with newer innovations in the area of management processes, an organization can enhance the capability of its employees by giving them exposure to those practices of other companies. Further, there are economy of scale in acquisition and compilation of such information.

And, some organisations, e.g., academic institutes, professional manpower training institutes specialise in such information acquisition, structuring, and presentations to prospective learners.

However, if an organization straightaway uses the same external knowledge for its internal employee development, then it will not get any competitive advantage over the competitors. In order to gain competitive advantage out of an externally designed and delivered explicit knowledge, an organisation again should use a human learning system to convert such explicit knowledge into internally useful tacit knowledge.

This conversion of externally purchased knowledge into internally useful tacit knowledge can be effective if the choice of learner is not left to the external vendor but is managed by the internal managers who are well acquainted with the employees. Such a choice must take into account not just the company requirements of trained employee but also the ability and aspirations of the learners.

Not all employees are willing to acquire new knowledge nor do they have the same ability to internalise them and work as a source of learning to others. Both requirements of development for a particular area and the person who should be developed must be left in the hands of the line function manager who is familiar with the long-term strategic goals of the company and the expectations and abilities of the potential trainees.

Before sending a group of employees to any externally provided developmental programme, an organization should carry out a thorough internal learner identification.

Further, by placing a group of selected employees that has gone through a common learning programme together, it cannot only increase the scope for conversion of such externally acquired explicit knowledge into internally useful tacit knowledge but also ensure that such externally procured organisational knowledge capital will not diffuse easily.

3. Performance Management:

Organisational performance evaluation involves measurement at three levels, viz., at total organisational level, at group or at departmental level, and at individual employee level. Performance information or data at total organization and at group or department level are mostly explicit knowledge intensive and their measurements are less controversial though there can be a few areas which are tacit and personalised knowledge intensive.

As such a company can outsource evaluation of those parts of its organisational and departmental performance that are explicit knowledge intensive keeping the subjective and qualitative part of the assessments in-house.

In the area of individual employee assessment, the scope of outsourcing is extremely limited because much of these assessments are subjective and tacit relational knowledge intensive. However, individual performance assessment uses tools and techniques which are being continuously improved upon and are explicit knowledge intensive.

These markets or industry specific knowledge, e.g., the format of performance appraisal system or the weights given to different types of measurements, viz., economic results, observable behaviour or personal traits, can be outsourced. An organization can learn from the practices of other companies doing business in the same industry.

The benefit of such external sourcing of measurement format is that a company can acquire the design of a successful company in the same industry without spending much in its actual design.

However, the actual outcome from the administration of a formal performance evaluation system depends not only on the format used for such measurement but also on the way it is applied for assessing the performance of an individual employee, i.e., the way performance data is generated. This execution part of performance evaluation is mostly tacit knowledge intensive and must be handled by someone responsible for supervision and observation of the employees.

It is through the action of the internal line function, the explicit knowledge driven performance evaluation form gets converted into usable knowledge in the company. Since such measurement involves extensive use of prior experience of the line function manager and mostly driven by the internal culture of the company, such knowledge cannot diffuse easily to competitors even though the format for measurement has been bought from a third party.

4. Compensation and Benefit Management:

Compensation is an important part of the human resource services which ensures supply of adequately skilled manpower to the company and to its various positions. Unless the compensation for various positions are adequate to remunerate the qualification and experience that is required for the job, it may fail to attract the right people for those positions and it will be harder to retain such employees for long.

Since the main utility of a well-designed compensation is to attract and retain employees in the organization, it is important that the compensation system and method are as per the practices of its competitors. This means an external designer of a compensation system can perform a better job than an internal expert. Since such external vendors provide similar services in many other organisations, their design and practices reflect the prevailing market practices well.

Further, for ensuring consistency across many other employees and fairness in compensation of any employee, compensation growth is generally linked with a few indicators including educational qualification, work experience, and performance results. Though performance assessment process is tacit knowledge intensive but the outcome of such a process is an explicit knowledge or data.

Naturally, once a compensation formula has been decided, an algorithm can be used to write a software program that is administered repeatedly for calculating the compensation of all the employees. And, the system administrator doing the job of calculating employee compensation need not be working in the company. In other words, it can be contracted out to a third party with sufficient technical skill and modern IT infrastructure.

