Are you ready to embrace all the changes that outsourcing can bring to an organisation? Andre Rampat highlights the importance of understanding the pros and cons of HR outsourcing.
HR outsourcing promises many returns. Most companies that set out on what those in the industry tend to call an 'outsourcing journey' (with good reason) have very clear business improvement objectives in mind. These typically include cost and efficiency savings, capturing new innovations, access to best in class IT and information systems, plus process improvement.
Increasingly business leaders also want to liberate highly trained and highly skilled HR staff from task-orientated work so that HR can become more strategic and fully support the company's long-term commercial goals. Many of these companies not only fully achieve these objectives but they also benefit from unforeseen advantages as the partnership with their service-provider grows and develops.
However, even though the desire for transformation may be strong for many far-sighted HR executives, it can still prove hard to build a robust business case and to bring the company – and the department - to a point where it is truly ready to embrace the widespread changes that outsourcing brings.
This is quite understandable. HR outsourcing, be it payroll, training, recruitment or full HR capability, has, until very recently, been the domain of large multinational companies. They tend to have the resources, the business improvement mindset, the leadership and the pressure to deliver ever greater shareholder value which creates a momentum and desire for change that smaller businesses sometimes find hard to match.
Lessons to be learned
The good news is that, now that the HR outsourcing market has matured, especially in the UK and Europe, many lessons have been learned and those HR professionals ready to explore the benefits of such transformation can now access a tremendous number of high quality resources and specialised advice.
No matter what size the company or what sector it operates in, someone somewhere will have been there before. Outsourcing is no longer the territory of first-movers and early adopters.
One such repository is the HROA – the HR transformation association for Europe. As I like to describe it, to those who ask, our aim is to share and advance peer-to-peer knowledge of HR process transformation amongst leading buyers and practitioners with the goal of helping all interested parties realise the greatest benefit possible from the collective industry.
For that reason, we invest a great deal in master classes and events that help our members to build confidence and knowledge. For example, the outsourcing industry has a language all of its own and this can be intimidating – and excluding - when you first start out. Everything the HROA does is aimed at stripping out the mystery and the risk so that the real benefits of HR transformation are available to the widest possible audience.
So what are the stages of this so-called 'outsourcing journey' and what are the risks, pitfalls and benefits along the way?
A six-stage approach
According the HROA's model, there are six clearly defined stages to outsourcing decision-making and they start with 'sourcing'. Sourcing calls for developing, underwriting and implementing the right service delivery strategy to meet your unique business needs. Although the promise of outsourcing is one of process standardisation and improvement, no two businesses are ever the same. However, this doesn't mean that each business needs to reinvent the wheel. Proven methodologies and approaches, which now include industry-agreed standardised tools and packages, can be easily adapted to fit different circumstances.
Once a sourcing strategy has been fully decided, with buy-in from top-level executives, the next element to address is 'people'. This involves identifying and resolving critical human resources issues such as labour relations and reskilling the retained team. The strength and depth of the retained team cannot be stressed too highly. All too often companies will choose a retained team based on immediacy and availability, whereas managing an outsourced relationship with a business partner calls for a very particular set of skills. These include levels of project management, negotiation and commercial intelligence that may have to be developed or identified in personnel from other departments.
Early risk management is essential
Next comes 'risk management' and the need to effectively navigate issues presented by global regulations, data privacy, tax, accounting and offshoring. Detailed risk planning and mitigation are vital at the earliest opportunity. Failure to do so can severely impact the success of any outsourcing contract further down the line. There is little point or pleasure in fire-fighting basics that should have been addressed months or even years before. This is also where reputations can be won or lost.
'Performance issues' are the fourth element to be considered. The performance aspect of outsourcing requires detailed preparation to achieve the desired step change in operations. Issues such as service level management, measurement and reporting should all be examined here. Deciding on what success will look like for your organisation is as much about discarding irrelevant measures as it is about honesty in defining your real business objectives. Building-in a host of success measures merely to offset weak management within the retained team, for example, will increase costs and pull the contract out of shape. Sticking to 'the intent of the deal' is one of the hardest challenges of outsourcing and one that requires consistent review, even when the contract is well established.
Governance – built to last
It is increasingly recognised that 'governance' – the fifth piece in the puzzle – both underpins and drives the long-term value of any outsourcing contract. Failure to establish well-informed governance and outsourcing management procedures – and to budget accordingly – will gradually undermine even the best-intentioned of deals. Again, governance design is an early stage issue. The entire shape and delivery of the contract should be built around how it is going to operate on a daily basis, what tools and systems will be used and also the chains of command required for each process. There are a number of proven outsourcing management software tools available, as well as several new services that allow businesses to 'spot-check' the quality of their outsourcing relationships and put remedial measures in place if weaknesses have crept in.
The final element for consideration is 'change management'. Although change occurs at every stage of the outsourcing lifecycle, the broader impact of new ways of working and how to manage continuous improvement needs to be addressed separately with appropriate planning and research.
Andre Rampat is vice president of the HR Outsourcing Association (HROA). HROA Europe is the European arm of the HROA. For more information, please visit: www.hroaeurope.com