HR Insights, HR Management

4 Good Reasons You Should Re-Think HR Outsourcing

Illustration by istockphoto.com

As far as the new trend of outsourcing professional work goes, I’m not a big fan.

I don’t believe HR should outsource strategic work such as compensation/benefits design, learning/development, succession planning, sourcing/recruitment of key talent (not core or support talent), branding, workforce planning, etc. These are key responsibilities of HR to insure all “people” programs are in sync with company strategy and that the workforce is aligned as well.

We’ve all heard the “hype” that says outsourcing frees up HR to do “strategic” work. What is more strategic than the above functions?

  • How can strategic workforce planning be done if not in collaboration with the C-suite that’s developing a business strategy?
  • Compensation/benefits design? A provider can’t design anything if it doesn’t understand the company’s goals, philosophy, etc.
  • The same is true with strategic sourcing/recruiting. Outsource employment of support jobs all you want, but keep sourcing/recruiting of key/critical talent in-house. It requires solid knowledge of the business and ongoing and regular discussion with hiring managers.

The growth of RPO

RPO (recruitment process outsourcing) is the fastest growing sector of HR outsourcing. This means transfer of ownership of all or part of recruitment processes or activities on an ongoing basis.

RPOs can’t provide that unless they live on-site and take over the relationships with hiring managers that HR should have.

Here’s a quote from an article touting the virtues of RPOs:

What’s lacking today with some RPOs is workforce planning, employment branding, and creative sourcing with talent communities/social media/mobile, and assessment, particularly on a global level. Solutions that focus on these gaps and maximize existing strengths of RPOs will be the winners.”

Looks like a plan to take over strategic/key talent recruiting if you ask me.

If all of the strategic functions are outsourced, how would it work?

  • How would services be integrated?
  • Would the outsourcing firms spend a lot of time with the C-suite being brought up to speed on company strategy?
  • Would HR have to spend time bringing them up to speed?

4 reasons NOT to outsource professional HR work

The “bringing up to speed” wouldn’t be a one-time thing. It would have to be revisited every time there was a strategic change in the business plan. And in today’s warp-speed business environment, that happens frequently. Now where’s the value-add of outsourcing here?

Here are four reasons not to outsource HR professional work:

  1. Less control — Many times the outsourcing firms are a black box which causes the company to lose control over who’s doing what and the details. Yet HR still has the responsibility (think about NSA’s loss of control with Booz Allen contractors).
  2. Dependency — The more functions the vendor(s) provides, the more dependent HR is on them. It’s a risk if the vendor’s work quality is subpar, it goes out of business or is acquired by another company that decides to shut down that service. If the company has to bring work back in-house, a lot can fall through the cracks.
  3. Lack of integration — Vendors do not collaborate with each other to provide integrated talent management plans. They work in siloes and their recommendations may, in fact, conflict with each other. With outsourcing, HR ends up with disjointed, compartmentalized solutions.
  4. Lost knowledgeExperts are now beginning to realize that outsourcing eventually leads to a knowledge deficit. HR ends up knowing less and less about their own operations because they are not directly involved — they are one step removed from the action.

I didn’t just dream up these up. Other functions that have a longer history with outsourcing than HR have encountered these problems. HR will have the same experiences.

How the HR role would change

HR’s role will change the more professional work is outsourced. But instead of HR’s work becoming more “strategic,” as predicted, it will become less so. If HR is no longer directly involved in strategic sourcing/recruiting, workforce planning, etc., it will be giving up direct control of the functions that bring true strategic value.

HR’s new role will predominantly involve managing the vendor(s). Their responsibilities would be to:

  • Coordinate all the different outsourced programs and projects;
  • Understand project overlaps and synergies;
  • Monitor budgets and financial systems;
  • Keep outsourcing firms focused on the original goal;
  • Track project progress and quality;
  • Recognize and solve problems;
  • Serve as a liaison to management — communicating progress and addressing areas of concern.

That’s not exactly strategic HR is it? AND, I’ll spell something out for you if you haven’t read between the lines here. If HR is not already doing strategic work, the entire function is seriously in danger of being eliminated.

To sum up, saying “yes” to outsourcing professional level work is like saying “we kept the house but gave away the keys.”

Capiche?

Jacque Vilet, President of Vilet International, has over 20 years’ experience in International Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expat twice during her career. Jacque has also been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications. Contact her at jvilet@viletinternational.com.
  • John nichols

    100% Jacque. What we aim to do as consultants is to help transfer knowledge to enable employees to keep the keys.

    • Jacque Vilet

      Thanks John. I understand consulting’s role. But firms that want to take over the whole HR function does not serve the company well. And HR becomes a “vendor manager”. I don’t know about you —- but that’s not what I signed up for.

  • Wendell Williams

    This seems like a good idea, but exactly how many HR departments do you think are viewed as critical contributors as compared with strategic partners? If they cannot understand the value of job analysis to identify job-critical KSA’s, validate and use tests and interview to ensure only the most qualified candidates get hired, what else can they do except manage paperwork?

  • Serge Bustamante

    Hi Jacque,

    Although I agree with some of your points
    on not using HR outsourcing, having used it, I think RPO could still be
    effective depending on the company and the process.

    We outsourced our recruitment to a company called Remote Staff and their process was so effective. What we did was we asked them to provide us with remote workers with specific skill set. They gave us a list of candidates they have screened and they let us interview them. Them, we did trial work with the candidates and we were able to evaluate their skills and also build relationship in a short period of time.

