The case for HR outsourcing

The notion of outsourcing staff departments, including finance, administration, procurement and the like, has come a long way in developed economies. In SA, IT outsourcing especially, is now a common phenomenon under the bigger corporates and especially multinational companies. HR outsourcing in particular has grown substantially in the US and related markets. The South African market, obviously much smaller and less developed, could well be worth as much as R3 billion per annum and is expected to grow rapidly.

According to Werner Guse, Operations Director for Astute HR, a business unit of the AST Group, global trends in outsourcing have been underpinned by economic considerations primarily, boosted by the availability of information technology and networking that resolved many issues of time and distance.

"This has contributed to the advent of real-time service and the adoption of service centres," adds Guse. "These arrangements have further contributed to cost and service efficiencies and make even more sense under outsourcing situations with multiple clients that share the burden of huge IT investments and infrastructure."

The rationale for outsourcing is driven very much through the consideration of business strategy and especially the focus on core business and alternative organisational arrangements. Companies making use of such services not only gain the benefit of a more focused business approach, but insure the flexible availability of professional services where it is needed most and at an affordable price. Best practice HR has furthermore become a prerequisite in a competitive environment where human capital plays a fundamental and often decisive role in business profitability and survival. No place for second-rate HR practice.

Guse points out that in SA, other considerations also play an important role in outsourcing decisions in the HR domain. The scarcity of professional staff, as well as the expense of information management tools certainly provide for a compelling logic to share these resources between employers. Our economy, migrating from the industrial to the information age, is still typified by high levels of labour intensiveness as well as a complex and changing regulatory labour environment. This makes HR management a complex affair that is also often burdensome from an administrative and legal perspective.

The somewhat slower uptake of HR outsourcing in the South African economy probably has much to do with the perception of risks inherent in such ventures. Chief executives find it difficult to deal with the perception of losing direct control over resources that seem to add real value to the enterprise. Often mistrust exists with potential vendors perceived as strangers with uncertain futures who will never be able to understand the business. Fears exist around future costs and cost escalations in such arrangements and very often the existing internal staff department resists such change with passion. They argue strongly for their localised knowledge and understanding and often hide existing inefficiencies unintentionally.

In Astute HR`s experience, these risks are easily controlled for by an astute and professional approach to HR outsourcing. The following principles seem to have universal success and appeal:

*.The use of experienced and reputable service providers is a prerequisite for success. This requires a provider that is both willing and capable to make a substantial investment in HR best practices as well as information technology.

*.Use a full service vendor providing a holistic, end-to-end business solution with the complete range of HR services. This is typically represented in a comprehensive and integrated service delivery model, one that is easily replicated yet flexible to different client needs.

*.Seek providers that engage clients in long-term risk reward partnerships to exploit and utilise synergies between them. This approach requires investment and commitment from both parties that is usually uncommon in most standard commercial arrangements. The provider need to posses both advanced HR management as well as business skills to structure such a deal, to manage the transition and to put excess capacity to commercial value.

*.Agree baseline outcomes early. Where feasible future baseline cost savings and escalations are agreed up-front, based on specific conditions and outcomes.

*.Contract and relationship management makes for a fundamental in outsourcing success. A detailed and comprehensive service level agreement with clear deliverables and measurement serves as a prerequisite. This is supplemented by active structures for demand regulation and relationship management. Regular review is a key feature of the overall management approach. In this manner, parties have full control and transparency is built into the system.

Does outsourcing meet its expected promise? "Unexpected benefits can be gained in such arrangements," notes Guse.

*.Converting staff functions into core businesses, responsible for customer retainment and revenue generation, unleashes energy and focus previously unheard off in such departments.

*.This translates directly into service-orientation and customer satisfaction, as well as the drive to manage costs and efficiencies in order to become and remain profitable.

*.The increased complexity of multiple clients stretches staff, builds capacity and brings the solutions to the forefront that benefits clients greatly. Innovation becomes the norm and best practice a necessity.

*.A new sense of worth and career options exist for HR professionals working in outsourced environments. Not only do they gain wider and deeper professional expertise, but also become business people and entrepreneurs. They learn to act as salespeople, dealmakers and relationship managers as a matter of routine.

*.At a macro level in SA, HR outsourcing has a major role to play in the development and enhancement of true professional HR standards and best practices available to local employers. Such a new economy of scale presents exciting opportunities in software applications deployment, research and development as well as process efficiencies in the local HR environment.