HR Outsourcing: What's the Fuss All About?

This is the first part of a four part article which will look at the pros and cons of Outsourced HR and the basic essential steps that any organization should follow while selecting an HRO vendor and most importantly, the issues it should focus on while deliberating as to whether to go for Outsourced HR Services or not.

In 2005 PepsiCo outsourced it’s HR operations to Hewitt Associates for a period of 10 years.

In Feburary 2005 ACS won a $120 million HR Outsourcing contract with Delta Airlines (North America’s 3rd largest in terms of passenger traffic) as Delta was convinced that it would help save 25% of operating costs.

In July 2006 Accenture signed a 7 year deal to provide Unilever with comprehensive HR services across 100 countries to more than 200,000 employees in 20 different languages from delivery centers located in Banglore, Manila, Dalian, Bucharest, Prague and Curitiba!

Obviously these companies thought outsourcing their HR was a great idea (And I’m sure Accenture, Hewitt Associates and Co weren’t complaining either!), but is your company ready for HRO?

It’s a question which doesn’t always have an easy answer. For some companies it’s the only way to go, for some it’s not an option and for those companies which have experimented and have been unfortunately burned before, it’s obviously a strict no-no.

HR Outsourcing caught steam in the late 90s when it rapidly became a corporate HR buzz word and almost a ‘must-try’ management mantra. But as with almost any trend, it’s hasn’t been smooth sailing, both for companies providing HRO services and for companies which have decided to go for these services.

There are quite a few reasons for these ‘bumps’ on the HRO road, a few of them have been articulated below:

Cost (In) Effective: Though there are hundreds of instances where HRO has resulted in companies saving thousands, even millions of dollars, it hasn’t quite done the same for everyone.

While, generally speaking, LSCs and VLSCs have derived the intended benefit out of outsourcing either whole or part of their HR operations, a lot of Medium to Small scale organizations have burnt their hands while experimenting with Outsourced HR.

This is due to various reasons ranging from simply incompetent HRO vendors to over-the-top expectations from the organizations themselves. One major reason ofcourse has been the inability of a lot of medium and small scale organizations to optimally balance and manage their budgets, resulting in a ‘discontinuous outsourced HR process’.

This discontinuous HR process means that these organizations either can’t afford outsourced HR services after sometime or decide to go for only specific (or what they perceive as important) HR services, thus effectively creating a ‘disconnect’ in the HR process.

The Step Father/Mother Syndrome: One of the most basic reasons that Outsourced HR is a failure in many firms is simply that its’ employees view the HRO person(s) as the ‘other guy’ or ‘the outsider’. Needless to say, this causes undue acrimony, and in many cases the HRO executives end up more as ‘appeasers’ than managers.

To say that actual work suffers in such a situation is an understatement.

This happens without fail in those organizations where the maturity or adaptability level of the employees is low or not properly gauged beforehand by the top management. What results is resentment to being ‘told what to do or how to do things by the outsider(s)’. And don’t be fooled into thinking that the resentment only builds up amongst the operation level staff. More often than not, the crux of the resentment and stiffness starts from the middle management level and then percolates down to the operational level staff and slowly, but surely escalates up to the senior/top management as well!

KEY:

LSC = Large Scale Company

VLSC = Very Large Scale Company

to be continued.............