Realistic HR Outsourcing:
Go Slowly But Safely
Human Capital Management:
What the C-Suite Needs to Know About Benefits
By David Creelman

Billion-dollar outsourcing contracts always make news. “Company A” decides to outsource its entire human resources function in a long-term deal, generating excitement and momentum throughout the industry. In reality, though, such deals are not realistic. Most organizations lack the financial resources, not to mention the risk tolerance, to even consider end-to-end outsourcing.

The logic of HR outsourcing is fundamentally sound, but companies must decide whether to gradually hand off HR processes or try to do everything at once.

Knowing that an incremental approach is possible, however, does not mean it will be easy. There is preparation to do before you outsource the first HR function.

Laying Out the Path
Many organizations have been following the outsourcing trend for years, albeit for more mundane functions such as payroll, benefits and other administrative tasks. But experts say there is a move under way to use outsourcing for more strategic functions, such as employee training and recruitment.

“Develop a business case so you have a clear understanding of the potential value,” says Ed Trolley, vice president of learning outsourcing at Dallas-based outsourcing vendor Affiliated Computer Services. “That means analyzing the current state of HR and comparing it to the desired future state.”

This involves balancing the potential benefits of outsourcing with your organization’s appetite for change. Committing to a timeline isn’t necessary, but you need to appreciate how outsourcing will unfold and the potential benefits to be gained. Avoid jumping in and outsourcing functions gradually without first having a well-thought-out plan.

“A good first step is often outsourcing training,” says Christine Timmins Barry, senior vice president of HR management at outsourcing vendor Convergys, based in Cincinnati. “It’s low risk, and you get immediate access to world-class training, e-learning and automation.”

Trolley says many companies feel their training investments are not providing sufficient value. This underscores the need to better manage training — something in which outsourcing vendors specialize.

“Develop a business case so you have a clear understanding of the potential value.
That means analyzing the current state of HR and comparing it to the desired future state.”

- Ed Trolley, Vice President of Learning Outsourcing, Affiliated Computer Services

A growing number of companies are beginning to use technologies to outsource some of their recruiting functions, experts say. Many companies are dissatisfied with their applicant tracking system and struggle to find the money it takes to continually update these systems. An outsourcer thus could provide economies of scale for recruiting technology.

Outsourcing any piece of HR requires a sound vendor strategy. Piecemeal outsourcing will lead to a multitude of deals with different vendors, which is impossible to manage. The choice of the vendor needs to be guided by the long-term plan, not the immediate project.

Getting Your House in Order
It is advisable to set the stage for outsourcing by getting HR processes tidied up and building an organizational capability to manage outsourcing projects.

Experts in the outsourcing industry identify two models: “lift and shift” and “transform and transfer.” In the former, the outsourcing vendor simply takes over a client’s existing HR processes. In the latter, processes are cleaned up before being transferred to the outsourcer.

“We don’t believe in ‘lift and shift,’” says Timmins Barry. “‘Transform and transfer’ is a much better approach.”

Good outsourcing firms can study existing HR processes to see where there is breakage or inefficiency.

“The good thing about transforming is that you can find rich rewards before you outsource,” Timmins Barry says. The second part of setting the stage is developing a skilled outsourcing team to manage vendor relations, legal issues, overall governance and service-level agreements. These people need to be capable of leading change and communicating plans. None of these things is trivial; outsourcing can have a big impact on an organization, so there needs to be a management infrastructure that can cope with that.

Outsourcing is not a magic solution for every HR problem, but the momentum toward selective outsourcing is unmistakable. Organizations that are good at it have happy and productive outsourcing relationships. A little investment in preparation goes a long way.