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Choosing to Outsource -- and Choosing the Right Outsourcing Vendor -- Allows HR Professionals to "Focus on the Core"

Experts have long maintained that by outsourcing certain nonessential HR functions, companies stand to reap significant rewards. Some of the more visible benefits can include:

* Reduced costs;

* Improved service delivery;

* The ability to focus on core business; and

* An opportunity to leverage expertise not available internally.

HR outsourcing has grown more prevalent during the past five years, and the trend is continuing. For instance, industry research forecasts that HR and benefits outsourcing is expected to generate nearly $60 billion by 2005.

Who Bears the Burden of Benefits Administration?

Let's briefly outline the fundamental differences between insourcing and outsourcing, from a plan sponsor's perspective:

* Outsourcing places the responsibility for the continuous improvement of a company's HR and benefits administration in the hands of a provider whose core competency is human capital management. In addition, the administration provider assumes the challenge of recruiting, hiring, training, and retaining the specialized human capital management talent necessary.

* Insourcing prevents an external service provider from managing all the human capital and processes for a company's HR and benefits administration by placing that responsibility entirely in the hands of the company's internal human resources department.

According to HR Outsourcing Trends--a survey conducted by The Conference Board involving HR vice presidents, CFOs, and CEOs from 165 companies--the two most commonly outsourced activities were transactional and administrative HR functions. Ranking below those processes are employee communications, HR information systems (HRIS), assessment, and recruiting.

Today, organizations realize they must reduce their HR costs while improving service. For many companies, outsourcing has become a key part of their HR strategies. However, determining which, if any, HR functions should be outsourced can be challenging.

To ensure the best HR strategy, companies should evaluate the potential benefits of outsourcing and consider business drivers, such as reducing costs, improving service delivery, and maximizing internal resources.

Deciding to Outsource HR Functions

Selecting an outsourcing provider is a daunting task, to say the least. Before deciding to outsource, companies should conduct an assessment of their internal resources. For some companies, outsourcing the bulk of their transactional HR functions--including recruiting, benefits administration, labor relations, payroll, and compensation--to a single provider is the best solution. Many find managing a single vendor to be easier and more cost-effective than managing the day-to-day HR administrative functions.

According to The Conference Board's survey respondents, the most important criteria for choosing an outsourcing provider were:

* Guaranteed service levels;

* A proven track record;

* Guaranteed cost savings; and

* A compatible corporate culture.

Clearly, cost savings is just one of several factors companies should consider when outsourcing. Variables such as efficiency and reliability must be carefully evaluated as well. Other important variables cited in the survey responses were the provider's professionalism, expertise, and technological efficiency.

A company's relationship with an outsourcing provider is typically a long-term partnership. As a result, companies should consider:

* The accountability of the provider;

* Whether the provider has a schedule of ongoing process improvements (e.g., Web-enabled HR processes continually upgraded with the latest technology); and

* Employee satisfaction levels.

Achieving the Desired State

After successfully making the business case for outsourcing, companies need to set clear expectations for the outsourcing process, especially in the following areas:

* Quality of service delivery;

* Direct/indirect impact on employees; and

* The provider's ability to handle the complexity of the organization.

By outsourcing administrative services to a provider whose primary business is delivering such services, in-house HR professionals will be free to pursue more strategic HR functions, or what is commonly referred to as "focusing on the core."

According to one survey respondent, "Outsourcing has reduced the time we [HR professionals] have to spend on transactional activities so we can focus on the value-added responsibilities of HR." As HR professionals spend less time on transactional work and more time making strategic contributions, the visibility and value of HR as a whole will increase.


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From India, Mumbai
Interesting article. Our organisation is using a "shared service" model which seems to be somewhere in between a fully in-house and outsourced approach.
Related agencies (in this case Police, Courts, Correctional Services, Emergency Services, Attorney-General's) are contemplating a shared HR service where resources are pooled and HR functions undertaken from the shared service.
There are all the usual controversies about a shared service not understanding the business of each agency, fear of job losses etc etc etc. Similar complaints you might expect with outsourcing, and maybe they have some merit.
There is a definite tension between the executive view of efficiencies and the staff view of security and the need to retain internal expertise.
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From Australia, Ballarat
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