Outsourcing inspires fear and admiration in equal measure among British workers, managers and HR professionals alike.
The term is often perceived as primarily a cost-saving business function, but with the recent growth in HR outsourcing and a number of high-profile disasters, the people management element in the pro-cess is more important than ever.
Outsourcing is now established as a standard business practice and recent research shows that almost half of all employers believe it is commonplace. A study by recruitment firm Manpower suggests that 68% of businesses use outsourcing, with 64% claiming it has saved them time and money.
The public sector is a particular boom area for the outsourcing industry with the value of contracts set to reach more than 60bn in 2006-07.
The often-maligned ‘offshoring’ trend continues to rumble on, with 81% of large employers planning to increase the number of jobs moved overseas in the next two to three years, according to a survey of 100 senior UK executives by offshoring consultancy TPI.
However, as the popularity of outsourcing has increased, there have been many examples of what happens when it goes wrong, creating a trail of disillusioned employees and generating numerous negative headlines.
In fact, a study by business consultancy Deloitte found that 70% of employers had experienced significant difficulties with outsourcing and were left disappointed.
One of the key problems is that HR professionals are not involved in the process early enough and the people aspects of the deals are often overlooked.
Rory Murphy, director of HR outsourcing at consultancy Morgan Chambers, insists that HR must take a more proactive role in the whole process.
“Firms tend to look at the people element last, but this needs to be reversed,” he argues. “HR should help to determine the architecture of the outsourcing process, playing a major role at the outset.
“Employers need to be able to explain the benefits and the business case for outsourcing. There should be a cohesive communication process throughout – that’s a major part of it,” he explains.
Alan Warner, corporate director, people and property at Hertfordshire County Council, has a great deal of outsourcing experience and believes that it is set to become a big part of the HR scene, especially in the public sector.
“The likelihood of this getting bigger and bigger is very strong indeed,” he says. “It’s partly due to this drive for efficiency and the fact that companies out there can provide a good service.
“The key thing to remember is this mixed economy is supposed to be a partnership and that’s how it should work if it’s going to be a success,” Warner says.
KPMG on recruitment
Professional services firm KPMG decided to outsource part of its recruitment function after a sudden surge in demand for financial services necessitated a large increase in the size of its UK workforce.
The financial jobs scene had been entrenched for some years until an unexpected rise in the world’s markets last year led to a talent war between the major professional services firms.
KPMG needed to find 90 experienced financial professionals, on salaries of up to 100,000, at a time when all it’s competitors were looking for exactly the same type of candidates.
Keith Dugdale, director of recruitment and resourcing at KPMG, says the company wasn’t prepared for the sudden upsurge in recruitment activity and found itself in a fight for the limited number of professionals available.
“KPMG, and our competitors, had cut back on recruiting people. When demand for financial investment services returned, we quickly realised that there simply weren’t enough skilled professionals to meet the needs of every organisation.
“We had been using conventional means of recruitment, but given the number of vacancies we needed to fill, we decided to look at an outsourced solution.”
In a break from the traditional model, outsourcing firm Capital Consulting sent its own staff into KPMG to help transform the recruitment process from within. The company managed to find 79 new staff in just three months and reduced agency costs by 17%.
It was crucial that the outsourced team worked internally, says Dugdale, so they could be at the heart of the process, while still keeping in close contact with the new recruits and the rest of KPMG.
“In this way, the business continually learns from the recruitment process, which helps us strengthen our employment proposition further,” he adds.
Vauxhall on performance management
A global drive for greater efficiency and productivity in the hard-pressed motor industry forced the HR team at Vauxhall to overhaul the way it assessed managers on corporate objectives.
A new set of ‘cultural priorities’ across parent company GM had rendered the existing paper-based system obsolete, and Vauxhall needed a robust process that could help to align behaviour with these new objectives.
Performance had to be managed sensitively because of the potential impact on pay and benefits, so head of planning and development, Richard Pennington, felt it was crucial to bring in a third party. This ensured the system was impartial, confidential and more acceptable to staff who would be giving 360-degree feedback on colleagues and managers.
