If outsourcing can help take your HR to the strategic level and make direct correlations between your workforce and business outcomes, then the answer is 'Yes'.
At a recent meeting between the leaders of the major HR outsourcing firms and Wall Street analysts, two HR outsourcing firms asserted that there was a clear link between effective HR outsourcing and an increase in sharedholder value. The first reaction from some of the listeners was one of incredulity. In the majority of organizations, HR function costs make up a small proportion of the total cost base of a business. And while savings of up to 60 percent in the costs of the HR function are possible through HR outsourcing, the sum, even in the largest and most inefficient of HR functions, is never likely to have an impact on shareholder value. Their second and more cynical reaction was that this was yet another new ploy to get the attention of the C-suite or boardroom in order to increase the profile of HR issues on their agenda.
What's on your agenda
However, when you think more deeply about the HR outsourcing firm's assertion there is validity in the views the HR outsourcing leaders were expressing. Experience has shown us that to get the best out of an outsourcing decision, you need to transform the entire HR function at the same time that you outsource the transactional part of HR. By doing this, you transfer the focus of HR cost and attention on to the delivery of the organization's strategic and change agenda while, at the same time, produce greater efficiencies and better management information through the outsourced delivery of transactional activities.
If the work of the HR function is truly focused on the strategic and change agenda then HR can have an impact on the delivery of shareholder value. Taking the argument further, if we view HR not just as a function, but look at the total impact of the workforce on business outcomes and sharedholer value, then the assertions of the HR outsourcing leaders make real sense. As one of them stated, "We need to look at the bigger picture around human capital and broaden the scope of what we are dealing with." The work of Baruch Lee supports this point.
Adding up the extra value
If we view the difference between the book value of a company and its market value as the intangible value of the organization and further subtract the value of the 'brand' from the equation, then you are left with the 'value impact' of people on the organization. An HR function that focuses on strategy implementation and change; aligns the culture to business requirements; and builds employee competence, engagement, commitment, capacity to change, and the employer brand is a powerful entity.
When that function is backed by the flawless execution of transactional activity - enabling effective decisions support through accurate and timely information - then it is valid to say that transactional HR outsourcing can impact positively on an organization's shareholder value.
Therefore, HR outsourcing can be the catalyst for the organization to take a radical look at its HR function and the impact HR has on the successful delivery of business objectives and outcomes. Achieving the vision of HR outsourcing as a positive influence on shareholder value is dependent on two critical success factors. First, the importance of recognising that HR outsourcing will not deliver its predicted business case outcomes without wholesale transformation of the total HR organization - HR has to be treated as a whole. Second, that the scope for HR transformation is not just the HR function itself, but the totality of human capital and how that human capital is aligned to business requirements. If viewed in this way, then the argument that HR outsourcing can impact on shareholder value has validity and is much more than a pipe dream.
