The Official Blog of Benifys HR Solutions

When one starts thinking of outsourcing the HR function, whether partially or totally, there are a lot of questions that crop up in the mind. We’ve attempted to put together some of them and tried to present potential solutions so that these questions do not act as roadblocks in the journey towards greater efficiency and professionalism in the HR function.


Outsourcing is now a norm, people have realised that they should concentrate on their organisation’s core competencies and not share limited bandwidth in trying to run functions that can be run by someone else better, either because that someone else is better trained to carry out these functions, or because it does not make commercial sense to have an in-house function that would probably not have its hands full all the while.


Q. I have an Admin / HR team and they are doing okay. Why do I need to outsource?

A. True, the existing team might be working out fine, but there are no comparators to their performance, they operate on benchmarks that have been internally set, based on the limited knowledge of the HR function that most line managers possess. To enable dramatic growth for any organisation, and to have access to specialized expertise in each of the HR domains, a much larger team is required. This larger team could be a virtual team, working for your organisation on a need basis, rather than add to the salary bill that’s probably already a large part of your total expenses. Through outsourcing, you have access to quality HR services, thought leadership, and specialized support for different HR processes.


Q. How secure is my data? How will the Outsourcing partner ensure confidentiality at my site or their back-end operations?

A. Quality outsourcing organizations are committed to data security for all their client organisations. While most sign an NDA and related legal documents, they also ensure that your data resides on an IT platform that has restricted access. The data that needs to remain secure resides in exclusive servers with every possible care taken through technological barriers (firewalls, anti-hacking tools, etc.) to human interventions (strict control over number of people with rights to access your data). All physical data pertaining to your employees normally rests in your premises, they do not take it away to store it elsewhere. End of the day, you have to trust your data with someone, and in these times, the care that good outsourcing providers take of your data is probably better than what your internal team would be doing.


Q. If I outsource HR it will affect the morale of my employees. What message will this send to rest of the functions?

A. Outsourcing of a function is a common practice nowadays. This is done not with a view to shed workforce, but to equip the function with a competitive edge and improve its efficiency and effectiveness. When people see the difference that outsourcing has made to the organisation, they will realize the benefits of outsourcing themselves. At the same time, outsourcing decisions always have a strategy for the existing HR team, based on the company’s needs they can groomed into a consulting or business partner role. This is what is known as “Retained HR”. Some HR outsourcing firms go to the extent of taking on the existing HR teams onto their rolls, where they work under the shared services model, while providing continuity to the existing HR function.


Q. If I outsource, will I have the same control as compared to an in-house HR team?

A. You do not lose control over the HR function. Instead, you free your bandwidth from carrying out, or overseeing, HR related tasks, and you equip your HR function with expert knowledge and professionalism. While legally they may reside on some other organisation’s rolls, they still function as an in-house team, providing you with as much face-time and interaction as required. Every activity that the existing team was carrying out will be replicated by the outsourcing organization, only with greater cost-effectiveness and better quality.


Q. Will there be cultural issues between the outsourced services provider’s team and the outsourcing organisation’s employees/other functions?

A. HR outsourcing has evolved to a level where HRO firms are now committed to a seamless transition. They function as an internal department. Your employees and your management team will not even notice the cultural differences. If at all, they will be happier with the greater professionalism and expertise that the HRO firm brings.


Q. What can an HRO firm do differently to cut down my recruitment cost?

A. Two things – first, they will be able to manage your existing vendors better, because they have specific expertise in the recruitment space. This will help them negotiate better rates, and put in place a vendor management practice that you might otherwise not have access to. They also have a pool of recruitment partners, and will be able to obtain better terms for your recruitment requirements. Second, even if they utilise their own recruitment engine to service your needs and fill a position for you using their own resources, their charges will be highly competitive because they are now your partners.


Q. If my employee base increases by X % how will HRO firms deal with it and will there be any change in costing?

A. Work with the outsourcing partner to arrive at a per employee costing model rather than a lump sum. This benefits both parties. For you, your costs are linked to your capability to pay (if you’re growing, the probability is that you’re now able to allocate a larger portion to support services like HR – if you’re shrinking, you’d like your support services costs to some down as well). For the outsourcing services provider, he becomes a partner in your growth, always on the look-out to add value to your business so that both the organisations grow together. In such models, there is no redundancy built into the pricing mechanism, and you don’t end up paying extra for people who are not on your rolls.


Q. I want the core HR activities to be handled by my team; I can probably outsource just my recruitment function.

A. Then what you probably need is an RPO (recruitment process outsourcing) instead of an HRO. The strength of HRO firms is in demonstrating the value that HR can bring to an organisation through an end-to-end offering, and not in piecemeal services like recruitment.


Q. My organisations training needs are very specific. How will you design training programs for me?

A. Besides other verticals, most HRO firms nowadays have a dedicated Learning and Development team. Although they don’t usually cater to functional or technical training because we such training programs are best handled by subject matter experts, and not training experts. The basic behavioural tenets in employees in any industry vertical are similar to a large extent, and differ in degrees between industries. Even so, the expert trainers and content developers in an HRO will understand the particular need for your organisation and design customized training programs to address the training requirements of your organisation.