5. Reward and Incentive Management:

Rewards and incentives are used to encourage employees to go beyond their call of duty. A good reward system not only attracts the right kind of employees into the organization but also encourages them to work in such a way that organisational capabilities are maintained. A reward that is well linked with the achievement of objective outcome is a powerful motivating force for employees to work hard and show the desired behaviour.

However, for most managerial positions such objective outcome is available mostly at the unit and group level. There are only a few positions for which an employee’s actual contribution to organisational goals can be related directly with the incumbent skill, competency, and motivation. This means an organization is able to outsource reward management at group and unit levels but not at the individual level.

The advantage of such outsourced reward management is that a supplier can bring in lot of expert knowledge from the market and provide a reward system that is being used in the industry.

However, even if the reward at group level is driven by explicit knowledge there is still the tacit knowledge driven reward when such group-level rewards are distributed among the members of a team. Trust among members and faith and confidence on the leaders ensure that such internal distribution of rewards based on the leader’s personalised knowledge about individual employee competence and contribution will not encourage development of destructive inter-member competition or jealousy.

Thus, the key to maintenance of competitive advantage is the trust and faith on the internal culture of the organization and the team. This is possible when a leader knows the members well and is in turn well accepted by them.

6. Specialised Consultancy Services:

Consultancy is a fast growing service business in many countries including India. There are a number of reasons why this business has been growing so fast. Firstly, many big multi-functional, multi-product companies occasionally find a glaring mismatch between manpower required and the manpower available both in terms of number and quality in different departments. This happens because organisational processes have inertia and are often hostages to their past successes.

Very few organisations can change their internal policies and fewer can change their departmental manpower allocations in the same pace as that of the external environment. The presence of different interests groups with their distinct powers and pulls gives shape to any change in an organization’s policies.

Faced with the growing burden of operating cost and declining share of a company’s products in the market, a management team often looks for an objective and neutral assessment of internal functional departments. High inter-departmental rivalry often makes it difficult for an internal expert to arrive at any valid assessment of these internal functions.

Secondly, survival and growth in a competitive environment requires fast learning and adoption of good practices of others. Innovation is a risky and costly exercise. But a company can reduce its risk and cost of adoption by learning from the experiences of others. This has been making the bench marking of organisational practices with competitors quite a popular move.

There are specialised consultancy organisations which collect, process, and sell such organisational process-oriented information. With growing importance of process innovation and risk in such innovations, the market for consultancy services is certain to expand very fast.

7. Management of Employment Relations for Low-Level Jobs:

Apart from outsourcing of selective parts of human resource management services, another type of HR outsourcing is emerging as a new development where Company A allows another Company B to manage its entire department or division. Company B will bring its own employees in Company A premise and supervise them while they are working there. The contract of Company A is only with the owner of Company B.

In any big manufacturing or service company, there are lots of jobs that are required for its business but are not directly related to its main business. Let us take a ship building company employing over 5000 employees. For providing tea, coffee, and food, it needs a big canteen facility. This canteen has to engage as many as 50-60 employees to prepare and serve food and drinks to its various departments.

For running the company, these services are essential but their relations with its main business are not direct and the effects of service failure from these departments on the company market performance are not immediate. In the past, many of these services were managed through internal departments and controlled through hierarchy.

But the problem of having such a remotely related activity as a part of a ship building activity is that if a manager overseeing such activities may not gain any knowledge that can be utilised in other departments of a ship builder that are directly related to ship making. As a result, a manager who has worked for say ten years very efficiently in overseeing a catering service in a ship building company will not find a befitting position in the hierarchy. He/she will reach a career ceiling very quickly.

The net effect is that no good manager will be interested in working as a Canteen Manager if he/she finds that there is no further growth in that line. As a result, these types of unrelated service areas are fast going for contract employment.

Unlike a consultancy service which is a temporary job, a contract employment is good for those areas of business where the jobs are of permanent nature but the services are in non-core areas of the company. A vendor or contractor generates the services in the client premise using all the facilities required for service generation. A contractor will provide only the employees.

