HR needs to accept that outsourcing is inevitable

It’s true to say that the market expected the HR business process outsourcing phenomenon to take off more rapidly after the early adopters announced large UK deals in 2000-2001.  BP, BAE Systems, BT, Cable & Wireless and a number of local authorities started the trend, but that seems to have led to only a trickle of follow-on deals.

Yet there have been a number of significant additions to the list, including General Motors, which outsourced HR across Europe for its 75,000 employees; Proctor and Gamble, which outsourced a number of functions including 700 HR employees; and Avaya, which  outsourced its global employee service operations.

So why is there a misconception that outsourcing has not taken off, especially as analysts such as the Yankee Group indicate that global HR business process outsourcing was worth £27.3bn in 2004 and is expected to grow to £42.8bn by 2008?

Perhaps it’s all about definition. Maybe there has been less integrated HR outsourcing but an increase in single service  line deals that are rarely termed ‘outsourcing’.  Employment law advice, training, delegate management, recruitment, pensions administration and benefits have been outsourced for years, but only payroll has been labelled as outsourcing. The trend in single service line outsourcing is growing rapidly, however.

So why are people doing it? There are obviously high profile reasons; no more so than across the public sector where Sir Peter Gershon’s report has put pressure on all departments to drive efficiencies in the back-office and at the BBC where the governors are under pressure to provide licence payers with value for money.

More generally, HR directors and business partners are looking for:

  • time to spend on attraction, retention and development
  • service improvements to deliver quality to their customers
  • cost reductions across the back office functions; standardisation of processes
  • compliance with increasingly complex legislation
  • the efficient use of technology investment
  • multi-channel access to services via face-to-face contact, telephone, employee and manager self-service, fax and e-mail.

These things are often impossible to deliver quickly without outside help and investment. Yet many HR directors are still hesitant to move immediately to ‘full-scale’ integrated HR outsourcing as some of the early adopters did.

Many have a vision to make the transition to integrated services over time and are now dipping their toes in the outsourcing pond – starting with HR administration, recruitment, payroll or benefits, with other services to be added as the relationship with the provider strengthens.  Although this approach may dilute the scale of early benefits to the customer, it often helps to speed up internal buy-in and approval.

My advice, when taking this approach, is to ensure that you choose a partner who shares your vision. Many providers claim to have the ability to deliver integrated HR services, but few have the breadth and proven capability to do so.

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