Choosing to outsource your HR function can be a risky business, involving a great deal of trust and a careful eye for the pitfalls. But it can also pay dividends in cost savings and productivity. So is it a blessing or a curse? And should you consider it at all? Matt Henkes finds out.

High profile global HR outsourcing (HRO) deals have attracted a lot of attention over the past few years for reasons both good and bad. The risks can be mitigated by careful due-diligence and determined contractual negotiation, but cultural fit and a mutual trust are just as important.

The benefits extolled by HRO suppliers include cost savings, efficiency improvements, elimination of duplicity and access to specialist resources. However, whether you achieve what you set out to do or not will depend on a number of factors.

One of the most important is setting clear objectives. The drivers for HR outsourcing vary between companies. Vanessa Robinson, organisation and resourcing expert at the Chartered Institute of Personnel and Development (CIPD), believes the scale of HRO in the UK is not quite as great as is suggested by the publicity that some of the larger deals have generated.

Why outsource?

What a lot of firms seem to be looking at is the delegation of part of their function, though exactly which parts depends largely on what they’re trying to achieve, says Robinson. Larger companies might seek to reduce costs through outsourcing transactional and administrative processes, while smaller firms will outsource to gain access to specific expertise in legal or tax matters.

Deborah Hutchinson, HR manager at FujiFilm, has overseen the implementation of payroll outsourcing to specialists ADP. “Now, we don’t need any experts for legal and tax purposes,” she says. “We don’t need to have anybody in-house that’s keeping up to date with that sort of thing. It eliminates a massive headache.”

Other firms may choose to outsource as a way of managing peaks and troughs in demand. For instance, a firm that requires a lot of seasonal recruiting won’t need to employ a full recruitment team all year round, so would naturally look to outsource its annual recruitment activity.

Marseille Horst, operations director of outsourcing firm Ceridian, believes increasingly complex employment legislation is the key driver for HRO growth. Doing things to the letter is becoming more expensive and firms for which HR is not a core activity would rather be ploughing their resources into other activities.

What to outsource?

It’s unlikely that you’ll want to relinquish control of your entire function from the outset. Horst says the first operations usually outsourced are the transactional, administrative processes: “Things that are repetitive and can be easily explained to the outsourcer by the customer,” he explains.

The line between what is outsourced and what stays in-house is one that has to be drawn by the client. It’s an iterative process whereby, if the administrative processes perform well as an outsourced function, the supplier may suggest it has deeper involvement. “This then becomes a matter of trust,” he says. “We establish a level of trust with organisations so that they’re comfortable enough to give us those elements.”

The due-diligence process, once you’ve chosen a supplier, will eliminate any assumptions about what processes you currently have and what you feel you need. Horst recommends setting this up as a project and ensuring the necessary resources are allocated to it. “Be totally honest with your supplier,” he says.

However, Margaret Harvey, a partner at the outsourcing and technology group Addleshaw Goddard, warns it is important not to underestimate the amount of work involved in proper due-diligence and leave it too late. “It’s sometimes difficult because, obviously, you want to keep the fact that you’re outsourcing quite tight,” she adds. “You don’t want to tell everybody because that could destabilise the organisation.”

Done correctly, the due-diligence process should give you a proper baseline to work from. Your eventual provider is also going to want a detailed amount of information regarding your current function. “You really want to be dealing in facts; things that someone has checked and can verify,” says Harvey.

Deciding what to keep and what to outsource will depend on the drivers for your process, but it’s important not to relinquish too much control. Outsourcing your HR function does not absolve you of your legal responsibilities as an employer. You can’t leave your internal function without anyone capable of making strategic and policy decisions. The divide between what the provider does operationally and what you do in terms of strategy and policy should be clearly defined, says Harvey.

Horst agrees that there are some things you should retain control of. Companies like Ceridian can help and advise, ensuring the right processes and tools are in place to help. But he adds: “The strategy at the end of the day has to be their own.”

Working in partnership

Suppliers would rather you sign up for a pre-designed package, which may not always be a bad move, providing it fits with your project aims. Slotting into an existing system used on several other accounts provides the economies of scale that gets outsourcers’ tails wagging. However, it also means development and efficiency improvements designed for other clients may well apply to you.

“We have a standard solution which I know we can tweak to meet bespoke requirements for our customers, but only to a certain extent,” says Horst. “It needs flexibility from both sides.”

Being able to establish a successful and productive working relationship with your supplier can be just as important as hammering out the contractual details. Cultural fit is probably more important in HR outsourcing than IT, for instance, as most of the interaction will involve your employees. “You want to be able to operate in partnership, rather than having to resort to the contractual ties,” says Robinson.

If you’ve found the right supplier, you should be able to pick up the phone to discuss and resolve any problems with your outsourcer straight away. Ideally, the legal documents will be left on file for the duration of the partnership.

Further information

Margaret Harvey, from Addleshaw Goddard, discusses the finer points of HR outsourcing in an online video broadcast. Click here to view it.