The Workplace

Outsourcing – Balancing the value equation

Whether for specific processes, or in the full range of resources (HR) activities, outsourcing is a proven and viable strategy to enhance the performance of the HR function. But there is no single formula applicable to all organizations, human resources (HRO) is used to treat various strategic objectives and scope differ in terms of human resources processes and geographies involved. Organizations need a framework to help them consider the value of HRO to your organization and its circumstances.

HRO value equation
Traditionally, treatment business of outsourcing is seen as a means of increasing efficiency by reducing costs. Although the financial business model is important and should always be heard the forward-thinking organizations take into account other factors in addition to reducing costs, the evaluation and design HRO solutions. HRO value may be considered as a function of a number of interrelated factors. Different organizations have different drivers and options for each of these factors, which determine the different ROH value propositions. We refer to this broader view that "Balancing the value equation HRO" provide individuals HRO value proposition is good for your organization.

Figure 1 – The HRO value equation

Figure 1 describes the HRO value equation in terms of cost reduction, service model of human resources, business flexibility, Retention of Human Resources and Organisation. Organizations can use this framework to develop and evaluate the ancillary benefits of a business case for HR outsourcing but we must also recognize that these elements are interrelated, for example, the size of the retained HR organization will influence the overall reduction in opportunity costs.

Cost reduction
Lower costs will almost certainly be a key factor HRO and usually issued by the Industrial Arbitration human resources when you move the work in low-cost locations. HRO also enable efficiency savings through the aggregation and consolidation of work in fewer locations, using specialized delivery resources. In fact most HRO solutions are part of work items that can not be easily removed from the country of origin to aggregation becomes an important source of reducing labor costs.

Although less frequently include in saving drive in a business, Human Resources opportunity costs can also go beyond the role HR and HRO business provides wider when human improvement and a more efficient service model of human resources distributed organization, for example by procurement more efficient, reduce wear and more effective interaction manager-employee.

Organisations should be realistic in estimating the degree of reduction cost can be achieved, this requires a detailed understanding of the current base of human resources and scope of work as a provider of outsourcing services and also take that the work performed.

Model Human Resources Service
The first consideration should be what to outsource and to whom? For some, it is simple process outsourcing providers or specific expertise, such as payroll, human resources data management, administration benefits, recruitment and training. In another field of outsourcing to a single generalist supplier will be the right model. Part of this review should take into account the degree of standardization of HR processes and how technology can be used to transform human resources services.

The most quick to reduce costs could be a "lift and shift" model of current lineup of human resources, but is unlikely to maximize the long-term possibility of reducing costs and do little to address fundamental issues of human resources department. processing service model offers the opportunity to obtain further efficiency savings and improve the quality and timeliness of human resource services.

Global and multinational organizations also how the service should consider the "long tail" of countries where there are relatively few employees and the level of activity therefore insufficient human resources to conduct a financial case for outsourcing. One approach is to outsource human resources World common processes that can be delivered from one location central and at sea to keep local human resources in the process there is less scale and more local content. A model of hybrid human resource service, as it could see all countries served by the centralized data and third-Human Resources and Performance Management Global Services management and transfer, other services such as payroll and benefits administration are maintained for countries with fewer employees and subcontracting for large populations.

Business flexibility
Moving to subcontract the provision of human resources can turn the human resource costs relatively fixed into variable costs that can evolve with the business changes such as acquisitions, divestitures, growth in new markets and economic contraction in times of slowdown. In addition, use an outsourcing partner can provide access to a wide talent pool to allow quick delivery and low risk of key human resource initiatives such as the introduction of new benefit programs, or comply with changing legal and regulatory requirements.

The degree of flexibility of the individual processes is also influenced by the nature of service HRO solutions provider, a utility (a solution to many of the customers) are adapted to most payroll platform organizations, but plans to introduce a flexible benefits program may be limited if it is offered by the HRO service provider.

Planning for the proper degree of flexibility in an array is a major HRO global value proposition and the need for this flexibility must be taken into account in contracts with service HRO.

Retention of human resources
Setting the right retained by the organization of human resources is a critical success factor for success HRO, whereas the responsibility of specific human resource services can happen to an external provider, the client organization must remain responsible for the function HR. Challenge is to establish an organization that can keep governing outsourcing relationships with an independent approach to service management and to not return to the past practices and record participation in providing human resources services, as this may compromise the value of using a service provider HRO.

The organization of human resources must recognize that the maintenance of human resources services has been transferred and then focus on more strategic support for the company, for example, planning skills profiles required to support the business strategy, management and talent development, signatures of support in the deployment of key human resource initiatives, etc.

Recognizing the benefits of a more strategic role of human resources and the need for new governance activity HRO is very likely to require the acquisition and development of new skills of human resources in the selected organization.

The HRO provides value equation a simple and useful for developing and evaluating the benefits of HRO business case for going beyond pure cost savings that can be aligned to the company in the vaults and human resource strategies that are specific to each organization to organization. These can be compared to the costs of transition and service delivery outsourced HR to provide a global business model.

About the Author

Source: Outsourcing Leadership Forum

About Author:
Colin Whalen is a Senior Manager with Alsbridge plc, the award winning advisors on outsourcing and shared services.

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