May 26 2005 - Outsourcing basic human resource services
can be the key to achieving a more influential and strategic role for the
HR function. However, a new executive briefing from the CIPD also concludes that:
- the decision to outsource needs to be carefully considered,
- will not be right for all, and
- considerable effort needs to be devoted
to ensuring a smooth transfer of responsibilities.
Written by Professor William Scott-Jackson, Tim Newham and Melanie Gurney of
the Centre for Applied HR Research, Oxford Brookes University, the report -
HR Outsourcing: the key decisions - draws on the experiences of 17 organizations that
are either outsourcing HR services or have considered the possibility and
rejected tt. The report is intended to offer practical guidance to HR and non-HR
professionals responsible for developing and improving the
delivery of HR services in their organizations.
Vanessa Robinson, organization and resourcing adviser at the
Chartered Institute of Personnel and Development (CIPD), said:
"People management plays a crucial role in delivering organizational
performance. In today's modern, knowledge economy this is more
true than ever before. The decision to outsource HR services is
therefore not to be taken lightly.
"However, there are many circumstances in which outsourcing HR
services can deliver tangible benefits to the organization, for example
freeing HR professionals to devote more time to a strategic role in
supporting organisational performance."
Advantages and disadvantages of outsourcing
The report identifies a number of 'strategic drivers' for outsourcing
- Reducing costs: Key determinator in many outsourcing decisions,
but should not to be considered in isolation from other costs/ benefits;
- Increasing effectiveness of HR delivery: Experienced outsourcing
providers can often deal with HR processes more effectively. For example, recruitment may
be undertaken more quickly, reducing employee turnover costs and speeding up the pace of growth;
- Providing greater expertise: External providers may offer greater levels
of specialist knowledge or experience than affordably available in-house;
- Moving HR up the value chain: Outsourcing human resource administration
can lead to a shift in HR focus towards policy and decision making;
- To aid organizational growth: Fast-growing organizations
can lack the HR capacity to deliver business objectives, making HR outsourcing an attractive
The report warns against regarding HR outsourcing as a panacea for organizational
problems. The potential pitfalls include:
- According to the report, handing over unnecessarily complex or badly
understood systems to to an external provider can be like "picking up spaghetti". This
limits potential benefits from outsourcing. If processes cannot be
improved before a move, the organization may have to
accept off-the-shelf replacements that are not specifically geared to their needs.
- The greatest financial benefits of outsourcing often come from
using sophisticated software. If effective IT systems already exist in-house, cost savings
may not be achieved from an external provider;
- Good employee management practices remain essential, and
the key relationship between staff and their line managers remains
in-house, leaving plenty of work on manager / staff relationships
that still has to be handled despite the outsourcing relationship;
- Local knowledge and ownership of human resource
processes could be lost.
Vanessa Robinson continued:
"The decision to outsource HR services is a complicated
one. Cost reasons alone are not sufficient to drive the decision.
Decision makers need to ask whether there is a need to change
the way the HR department operates and review existing provision. This
review needs to consider cost, administrative efficiency and
HR policy strategy and expertise. Where gaps are identified,
organizations need to consider whether these are best solved by
minor tinkering or major transformation.
"It must also not be forgotten that a transition from in-house
HR provision to the use of an outsourced provider is a significant
change for the organization, and must be managed accordingly. If
significant time is not devoted to the process of change, with
unequivocal top-level support, there is a danger that staff / line
manager relationships and other aspects of people management
policy may be neglected."