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Dave Foxall HR Outsourcing: The Top 6 Frequently Asked Questions

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 By Dave Foxall

HR Outsourcing is All Around

Human Resource outsourcing is a global phenomenon and a mainstream business practice. Whatever the scale—from a single process such as payroll processing, benefits management, talent acquisition, or RPO (recruitment process outsourcing)—to the wholesale farming out of the complete HR function (through comprehensive business process outsourcing), many organizations are now finding it desirable to outsource some part of the HR function. In fact, in just the UK alone, a 2010 AccountancyAge white paper, Payroll Outsourcing states, "It is conservatively estimated that around 95% of businesses in the UK outsource at least one of their business processes." Drivers for this phenomenon typically revolve around the economy, efficiency, or specialization/downsizing; however, when it comes to contemplating HR outsourcing and choosing a provider, many questions still loom large. In order to shed light on the HR outsource process, and answer those outstanding questions, HR Lab has culled through to find and present this list of the top 6 answers to the most frequently asked questions (FAQs).

HR Outsourcing FAQ #1: Is it cheaper?

Potentially it is likely to create savings; after all, the standard process overheads are being spread across multiple clients. A 2011 HR Outsourcing Association's report (Are You Ready for RPO?) highlights one specific cost saving area by commenting that, "RPO is the most efficient and cost effective way to conduct talent acquisition." However, the report also warns against viewing recruitment process outsourcing solely in cost terms. "If you do, you will only be doing basic talent acquisition and won't find the quality of people you are looking for." If the only motivator is budgetary, "then you are bound to run into stresses between the outsourcer and the employee," says the Hackett Group's Stephen Joyce. Indeed, more and more outsourcing (and HR shared services and offshoring) is being driven by potential service quality improvements as well as cost-cutting.

HR Outsourcing FAQ #2: Does service quality suffer?

A key service efficiency seen in effective HR outsourcing relationships is that the client company is encouraged to review its processes (for simplicity and ease beforehand). Ian Hunter at Orion Partners comically elaborates, saying "When transferring overly complicated or poorly understood systems, an outsourcer may feel like it is trying to pick up spaghetti." The transition may the drive (or force) a streamlining process—often to the client's benefit. On the other hand, a 2011 Forbes article raises a different concern, "Outsourcers are moving away from the model of providing unique solutions for each client. There is a push toward providing a largely standardized offering." This can mean that some providers expect the client to cater to them and not the other way around.

HR Outsourcing FAQ #3: What is the impact on employees?

Care must be taken to ensure that employees perceive the benefits of outsourcing HR processes. In HR Goes Offshore, Forbes observes, "Should employees find they can't get the support services to which they are accustomed, expect to hear an outcry. At the same time, they are likely to approach their local HR department demanding assistance. HR may end up providing the service that the outsourcer won't." As such, a change management program that can effectively communicate the specifics of the service changes and their benefits, and is necessary to motivate employees to embrace the new delivery channels.

HR Outsourcing FAQ #4: What makes an ideal provider?

The HR Outsourcing Association's above mentioned paper recommends that providers offer, "improvement of processes, monthly reporting, management information, knowledge of people and channels, and flexible capacity". Another factor cited by large enterprise customers of HR outsourcing was simply labelled as "chemistry"—highlighting the ever-present need for culture alignment and organizational fit in this type of relationship. In fact, it is an incredibly important factor to have a provider that shares similar values and understands the philosophy and culture of the client in order for success to be achieved. Such common ground leads to a relationship in which processes can be improved via partnership rather than conflict.

HR Outsourcing FAQ #5: Who are the major providers?

In their HRO Annual Report of 2011 – The Revival of the Multi-Process HRO [MPHRO] Market, the Everest Group used a PEAK matrix (Performance/Experience/Ability/Knowledge) to identify Accenture, ADP, NorthgateArinso, Aon Hewitt and IBM as market leaders. The same report found Genpact, HCL, Neeyamo and Xchanging to be emerging players.

HR Outsourcing FAQ #6: To offshore or not to offshore?

Obviously, outsourcing to a service team located in a different country can offer huge cost reductions as advantage is taken of cost-of-labor differentials. The Everest Group found that multi-process HR offshoring continues to increase with India remaining the most popular location, chased by Southeast Asia and Eastern Europe. However, offshoring comes with potential language barriers. Even with complete fluency in the client's language of use, the offshore team may encounter communication difficulties with accent or differences in vocabulary use—and oftentimes the more complicated and technical the subject, the greater the potential difficulty. Of course, this shouldn't rule out the offshoring option completely, but it does raise particular concerns for the selection stage. As Hackett Group's Stephen Joyce says, "For HR support, you need to negotiate a different sort of service level agreement than for finance. You need different measures of quality". Offshoring is an issue that is rife with potential pitfalls for quality measures, so do your homework upfront to find out exactly where those trouble spots are for your organization.

HR Outsourcing – The Emerging Future?

To leave the last word to the Everest Group's Rajesh Ranjan, "Cost reduction remains the top driver for MPHRO adoption; however, managing compliance, greater alignment between HR and business, and access to technology are increasingly important." Now and in the future, organizations are looking to HR outsourcing to deliver more than a simple budget reduction; outsourcing has become a significant business improvement tactic. End

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A 2011 Forbes article raises the concern that, 'Outsourcers are moving away from the model of providing unique solutions for each client. There is a push toward providing a largely standardized offering'.


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