“Our revised approach to performance management has come to be trusted by our managers and the process has helped us to create a culture where feedback is seen as valuable,” Pennington says.
“The use of online tools has significantly contributed to improved performance management and the development of our managers,” he adds.
The new system helped to drive up appraisal completion from 15% to 92%, while more than 90% of employees now feel they can provide honest feedback.
The performance measurement was outsourced to talent management consultancy Getfeedback, which gave individuals the opportunity to initiate the process themselves, monitor their feedback and essentially self-manage the appraisal process.
“This feeds into the talent management process, pushes out the importance of a performance-driven culture and is part of the focus to move towards leaner, more technology-savvy people processes,” Pennington adds.
DC Leisure Management on HR
DC Leisure Management wanted an external company to manage its HR function after a period of sustained growth meant that its internal personnel arrangements were under massive pressure.
The company, which employs 7,000 staff, operates local authority leisure facilities and decided to go for an outsourced HR solution because of the cost benefits.
Group payroll manager Nick Browne was previously responsible for all HR matters, but felt that outsourcer Northgate could provide greater expertise and reduce the administrative burden on existing staff.
The deal also provided the leisure services firm with high-level advice on a major restructuring programme and helped management to deal with huge peaks in the demand for staff in the summer.
“With the constantly changing employment laws and the many Transfer of Undertakings (Protection of Employment) Regulations issues we have to deal with, it was far better to outsource our HR function. Because of the nature of the business and the growth we encountered it also made financial sense to get help from an outside company,” he says.
Northgate now provides strategic advice as well as administrative support, contracts, training, absence management and performance management for the company, which recruits more than 1,000 staff each year.
Browne adds: “Outsourcing provides us with a single department for what is a disparate business spread around many leisure centres across the country. This gives us expertise and saves money.”
Tips on outsourcing
Nigel Roxburgh, research director at the National Outsourcing Association, outlines the central HR issues for outsourcing
Organisations must know exactly what they want from the deal and be aware of their current performance. “Too many organisations rush into outsourcing without any real strategic thought. You need to know where you are and where you want to be. The real problem is visualising exactly what is needed up front,” Roxburgh says.
There must be a clear and concise plan for any outsourcing deal. “Companies must bring together a business case that all parties can understand. There should be proper costings of current and proposed systems and a clear idea of the procurement system to be followed.”
“This is crucial and HR must consult with all stakeholders, especially staff. This is where a lot of companies go wrong. Employees need to be part of the process and communication is a core part of the overall strategy.”
Timing and planning
“HR needs to be involved from the very start and you must not underestimate the time it will take to complete this sort of process. There always needs to be an exit strategy. The long-term future of transferred employees is often forgotten but this is an important HR consideration.”
“Outsourcing should be seen as a partnership and the relationship must be nurtured and managed. You need to put a lot of hard work into building this relationship along with a good deal of flexibility,” he says.
Rebecca Clake, the organisation and resourcing adviser at the Chartered Institute of Personnel and Development (CIPD), urges firms to think very carefully before deciding to outsource part or all of the HR function.
It’s also crucial that organisations understand their own progress and are clear about what they hope to achieve.
“There are a number of strategic drivers that employers need to consider before deciding to outsource the function. There’s an assumption that outsourcing is just about reducing cost, but this is by no means the only consideration,” says Clake.
“It can be used as a way of improving efficiency, reducing administration or just becoming more effective. Getting rid of some of the HR administration can leave practitioners to concentrate on the more strategic aspects of the profession,” she explains.
Clake says there are many different methods of outsourcing HR and a multitude of different levels, so it’s essential to set clear and accurate targets.
“Organisations need to take a close look at how they deliver HR, what kind of expertise they have in-house, what they need and how they have to change. Unfortunately, people often don’t know what they actually want or how they are performing when they decide to outsource,” she adds.
Recent research from the CIPD identifies a number of strategic drivers for outsourcing the function including cost reduction, risk reduction, flexibility and the need for external expertise.
The report, HR outsourcing: the key decisions, concludes that outsourcing is one potential way of improving efficiency and making the profession more strategic.