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When it comes to running a home, we often let third party service providers mow the lawn, fix a leaky pipe, or shampoo the carpet. By doing so, we are able to allocate time for more important activities, like enjoying the company of our loved ones.

The same principle can be applied to HR outsourcing. Farming out certain tasks can help HR leaders spend less time on peripheral activities, instead turning their focus to core business and long term strategy. It enables them to execute more, with less.

A variety of HR services can be outsourced. In recruitment process outsourcing (RPO), organisations engage a third party to handle their entire hiring process from demand planning, candidate attraction and assessment to recruitment and onboarding. Other outsourcing specialists offer services in areas such as payroll processing, benefits administration, and employee database management.

Areas that are often best left to the in-house management team include strategic decision-making, workforce engagement and the handling of sensitive topics like disciplinary action or management of staff complaints.

What’s in it for HR?

HR outsourcing can bring about a number of benefits that make for viable business cases to be brought forward to senior management. The most apparent of these is the potential long term cost savings that can be achieved.

The biggest solution providers normally manage thousands of transactions across many clients. This allows them to have greater economies of scale and lowered overhead costs. Even factoring in their own profit motives, the cost savings derived from these sort of contracts can reach up to 25%.

Organisations that harness RPO services for example, can streamline processes and move from a fixed cost base to variable charging, cutting their recruitment costs by significant amounts, says David Heath, Global Director, International Business and People Capital, Alexander Mann Solutions.

But while cost may be a crucial incentive factor, Caleb Baker, General Manager, HR Outsourcing, Talent 2, warns selecting a service provider based on price alone can be a recipe for disaster. “If you lower the price, generally input costs also drop and the service standard falls,” he says. “The exception is if a supplier has an advantage of scale, technology or innovation.”

Baker says companies need to look beyond initial cost savings and also observe how outsourcing improves employee well-being and the overall performance of an organisation. In particular, he notes that outsourcing allows HR to have experts in all facets of the function. “Often outsourcing isn’t about saving money anymore,” he says. “Cost savings are secondary and executing a quality solution is primary.”

Simon Bell, Regional Director, Managed Solutions and Talent Management – Asia, Hudson, agrees. When it comes to recruitment outsourcing, he says the real value for organisations lies with those partners that can drive quality-of-hire values efficiently and cost-effectively. “This is critical for those organisations in Asia pursuing a high growth strategy” he says, adding that Hudson uses a number of knowledge-based tools to achieve just this.

“The effectiveness of a recruitment function is only as strong as the expertise, seniority and networks of recruitment specialists driving it and the processes, market intelligence and technology that enable them,” he says. In one example, he says Hudson has used psychometric profiling to highlight and further enable high performers in a sales group for a global process engineering client. “The focus is to implement processes that will drive retention and productivity and has been proven to increase sales by as much as 15-20%.”

HR outsourcing can also be more responsive and offer greater scalability for organisations. Service providers are better able re-allocate resources to meet changing demand, and according to business cycles. By tapping on outsourcing providers, organisations are able to fully utilise their specialised skills – consider the costs and complexity of trying to handle just one-off intellectual property or innovation cases.

Choosing the right vendor

HR departments that need a helping hand can turn to various national and global outsourcing associations to get more information and advice. Heath says organisations should read up on the providers as well as read their customer case studies and other collateral material. “Many outsourcing providers have diagnostic services to help you evaluate your current strengths and weaknesses, and to identify what sort of solution you should be looking out for,” he says.

Organisations also need to establish what is important to their business and prioritise their needs. For example, do you want a very high-tech service or are you looking for the most practical and cost-effective solution? Heath says HR needs to be clear about what it wants to achieve to ensure that the outsourcing solution succeeds, as simply outsourcing a problem without any further thought is rarely effective.

Anticipated changes need to be communicated to employees before external vendors are brought into the HR equation. Baker points out that since everyone is busy doing their full-time jobs, it can be challenging to have people commit to the change management processes that use of a third party vendor often entails. “It is never too early to begin getting the internal stakeholders’ perspective on improvement opportunities and to get their involvement and buy-in to the final recommendation,” he says.

Before implementation, organisations have to explain the current state of their HR processes so that an accurate outsourcing contract can be established – without room for misinterpretations. Baker advises organisations to involve their selected partners as early as possible in the mapping of processes, before the final agreement is formed.

Of course, HR outsourcing does come with its own sets of risks. Organisations can end up being controlled by their outsourcer (or at least feel that way), says Martin Stockton, Group Vice President of Global Business Development, Patersons HR and Payroll Solutions. He adds that service level agreements can end up being prejudicial, with the client having to pay more in extra charges than originally envisaged. “Companies can also get cold feet because they are worried about being tied in to long-term contracts without adequate exit strategies,” Stockton said.

The more sophisticated RPO companies implement a self-governance strategy to ensure that valuable management time is used where it is most needed. “Governance that includes transparent reporting on key performance metrics, is crucial to reduce unnecessary management time being involved in managing the outsourcing engagement,” Baker says.

Shared services model

Some organisations are wary of sharing their company information and resources with a third party. A competing trend that addresses this concern, particularly in technology outsourcing solutions, is the shared services model. This is where HR functions such as payroll processing, benefits administration and database management are offered through a central base within the organisation and made available to all business units. Employees can access these functions through a self-service intranet site or direct their queries to an internal call centre. These centres often operate from a regional hub, bringing about greater economies of scale and efficiencies.

Like traditional HR outsourcing, the shared service model aims to cut down distraction of administrative and transactional HR tasks that top management has to focus on, allowing senior HR leaders to focus on more strategic areas of the business. However, it offers employees an “in-house touch” and increases their comfort level when accessing services and information. Keeping HR within the organisation also facilitates the creation of synergies with other departments.

The process of developing a shared services environment can take several months and most companies implement such an initiative in stages. Technology platforms need to be standardised for great efficiency. HR specialists also have to be retrained for their new roles in the business.