Globally, HR outsourcing (HRO) is on the upturn, with 94% of employers outsourcing at least one HR function, according to the 2005 HR Outsourcing Trends & Insights survey by Hewitt Associates, nearly US$6bn in total value last year - up nearly three-fold from US$2bn in 2004, the TPI Index (a quarterly report on global outsourcing) says. HRO contracts also accounted for nearly a quarter (22%) of all BPO contracts valued at US$25m or more last year.
In addition, the 129 respondents to the Hewitt study expect to expand HR outsourcing across the board by 2008, with 'significant' increases in the outsourcing of leave management, learning and development, recruiting, health and welfare, defined benefit plans, global mobility, and payroll.
This comes as no surprise to Evelyn Goh, director - people innovation and education, Pan Pacific Singapore. 'There is more conscious appreciation of the benefits of outsourcing now than ever before,' she says. The advantages are numerous: 'Outsourcing brings in the administrative experts from outside, better technology, more competitive offering and last but not least make transactional and administrative activities more 'fun' and 'creative'. The vendors, because of their specialisation, tend to have bigger scale and also view their business as 'core' and therefore will put more effort in delighting the customers,' Elizabeth Martin-Chua, executive director, country management, and VP - HR, Philips Electronics Singapore, shares.
Beyond the day-to-day
These, together with the increased focus of HR shifting towards a more strategic role, mean that HRO is becoming more accepted amongst the local HR community. 'HR needs to concentrate on how to best add value to the organisation and not be tied down with administrative work which can be better done by outsourced partners,' Low Peck Kem, VP - HR, Asia-Pacific, Avago Technologies, tells us. 'In the Ulrich model, in order for HR to move from the lower two quadrants of being administrative experts and employee advocates to strategic business partners and change agents, HR needs to learn to better utilise resources and leverage on outsourcing where it makes sense and do more value-added roles like consultative and change management.'
'We, in HR must decide how we want to add value,' Philips' Martin-Chua concurs. 'So long we continue to be involved in transactional and administrative activities we will be viewed by the business leaders as administrative experts. If we, on the other hand, build organisational capability and are able to lead culture change, we are worth our weight in gold. The choice is pretty obvious for us.'
Cash is not king
Interestingly, however, while one may imagine that since the market is heating up, competition will correspondingly do so, and HR clients may experience lower costs and improved service - thus making HRO more attractive - the bottomline is not HR's priority.
'Outsourcing may not necessarily mean cost reduction up front. Many a time, it may actually end up higher upfront costs, but you reap the cost savings later,' Avago's Low observes. 'It is critical to ensure that cost reduction is not the one and only driver for outsourcing - if it is the case, you will inevitably end up with the lowest cost service provider and the quality of your service will suffer,' she warns.
'We do not outsource to reduce cost, though cost should not increase!' Philips' Martin-Chua agrees. 'If you only drive cost, the quality will suffer because the vendor has to take shortcuts. Likewise, the trust element may be compromised if we do not take the precaution to ensure that the proper security measures are implemented. Cost reduction without quality, reliability, security and sustainability will not work. We always have to put ourselves in the shoes of the vendors, help them to help us. It is a win-win partnership, and has to be sustainable.'
Not for outsourcing's sake
'Most people who are against outsourcing always question it from the trust and quality perspectives. My view and experience is that you only outsource when you are good and ready and therefore will be in a position to ensure that the vendor delivers quality based on proper key performance indicators and also that the proper intervention is made to cover the trust element... Outsourcing without the proper knowledge is risky,' she continues.
Further, simply outsourcing for outsourcing's sake is definitely ill-advised. 'To ensure that you have the right reason for outsourcing, without compromising on the service quality, will have to be the key criteria for outsourcing any of the HR functions to outsourced parties. That is why it is usually a partnership where you support one another to make sure it works rather than throwing the entire functions over the fence and not bothering with it ever again,' Avago's Low explains.
A collective effort
As a result, before taking the plunge into HRO, 'the fine details regarding outsourcing should be addressed from the onset with all stakeholders and users,' Pan Pacific's Goh notes. It is 'only through their collective commitment levels and understanding of the outsourcing objectives that HRO can be successfully achieved.'
This, in fact, is one of the primary tests of HR abilities in this arena. 'The biggest challenges were getting acceptance from internal business leaders, the HR colleagues and selecting the right partners,' Philips' Martin-Chua shares. Having outsourced payroll, healthcare, staffing, housing and administration, she is a deft hand at this. 'For the internal parties, taking ownership and intense communication were key critical success factors. Involving all the parties in the selection process of the vendors was another way of creating joint ownership. For example, in the choice of the expatriate housing vendor, we formed a group involving some expatriates to choose the vendor.'
Clear, communicated, credible
A clearly defined system too, has to be in place - and communicated! 'It is important to ensure that whatever we outsource, it is transparent to our customers or employees. That is why we always ensure that the process is cleaned up and simplified and works when we are running it. Then we work on outsourcing them if it makes business sense,' Avago's Low tells us. 'We do not outsource messy processes and systems to outsourced partners hoping that they will have better luck because - garbage in, garbage out! If we simply outsource a messy administrative work and hope that it will be cheaper and more effectively done by an outsourced partner, it is not possible. It's like doing the same things and expects different results just because you have outsourced it out - this is a grave mistake! In the end, customers and employees will suffer. So, the balance is essential - the credibility of HR is at stake when an outsourced partner messes up because as far as employees are concerned, they look towards HR as the responsible party - whether you are outsourced or not.'
'HRO, like the other forms of outsourcing is here to stay,' Philips' Martin-Chua concludes - and in the end, 'It is a question of whether a company wishes to take advantage of it and force their own HR to go up the value chain.'