Human Resource Outsourcing HRO is a momentous strategic HR initiative. It helps organization to focus on internal resources towards doing what they do best and simultaneously helps to control the bottom lines.
The recent competitive challenges of the global marketplace are creating demand for expert human resource outsourcing HRO providers in order to manage non-value adding administrative business function of their businesses thereby facilitating the businesses can concentrate on their core competencies.
Human resources outsourcing helps in boosting organizational performance with many strategic benefits like eliminating the redundant non-core HR functions, increasing cost competitiveness effectiveness and helps in maintaining strategic HR focus.
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1. Introduction to Human Resource Outsourcing 2. Meaning of Human Resource Outsourcing 3. Services 4. Relationships 5. Advantages and Problems.
Human Resource Outsourcing – Introduction, Meaning, Services, Relationship, Advantages and Problems
Human Resource Outsourcing – Introduction
HR is arriving quite clearly, HR outsourcing is arriving. The HR department, long considered a cost center, performing back end tasks, has had to re-orient and re-engineer itself in line with the demands of the emerging e-economy. It has had to take on the role of a business partner, which performs core HR functions that have a direct impact on the revenue building capability of the company.
HR is clearly going through a process of evolution—moving gradually from the backroom to occupy a key place in the boardroom. It is fighting perceptions that place it in a non-strategic role and instead positioning itself as a strategic partner that addresses business issues. It’s role has now become strategic, from being transactional. Previously, HR spent wasteful hours in answering employee queries.
Today, outsourcing companies take care of these needs, providing employees a window into aspects such as payroll and benefit details, at a mouse click. This has happened as a result of outsourcing of peripheral but necessary administrative tasks such as payroll, benefits, education/training, recruiting, personnel administration, organizational development, contingent workforce management and workforce analysis by HR departments of companies.
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While earlier, these comprised the bulk of the HR work of these departments, today, these activities are being perceived as a distraction that takes away from HR’s main job which is recruiting and retaining the best of the best in the business.
Size is no longer a barrier to outsourcing, In fact, it is not just the HR departments of larger companies that are undergoing this makeover and catalyzing the outsourcing trend. Smaller and mid-sized companies, traditionally out of this magic circle, are now also being driven by factors such as bottom line consciousness to take the outsourcing route. Until recently, these companies were maintaining large headcounts and spending excessively on areas such as HR expenses.
A study in fact conducted by the Institute of Management Accountants (IMA) in mid 1990s, showed that mid-sized companies spent almost twice as much as large companies in maintaining an HR head count that was also possibly twice the size, as compared to the bigger organizations.
It was discovered that more than 87% of the funds mid-sized companies budgeted for finance and HR were going towards routine processing transactions, rather than policy making strategies and analysis that could actually impact the business, enabling it to gain efficiencies, improve productivity and the bottom line.
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The large outsourcing service providers too went for the larger players, who translated into a better business opportunity. Today, however, the trend has changed. Irrespective of size, companies are coming forward to outsource their non-core processes, in an effort to cut costs and maintain growth.
The global economic slowdown has only served to heighten this movement, with companies narrowing their area of focus to only their core work, with the rest getting outsourced to large outsourcing services providers in often faraway destinations. HR outsourcing trends by region HR needs and outsourcing services, though often the same do differ from region to region.
Statistical analysis by Watson Wyatt Worldwide, which developed the Human Capital Index to provide a standard for measuring a company’s people practices, shows a clear relationship between the effectiveness of a company’s people practices and the creation of superior market value.
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Focusing on people does pay off. Strong human resources practices have the potential to increase your company’s productivity and profitability, but HR management has become a colossal task, demanding considerable resources. Legal and regulatory compliance has become an overwhelming task, and time spent on administrative obligations is time spent away
Human Resource Outsourcing – Meaning
Human Resource Outsourcing (HRO) has been a topic of debate and immense interests in high profile organizations over the years. HRO has been utilized as a tool for multiple occasions like those of merger, acquisition, divestiture, turnaround and growth.
Human Resource Outsourcing HRO is a momentous strategic HR initiative. It helps organization to focus on internal resources towards doing what they do best and simultaneously helps to control the bottom lines.
HR is an essential partner in developing and executing organizational strategy as is evident HR is something that is really critical to an organizations functioning. Human Resources (HR) responsibilities includes all the related functions that work towards employee well-being in the organization including payroll, benefits, hiring, firing and keeping up to date with state and federal tax laws.
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The recent competitive challenges of the global marketplace are creating demand for expert human resource outsourcing HRO providers in order to manage non-value adding administrative business function of their businesses thereby facilitating the businesses can concentrate on their core competencies.
Human resources outsourcing helps in boosting organizational performance with many strategic benefits like eliminating the redundant non-core HR functions, increasing cost competitiveness effectiveness and helps in maintaining strategic HR focus.
Thus, HR outsourcing can:
a. Help in structural reduction of the Human Resource Management (HRM) cost base, by identifying the non-value adding activities and eliminate the hidden HR operations costs.
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b. Help in identifying the inefficient Human Resources (HR) Administration processes and HR practices.
c. Helps organization to focus on human resource performance.
d. Help organizations to serve their employees better.
Human Resource Outsourcing – HR Outsourcing Services: Features and Models
The role of human resource outsourcing services in an organization differs with the extent of outsourced functions. Some services go with the “all-or-nothing” approach, requiring that they handle all your HR functions or none at all. Others offer their services “a la carte,” meaning one can pick and choose from the HR outsourcing services they offer.
