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Outsourcing: How Much Should HR Give Up?

Outsourcing: How Much Should HR Give Up?

Human Resources via Yellowbrix

November 23, 2009

It was Wallis Simpson, the Duchess of Windsor, who is credited with saying “you can never be too rich or too thin”, but in the world of outsourcing, can you really reach a point where you can trim off too much fat and be left the poorer for it? This is the question outsourcing suppliers and buyers do not always want to ask. In theory, outsourcing makes perfect sense: HR directors reduce costs and – in theory – offload the more procedural, often distracting work to enable them to focus on top-level strategic planning.

But how far should outsourcing really be taken? Is there a point at which HR risks debasing its standing in the business and diminishing the strength of its voice because of the reduction in what remains in-house?

The problem with coming up with an answer is while it is received wisdom outsourcing allows HR directors to concentrate on more strategic matters, the reality is not always so clear-cut. Recent CIPD/Leeds University Business School research found outsourcing frequently fails to relieve pressure on the internal HR team, with 43% of respondents citing the process as a failure in this regard. Worryingly, the same research showed only 7% of respondents declared outsourcing to be an ‘all-round success’ with almost as many (5%) going so far as to slam outsourcing as delivering no success at all.

There is also a degree of disparity between anticipated cost- cutting and the actual savings made once outsourcing has been implemented. Talent management company Ochre House conducted research that found companies expect outsourced savings of 37% but they actually only save 18%.

Ochre House’s managing director, Sue Brooks, believes in the current economic climate there are a lot of organizations that view outsourcing as a magic bullet that can help solve their financial problems overnight. As a result they end up being disappointed.

“At present too many HR departments still think in terms of letting control of important areas go outside the organization,” says Brooks. “However, if external suppliers can be brought into true strategic partnerships the opposite is true. The value of HR moves from an operational cost center to a strategic business partner, able to impact on the enterprise in the form of revenue uplift, market share, etc.”

Gillian Hibberd, corporate director, people and policy, Buckinghamshire County Council, believes good partnerships lie at the heart of successful outsourcing. The council has outsourced its recruitment to Hays and Hibberd cites “good communications and quality reporting” as fundamental in achieving reduced costs and improving the quality of candidates recruited. “We are considering outsourcing options for a range of other services including HR,” she adds. “The budget pressures we face mean we have to look at the most economic and effective way of providing services. Often there are other sectors that can achieve greater economies of scale than we can.”

However, getting things right first time is tougher than many imagine. PA Consulting Group research has shown two out of every three European HR outsourcing contracts go through a significant renegotiation in the early part of the arrangement.

“The fact so few believe HR outsourcing to have been a total success should not be a surprise,” says Tim Palmer, PA Consulting Group’s lead in HR transformation. “All outsourcing is inherently hard to make work, and HR is particularly hard. This is principally because the definition and scope of the function varies so wildly from company to company. Also, because HR has traditionally been under-invested, the business case is weaker.”

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