The recession’s tag-line of improved performance and reduced costs should have made it the ideal time for Human Resource Outsourcing (HRO) to develop. But most of this potential is still unfulfilled.
According to Aaron Albury, director of HR transformation at Deloitte, usually downturns such as the current recession tend to cause significant boosts in HRO. But this time, clients are loathe to commit to contracts and organisations are concentrating on cutting back-office costs like procurement and IT instead.
There is also the theory that reduced recruitment and training during the recession, and ongoing skepticism about suppliers’ ability to deliver explain the lack of progression in HRO.
However, there is support for the idea that HRO will escalate once economic recovery and public spending cuts begin. Research into HRO trends in the US market found that a third of companies were more likely to outsource now than they were two years earlier. As the US market is more mature than Europe’s, NelsonHall’s recent research into payroll outsourcing anticipates that there will be double the rate of expansion in Europe over the next four years.
NelsonHall also suggests that big HRO players are now concentrating on the easier HR processes like payroll and benefit administration. The broad offers of the past have now been whittled down for clients to buy core offers that they can build on later. This coincides with a contract set up between the BBC and Capita, where the BBC outsourced many of its HR administrative services to Capita. It is set to save £50 million over it’s 10-year lifespan.
Some insist that in spite of a general lack of HRO growth, demand for stand-alone requirements is high. This is thought to be due in part to the increase in outsourcing in non-HR areas of organisations, which enables the use of existing software as platforms to run services like payroll. Tim Palmer of PA Consulting’s Management group, accredits this not to the recession but to a maturing of the market.
Stand-alone deals in bigger organisations, where different providers are used for ares like recruitment and payroll, provide the best value for companies according to Albury, and make it easier for clients to renegotiate HRO services as long as the client maintains control of the core software systems that they operate on. This would explain the interest big organisations seem to demonstrate for stand-alone deals.
Another potential area for growth in HRO is suggested to be in the analysis of the large amount of data owned by organisations regarding HR, so that strategies can develop.
For HRO to really develop, some obstacles must be overcome. In many cases, sovereignty is an issue, where companies fail to create contracts due to different priorities. Alan Bailey, managing director of Capita HR Solutions lays this down partly to the unrealistic nature of contract specifications and the misunderstandings they can cause.
Another problem is that organisational experience could develop gaps if only the transactional parts of HR are outsourced, because they are a useful starting place for junior workers.
Furthermore, some believe that a development of HRO will reduce the overall number of jobs in the HR profession, removing traditional roles, although also producing some new ones. Others argue that outsourcing expands career opportunities, for example Alan Bailey, managing director of Capita HR Solutions, who says, “in my division, I have 1,000 HR professionals, which means there are lots of opportunities to do all kinds of HR jobs. If you go into a company, you’ve only got a handful of HR people.”
Outsourcing from the perspective of a HR Director
The international law firm, Freshfields Bruckhaus Deringer, cut its recruitment costs by outsourcing to Alexander Mann Solutions (AMS). This was mostly induced by the volatility of recruitment in professional services, and the need to centralise their recruitment process.
Advantages: Kevin Hogarth, HR director, said it was difficult to manage the fluctuations in staff numbers with so few people in the HR team, but centralisation allowed them to make more advantageous arrangements with recruitment agencies and search firms through their preferred supplier agreements. The financial benefit has mainly come from the greater variety of sources from which they take candidates.
Disadvantages: Hogarth warns that managing relationships with companies like AMS for outsourcing is time-consuming. He adds that inconsistency in the personnel handling the contract should be avoided.
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