HR Outsourcing Services Features:
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a. Payroll administration – Produce checks, handle taxes and deal with sick time and vacation time.
b. Employee benefit administration – Health, medical, life insurance plans, cafeteria plans, etc.
c. HR management – Recruiting, hiring and firing. Also background interviews, exit interviews and wage reviews.
d. Risk management – Workers’ compensation, dispute resolution, safety inspection, office policies and handbooks.
HR Outsourcing Services and Its Operational Models:
i. Professional Employer Organization PEO:
A Professional Employer Organization (PEO) assumes full legal responsibility of a company’s Human Resources. The PEO and business owner work as associates, where PEO handles the human resource aspects and the owner handles core business.
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ii. Business Process Outsourcing BPO:
Business Process Outsourcing refers to outsourcing in all fields for overall process improvements, not just outsourcing human resource functions. HR based BPO function ensures that organization is compatible with latest HR automation and technologies.
iii. ASP:
Application Service Providers (ASPs) offers HRJS support via latest HR software and web based HR solutions.
iv. E-HR Services:
E-HR services, outsourcing electronic HR services is a means to procure web aware online utilities for the organizational HR process improvement. The E-HR service providers offer value added web based applications to cater to the need of the employers.
Human Resource Outsourcing – 3 Types of Outsourcing Relationship Types
Another recent study, by IT consulting firm Gartner Group, said there are three types of outsourcing relationship types:
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i. Application service provider (ASP),
ii. Traditional payroll/benefits outsourcing, and
iii. Business process outsourcing (BPO).
According to Gartner, an ASP hosts the HR technology at its site and supplies technical support. In traditional payroll/benefits outsourcing, the external service provider (ESP) plays a more active role in the business process. In addition to providing technology and support, the ESP also performs and manages part of the business process. In business process outsourcing (BPO), the ESP owns the business process or function, including the technology or technology support.
James Holincheck, the author of the Gartner study, notes that many organizations go into outsourcing thinking that there will be big cost savings. “But often, cost savings don’t materialize,” he says. “It’s important to have a balanced view of what you want to get out of the outsourcing relationship.” The Gartner study noted another 2002 study that found that full BPO can be more expensive than keeping HR functions and processes in house or using selective outsourcing, for example.
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Gartner found that enterprises with fewer than 1,000 employees are the predominant users of HR outsourcing services, often because they don’t have the depth of specialist resources found in larger enterprises. Smaller organizations usually have more HR generalists than training, benefits and payroll experts, and often have limited IT resources.
Human Resource Outsourcing – Advantages and Problems
Advantages of Human Resource Outsourcing
Following are the advantages of outsourcing of HR function:
1. It allows top management to focus more time and attention on building its core business. When HR tasks are outsourced, HR executives can spend more of their time on planning and executing HR strategy.
2. HR outsourcing helps in boosting organizational performance with many strategic benefits like eliminating the redundant noncore HR functions, increasing cost competitiveness effectiveness and helps in maintaining strategic HR focus.
3. HR outsourcing help in structural reduction of the HRM cost base, by identifying non value adding activities and eliminate the hidden HR operations cost.
4. It helps in identifying the inefficient HR administration processes and HR practices.
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5. When the organization is going to enter into the new market and it is not sure that if it will need full time staff in some functions, in that case outsourcing is the best option.
6. Outsourcing provides experts for specific jobs when full time professionals are not affordable.
7. Union problems are also avoided with the outsourcing.
8. Outsourcing helps in increasing productivity in mundane jobs.
9. It offers cost effective solutions.
10. Employees can get more timely and accurate information due to greater administrative efficiency.
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11. The company need not invest in the latest technology and staff for routine HR functions.
12. An integrated HR outsourcing model makes record keeping more accurate, avoids duplication and makes access to information easy and quick.
13. The company need not invest in the latest technology and staff for routine HR functions.
Some Other Benefits of Outsourcing HRM Functions:
More and more organizations are resorting to outsourcing HRM functions because it offers certain benefits over performing these functions internally.
Such benefits are as follows:
1. By outsourcing non-critical HRM functions, the organization can concentrate on critical HRM functions. If HRM functions have been linked to strategic management process, performing of critical HRM functions efficiently and timely is important for the success of the organization. If HR professionals remain busy in performing routine and non-critical HRM functions, they can lose sight of critical HRM functions.
2. Performing non-critical HRM functions internally is not cost-effective because performing such functions requires specialized skills and infrastructure which involve cost disproportionate to the contributions made by such functions. BPO (HR) vendors have requisite skills and infrastructure and they can provide services at much lower cost.
Problems in Human Resource Outsourcing
Though outsourcing certain HRM functions is beneficial, deriving such benefits becomes quite problematic in some situations.
Problems related to outsourcing HRM functions are of the following types:
1. The organization has to depend on outsiders for getting things done. If BPO (HR) vendor is not prompt enough or is not efficient, work can be delayed.
2. The quality of BPO (HR) vendors in India is yet to achieve the requisite level. Perhaps, this is due to lack of adequate business in this field at present. However, this problem is likely to be over soon as more firms are turning their attention towards this attractive business. Therefore, while engaging a vendor, its reliability and capability should be ascertained.
3. It is argued that if some of the HRM functions, even of routine and administrative nature, are outsourced, it will adversely affect morale of HR professionals in the organization; they may develop a feeling that the organization does not have faith in their competence.
However, this feeling may not have enough force because HR professionals interact with managers at all levels and, therefore, they can really appreciate the implications of outsourcing HRM functions.