Outsourcing HR: How It Can Cut Costs and Free Up Time for Strategic Focus

Outsourcing HR Activities

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 by moving the administration and transactional tasks outside.

Revamping HR Delivery Systems

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

Benefits of Outsourcing

3. Outsourcing ensures confidentiality, accuracy, quick response time, and 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 an 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.

Strategic Focus for HR Executives

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

Advantages of BPO

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.

Access to New Skills and Insights

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.

There are some interesting issues raised in this posting. However, I would like to temper the strength of some of the statements made. In doing so, I hope to show that while 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. Consider all available options, both current and future (what will organization strategy require from HR in 1, 2, 3, or 5 years' time?).

Outsourcing HR Activities

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 cost issues first, I suggest that the organization needs to decide, "In outsourcing certain HR functions, will I reduce the overall costs to my organization?"

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 costs 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 organization that has just effectively outsourced its entire operational HR function to save money. It now discovers that it needs to change some of its key HR processes to maximize the use and value of a new enterprise-wide management IT system. It needs to introduce additional steps into the HR processes to get data that is currently not available.

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

Perceived Value of Employees

With the second issue I raise, that of the perceived value of the employees—employees are now getting a worse service in their own minds. While 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 organization who don't know or understand the customer organization.

As a result, retention is becoming an issue, and the organization 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 outsourcing of HR is a major factor. The total costs of the outsourcing, inability/delay in making the 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 into all their options and the consequences of each. Senior management rushed into making a poor-quality decision. In my experience, this is quite common.

I'm also working with an organization 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 of the potential problems!

Use of Self-Service HR

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

As long as the IT is up to the job—designed to be used by humans, not designed solely by IT 'geeks'—luckily, the quality 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 center perhaps, which adds significantly to the overall costs, but is a good solution.

Ensuring Confidentiality and Accountability

Outsourcing can ensure confidentiality, accuracy, quick response time, and fewer administrative tasks for the firm. However, 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 organization should be doing this for all its key processes anyway. The trouble is, very few companies are 'good' in this sense, and in HR particularly, in my experience, when things are measured and tracked, they don't give much useful information about the critical aspects of the HR function or early warning of impending trouble.

While 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, while business process outsourcing (BPO) can provide smooth implementation and access to enhanced expertise, like any other operation, the benefits are not guaranteed.