The arguments against outsourcing are many, but consider how governance can just as easily mitigate these risks
Many positive reasons for considering HRO get lost in politics and dogma within organizations today. Too often, fear of change drives companies to inappropriately dismiss the potential benefits of outsourcing.
Dogmatic utterances about “why we shouldn’t outsource” take the place of careful analysis. This article challenges three common assumptions that prevent reasoned evaluation of opportunities in HRO.
• Assumption No. 1: You can’t successfully outsource “broken” processes.
• Myths: HR processes can be more easily stabilized by employees; business stability will occur.
• What they say: “Since HR processes aren’t standardized, they’re too costly for a service provider to transition and operate. Besides, planned future growth will require transitioning in even more variations in HR service offerings. We should wait until operations are stable.”
• Shred of truth: Non-standardized processes are costly to operate, and transformation of processes to improve efficiency requires investment.
The question is who can standardize processes most effectively? Internal capabilities and motivation to accomplish change both need consideration. You must answer the question, “If we have the capability, why haven’t we already accomplished the change?”
Service providers might have a better chance of success. They may have more expertise, but additionally, their motivation is not status quo. Rather, profitability is the driver—through increased efficiency and providing services that truly satisfy customers.
• Assumption No. 2: Employees are our greatest competitive strength; HR is too core to our business to outsource.
•Myths: All HR services are strategic; quality risks can’t be managed in HRO.
• What they say: “HRO is too risky; outside service providers will never care about our employees and business as much as internal employees do.”
• Shred of truth: You cannot rely on corporate culture to get extra effort and time from HRO service providers; you must specify and pay for it.
Even organizations with strategic reliance on employee specialization have non-core, purely transactional HR functions that can easily be outsourced. With effective relationship management as a part of ongoing outsourcing governance, provider teams become so strongly allied with client business that initial “us” and “them” distinctions disappear.
There is risk that HRO cannot meet business needs if performance standards are not specified, inappropriate, or poorly communicated. This risk is manageable, through SLAs subject to amendment.
• Assumption No. 3: HRO can’t improve our HR operations; our costs already benchmark well below industry average.
• Myth: The only reason to outsource is to save money; benchmarking data “proves” no one can do the work for less.
• What they say: “Enterprise HR cost savings objectives are already being met; past analyses show that outside service providers can’t do the work for lower cost.”
• Shred of truth: Some HR operations are lean having achieved substantial savings through internal actions.
Highly successful outsourcing requires more than cost savings goals. Greatest value comes from outsourcing strategies focused on improving business results through collaboration with service providers, transforming process, applications, and infrastructure.
Reliance on cost benchmarking to decide whether to outsource is a problem because benchmarking, by nature, uses trailing data. Additionally, being a low-cost service provider doesn’t necessarily mean being effective in meeting business needs.
TBI’s experience shows clearly that outsourcing is not a cure-all but can sometimes be a very appropriate part of a business solution. We always tell our clients,
“We don’t care whether you outsource; our goal is to find the right solution for your needs.” In organizations where assertions mentioned above are accepted without further thought and analysis, HRO may be prematurely dismissed. The bottom line: There are no simple rules to follow about whether to outsource and no substitute for careful, non-biased assessment.