Outsourcing HR Doesn’t Always Increase Efficiency

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By Martin Berman-Gorvine

The purpose of outsourcing HR functions is to make things more efficient and save money, but it doesn’t always work out, HR professionals say.

When a decision is made to outsource some of an organization’s HR functions, “at the highest level, it ties back to the company’s strategy,” Melissa Hennigan, vice president of human resources for Arlington, Va.-based Symplicity Corp., told Bloomberg BNA May 3. “It can be strategic or efficient to outsource some functions and keep others in-house.”

But decision-makers must carefully consider the circumstances, said Hennigan, who also serves on the special expertise panel for talent acquisition at the Society for Human Resource Management. Consider a company that is growing rapidly, she said. It might be a fine idea to outsource its benefits administration but more problematic to outsource its recruiting functions, because for the latter the company will not want to “lose the personal touch” with the qualified candidates it needs to recruit, she said.

A similar point came from Suzanne Lucas, author of the popular Evil HR Lady blog. “When you’re thinking about outsourcing HR functions, you need to remember the human part of human resources,” she told Bloomberg BNA in a May 2 email. “Is the outsourcing going to make it more difficult for employees? If an employee has a concern, will she have to call an 800 number for help? Will the terms with the outsourcer be so rigid as to make it difficult to handle emergencies? Will there still be onsite people?”

“Outsourcing HR functions can be a smart business decision, depending on which needs are being outsourced, the size of the organization and internal HR team and complexity of HR needs,” Kelly Marinelli of Solve HR Inc., another member of SHRM’s special expertise panel on talent acquisition, told Bloomberg BNA in a May 3 email.

A more specific viewpoint was offered by Amy Schabacker Dufrane, chief executive officer of the HR Certification Institute.

“Outsourcing all of HR, or elements of the HR function, makes the most sense in organizations that are undergoing significant change,” she told Bloomberg BNA in a May 3 email.

That’s because outside vendors can bring fresh knowledge and a fresh perspective to the changes at a cost the organization might not be able to afford long term, Dufrane said. “Outsourcing HR doesn’t have to be a permanent solution but rather one that gets the organization aligned with the business objectives, and with the programs that support the organization’s business goals. Then HR can be brought back in-house,” she added.

What to Outsource?

Small organizations might want to have an outside provider take care of even core HR functions, while larger employers with more resources can afford to keep core HR functions in-house and outsource only routine tasks to leave HR free to play a more strategic role, she said. “If a company has complex benefits needs,” though, it might make more sense to take care of those in-house, she said.

Good candidates for outsourcing, according to Marinelli, include:

  •  “recruiting for executive and key roles,”
  •  “compliance-driven functions like FMLA leave administration and complex absence and disability cases,”
  •  “federal contractor compliance” such as affirmative action plans,
  •  “implementation of new technology,”
  •  “organizational development projects,”
  •  “executive coaching,”
  •  “specialized training development,” and
  •  “change management consulting.”

Plan Carefully

Exercise especially careful oversight over outside vendors for the first six months, and make sure to hold the vendors accountable for return on investment and employee satisfaction, or “the wheels can come off very quickly,” Marinelli said. “Then the company has no control over the process, is not receiving service that meets their needs, and employee experience suffers.”

“At the end of the day, you don’t want to rely on outsourcing so much that you have no one on the inside looking at all the data and strategic aspects of the HR function as it relates to the overall business objectives,” Dufrane said. “You need a professional to own the function to analyze the data and look at the higher strategic aspects of the function.”

To contact the reporter on this story: Martin Berman-Gorvine in Washington at mbermangorvine@bna.com

To contact the editor responsible for this story: Tony Harris at tharris@bna.com

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