By Rhonda James and Tim Palmer
Looking back at the first part of 2009, it has been a tough year for all of us. Most of us have been asked to trim our costs, and many HR leaders have found their organisations doing more with less. Even where short-term savings have been found, there have been challenges issued about whether outsourcing would provide a more sustainable long-term cost structure. CFOs and CEOs are reading about offshoring, process improvements and even cloud sourcing, and are wondering whether there’s another 20% of cost savings available.
The complication with this position is that outsourcing is a hard thing to do well; it requires a strategic mandate, organisational discipline and a long-term outlook, none of which have been in abundance recently. And if you get it wrong, the costs to put it right could dwarf any potential savings.
Additionally, although there are several credible service providers and approaches to choose from, there has been some negative press about the practice of HR outsourcing, and there have been fewer large contracts announced over the last 12 months than in any comparable period since 2003. Is HR outsourcing really a tool for our times, or is it something that has been tried and should now be avoided?
The HR outsourcing market
Let’s look at the reasons for this dip in the current market. What has caused the reduction in large contracts in 2008 and 2009?
The biggest issue has been the credit crunch itself. Large-scale HR outsourcing has often been used by organisations looking to finance the transformation of their HR service delivery environments. This requires investment, which is simply not acceptable when cash is in such short supply, and where initiatives with short-term pay back periods are the only things getting approved.
There have been some high-profile problems with both large contracts and key providers, which has created bad news and scepticism.
There was almost a paralysis in decision making regarding outsourcing in Q408, following the collapse of Lehman Brothers. It takes between 6 and 12 months to get a well-managed outsourcing contract to happen and the industry is now in the dip following this period.
But there have also been signs to suggest that the market will become buoyant and the practice of HR outsourcing be a less risky endeavour:
There have been a number of less complex single-country contracts, which don’t make the same headlines but which keep the industry moving. In some cases people are ‘trying and buying’ services, rather than contracting for them all up front.
Organisations have been turning to smaller single-process outsourcing contracts. Payroll outsourcing seems to be particularly hot at the moment.
Service provider offers have matured. There are new capabilities in the market, with deeper process, technology and people assets behind them.
The decision-making paralysis has ended and from Q109 service provider pipelines have started to fill up again. The biggest issue now is working out what is real and what is simply market testing.
In this climate, should HR outsourcing be part of your recovery strategy?
The simple answer to this is yes, you should be considering it now. It would be neglectful not to consider more efficient ways of securing an effective HR service. And if you don’t, someone else may do it for you!
However, the question must be answered at a strategic level and a sustainable long-term decision made. This requires a properly informed assessment of both captive and outsourced opportunities, using a robust and balanced method that evaluates costs, benefits and risks. Only after this is complete can decisions be taken with more certainty, allowing for rapid and definite progress towards the chosen end state.
The more complex part of this answer is does HR outsourcing make sense for your organisation? This requires a good understanding of what it is that you want to achieve. In our next email bulletin in two weeks time, we will discuss an approach to understanding and documenting your intent and ensuring that it is reflected in the heart of any outsourcing or shared services work that you do.
Is HR outsourcing part of your strategy in the current marketplace? To speak to one of our experts please contact email@example.com