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Industry analysts affirm that HR outsourcing (HRO) is the fastest-growing area of BPO (business process outsourcing) today. Furthermore, they state that integrated multi-tower HRO is the fastest-growing segment within HR outsourcing. So while it is now common for companies to outsource single process transactional work, such as payroll administration, recruitment or benefits, the market is beginning to see more interest from companies interested in comprehensively outsourcing their HR processes. This multi-process or multi-tower outsourcing is where a service provider handles multiple HR processes for a client in an integrated fashion, instead of being engaged to handle stand-alone HR processes on a piece-meal basis.
This is because companies are starting to look for more consistency in their HR operations across countries and business units, in order to realise synergy, cost-savings and efficiencies across their organisations, observes Nalin Singh, vice president and managing director, Asia-Pacific, Convergys Employee Care Singapore. “We are, in fact, seeing tremendous interest from large corporations in standardising their HR practices globally, and these corporations are turning to large HR outsourcing providers like ourselves to outsource their HR services globally. For instance, with DuPont, our largest client, we have a 13-year, US$1.1bn contract to provide comprehensive HR services to their 60,000 employees and 102,000 retirees around the world, in more than 70 countries and 30 languages. Similarly, with Whirlpool Corporation, we have a 10-year contract to support them with HR BPO services internationally,” he shares.
Gaining momentum
The trend is clearly setting worldwide. A Forrester Research study reveals that HR BPO has the highest spending of all of the six BPO services that European IT services spending forecasts. Furthermore, the study indicates that HR BPO will achieve a five-year compound annual growth rate of 11.4% by 2011.
“HR BPO generates interest from both experienced firms and those with less outsourcing experience; the result is that across all European countries, buyers allocate at least a third of their total BPO spend to HR BPO,” it underlines.
While the US and the UK have shown considerable interest, Asian companies are beginning to sit up and take notice, too, despite the few obvious challenges.
For instance, as Brook Magruder, managing director, Creative Software, points out, a part of the challenge is, “providing what customers want without excessive customisation and configuration. Part of this challenge is to get customers to understand and accept standard best-practice commodity service. The other challenge is for vendors and service providers to provide more choices within the standard offerings. The technical challenge is to do it simply and elegantly. Mega BPOs have been able to force companies to accept their offerings in the US, Europe, and Australia. Asian HR departments are more demanding and picky.”
And to this day, Singh feels, there are still a good number of HR departments that are resistant to working with outsourcing vendors, and insist instead on keeping everything in-house in the mistaken belief that this allows them better ‘control’ over their HR functions. However, in reality, a good outsourced service provider essentially acts as an extension of the company’s own team, and often HR managers and directors can benefit more from improved performances and efficiencies through a specialist service provider, than from their own personnel, he suggests. “HR practitioners need to understand the value that outsourcing vendors can provide, embrace the outsourcing operational model, and focus their energies on developing solid, constructive working partnerships with their service providers.”
Outsourcing HR technology
Beyond that, on the technology front, what’s interesting to note is that there is an increased interest from companies in the application of Business Intelligence to their HR data. With common platforms housing their employee data, companies can benefit from having a holistic view of their workforce. Where some companies before could not even get an accurate count of their total number of employees, companies with consistent and complete employee data in place are now interested in looking at analysing their workforce information and even mining it for business insight.
“You can’t have outsourcing without technology, no matter what type of outsourcing you are considering,” says Paul Callander, vice president, business development, Asia-Pacific, Taleo. “Technology is a key contributor and provides the framework for the development and implementation of efficiencies and best practice, particularly in the talent management specialisation. HR departments are increasingly pressured by their internal and external stakeholders to deliver continual cost savings and benefits to their business. They can do this in a number of ways by improving efficiencies, automating processes, reducing agency and advertising costs, etc. For some organisations, this means outsourcing either part or all of their HR function. The trend toward RPO is gaining momentum as organisations attempt to reduce costs and overheads, while maintaining control.”
Beyond that, an outsourced service provider can provide companies with a consolidated view of their workforces, and this workforce data is very valuable for organisations in supporting their business decisions. Companies are able to: evaluate HR programmes; compare data from countries, regions and individual facilities; and even predict the impact of specific decisions. Having better information about workforces also means companies can make improvements that result in greater efficiency, productivity, cost-effectiveness and agility. This is also providing HR leaders with the tools to help their boards make informed decisions on their workforces and to manage their talent effectively.
From service providers to partners
However, Singh points out that even while some companies have embraced outsourcing, what they neglect to do is also to transform their HR business functions at the same time. “Companies need to re-evaluate and re-engineer their business processes as well, and look towards adopting industry best practices, instead of just expecting the outsourced provider to continue to do things the way they themselves have been doing in-house. One of the worst scenarios is to put a new system in place only to automate bad practices. Instead, companies that are looking to HR outsourcing should be asking themselves first and foremost, “How do we change the way we deliver HR services?” and “How do we transform how these functions are conducted?” This is where a specialist outsourced provider can help,” he adds.
Although there are still some conservative companies holding out against HR outsourcing, these companies definitely constitute a rapidly declining minority, experts feel. In fact, with many companies already having worked with outsourced HR service providers for some time now in some markets, such as Singapore, the level of maturity of the clients, the projects and the vendors has evolved. With clients now wiser and more experienced in working with outsourced providers, they have started to look beyond simply realising operational efficiencies from their outsourced provider, and instead are beginning to look for more value-add from their providers.
“As outsourced service providers, we are beginning to be seen more as partners by our clients, and not just transactional providers. This means clients are coming to us with a view towards a longer term relationship, and are seeking our advice on how together we can work towards raising the bar of their HR departments. So things like Business Intelligence, these are value-added services that we are seeing interest from our clients. We also find clients putting a lot of thought into effective governance models for the contracts, which is essential for a successful long-term partnership. Also, with the current complexities of the global business, legal and operating environments, companies are also finding that a specialist outsourced service provider is usually better equipped to handle compliance issues, such as for Sarbanes-Oxley (Sox), and the myriad of tax and accounting requirements in each country,” says Singh.
Conclusion
In the end, both HR leaders and outsourcing service providers agree that irrespective of what you outsource – whether you go with a comprehensive solution or outsource specific components of your HR functions – it is important to develop a solid relationship with the vendor. You need to have good chemistry with the outsourcing firm and should feel confident that it will be responsive to your needs. Since it’ll be handling your recruiting, hiring, training, benefits and other important tasks, you need to trust it to act in your best interests.
Advantages and disadvantages of HR outsourcing
• Reducing costs: Key determining factor in many outsourcing decisions, but should not be considered in isolation from other costs/benefits
• Increasing effectiveness of HR delivery: Experienced outsourcing providers can often deal with HR processes more effectively. For example, recruitment may be undertaken more quickly, reducing employee turnover costs and speeding up the pace of growth
• Providing greater expertise: External providers may offer greater levels of specialist knowledge or experience than affordably available in-house
• Moving HR up the value chain: Outsourcing HR administration can lead to a shift in HR focus towards policy and decision-making
• To aid organisational growth: Fast-growing organisations can lack the HR capacity to deliver business objectives, making HR outsourcing an attractive solution
Source: HR Outsourcing: the key decisions