While the practice of outsourcing basic HR functions is not new, Western companies have been doing it for several years now, Asian firms are slow to buy into the idea. HRM asks why
Business is good. Recruitment is up and your human resources department is barely able to cope with all the activity. And you should be smiling. Sadly, you can't.
Your in-house HR department is not busy putting together things like strategic planning proposals to make your company more dynamic, innovative or productive, although they do sit up until the wee hours thinking about it. Most of your growing and harassed HR department is tied up doing payroll, approving MCs, calculating vacations, preparing inland-revenue submissions or filling out the forms for MOM.
No one has time to plan. You jot down a note-to-self (the same one you wrote six months ago): "Stop feeling so insecure and outsource that basic HR stuff."
But you don't. Why?
"The concern is over control, or the potential loss of it," said Eugene Tan, Regional Director of HR at the Shangri-La Hotel in Singapore.
"Companies and their CEOs are worried about surrendering any data to a third party. They ask themselves: 'Can these people be trusted? Could this data be used by somebody else? Possibly as a marketing comparison tool?'" Tan said.
Stephen Tjoa, Associate Human Resources Director at the Singapore office of professional services firm KPMG, echoes these concerns. "Historically, we have kept functions like payroll and sensitive matters in-house because of privacy issues... Management are cautious when considering any form of outsourcing. It will take a while for minds to be convinced that more outsourcing should be adopted," he said.
Greg Lipper, COO of Creative Software in Singapore, said he thought the privacy issue factor was often "more emotional than rational. The people who are interested in HR data are the employees of the company, not the employees of the service provider. You would probably show more interest in the receipts from your husband's coat pocket than the maid who cleans the room, right? Payroll outsourcers don't have any reason to care about the content of anyone's pay slip, but someone working in the HR department might be compelled to express his or her outrage at how much money people in the sales department or executive office make. From this perspective, outsourcing actually increases privacy."
In fairness, most outsourcers will have more secure systems and processes in place than even the largest multinational corporations. For most, it is their core business and they frequently update their technologies to further improve efficiencies regarding cost, communication, security and otherwise. In terms of corporate espionage, it would be easier for a competitor to head hunt an individual than to steal client-specific information from an outsourcer.
Ultimately the advantages of outsourcing are considerable and firms in Asia, although slow to accept, are starting to pass at least some of their functions to outsourcers.
The Shangri-La Hotel is considering outsourcing some of its basic payroll, leave and medical leave functions. "We want to look at this in the new year and I am looking at productivity improvement and better leave management," said Tan.
KPMG too is thinking about outsourcing a proposed benefits package. "We are thinking that certain areas can be outsourced and are embarking on a benefits program that might require an outside entity to manage and maintain... It is still in the planning stage but if we do adopt it this might prove cost effective for us. It is hard to quantify the savings initially as it would have to be analysed over the medium- to long-term period."
Corporate Singapore in general seems to be warming to the idea. Singapore International Airlines' (SIA) Senior Manager Public Affairs, Stephen Forshaw, said the airline was constantly exploring the options of reducing its cost base and improving cost-effectiveness, with the minimum impact on staff.
"The question of ongoing efficiencies is one which is confronting SIA all the time," Forshaw said. Company HR departments in Singapore also worry that by outsourcing basic function, they could be doing themselves out of their jobs.
"If I outsource, I could be sabotaging myself," adds Tan. "Am I saying that my function is no longer necessary? There are concerns that this might happen. A lot depends on the head honcho of a company. Whether he feels outsourcing the more mundane areas of HR will allow the department to be made up of strategic thinkers rather than simply maintainers of records. These mundane key-in jobs take up a lot of the personnel's time, and leave no one any time to look at the trends within our company in relation to, say, leave and MCs particularly.
"There is no time for strategic thinking and planning. HR staff need to be free to take a proper look at data and, for example, be able to see how many MCs staff are taking in relation to how much leave they have due. If we are not tracking things like these, we could miss picking up productivity issues and recalcitrant staff who may be using MCs to top up their holidays. If we aren't able to analyse information, we could be losing and not be able to determine why."
Despite the benefits of reducing the laborious tasks of HR departments, there is lingering reluctance to outsource for reasons such as keeping such tasks 'in the family'. "CEOs often feel the HR functions are specific to their organisation, so it is often something which they feel unhappy about sending outside for others to do," said Andrew Macintyre, Singapore Director, Consulting and Business Development at HR outsourcer, Convergys. Add to this the opinion that Singaporean companies are small enough, efficient enough, and smart enough to be able to do most things by themselves.
