Thursday 21 Jun 2012
HR outsourcing – fad, experiment or value?
Everyone seems to have an opinion on HR outsourcing (HRO). Their viewpoint is often coloured by their experiences. For some who survived the big adventure of outsourcing HR lock, stock and barrel, it has proven a highly expensive and often far from truly successful experience. For others, the journey has not proved one they wished to complete. Frequently not fully understood, a full-service HRO was only ever available to the super-league corporate players, those already well accustomed to working in an ERP environment.
Full-service HRO certainly did not prove the panacea many expected, although that did not prevent it becoming a fad; a small number of corporates have managed to make it successful, although the journey for both customer and vendor has been one of learning on both sides. As those now shopping around with a more critical eye have established, based on the experiences of others, there is however true value to be gained by outsourcing part rather than the whole of HR.
So what are the principal reasons for HRO? To gain access to better supporting HR technology, to identify and recruit better skills sets, to standardise service across operations and to reduce costs and improve efficiencies within the HR function.
Acquiring better technology can help achieve the changes you want, as the technology elements are often best-in-class and up to date. The result will certainly drive more rigour into your HR decision-making as you will, as a minimum, be able to plan and budget better.
Full HRO on recruitment may be difficult for an outsourcer to deliver effectively if the recruitment process does not properly reflect the culture of the employer. However, workforce/labour management can make a real difference. For example, we recently identified for a client that five per cent of its workforce was paid outside of "strict HR pay guidelines" by local managers frequently using their own discretion (and never in the company's favour!).
In our experience, you can get a much better return on your investment by cherry picking which HR activities you outsource, namely the time-consuming, administrative, transactional activities. Any good provider should help you with the business case. With the recent acquisitions in the HR technology market, ERP vendors are also looking to substantially reduce the large costs normally associated with ERP implementations and to access more agile technologies. This has been a trend in this market and will continue to be so. This trend is enhanced by the current move in the market to Software-as-a-Service (SaaS) approaches, which further reduce total costs and allow faster implementations (albeit forcing customers to adopt the constraints imposed by the SaaS solution chosen).
The most valuable option, in our opinion is the one of selective HRO process outsourcing. This results in the ability for a customer to choose either specialist HR software bundles, or alternatively 'best-of-breed' in each area outsourced. This specialism ensures a keen focus on HR deliverables and therefore often better end services for customers' employees. The one thing to be very aware of is that the costs of stitching the various different 'best-of-breed' IT solutions together can be huge - often substantially more than the IT investments themselves.
What is definite today is that, when approached properly, HRO is now delivering value as buyers become more aware of the issues, risks and opportunities. Vendors are also able to understand where buyers really need help, where the end customers see value and where to demand they standardise to keep costs down. Vendors are now able to see more clearly the long-term business cases for themselves, allowing a continued investment path for their customers.
So the main lesson to be learned from the past is not to outsource HR in its entirety. The HR function needs to always keep hold of strategy, an area it quite rightly is very protective of, needs to retain people policy and anything that impacts the organisation culturally. What HR should outsource (and only to a quality provider) are all the transactional activities that support its activity to allow it to focus on the HR development journey in support of organisational goals. Done in this way, HRO can add value to the companies, their employees and the vendors - driving improved business results, and put the HR team in the driving seat.
Chief People Officer