HR outsourcing can enhance strategic role of HR professionals

Outsourcing of HR services is one potential route by which HR functions can take on a more strategic and influential role within their organisations, but the decision needs to be carefully considered, will not be right for all, and considerable effort needs to be devoted to ensuring a smooth transfer of responsibilities. These are some of the findings of HR Outsourcing: the key decisions, a new executive briefing published by the Chartered Institute of Personnel and Development (CIPD).

The report draws on the experiences of 17 organisations that have either outsourced HR services or have considered this route and rejected to it. It offers practical guidance to HR and non-HR professionals with responsibility for developing and improving the delivery of HR services in their organisations.

Vanessa Robinson, organisation and resourcing adviser at the Chartered Institute of Personnel and Development (CIPD), said:

ìPeople management plays a crucial role in delivering organisational performance. In todayís modern, knowledge economy this is more true than ever before. The decision to outsource HR services is therefore not to be taken lightly.

ìHowever, there are many circumstances in which outsourcing HR services can deliver tangible benefits to the organisation, for example freeing HR professionals to devote more time to a strategic role in supporting organisational performance.î

The research identifies a number of strategic drivers for outsourcing HR services:

Reducing costs: A key determinator in many decisions to outsource, but not to be considered in isolation from other costs and benefits;

Increasing effectiveness of HR delivery: HR processes can often be carried out more effectively by experienced outsourcing providers, for example recruitment can be undertaken more quickly, reducing the costs of labour turnover and speeding up the pace of growth;

Providing greater expertise: Outsourcing can secure greater levels of specialist knowledge or experience than affordably available to many organisations in-house;

Moving HR up the value chain: By outsourcing HR admin, the focus of HR delivery can be shifted to a model driven by the desire to focus more clearly on policy and decision making;

To aid organisational growth: Either rapid organic or acquisitive growth can leave an organisation with insufficient HR capacity to deliver business objectives, making HR outsourcing an attractive prospect.

However, the report warns that HR outsourcing alone will not necessarily solve organisational issues. Potential pitfalls include:

Transferring poorly understood or overly complicated systems to an external provider can be like ìpicking up spaghettiî, limiting the potential for any benefit from the move. Processes need to be improved before outsourcing, or the organisation may have to accept that existing processes may be replaced with new ones not specifically tailored to the organisation.

Cost savings associated with outsourcing frequently come from the use of sophisticated software, so where effective IT systems already exist, cost savings may not be delivered;

Good employee management practices remain essential, and the key relationship between staff and their line managers remains in-house, leaving plenty of work on manager / staff relationships that still has to be handled despite the outsourcing relationship;

There is a risk that local knowledge and ownership of HR processes could be lost.

Vanessa Robinson continued:
ìThe decision to outsource HR services is a complicated one. Cost reasons alone are not sufficient to drive the decision. Decision makers need to ask whether there is a need to change the way the HR department operates and review existing provision. This review needs to consider cost, administrative efficiency and HR policy strategy and expertise. Where gaps are identified, organisations need to consider whether these are best solved by minor tinkering or major transformation.

ìIt must also not be forgotten that a transition from in-house HR provision to the use of an outsourced provider is a significant change for the organisation, and must be managed accordingly. If significant time is not devoted to the process of change, with unequivocal top-level support, there is a danger that staff / line manager relationships and other aspects of people management policy may be neglected.î