Human resource outsourcing companies are one of the management trends that is here to stay. The logic behind it is that if the function is not a core business of the company, then it would be better left to the experts. What most strategic decision-makers are not aware of, however, is that letting “experts” handle certain functions would not automatically solve a company’s inefficiencies and problems.
That’s because HR outsourcing has its caveats too.
The first is that not all providers at all the human resource outsourcing companies are experts, and not all would take the effort to understand the company’s business requirements. Companies implementing this strategy without first doing their homework – selecting the right provider – often find that they’re spending more money and effort after outsourcing than before. This is ridiculous, of course. The two primary reasons for subcontracting are to reduce costs and to enable the company to focus its efforts on more crucial tasks – tasks which enable it to gain an advantage over its competitors. Obviously, spending more money and effort after outsourcing defeats these objectives. This takes us to the second caveat, which is, contracting out also entails careful planning – so that we can ensure we’re getting the right providers, and we’re getting what we want done in the first place.
Let’s zero in on human resource.
Of the main functional departments in companies (i.e., Operations, Marketing, Finance, HR, IT, and Customer Service), HR is perhaps the most outsourced one, which is not surprising as it is usually considered as “not core business.” But instead of farming out the whole HR department, including HR management, the best way to contract out this function, according to best practices, is to do it in chunks. Outsource recruitment and payroll first, for example, and see if the subcontractor is doing a good job at it. If they are, then we can proceed to contract out benefits administration, training, and performance appraisal, which are more sensitive functions and require knowledge of the company’s internal processes and special needs. Finally, but more cautiously, outsource HR management – the task which provides the direction for HR and recommends and implements strategies. Then, hire an HR outsourcing coordinator who specializes in monitoring the performance of providers against the company’s requirements and milestones. This is the ideal setup.
Imagine if a company goes the opposite direction and chooses to do total outsourcing of HR, and then made the mistake of awarding to the wrong provider. If the provider bungles benefits administration, payroll, or performance appraisal – don’t expect the employees to be forgiving. After all, some of their colleagues in HR were let go in favor of another company which may not even care about them. The company would thus be trapped between two opposing choices: the first of which is fulfilling its contractual obligations as a buyer of HR services, and the second is incurring the anger and retaliation of its employees. It would be a position nobody would envy. Selecting the right one out of the many human resource outsourcing companies is not a task to be taken lightly.
