Cost is often the main driver behind hr outsourcing. However, organisations are now realising that this route can also bring other benefits, including improved service standards among others. In his article in HR Magazine entitled “Hr outsourcing: It’s not all about the money”, Brett Ryder explained that with the exception of those businesses that are new to hr outsourcing and which are mostly driven by the need to reduce costs, others are now looking into hr outsourcing for other reasons to bring in broader business improvements within their organisation.
In support of the this argument, Ryder starts by quoting Paul Sparrow, director of Lancaster University Management School’s Centre for Performance-led HR who stated: “It is very difficult to identify clear trends as the behaviour of organisations is so situational. Even in the same sector you could have two large multinationals of the same type taking fundamentally different approaches because there are so many internal structural factors involved. Companies are looking at their own circumstances and taking their own decisions.”
Sparrow further argued that one reason why organisations are now taking a variety of approaches is that they have realised that cost savings and other potential benefits are not automatic – not least because hr outsourcing can add significant business complexity. This, in turn implicates that HR buyers need to take into consideration internal political and cultural organisational factors when deciding on whether hr outsourcing will work in their own organisation.
“The cost pressures are still there… but there is no simple answer. HR professionals have to look at their own model, their own organisational culture and then make a decision about the likely benefits that might result,” he maintained.
In addition, Ryder quotes Bharat Vagadia, who is on the board of the National Hr outsourcing Association and who explained that while cost savings are “a given” and remain the driving force behind most deals, buyers at organisations with hr outsourcing experience are starting to look for other benefits as well. As a matter of fact, some multinationals are now looking at hr outsourcing as a way of standardizing processes in areas such as payroll, benefits management and recruitment across all their global locations.
“It is more a question of how you can help me make HR more strategic rather than how you can help me save money,” he explains.
Having said that, Ryder points out the hr outsourcing provider Accenture where this change in focus is not happening fast enough. Accenture recently published a report that concluded that 60 per cent of organisations using HR outsourcing (HRO) do so primarily for cost reasons, while a mere 20 per cent are what it calls “high performers”, that in many cases have outsourced their entire function.
“We were hoping that the number of high-performing business process hr outsourcing (BPO) engagements would be a little higher – we would like to see the market move a little bit more aggressively that way – but the data is the data,” explained Jill Goldstein, HR BPO offering lead at Accenture. She added: “What makes that 20 per cent different is that they are more connected to the business and they think of hr outsourcing as something that can be used to do more than move transactional services to someone else’s care. For example, they want to see how it can be used to support business growth.”
Goldstein further explained that the people in that 20 per cent usually fall into one of two categories: 1) Those with a trusting, collaborative relationship with their provider, who have spent time transforming the part of their HR function retained in house so that its skills and experience complement the hr outsourcing arrangement; and 2) Those who were on a “burning platform” and turned to Accenture for rescue. The latter still counts as part of the top 20 per cent, primarily because the provider defines high performers as those who get the most out of their BPO arrangements.
In his article, Ryder explained how some other hr outsourcing providers are seeing a change in the motivation of HR Outsourcing buyers. In this regard, he quotes Philippa Kilgannon, head of Vista HR services, and Paul Willis, the managed-services director at MidlandHR, who both identify a demand for service improvement.
“A lot of customers are looking not just to improve costs, although that is always part of it, but for an additional level that allows them to achieve different things,” says Willis.
Kilgannon added: “Buyers are much more strategic about it. Rather than saying ‘let’s outsource all of HR’, they are identifying the services that they do not believe are adding the strategic value to the business that they should.”
“They are more specific in what they ask for, they have more commercial awareness and they are more accountable to the business for what they achieve,” Kilgannon concludes.
However, Mel Missen, HR vice-president for Europe, the Middle East and Africa at Axciom Corporation, a multinational marketing business, is sceptical about the idea that HR buyers are becoming more strategic; however he argues that the driving consideration for HR should be first and foremost its customers.
“It is definitely not about cost saving,” he says. “You can save costs as a consequence, but if you start from that premise you are prioritising the wrong thing. You start with what your customers want, what they value and you look at whether you can offer that internally or externally, and which way brings better value.”
“Hr outsourcing some things makes sense, as it frees up resources, allowing in-house HR to concentrate on the areas where it can add most value to the business. Too many HR teams think about what’s good for them, rather than what it is that their customers want,” asserts Missen.
Ryder explains that Missen is not a fan of extending the shared-services concept into the employee-relations arena, arguing that managers struggling with a personnel issue want support from someone with a face, who can provide ongoing advice over the days or weeks it takes to resolve the situation. In this regard, Missen commented: “A lot of businesses are looking at HR to be co-leaders, and you can’t do that if you outsource everything.
“I look to outsource the staff I regard as transactional because, first, the work can be done mechanistically and, second, you can apply a standard across many different countries and know that it will be met because of the service-level agreement.”
Finally, Ryder explained how Missen has also outsourced benefit and pension management for a mixture of financial and quality-related reasons.
“The cost of the outsourced service is negligible because the provider takes its fees out of commission from end suppliers, so the actual cost to us of hr outsourcing it is peanuts. And because we are letting experts deal with these things, the employee is actually getting much better value for money,” says Missen.
In conclusion, Ryder quotes Martin Rayson, president of the Public Sector People Managers’ Association and director of HR and organisational development at the London Borough of Barking and Dagenham, who stated: “What organisations have done is to look at how they can reduce cost internally. They have not seen hr outsourcing as a panacea. They want to take out the cost and keep the savings themselves, rather than seeing any of that saving taken by a third party.”
“But we are at a point where future cost savings have to be made, and organisations will look at ways that they can make these reductions, while protecting the quality of the service they can provide. These options may include hr outsourcing, but we do not see necessarily one silver bullet that will solve our problems. It’s about looking (at all the options) pragmatically.”
