DIY or buy? The decision to outsource is not one that human resources (HR) functions take lightly. Although an outsourced model may be common practice in areas such as payroll processing or outplacement, organisations will still undertake a detailed analysis of the pros and cons and a thorough review of the potential providers.
As the scope of services to be outsourced has widened, and full-scale business process outsourcing has become a serious option, the decision to outsource is more complex than ever.
The timeline from initial feasibility study through to contract signature will typically be many months. Organisations invest significant time and effort into ensuring they have defined the right scope of services, secured the appropriate buy-in and identified the best partner.
However, what happens when the deal is done? The thorny issue of how to manage the ongoing relationship to deliver real value for both parties is an area that receives much less attention. Having worked on both sides of outsourcing deals – both as providers and advisers – my colleague Ian Hunter and I have identified a number of areas on which to focus that can be key to making the outsource a success.
As already mentioned, getting to contract can be a complex and time-consuming process. Typically, a dedicated programme team is established and this group will know and understand every nuance of the outsourcing agreement. Late nights spent deliberating the finer details of the service to be provided can take their toll and, once a deal is signed, members of the programme often return to their day jobs or move into other roles within the organisation.
The outsourcing contract then becomes the responsibility of a new team to manage, and this is often where problems can begin. In our experience, it is critical that companies – and their outsourcing partners – maintain a level of continuity between the team that does the deal and the one that subsequently manages the relationship. No contract, no matter how well drafted, will capture all the subtleties of what is required.
The early days of a contract will often be somewhat traumatic, so ensuring the team understands and stays true to the spirit of what you were trying to achieve will be key to clearing any initial hurdles and getting through those difficult first days.
Build supplier management skills
Supplier management as a discipline has traditionally been the preserve of the procurement function. Procurement professionals will be invaluable during the establishment of an outsourcing programme, but beware the temptation to leave the management of the ongoing contract to them. Knowing the function is critical to getting to the heart of the drivers of cost and service in an HR outsourcing arrangement. As such, having the right mix of effective contract management and subject matter expertise is really important.
In our experience, it is often easier to equip HR professionals with the necessary commercial understanding than to give procurement colleagues the functional knowledge and experience to get the best out of the HR outsourcing suppliers. Getting the right balance of these skills on your account management team is what will make the difference – don’t let procurement take over.
Measure what matters
One of the benefits of moving to an outsourced arrangement is the ability to be able to specify a level of service for which the outsourcer is contractually and commercially responsible. The ability to measure performance, both in terms of cost and service, will often represent a big step forward and the visibility this provides can be a key catalyst for changing behaviours.
For some reason, people seem to care far more about something they have paid for directly. While this visibility is very helpful, there can be a temptation in the early days of a contract to measure everything that moves.
This is understandable, as the confidence that the service will be delivered to the required standard will only come with time as trust in the relationship builds.
However, part of the transition to this way of working is for the organisation that has outsourced to focus on what it needs to be delivered – the outcomes – rather than internal detail of how the service is delivered – the process. If you specify and then measure the individual detail of how each part of the outsourced service should work, it is unlikely that you will achieve the desired levels of cost reduction or service improvement. You need to be clear on the end result you’re looking for and measure that – and allow the outsourcer to use their expertise to deliver accordingly.
Fragmented career paths
Outsourcing elements of your HR function, particularly core transactional delivery, will mean outsourcing parts of the service that are where many HR professionals have traditionally learned their trade.
Many HR generalists have started their careers in HR administration and have acquired a broad range of technical knowledge and expertise as they have progressed through the ranks.
If you want to be able to continue to grow generalists, work with your outsourcer to identify formal opportunities to second or transfer staff between your organisations. This can be valuable in providing the development that ensures you retain fully rounded HR staff in-house.
Jane Saunders is managing partner at Orion Partners, a consultancy specialising in providing independent advice to organisations considering outsourcing HR. She has co-authored a book with fellow Orion co-founder Ian Hunter – see opposite page for a chance to win a copy.
Jane Saunders and Ian Hunter’s new book Human Resources Outsourcing is published by Gower and priced at £75. Orion has six copies to give away. E-mail firstname.lastname@example.org for a chance to win.