When outsourcing is mentioned, most people immediately think of cost savings, headcount reductions and off-shoring. However, that has not been the experience of PlusHR, a niche, UK-based HR and payroll outsourcer. Stuart Hearn, Director at PlusHR, explains the reasons why organisations choose to go down the HR outsourcing route.
The most common reason cited by organisations, when they are considering outsourcing to us, is to improve the quality and service of their HR function. Frequently, the organisation will have grown over time, perhaps through acquisition, and the structure and processes of the HR function no longer match the needs of the organisation. In this situation, HR outsourcing can be an attractive alternative to undertaking a major process redesign project, particularly where the organisation lacks the specialist process improvement skills required to implement successful change. By building process analysis and redesign into our outsourcing implementation approach at PlusHR, we are able to help our clients achieve a measurable increase in service delivery and quality, without the cost of hiring external process improvement consultants.
Implementing new HR technology
In order to gain the required improvements in quality of HR service and information, a new HR system with employee and manager self-service is often required. However, the costs of implementing new HR technology can often be prohibitive. Many outsourcers, including ourselves, provide a self-service HR system to clients as part of the outsourcing package. This can provide a cost-effective way of introducing a new HR system into the organisation, as it normally requires no up-front capital expenditure. We find that technology companies, in particular, are attracted to the benefits that HR self-service can offer when combined with outsourced HR.
Start-ups and small organisations
Managing HR is a particular challenge for start-up organisations and small companies experiencing growth. Just like any large organisation, these companies ideally need the skills of an HR Administrator, an HR Manager, a payroll specialist and a recruiter – yet will normally only have the budget for one HR head. Increasingly we are seeing start-up companies moving away from the traditional model of hiring one HR person who is expected to handle everything, towards an outsourced approach. A typical outsourcing package for a small organisation will provide them dedicated, specialist HR, payroll and recruitment resources, which they share with other clients, along with a self-service HR system. This enables them to have a fully functioning HR department for a similar cost to employing one in- house HR generalist.
Focusing on strategic activities
There has been a drive in recent years to get HR professionals to focus on strategic activities and become a true ‘business partner’ to the organisation. However, in practice, this vision has often not been realised. Frequently, HR Manager roles have merely been re-named HR Business Partners and have retained their responsibilities for overseeing HR Administration, meaning they have limited time to focus on ‘value added’ tasks. Outsourcing the administrative elements of HR is therefore becoming an increasingly popular way of enabling the ‘business partner’ model to work in practice. This is illustrated by a 2009 CIPD survey, which found that 65% of respondents who had outsourced part of their HR had been able to adopt a more strategic role. Furthermore, a well run outsourced HR Administration function should also be able to produce high quality management information, providing Business Partners with thedata they need to make strategic, people management decisions.
We are seeing a notable increase in the number of organisations wishing to outsource to us for compliance reasons, particularly within financial services or subsidiaries of US companies who fall under Sarbanes-Oxley compliance legislation. Our experience of the reasons behind this is that these organisations often need to make a major shift in culture and processes in order to achieve the necessary compliance and they see outsourcing as an easier route to achieving this, compared with trying to change long-entrenched, internal practices and politics.
Why is this the case? Psychologically, when a person deals with a third party company as a customer in every day life – when making a banking transaction or taking out car insurance, for example – they fully expect to have to follow the process required by the third party. Therefore, when an organisation outsources an HR process and its employees are dealing with an outside organisation, they are more likely to accept that things have to be done a certain way, thus increasing compliance. Additionally, as outsourcers, the nature of our business forces us to be compliance-focused. If we do something for a client that has not been fully approved, or the process has not been properly followed, then we are potentially liable. Because of this, organisations that wish to increase their compliance are attracted to the structured processes that outsourcers provide.
And finally…saving money!
All of this is not to say that we never encounter organisations that are considering outsourcing in
order to reduce costs. We still do, but it is by far the least common reason in our experience. There is now a growing understanding amongst potential clients of the difference between outsourcing and off-shoring. Organisations for whom significant cost saving is the major driver tend to look towards off-shoring as a means of achieving this, either via an in-house, off-shored service centre, or via an outsourcer with service centres in countries where labour is cheap. However, the pitfalls of such arrangements have been much publicised recently and organisations that choose to work with us say that they are attracted to the fact that our operation is entirely UK-based. A UK-based outsourcer will never be the cheapest option, although that is not to say that cost-savings cannot be made. Well thought out processes and good use of HR technology can produce significant efficiency savings.
The advice that we always offer to potential clients when considering outsourcing is to be clear about their reasons for wishing to outsource and to prioritise those reasons. Is it about improving quality and service, increasing compliance, investing in new technology, or is it just about saving money?