HR professionals appear reluctant to buy case for outsourcing
Though its champions say outsourcing should be HR’s ticket to strategic importance, few HR professionals consider it a high priority, suggests a recent survey of HR leaders.
Asked to identify the top five HR priorities over the next three years, just three per cent of the more than 270 respondents identified outsourcing as a priority — dead last from a list of 21 options.
HR professionals are too busy thinking about things like finding the next generation of leaders, performance management and increasing worker productivity to be exploring outsourcing possibilities, said Prem Benimadhu of the Conference Board, which surveyed 290 HR leaders about priorities for its Compensation Outlook 2005 (see table page 20).
“If you ask any vice-president of HR (about top priorities), I doubt if many of them will say outsourcing,” he said.
For one thing, most companies that needed to outsource administrative elements of the function to realize improved efficiencies, have already done so, said Benimadhu.
But more importantly, HR leaders today are more interested in doing a better job of the important elements of the function already in the department. The survey does not say there isn’t going to be outsourcing, he added. “But in the grand scheme of things, outsourcing pales in comparison to things like succession planning, leadership development and performance management.”
Organizations have been outsourcing bits and pieces of HR for decades. But in recent years the practice has attained hot-topic status in much of the debate around HR’s quest to become more strategic. The question is: Are organizations and HR departments interested in doing more than just talking about outsourcing?
It is clear nagging doubts persist and some professionals simply aren’t buying the case for outsourcing.
Steven Anderson, vice-president of HR for Kitchener, Ont.-based Crawford Adjusters, said he felt obligated to explore the possibility of outsourcing.
“I couldn’t walk into an executive meeting and not be able to say I have looked at it. I had to be able to say, ‘Here is what it is going to cost and here is what could be gained,’” he said.
He told the executive team that he was managing HR at a cost of about $525 per employee. And based on market research he figured it would cost more than $950 per employee to outsource the same services.
Anderson said he was uncomfortable with someone in a distant service centre helping employees.
In a large organization, where personal connections between employees and HR typically aren’t as strong, it makes more sense to outsource, he said. But in a company with 1,000 people, employees usually value the personal connection with the people in the HR department, he said.
When something happens with their benefits employees can call the same person. “They have that personal touch. They know each other on a one-on-one, first-name basis,” he said.
“If our costs were out of line and the quality service we provided was poor, I would look at it,” he said. But based on the numbers he gave them, the executive team isn’t even interested in HR outsourcing, he said.
At The Ottawa Hospital, vice-president of HR Michael Cuddihy said he does not believe outsourcing would be right for his organization.
“We’ve considered (outsourcing), but not much more. You have to consider it to ensure you are getting the best bang for your buck,” he said.
“If the whole HR department can be done more effectively somewhere else, then you have to give it some thought,” he said. Based on benchmarking data, the hospital’s HR department of 70 is doing a pretty good job of delivering its services to the more than 10,500 staff, he added.
“You have to take a step back and ask, ‘What do you consider to be your core business?’ My view is you shouldn’t outsource your core business,” he said.
“Health care is mostly a people business,” he said, adding that 70 per cent of the organization’s budget is payroll costs. “So how you manage your people and how you bring them into the organization is really a core business.”
At Waterloo, Ont.-based content management software firm Open Text, Dominic Scaffidi, director of HR for North American operations, asked himself the same kinds of questions but came up with a different answer. The company agreed to outsource most of its recruitment function to Ceridian earlier this fall.
As in most organizations, the HR department was faced with limited resources but still intent on increasing its strategic value. “So we had to make decisions about what are we going to do and not do,” he said.
“We were doing (recruiting) as well as we could, but the question was, will we ever become better at it? Will this ever be a core competency?”
To get much better would have taken a significant commitment of money and resources. What’s more, it was clear there were real inefficiencies that would be difficult to correct, he said.
“Our statistics showed that fully 75 per cent of the time, given our recruiting pattern, we either had too many recruiters or not enough recruiters,” he said. Open Text decided it would be better off giving recruiting to a company like Ceridian with the best technology and the skilled full-time recruiters who can be used to maximum effect.
