Outsourcing

When done correctly, a sound outsourcing strategy will maximize the return on internal resources by enabling the organization to concentrate on its areas of core competence and greatest business relevance. It will allow the organization to fully leverage the expertise, investments, innovations, and specialized capabilities of external suppliers that, in most cases, would be prohibitively expensive to duplicate internally. It also allows HR to focus on activities that add to the bottom line.

When developing the outsourcing strategy for your organization, consider these key recommendations before focusing on what to outsource:

HR process expertise is critical

As organizations begin to seek solutions to specific challenges in HR management and optimization, a deep knowledge of HR processes and programs is turning out to be more valuable than focused expertise in technology design and administration.

IT suppliers know technology, not the nuances of benefit programs, and are focused on using a single system to support multiple clients with minimal customization. Often, program specifics and idiosyncrasies are not discussed or uncovered until the implementation is underway. Suppliers with HR program and legislation expertise will first look at the program, then the processes, before they map them to the system capabilities. Their objective is to keep the program intact, make the processes more efficient, and minimize implementation costs.

Specific costs and ROI will be required

Finance is taking a far greater role in HR operations. Any recommendations regarding changes to current operations (including sourcing and technology) will require an ROI analysis. This is not just the softer side of the ROI equation – regarding service delivery – but the harder side around current and future cost savings.

Breadth and/or depth of services will be required from outsourcing partners

Service providers should have access to a wide variety of integrated services along the HR value chain, as well as deep delivery capabilities in terms of technology, processing, and consulting services.

What to outsource?

The most common functions to outsource vary by region. Benefits administration is the most prevalent in the US, while a significant percentage of Asian organizations (22%) plan to outsource benefits administration in the next three years. In Canada, the most common functions to outsource are training, pension administration, and relocation services.

Across the outsourcing spectrum, three trends stand out:

1. Business process outsourcing (BPO), where entire business processes (including managing existing service providers and contracts) are supported by an outside vendor, is the fastest growing sector of outsourcing.
2. Within the business process outsourcing industry, HR outsourcing has the predominant market share and is expected to grow significantly through 2006 and beyond.
3. The prevalence of Shared Service Centres is growing. A Shared Service Centre is an integrated model that supports many functions across an organization, utilizing common structure, technology, and processes. This would normally include HR, payroll, accounting, and legal.

There is no question that outsourcing can contribute to a sound HR operating model – the root to effective execution of the HR strategy. But not all outsourcing projects are successful. The effort required to understand emerging trends and the key factors affecting success should be well worthwhile.