    I agree with your 4 reasons NOT to outsource professional HR work but I think it’s up to you, the owner, how you will resolve the issues mentioned and that starts with choosing the right company.

    • Jacque Vilet

      Hi Serge — yes RPOs are OK as long as they don’t take over the entire recruiting process —- meaning not just core/support jobs but the strategic ones as well. Just as you said they were a great help to you for sourcing. That’s fine —- but most RPOs have a much role in mind for the future. And that’s my objection.

      As always it is the CEOs will decide. But HR has the talent in-house in HR to show they are capable it should not be a problem to keep the “wolves” from the door. If HR doesn’t have the needed talent then they either need to be transferred into another department or be transitioned out the door.

      Thanks for your comment.

  • Stuart Hearn

    I think it is important to differentiate what you call ‘Professional’ HR activities from ‘Transactional’ HR activities such as starter and leaver administration, data management, legal compliance, leave and absence management etc. These high volume tasks can often work more efficiently when done on an outsourced basis as the outsourcer is able to provide specialist technology to manage these processes online which may not be cost-effective for companies to own themselves and run in-house. Furthermore, HR systems, data and processes is increasingly a specialist expertise which many organisations do not possess in house, therefore outsourcing transactional HR activities can provide access to this skillset.

    • Jacque Vilet

      Hi Stuart —- agree with you. Core/support professional/exempt jobs can be outsourced and should be. The jobs I’m talking about here are the strategic/key ones — the ones that make/break a company’s ability to make its goals. Jobs that a company has to have to meet their strategy —– talented technical sales people when the strategy is to move into new markets. Talented design engineers when the strategy is to design another product. Etc.

      I think if we can get rid of (don’t mean to be cavalier) some of the non-strategic work that HR professionals have been doing — they can then do the really strategic stuff. Realize that if the talent is not in-house then a company needs to BUY and let the others be absorbed somewhere else in the company. Not having the right skills in HR means HR itself will be outsourced. Eventually outsourcing firms, BPSs, RPOs WILL have the right talent and they will take over. And that’s not good for the company.

      Companies have already outsourced transactional stuff — payroll, benefits admin, etc. It’s the truly strategic stuff that needs to stay in-house for all the reasons I described.

  • Claude Gauthier

    Outsourcing HR is necessary. It improves objectivity, which is essential for business to make un-biased decisions. It is not HR’s mandate to define corporate strategy – that is the role of the CEO and executive staff. HR’s place is to serve the organization, under the direction set out in strategic planning dictated by the CEO and executive staff. Too many organizations allow HR to be the master, not the servant. A completely impartial third party HR provider stays true to the mandate of providing accurate consultative information based on legislated constraints the corporation is required to be in compliance with.

  • Shanil K

    Jacque:

    First, thanks for using my article on RPO as a reference. I just saw that. Now, my article was about RPO predictions – which includes, ‘touting’ its virtues. I have an article titled RPO or Not where I distinctly state where examples of RPO are challenged and will not likely be effective.
    http://www.pierpoint.com/rpo-or-not/

    “Looks like a plan to take over strategic/key talent recruiting if you ask me”

    That is your projection – my motives on the quoted section above is instruction and counsel to the RPO and TA Leader alike. Outsourcing companies or internally can do the work itself. Whoever does it better should do it in my view and I’ve been on both sides. There are great TA Leaders who’ve build great recruitment teams doing most of the work internally and outsourcing elements of it (like sourcing in specific examples)

    Also with RPOs, many don’t have the talent internally do the workforce planning, branding and passive sourcing at the level today to ‘take it over’ whatever that means. Cost and profit margins are part of their equation. With IBM buying Kenexa; ADP buying Right Thing – who knows, it may change over time. My company is smaller so we do professional work (recruiters with 10+ years of technical recruiting experience doing sourcing where the in-house company lacks those resources for scalable hiring needs). We have a solution for a consumer products co involving Assessments for spatial intelligence + video interviewing + front-end prequalifying recruiters that submit quality strategic candidates to HR & the Line for them to make final cuts. 5000 candidates vetted to 25 for coveted roles.

    Your article has fair points but looking at facts before making a decision is important and while hard to take out personal emotion, what we sign up for can change over time.

    You talk about HR being strategic and reference reasons to not outsource HR. All of those examples can be overcome by fees at risk for SLAs with outsource companies (at least for RPO) – for other areas, I’d likely not outsource HR areas.

    If that were the case, we’d be talking more about the CFO and influencing the c-suite. Stanford had a great article about CFOs of future focusing on enabling leaders to hire the best talent as in their top 2 priorities. Could you imagine if that were true? Recruitment & HR would get more respect than a cost-center typically does..but that means, HR has to talk metrics and strategic metrics. Not just soft-skill stuff of 9 boxes and Radford surveys.

    Survey of 245 Fortune 500 CEOs and CFOs (60% being CEOs) found 80 percent of CEOs and CFOs want the head of HR to be key in their company’s strategy planning but only 38 percent of those CEOs and CFOS say that is currently the case and of that, only 10 percent say the head of HR is “extremely” key in strategic planning right now.

    “we kept the house but gave away the keys” – my contention is this: if you can’t be strategic, you never had the keys to begin with…

  • Michael Bian

    Great point and insights nice article.