Still, when asked if he considers outsourcing a priority, Scaffidi said no. “Outsourcing as a priority would be dead last,” he said. Outsourcing is not an objective in and of itself. It is a tool to achieve other priorities, he said.
In recent years, a handful of large organizations have committed to major deals outsourcing upwards of one-half of the HR department to one provider.
There has been a lot of interest and a lot of discussion, but that doesn’t mean everyone is going to be buying, said John Sanders of Hewitt Consulting, one of the leaders in the HR outsourcing market after merging with HR outsourcing pioneer Exult earlier this year.
Outsourcing has built up momentum, he said. Leaders see it being done in other organizations or even for other functions within their organization, and they want to know if it would work for HR. And so the HR leaders have to at least consider it.
“The rule of thumb is that…when all factors are considered, you should save 15 to 20 per cent,” he said. Some organizations considering outsourcing did the math and concluded they would only save five or even eight per cent and decided not to do it, he said.
But outsourcing of this wholesale nature (called business process outsourcing and sometimes business transformation outsourcing) is still only an option for organizations of 10,000 employees or more, he said.
There simply are not that many potential clients for those deals in Canada, he said.
There has been no shortage of people weighing in on each side of the outsourcing debate. (For more on the debate, click on the related article link below).
Daniel Skarlicki, an associate professor of organizational behaviour and human resources at the University of British Columbia’s Sauder School of Business, comes down squarely on the pro-outsourcing side.
“There is no question (outsourcing) should be a strategic priority,” said Skarlicki.
“HR leaders should consider outsourcing most of their functions unless doing so compromises the company’s competitive position,” he said.
Truly strategic HR starts with the premise that everything can be outsourced, and then works backwards, carefully making the case to keep each element in-house, he said.
The problem is that too many people simply don’t want to think about downsizing their own department because they feel like it puts their status at risk, he said.
Power and status do not come with the size of the department but from the value of the contributions being made by the department, he said. If HR can outsource non-strategic elements and concentrate on making true strategic contributions their power will increase.
“I think HR departments could do a whole lot more questioning of their own assumptions,” he said. There will be a lot of resistance to outsourcing, but that resistance will arise more from individual discomfort with change rather than what is best for the business, he said.
Asked to identify the top five HR priorities over the next three years, just three per cent of the more than 270 respondents identified outsourcing as a priority — dead last from a list of 21 options.
HR professionals are too busy thinking about things like finding the next generation of leaders, performance management and increasing worker productivity to be exploring outsourcing possibilities, said Prem Benimadhu of the Conference Board, which surveyed 290 HR leaders about priorities for its Compensation Outlook 2005 (see table page 20).
“If you ask any vice-president of HR (about top priorities), I doubt if many of them will say outsourcing,” he said.
For one thing, most companies that needed to outsource administrative elements of the function to realize improved efficiencies, have already done so, said Benimadhu.
But more importantly, HR leaders today are more interested in doing a better job of the important elements of the function already in the department. The survey does not say there isn’t going to be outsourcing, he added. “But in the grand scheme of things, outsourcing pales in comparison to things like succession planning, leadership development and performance management.”
Organizations have been outsourcing bits and pieces of HR for decades. But in recent years the practice has attained hot-topic status in much of the debate around HR’s quest to become more strategic. The question is: Are organizations and HR departments interested in doing more than just talking about outsourcing?
It is clear nagging doubts persist and some professionals simply aren’t buying the case for outsourcing.
Steven Anderson, vice-president of HR for Kitchener, Ont.-based Crawford Adjusters, said he felt obligated to explore the possibility of outsourcing.
“I couldn’t walk into an executive meeting and not be able to say I have looked at it. I had to be able to say, ‘Here is what it is going to cost and here is what could be gained,’” he said.
He told the executive team that he was managing HR at a cost of about $525 per employee. And based on market research he figured it would cost more than $950 per employee to outsource the same services.
Anderson said he was uncomfortable with someone in a distant service centre helping employees.
In a large organization, where personal connections between employees and HR typically aren’t as strong, it makes more sense to outsource, he said. But in a company with 1,000 people, employees usually value the personal connection with the people in the HR department, he said.