Such externally served services are good arrangement both from the point of view of the client organization and from the point of view of the employee who is engaged by an external vendor. The external contractor can engage a large number of employees and managerial staff to provide similar services to many other companies and use a separate specialised managerial hierarchy to supervise workers.

And, from the client’s point of view, it can redeploy its employees more on those services that generate knowledge and competency in line with its core business. Thus, most manufacturing and service companies have started engaging external vendors mostly in their own premise to get a lot of their low end services, e.g., maintenance services, IT management, security services, catering services, through contract.

Apart from this core versus non-core analysis that prompts companies to go for external servicing of certain functional areas, contractual employment of worker has been found to be quite popular in certain industries. Seasonal industries, e.g., woollen garments industry cannot afford to have too many employees on its permanent roll as its main business varies widely over different times of the year.

Industries that operate on a project mode, e.g., building construction industry will engage a lot of workers on contract basis because its demand for workers varies according to the project cycle time. BPO industries go for contractual employment because many of them are heavily dependent on a few clients. If at the end of its present contract, a big client does not renew its contract, then they cannot keep the employees engaged.

On the other hand, if they are engaged by a contractor then they can be redeployed in another BPO firm by the contractor. In India Team-Lease Service is a big contractor who provides lot of employees to BPO companies.

Industries that are highly export oriented are very susceptible to frequent slump of demand for their goods and services caused by international business cycles. During a recession, the net worth of any such organization whose business is heavily dependent on international markets could get wiped out in a short time if it has to cam- the full burden of its employees that it hired during the boom time.

There are varieties of regulation mandated payments for regular employees, e.g., benefits and welfare which are fixed irrespective of whether a company has any business or not. In order to protect it from the burden of statutory payment for employees without any job, these industries hire a large number of employees under contract category whose payment burdens could be avoided by not renewing their contracts at the end of the current period.

HR outsourcing has the following benefits:

1. Risk reduction and transfer (employment legislation is becoming ever more complex and the penalties for noncompliance potentially business-threatening)

2. Flexible solutions and costs (scale-able up or down quickly)

3. Access to broad skills and experiences

4. Enable in-house HR to focus on strategic matters

5. Remove non-operational distractions from the line

6. Access to industry best practice

7. Remove pressure to recruit, manage and motivate a diverse in- house HR team

8. Give Employees a stronger career path

9. Increase commitment and energy in non core areas

10. Turn fixed cost into variable cost

11. Reduce costs to superior provider performance and provider’s lower cost structure

12. Gain market access and business opportunities through the provider’s network

13. Commercially exploit the existing skills

14. Expand sales and production capacity during periods when revenue expansion could not be financed

15. Accelerate expansion by tapping into the provider’s developed capacity, processes and systems.

16. Generate cash by transferring assets to the providers

17. Reduce investment in assets and fee up these resource for other purposes

18. Improve operating performance

19. Improve management and control

20. Improve risk management

21. Acquire innovative ideas

22. Improve credibility and image by associating with superior providers

23. Obtain expertise, skills, technologies that would not otherwise be available

24. Enhance effectiveness by focusing on what you do best transform the organization

25. Increase product and services value, customer satisfaction and share-holders value

26. Increase flexibility to meet changing business condition, demand for product and services and technologies

27. Provide increased efficiency;

28. Help maximise organization resources;

29. Provide cost savings, in some cases;

30. Help public-sector organisations keep up with the latest technology and innovations; and

31. Provide improved service.

32. Allow HR practitioners to focus on their core non-administrative functions;

There’s no doubt that HR outsourcing for public-sector organisations is on an upward trend — witness the state of Florida’s recent $280 million, seven-year deal to outsource its human-resources functions to a company that will take over such tasks as benefits and payroll administration and recruiting and training.

But before agencies dive into outsourcing, they need to be prepared with some basic knowledge – They should have a good idea which functions can be outsourced and which are core or strategic functions that need to stay in-house; they should thoroughly investigate numerous outsource vendors to find the right match; and they should have clear and realistic expectations about why they are outsourcing and what the cost savings.

