HR chiefs lose outsourcing powers to finance and CEOs

HR chiefs have lost control over making outsourcing decisions, as finance directors and chief executives look to rein in costs during the recession, research has revealed.

A study of 250 senior HR professionals by outsourcing firm Ceridian in January, seen exclusively by Personnel Today, found that just 20% of HR directors had the ultimate say in outsourcing recruitment, payroll and benefits in their organisation. Nearly a third (31%) of the decision making went to CEOs or managing directors, while finance directors accounted for 13% of HR outsourcing arrangements.

Steve Joyce, head of marketing at Ceridian, said financial uncertainty had changed the landscape of the business world and the decisions made within it.

“We now see the finance director going into departments like HR at the behest of the HR director to see if there are areas that can be trimmed,” he told Personnel Today. “The credit crunch has left no business function untouched, and it is clear in some organisations now that HR directors are not masters of their own strategy.”

Joyce added that HR had essentially “held its hands up” and admitted it could not make such bottom-line decisions aloof from other departments, needing the help of finance and/or chief executives to offer business-sound advice.

However, some HR practitioners approached by Personnel Today expressed shock at the findings.Sonia Wolsey-Cooper, HR director for insurance giant Axa UK, said she was surprised at how few HR directors were in charge of outsourcing decisions.

“An organisation’s decision to outsource (or not) HR services should fall under the strategic mandate of the HR director,” she said.”Such decisions need to take due account of an organisation’s people strategy, efficiency and quality measures, and this assessment is best sponsored by HR.”

Nigel Godbolt, HR director for logistics firm Ryder, agreed that HR managers should be in charge of outsourcing their functions, but conceded finance should play a big part in the final decision.

But outsourcing providers have expressed concern over the rise in non-HR professionals negotiating deals.

Patricia Taylor, HR outsourcing director at Logica, said: “Increasingly we are being approached by purchasing departments who treat the service like buying raw materials or office supplies, which hurts the negotiation process and can waste valuable time.”

OPINION… Roger Barker

Ultimately, a board of directors has to make a judgement on all aspects of a company’s activities, of which HR is one – an important one, but just one.

Yet companies should think long and hard before eliminating people or important in-house functions like HR from the decision-making process, and try to take a long-term perspective.

However, in a worst-case scenario, it might be necessary to find ways of cutting costs, and these decisions may involve the HR department.

As an HR director, and a member of the board, one’s allegiance is to the business rather than a particular department or managerial function.

HR directors should look to find a solution that makes the most sense for the business as a whole.

In a recession, sometimes it is not possible to take a long-term perspective, especially where firms are really facing an emergency, and it becomes a matter of survival to cut costs wherever they can.

Roger Barker is head of corporate governance at the Institute of Directors.

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