When something happens with their benefits employees can call the same person. “They have that personal touch. They know each other on a one-on-one, first-name basis,” he said.
“If our costs were out of line and the quality service we provided was poor, I would look at it,” he said. But based on the numbers he gave them, the executive team isn’t even interested in HR outsourcing, he said.
At The Ottawa Hospital, vice-president of HR Michael Cuddihy said he does not believe outsourcing would be right for his organization.
“We’ve considered (outsourcing), but not much more. You have to consider it to ensure you are getting the best bang for your buck,” he said.
“If the whole HR department can be done more effectively somewhere else, then you have to give it some thought,” he said. Based on benchmarking data, the hospital’s HR department of 70 is doing a pretty good job of delivering its services to the more than 10,500 staff, he added.
“You have to take a step back and ask, ‘What do you consider to be your core business?’ My view is you shouldn’t outsource your core business,” he said.
“Health care is mostly a people business,” he said, adding that 70 per cent of the organization’s budget is payroll costs. “So how you manage your people and how you bring them into the organization is really a core business.”
At Waterloo, Ont.-based content management software firm Open Text, Dominic Scaffidi, director of HR for North American operations, asked himself the same kinds of questions but came up with a different answer. The company agreed to outsource most of its recruitment function to Ceridian earlier this fall.
As in most organizations, the HR department was faced with limited resources but still intent on increasing its strategic value. “So we had to make decisions about what are we going to do and not do,” he said.
“We were doing (recruiting) as well as we could, but the question was, will we ever become better at it? Will this ever be a core competency?”
To get much better would have taken a significant commitment of money and resources. What’s more, it was clear there were real inefficiencies that would be difficult to correct, he said.
“Our statistics showed that fully 75 per cent of the time, given our recruiting pattern, we either had too many recruiters or not enough recruiters,” he said. Open Text decided it would be better off giving recruiting to a company like Ceridian with the best technology and the skilled full-time recruiters who can be used to maximum effect.
Still, when asked if he considers outsourcing a priority, Scaffidi said no. “Outsourcing as a priority would be dead last,” he said. Outsourcing is not an objective in and of itself. It is a tool to achieve other priorities, he said.
In recent years, a handful of large organizations have committed to major deals outsourcing upwards of one-half of the HR department to one provider.
There has been a lot of interest and a lot of discussion, but that doesn’t mean everyone is going to be buying, said John Sanders of Hewitt Consulting, one of the leaders in the HR outsourcing market after merging with HR outsourcing pioneer Exult earlier this year.
Outsourcing has built up momentum, he said. Leaders see it being done in other organizations or even for other functions within their organization, and they want to know if it would work for HR. And so the HR leaders have to at least consider it.
“The rule of thumb is that…when all factors are considered, you should save 15 to 20 per cent,” he said. Some organizations considering outsourcing did the math and concluded they would only save five or even eight per cent and decided not to do it, he said.
But outsourcing of this wholesale nature (called business process outsourcing and sometimes business transformation outsourcing) is still only an option for organizations of 10,000 employees or more, he said.
There simply are not that many potential clients for those deals in Canada, he said.
There has been no shortage of people weighing in on each side of the outsourcing debate. (For more on the debate, click on the related article link below).
Daniel Skarlicki, an associate professor of organizational behaviour and human resources at the University of British Columbia’s Sauder School of Business, comes down squarely on the pro-outsourcing side.
“There is no question (outsourcing) should be a strategic priority,” said Skarlicki.
“HR leaders should consider outsourcing most of their functions unless doing so compromises the company’s competitive position,” he said.
Truly strategic HR starts with the premise that everything can be outsourced, and then works backwards, carefully making the case to keep each element in-house, he said.
The problem is that too many people simply don’t want to think about downsizing their own department because they feel like it puts their status at risk, he said.
Power and status do not come with the size of the department but from the value of the contributions being made by the department, he said. If HR can outsource non-strategic elements and concentrate on making true strategic contributions their power will increase.
“I think HR departments could do a whole lot more questioning of their own assumptions,” he said. There will be a lot of resistance to outsourcing, but that resistance will arise more from individual discomfort with change rather than what is best for the business, he said.
