By Jaco Nel, Director, HR Consulting at BDO South Africa
The emergence of a global economy characterised by intense competition and subsequent pressure on businesses to improve quality, reduce costs and increase productivity has had a major impact on the HR function in organisations. Human Resources professionals are increasingly challenged to provide value added services on a day-to-day basis, while developing HR strategies to adapt to these global changes. Outsourcing the HR function has become a strategic, sustainable and competitive means of dealing with these challenges.
HR outsourcing is driven by the evolution of the HR function within organisations to fill the gap in critical HR capabilities, especially when internal HR Departments are overwhelmed during peak times, allowing the organisation to in-source HR expert capabilities without adding to their headcount. Outsourcing reduces the overall costs as the HR service providers can keep their costs reasonable based on economies of scale. The decision to outsource for this reason is specifically relevant to small and medium sized businesses with limited HR budgets.
Innovations in HR technology and digital solutions have also influenced outsourcing decisions as they enable the organisation to access the latest technology without having to purchase it.
Outsourcing specialised HR services should be an easy decision for companies as these specialised services are the HR service provider’s core business and focus. It proves to be the most cost effective way of acquiring specialised HR services and can be performed more professionally by external service providers. It further reduces liability and risk which is critical for the small and medium size businesses without the resources to employ HR specialists with specialised regulatory and compliance knowledge. Outsourcing also allows for objectivity in conducting employee sensitive interventions and reduces the risk of inconsistent staff treatment which may result in disgruntled employees, disputes and low employee engagement levels.
Move to strategic roles
HR departments often lack strategic focus, due to being pre-occupied with daily operational activities, therefore outsourcing transactional functions allows HR departments to move away from routine administrative functions into a more strategic role, which enhances the focus areas contributing directly to a company's success. Another option is to decentralise the function by only employing HR Business Partners and outsourcing the specialised HR services creating better HR staff utilisation, flexibility and internal customer satisfaction.
Organisations considering the decision to outsource their HR function should consider various factors that could determine the outcome of a successful transition - such as deciding how much control must be retained for certain HR activities and whether this control can be retained with outsourcing. The costs involved in switching service providers for outsourced services will also be a determining factor. Reference checks of potential service providers should always be performed when making the decision to outsource.
The decision to outsource can be met with resistance from the internal HR team and managing this resistance should be part of the process. Any conflict arising from the decision should be anticipated with a plan that supports the relationship between internal HR and the service provider. Changes to the HR culture and careers should also be anticipated. The purpose of outsourcing is to develop a long-term sustainable relationship that creates stability, specifically for in-house staff who will oversee the service provider relationship and understand the performance expectations originally negotiated.
Negotiating an optimal outsourcing agreement requires the establishment of clear expectations, measures and reporting structures for both parties. The company should insist on accurate and frequent status reports from the HR service providers. Performance targets for service providers with the assistance of external consultants may also be helpful in tracking the benefits and consideration should also be given to internal customer surveys in order to evaluate service provider performance.
Outsourcing has the potential to make an organisation leaner, more adaptive to changes, smarter and more profitable if the process is negotiated successfully and the outcomes of the relationship is well communicated.
Read more BDO Insights