Shirley Tan, Singapore Human Resources Director for Information Technology company, Oracle, told HRM that outsourcing was in fact something their company was able to do from within. "Some of our department managers take on human resources functions, and being an IT company, we have automated a lot of our processes already. This does remove the need for us to outsource our HR functions as we can efficiently do it in-house. We practice a philosophy of providing HR systems for both managers and employees that enable a great deal of HR administration to be done on a self-service level.
Lipper pointed to the US, where an HR director might be seen as 'strategic' for outsourcing non-core activities, but in Singapore HR directors might be concerned about being perceived as 'lazy' or 'big spenders' if they outsource some HR tasks. There are plenty of studies and surveys that show that outsourcing HR is a good idea and saves money and time. While the concept may seem to make sense, as Bryan Doyle, a top executive with multinational outsourcer Hewitt Associates, says, "Given the newness of the HR outsourcing market and the delicacy of employee relations, it's just not surprising that most companies [worldwide] are taking the piecemeal approach to outsourcing HR."
Hewitt research on HR outsourcing found while it is still a relatively new phenomenon in Asia, less than 40% of the region's largest companies outsourced the function. And, according to a recent study, outsourcing has largely become a standard practice in human resources departments among the world's biggest companies.
The report's author, David Dell, surveyed 122 companies in America and Europe - all with annual revenues exceeding US$1bn. The survey found that most companies are outsourcing or thinking about it. At least 76% of respondents currently outsource one or more major HR function. Only 9% of the large companies surveyed in the most recent report have ruled out the practice of outsourcing HR functions entirely, while 23% of companies ruled it out in 2002. The survey also found that the companies surveyed are for the most part happy with outsourcing the functions that they do. None plan to take outsourced functions back in house.
There were signs of resistance to outsourcing within HR departments themselves, rather senior executives and CEOs. HR representatives tended to be more concerned than top management about using outsourcing to improve service, and not just as a tool for cost reduction, according to the survey.
"The speed and degree with which an organisation embraces outsourcing comes from the top," says Lipper. "Few middle managers wake up in the morning and ask whether his or her job could be performed better by another company.
Senior managers in most companies focus most of their energy on growing top line or organisational effectiveness improvements, such as time to market performance, supply chain efficiency, and working capital management. I think the issue here is that when senior management considers the benefits of outsourcing HR functions, they look at the absolute cost savings only. As most workforces and, therefore, HR departments in Singapore are relatively small, they don't see the potential efficiency gain as significant enough to risk disruption to such important processes.
"HR outsourcers need to make the business case in terms other than just operational cost savings. If you can show a CEO in Singapore - or anywhere - how outsourcing an HR function will decrease absenteeism, improve morale, reduce employee turnover, attract a high calibre of employee or in some other way help his or her business while also providing cost-effective, secure and compliant process management, he or she will listen. If you just say 'we can save S$2 per employee per month', then the CEO may wonder whether the savings is worth the risk."
But will outsourcing work mean getting rid of staff. Not necessarily. "I don't see there would be any loss staff in the event of outsourcing as we are never too fat on staff," said Tjoa. "We could re-deploy professionals and if fact it would create more value for professionals by focusing on more strategic aspects of HR."
Forshaw said as new technology developed, it was likely that SIA would improve its efficiency of business "without the need for as many people to do the same tasks as in the past, but we will not move to reduce staff lightly. We are very conscious of the issues this poses for our staff and we will consult with staff and unions on these issues," he said.
"Outsourcing is a tool used to implement organisational change," adds Lipper, "All forms of organisational change lead to changes in assignments and, sometimes, personnel. If the company doesn't need to change, then there is no need to outsource. When manufacturing is outsourced, then hundreds of jobs move from one factory to another. HR is different. HR staff members are usually multi-taskers, so outsourcing one task does not eliminate the need for the position. Having said that, outsourcing the repetitive tasks increases the focus on more strategic work. This requires a change in mind-set, skill-set, and focus. Re-training and new skill development is the first alternative, but sometimes it is easier for a company to change people than to change minds." HRM
SIA's Stephen Forshaw
KPMG's Stephen Tjoa