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Dispelling the Myths of HR Outsourcing - Blog 2

"Most multi-process HR outsourcing is not done solely to save costs, but is instead aimed at accessing capabilities not available within the organisation."

27 January 2011

Blog (2)

Myth 1: HR outsourcing will save you large amounts of money. The truth is that most multi-process HR outsourcing is not done solely to save costs, but is instead aimed at accessing capabilities not available within the organisation – for example a new HR system or multi-lingual service centre that cannot be afforded in other ways. 

Indeed, no one in the HR outsourcing business can claim credibly that it will save huge amounts of money. Headline numbers of 40% savings are unrealistic and overlook other costs, including severance costs, supplier management costs, the cost of exiting the contract at the end and the effect of currency and wage inflation.

Modest savings are available, especially for UK companies that are willing to move work to Asia, but when requirements become complicated, for example serving distributed populations around Europe with varying language requirements, savings become harder to achieve. 

On the face of it, typical single digit savings for multinational contracts might not seem worth the pain of making outsourcing happen. But the headline numbers do not speak to the other major benefits that the client gets from outsourcing. These come from transforming the HR organisation’s capability, for example having access to much better HR data, and having a partner to provide transactional work, while the internal team concentrates on delivering HR’s strategic role in the business.

Myth 2: You shouldn’t outsource HR while transforming other areas.  It is common for organisations to look at their transformation options across the range of their corporate functions at the same time. HR teams often have a supporting role in such transformations and sometimes argue that they shouldn’t be transformed at the same time. This is a valid concern because there is a lot to do.

But there is a risk in leaving HR out of a multi-functional transformation and outsourcing planning processes. Firstly, if HR is not included up front, the organisation may never get around to realising the benefits of transforming HR at all; and secondly, the HR director may discover that their own plans for transformation are incompatible with those of other functions.  By failing to join in with the organisation’s transformation effort, HR can lose its voice and find a strategy has been imposed upon them. The worst result would see an HR team included in another department’s outsourcing deal or put in a shared service without being consulted properly.

In most cases there is more to gain by combining HR transformation activities with those in other functions, such as Finance and IT, bringing the best characteristics from each function into the change programme, helping to ensure that its objectives are followed through across the organisation.

To visit PA's pages on shared services and outsoucing, please click here.

To read the blog online, please click here.

To read the first blog, please click here.

Contact the sourcing and procurement team

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