HR Outsourcing

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 HR services:

• 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 solution..

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."