Q. How much do I gain from outsourcing HR in terms of money? Is it worth the effort?

Depending on the vendor the pricing is very competitive and sometimes even lower than what your organisation should be incurring as the total cost of running the HR department as an in-house function. This figure is derived from industry benchmarks. While this gives you an immediate reason to outsource, the true value add that you will experience will be in terms of the drastic improvement in quality and accuracy of the HR services from the very beginning of the engagement.

The concept of outsourcing the Human Resources function, whether partially or completely, has been doing the rounds of corporate circles for long, or at least a reasonably long time now. Given the obvious advantages that it brings, what prevents it from becoming a rage? Why are organisations not pursuing this option with any kind of aggressiveness? Why would they continue to look the other way when something as clear as this stares them in the face every single day of their working lives?

The reason for HR Outsourcing not catching the fancy of organisations is one, or more, of these three:

• Mindset issues: There are perceived problems related to individual insecurity, control, data security, sensitive information that others are privy to, hesitation in adopting change, and so on and so forth,

• Ignorance: Organisations have not heard of HR Outsourcing and/or are not clear how it will work. This is an education issue, and can be handled through relentless campaigns in various media and reach-out programmes, and

• Wrong implementation: Many organisations stop short of deriving the maximum benefits out of outsourcing, for want of a true understanding of what HR Outsourcing can truly accomplish. Like the erstwhile IT Outsourcing models, organisations are confused as to what is the finish line, often considering the race to be over half way through the track. This, to our mind, is the most serious issue plaguing the world of HR Outsourcing. We’ll take a little time to dwell on this aspect.

A report called "Getting Full Business Value from HR Outsourcing With Strategies for Retained HR and Change" was published by Buck Consultants. This report was a result of a multi organisation survey and an accompanying case study and was recently featured on the HROA (HRO Association) website. The report intended to distinguish between organisations achieving "HR efficiency" as opposed to "True HR transformation." While attaining HR efficiency means the careful optimization of HR systems and processes from a perfect combination of both in-house resources and outsourced services, HR transformation is the next step wherein the HR organisation is geared up to drive business performance.

The case study demonstrated how probable it is to be working to achieve transformation but falling short on target to ’settle’ for efficiency instead. The concept of outsourcing the HR function (single or multi process) has been around for some time now and this is now resulting in a clear track record of what does and does not work. What is surprising is that some organisations have been able to achieve far better business impact as compared to others while implementing HR transformation measures.

Going through the survey findings, one thing that stands out is that high performance organisations take a distinctly different approach towards handling change in the retained HR organisation and do not shy away from investing more in change management and communication practices. Needless to say, the overall perceived effectiveness of the program was far higher in high performance organisations as compared to their counterparts. Another aspect in which the change process in the high performance organisations differs is the way they planned and executed the retained HR changes itself. While for the high performance organisations the retained HR changes were part of the overall HR strategy and drove the scope and scale of outsourcing, this wasn’t the case for other organisations. The latter saw the two steps, i.e., outsourcing and managing change, as separate activities not to be mixed with each other, and as a result outsourced first and managed change later. Even in instances where both the activities ran parallel to each other, there was little inter-relation between the two.

Another thing to consider here is how the retained generalist HR organisation is utilized post HRO implementation. Demand dictates the output here; some could be moved under the shared services umbrella while others could be used to form centers of excellence to support the core business with consulting and/or business research services. The final shape of the HR organisation will ultimately depend on the specific needs of the business with a focus on providing HR a strategic involvement rather than appointing it as a ‘maintenance’ function, which is only a short term solution at best.

In order to be successful, the HR transformation process must necessarily cover the following process steps:

1. Selecting an HRO vendor and finalizing which functions of HR to outsource
2. Identifying gaps in the projected HR organisation
3. Determining scope for new roles like business research/consulting for the retained HR organisation
4. Assigning new and modified roles to the retained HR organisation
5. Managing the retained HR organisation by means of orientation, communication and training
6. Preparing retained HR organisation for their new roles, processes, tools and relationships
7. Managing change through extensive communication exercises
8. Supporting the outsourced processes till the time that they "run on their own" so that the employees do not feel disruption in HR services
9. Preparing and following exhaustive SLAs for the outsourcing partner
10. Providing every possible data and information source to the outsourcing partner for effective and seamless transition of processes
11. Maintaining audit points for both the retained and the outsourced HR processes
12. Maintaining a close eye on the market and competitive landscape to evolve further outsourcing strategies and practices
13. Engaging the outsourcing partner in frequent dialogue to unearth further areas of possible partnership
14. Above all, trusting the HRO partner and enabling the model to success, rather than setting it up for failure

In the final analysis, every step that the organisation takes towards gaining a competitive advantage will empower the people within the organisation. The organisation gains through a variety of routes, the cost advantage being amongst one of the many benefits that accrue to the organisation. If an organisation is looking at being perceived in a better light than the others in its space, HR outsourcing is an option that must be explored.