Outsourcing human resource services: The facts

A significant trend in recent years has been for companies to concentrate more and more on their core competencies and to outsource (buy in) functions which are not core. This trend includes the outsourcing of a number of HR services.

Outsourcing

In many cases, companies have begun to outsource their HR functions, infact, "...Outsourcing is now a fact of life in well-managed human resources organizations, and we do not see companies pulling back..." stated by David Dell, a research director with The Conference Board.

Reasons for outsourcing HR

The primary reasons stated for outsourcing HR are the increasing pressure companies are under to generate revenues and cut costs. Outsourcing HR is a strategic decision which can, when done properly, cut many costs, improve efficiency and allow access to additional expertise as well as allowing company staff to focus on core areas. Low cost An external provider can offer a HR service at a lower cost to that a company itself can provide internally due to economies of scale, and the particular focus of the provider on HR attracts and retains a higher calibre of HR professionals, hence the increases in efficiency.

Potential Issues when outsourcing HR

There are, however, negative points to outsourcing HR. Negative morale The main one is the negative effect on moral to the rest of the company by the inevitable job losses whenever a department is outsource. This can also negatively impact local opinion of the company if, for example, a large number of job losses occur in a single area. An example of this would be the trend of outsourcing call centres where companies (such as Europcar) closed down domestic call
centres and moved the services to eastern european countries. Ultimately, the cost saving is judged to have been worth the goodwill impact, but it is nonetheless a real issue. Risk of cultural incompatibility There are other potential issues in outsourcing HR, such as the risk of cultural incompatibility. Here
"culture" is meant as "corporate culture" and different companies do tend to have their own internal cultures, almost like a corporate personality. If the HR provider has a culture at odds with the company whose HR function it has been contracted to perform, then many of the efficiency benefits can be lost. In fact, cultural compatibility has been noted as extemely important when selecting a HR outsourcing partner. Final word Overall, however, it is often beneficial to outsource at least some areas of HR, allowing a company's remaining HR resources to be focused on strategic HR matters, as opposed to more repetitive and less skilled tasks such as payroll.