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How to get what you really want from HR outsourcing

By Rhonda James and Tim Palmer

In the summer of 2008, PA initiated research on the state of the European HR outsourcing industry. Interestingly, out of the buyers of outsourcing services that we spoke to, two thirds reported that they had significantly renegotiated their HR outsourcing contracts within the first two years. Most of these also said that after refreshing their contracts, their relationships were working much better. Something isn’t right here – why did these contracts need fixing so early on?

A year on from the start of that research, we’ve been reflecting on a question that might avoid this problem in future: how can you get what you really want from HR outsourcing (and for that matter HR shared services)? The current uncertain environment brings this question into sharper focus.

In this climate, you are more likely than ever to be asked to consider outsourcing options. But when the only thing you can be sure of is that your organisation is likely to change shape, you’re likely to be nervous – and rightly so – about such an important strategic step. Not only does the uncertainty make it harder, but it means that you can’t afford to get it wrong.

PA recently published a pamphlet called The Sourcing Opportunity. It discusses techniques for ensuring that bold steps such as HR outsourcing and shared services achieve their goals. In particular, it describes traps that organisations typically fall into, and how to avoid them.

The pamphlet recommends a focus on flexibility. Since current pressures mean that companies will look to exit some markets and strengthen their position in others, any new sourcing activity must be conducted with flexibility as a central objective. Changes in the business mix will affect the levels of demand for any shared service or outsourcing facility, and so service providers need to be willing and able to modify their delivery and cost structures to suit the shifting business mixes of their clients.

The Sourcing Opportunity proposes a four-step model that should be built into any sourcing approach to ensure that objectives are mutually agreed and achieved.

Step 1 – Understand your intent.

As you prepare for a sourcing evaluation, identify the most critical goals. Categorise desired features as “must have”, “should have” or “could have” according to priority, and also identify “will not have” features that must fall outside the scope of the sourcing agreement. What are you prepared to give up to secure your “must haves”?

Step 2 – Put the intent at the centre of the sourcing process.

As you move through your selection process, make your intent clear – both to potential providers and your internal team. Embed the intent in all that you do; it should be the core part of any prequalification process. When speaking to potential service providers, articulate clearly what you are looking for and ask for their help, insight, and ideas about how to make the deal serve your intent better.

Step 3 – CRITICAL! Check approach and contract alignment with intent.

When you have made your decision and agreed your pricing, take time to reflect on where you are before finalising the deal. Do your intended approach and the contract you’re about to sign still match up with your intent? We mark this step “CRITICAL!” because it is one of the most important, as well as the hardest, things to do. Since the project will have developed considerable momentum by this stage, it can be very difficult to stop and take stock before signing, but it’s vital if you don’t want to find yourself renegotiating the contract in a few months’ time.

Step 4 – Implement the business change in line with the intent.

Implementation, too, must be managed in a way that reflects your intent. Whatever the solution, the intent needs to be understood and adopted by both the service provider and the customer organisation. Find ways to bring the intent to life, such as the creation of a “working guide” that can be shared across all staff, both provider‑side and client‑side.

This four-step model seems simple, but it can be hard to follow in practice, because you can become so personally involved in making outsourcing happen that you forget to check that the arrangement is still serving your business needs.

In our third and final PA Summer Postcard we will discuss the ways in which sourcing leaders can find the inspiration to do the right thing and make the most of the organisational and personal opportunities that sourcing provides in today’s environment.

To learn more about HR Outsourcing please contact