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1. The HR activities that are essential but cannot be done differently from competitors are being outsourced to reduce costs and complexities of internal operations. Companies have seen expenses drop by as much as 20 percent or so by moving the administration and transactional tasks outside.

2. Total revamping of the HR delivery system using improved technology. Many businesses are implementing automated employee self-service system that allows employees to do most of HR clerical work themselves.

3. Outsourcing ensures confidentiality, accuracy, quick response time, fewer administrative tasks for the firm. Many companies handle transactions slowly, unreliably and expensively. Many have no idea that they handle their transactions slowly, unreliably and expensively. Others may have the inkling, but lack hard information to support it. Once a company outsources its HR, it can track these services and hold the supplier accountable through penalties in the contract.

4. Outsourcing provides HR executives more time to spend on strategic issues like team-building, cultural alignment, competencies enhancement etc.

5. BPO offers companies the opportunity for smooth and rapid implementation as well as acceleration. BPO is scalable; that is the provider has the ability to expand service promptly at minimal costs.

6. Outsourcing any activity provides access to new skills and fresh insights. Expertise of the supplier and quality of service were the top advantages in influencing the outsourcing decision.
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There are some interesting issues raised in this posting. But I would like to temper the strength of some of the statements made. In doing so I hope to show that whilst outsourcing can be the right decision, it isn't always.

My overall point in this response is to suggest that in making any decision, base it on as many facts as possible, and be very sure that you have found all the root causes and major factors that contribute to the current state of internal HR operations, and that you consider all available options, both current and future (what will organisation strategy require from HR in 1,2,3 or 5 yrs time?)

Outsourcing certain HR activities MIGHT reduce costs and complexities of internal operations. SOME companies have seen expenses drop in the INITIAL stages. I believe there are several aspects to this decision process:

1 - Reducing costs

2 - Impact on employees of their perceived value

Tackling the costs issues first I suggest that the decision the organisation needs to take is "in outsourcing certain HR functions will I reduce the overall costs to my organisation?"

To be able to answer this question further questions must be asked:

"Is it cheaper for me to improve the effectiveness and efficiencies of my internal HR processes or is it cheaper to outsource?"

"As a result of this improvement will the operating cots of my enhanced HR service be cheaper than the outsourced solution?"

"What are the hidden or less obvious costs that might be INTRODUCED as a result of outsourcing?"

I am working with an organisation that has just effectively outsourced its entire operational HR function in order to save money. It now discovers that it needs to change some of its key HR processes in order to maximise the use and value of a new enterprise-wide management IT system, and it needs to introduce additional steps in to the HR processes in order to get data that is currently not available.

The outsource company, which has taken on the HR staff from the original organisation (this is quite a normal feature) is holding out for more money, and the staff that were transfered are not interested as they feel betrayed by the organisation that outsourced them because they have been left with reduced benefits through the transfer.

With the second issue I raise, that of perceived value of the employees - employees are now getting a WORSE service in their own minds because whilst response times are quicker, the quality of the assistance they get is much reduced, and they are beginning to be dealt with by people in the outsource supplier organisation who don't know or understand the customer organisation.

As a result retention is becoming an issue and the organisation is spending more money now recruiting replacements for those unhappy staff who have left (there are other reasons of course why people leave, but when you take them all together, the outsource of HR is a major factor). The total costs of the outsourcing, inability/delay in making best use of the new IT system and the extra recruitment costs to address retention issues are considerably MORE than if they had not outsourced.

Of course, they didn't KNOW this was going to happen because they didn't fully research and look in to all their options and the consequence of each. Senior management rushed in to making a poor quality decision. In my experience this is quite common.

I'm also working with an organisation where they did research and investigate fully, still did the outsource and it has been a huge success, not just financially, but for the employees too.

It cuts both ways - just beware the potential problems!

The use of self-service HR so employees can do their own basic HR clerical admin and answering of basic questions is a great use of technology, improves the service provided and frees up HR resource to focus on more strategic value-adding tasks - great all round.

So long as the IT is up to the job - designed to be used by humans, not designed solely by IT 'geeks' - luckily the quaity of systems today is excellent.

The trouble comes when you have a large number of people who are based in the field (i.e. away from an office) and who don't have ready access to IT - they need a human being to do stuff for them - so you need to provide some form of contact centre perhaps, which adds significantly to the overall costs, but is a good solution.

Outsourcing CAN ensure confidentiality, accuracy, quick response time, fewer administrative tasks for the firm, but as I've pointed out before, it's not guaranteed. Many companies handle transactions slowly, unreliably and expensively. Many have no idea that they handle their transactions slowly, unreliably and expensively. Others may have the inkling, but lack hard information to support it. This is very common in my experience.

Once a company outsources its HR, it can track these services and hold the supplier accountable through penalties in the contract. But it doesn't have to outsource just to be able to track its services. Any good organisation should be doing this for all its key processes anyway. Trouble is, very few companies are 'good' in this sense, and in HR particualrly, my experience is that when things are measures and tracked, they don't give much useful information about the critical aspects of the HR function or early warning of impending trouble.

Whilst outsourcing CAN give HR executives more time to spend on strategic issues like team-building, cultural alignment, competencies enhancement etc, arguably they shouldn't be doing the clerical admin tasks in the first place (I assume that executive here means senior HR advisors/manager).

Again, whilst business process outsource (BPO) can provide smooth implementation and access to enhanced expertise, like any other operation, the benefits are not guaranteed.
Well there are many advantages of outsourcing HR processes.There are companies like Datamatics which offer various solutions for HR related activities like Payroll management and Employee life cycle management.As a result of which the HR functioning becomes very efficient.Here is the link for details ( HR Business Process Outsourcing Management Services - Datamatics Financial Services )
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