The desire to outsource is often brought on by the need to trim costs or upgrade to a new system. Sometimes the necessary resources are not available in-house. And sometimes an agency simply wants to be able to free up personnel and time to focus on its core, strategic activities. Providing better service is usually right up there at the top of the list of outsourcing objectives.

But public-sector organisations need to keep a clear focus on their objectives. Outsourcing does not automatically lead to cost savings. And, just because you outsource your payroll function, for example, does not mean you can forget about it. An outsource vendor needs oversight and involvement from the agency that hires it. In a recent Conference Board study (sponsored by Accenture), the key finding was that HR outsourcing is only going to grow.

“Nobody [who participated in the study] said they were taking things back in-house,” says study author David Dell. “It’s a one-way street, and the momentum forward is growing,” he adds. Although the Conference Board study focused on large corporations, public-sector organisations can find useful information in the findings as well.

According to Dell, organisations looking to outsource should understand the implications of outsourcing for your organization and get good advice and counsel, because a lot of things can go wrong. For smaller agencies and organisations that don’t have a lot of resources to invest in new technology, HR outsourcing can be the solution, where the outsource company puts the dollars into technology research and development, says Dell.

The Conference Board study mirrored general trends, finding that transactional or administrative HR functions are the most commonly outsourced. However, as they move toward comprehensive outsourcing, companies are expressing an interest in outsourcing strategic functions as well, including employee communications, HR information systems (HRIS), assessment and recruiting.

HR Outsourcing – 8 Internal Common Barriers and Some Other Barriers

According to “HR Outsourcing Trends” by the Conference Board, the following are the most common internal barriers to outsourcing:

1. Questionable cost/benefit justification;

2. Inadequate readiness of people and systems;

3. Organisational resistance from within HR; and

4. Inability to manage relationships with outsourcers.

5. When an organisation outsources an activity, it also gives up a considerable amount of authority. It does not have complete control over the outsourced activity.

6. Outsourcing may turn out to be cheaper in the present context, but there is a risk involved because outsourcing costs may go up in the future.

7. Outsourcing when associated with downsizing may tarnish a company’s image.

8. Outsourcing may be a demotivating force for the existing employees of the company because of the fear of losing their job or loss of control.

The same study found some other common barriers with outsourcing include:

(a) Lower-than-expected service levels;

(b) Loss of control;

(d) Difficulties managing the provider;

(e) Higher-than-expected (hidden and escalating) costs;

(f) Employee resistance; and

(g) Cultural differences.

HR Outsourcing – Future Development: Outsourcing and Technology, Managing the Outsourcing Relationship Restructuring and Outsourcing and a Few Others

Organisations are focusing more on their core competencies. This, coupled with techno-structural changes has made the role of the HR-manager vital for the organisation. There are various future development that have to be dealt with before and after making the outsourcing decision.

Some of them are:

1. Outsourcing and Technology:

Technology is one factor that has changed the HRM domain. Emerging technologies like HRIS (Human Resource Information System), application software (Oracle HRMS) and self-service human resource packages have changed the way HR-services were being administered. Organisations that were unable to keep up with technological changes decided to outsource their HR activities.

2. Managing the Outsourcing Relationship Restructuring and Outsourcing:

There is a need for specialists who are good at managing the outsourcing relationship. The specialist should strengthen and nurture the relationship over a period of time and this requires considerable experience and foresight on part of both the parties. The relationship should encourage a culture of knowledge sharing and mutual learning.

3. Monitoring and Evaluating Vendor Performance:

Before the HR activity is outsourced, the performance standards for the activity have to be conveyed to the vendor. External consultants can be consulted to develop performance standards. There is a need for frequent communication between the outsourcer and the vendor. In order to enhance performance, the organisation can also resort to schemes where it shares the amount saved due to reduction in compensation claims with the vendor.

4. Role of HR Manager:

HR managers today need to have multiple skills. They should be adept at solving business problems apart from managing human resources. They should play an active role in the formulation and implementation of business strategy. HR managers who are generalists and can fit into any role are in short supply. Because of the lack of availability of HR generalists, organisations may resort to HR outsourcing.