HR has been transformed over the past decade or so from a part of the business where necessary chores got done, such as paying staff and pensions, to a management team dedicated to steering corporate strategy and then ensuring the right people are hired and retained to deliver growth. This transformation from being an administrative to a strategic department has been, at least in part, made possible by companies outsourcing some of the HR function so staff are freed from payroll and entitlements works to concentrate on hiring, developing and retaining talent.
Dr Anthony Hesketh, Associate Professor at the Management School at Lancaster University, points out that although there are potentially clear gains, many companies are finding it very difficult to decide whether to overhaul HR themselves or consider admitting a third party might be better placed to take on much of its functions. "Companies often don't want to think that someone else can do their HR for them better or cheaper and so they will sometimes go through the process themselves," he says. "They'll put in a programme of internal change to reorganise HR staff and then put in new systems and technology designed to bring down cost. This can often take years to go through and, according to my research, can cost a global company something like £250m. "It's when you work out how much it costs to do it yourself that many companies realise they might be better off losing the cost of ownership with all these new systems and let an outsourcer handle it for them."
Hesketh points out to progress its HR function a company first needs to at least be open to the thought another company might be able to run its HR more efficiently and then, crucially, it also need to know how much is spend on HR, something which surprisingly few actually do. "A typical HR function in a large multinational company with operational expenditure of £4bn or so will be around the £100m mark," he says. "It's a lot of money but small beer compared to overall expenditure and so sometimes companies find it's too much effort to save money on something that's less than 1 per cent of their total expenditure. However, the point is, it's still a lot of money and there could be potential savings that could be put to good use."
One of the big problems with such large scale 'transformational' HR outsourcing deployments is that according to HR outsourcing advisor and Member of the Management Group at PA Consulting Group, Tim Palmer, there are so many small details that can get in the way. "The big issues are language and regulation, particularly for companies with offices in several countries," he says. "There are also lots of issues around different employment laws in each country and different taxations systems that means there are just so many small details to get right."
Another potential barrier to outsourcing HR is a feeling in many companies that it is at the core of the business and should not be outsourced. According to recent research published by HR Outsourcer, Ceridian, four in ten businesses cited HR as a 'no-go area' for outsourcing and, among those that have outsourced some of their HR function, only one in three programmes were actually driven by the HR director.