HR Outsourcing Gathering Steam
Human resource outsourcing often seems like a locomotive bearing down on HR, forcing it to either move fast or get out of the way. But the truth is that HR professionals are guiding the outsourcing process to a great extent, helping to determine its current and future course.
HR outsourcing has become the rule rather than the exception among large U.S. firms. In fact, today about two thirds of responding Fortune 1000 U.S. companies either fully or partially outsource five or more HR functions, according to a recent survey conducted by Accenture, a management services firm, and The Conference Board. The most often outsourced HR areas include 401(k) programs, health benefits management and pension benefits, while the least often outsourced area is employee communications.
The study suggests that U.S. companies are on the forefront of this particular trend. They're twice as likely as their European counterparts to outsource large parts of their HR services. This doesn't mean, however, that European firms won't eventually catch up. In fact, the survey shows that companies in both regions plan to do more outsourcing in the future.
What's more, changing to outsourcing feels like a permanent move. Fewer than 1% of HR functions have been brought back in-house after they've been outsourced. And fully 90% of the executives responding to the survey say they would still outsource despite any problems they may have encountered.
The growth in the HR outsourcing field looks fairly assured, with market firm Dataquest projecting that the industry will grow to $37.7 billion in 2003, up from $13.9 billion in 1999. There's even been the recent launch of a new print publication devoted to the subject, Human Resources Outsourcing Today.
But these outsourcing trends do not mean, as some might assume, that companies are adopting HR outsourcing with plug-and-play ease, or that they're using outsourcing to rid themselves of in-house HR expertise. For one thing, there's little evidence that the rise of outsourcing has reduced HR staff levels on a macro level. In fact, data from the annual Society for Human Resource Management/Bureau of National Affairs survey shows that, among large companies, there were slightly more HR staff per 100 employees in 2001 than there were in 1995.
Moreover, HR outsourcing is more than a cost-cutting strategy. HR professionals are championing it as a way of efficiently handling transactional HR duties and allowing them to concentrate their resources on strategic HR, suggests a new benchmark survey conducted by the Human Resource Institute. As one HR professional responding to the survey put it, "Outsourcing firms are best used for transaction-type services.... The more unique the plan document and/or policy compared to other employers, the more difficult the outsourcing."
And even the transactional duties can be hard to manage. Another HRI respondent stated, "Systems integrations with outsourced vendors have been a challenge. As our business changes (i.e., we acquire new units), it's very difficult (and expensive) to get the systems to talk with one another."
The findings suggest that there is no silver bullet approach to outsourcing. HR services are not a commodity that can be automatically bought from the lowest bidder. They're services that have a huge impact on the employer/employee relationship, so there needs to be a sense of partnership between service providers and the companies they serve. "Two-way communication is critical when outsourcing," recommends one HRI respondent. "Making sure the outsourcing [firm] understands your needs and expectations will ensure a successful transition of duties." Another notes, "A strong established relationship must be in place."
As companies develop good relationships, they may become more willing to outsource a wide range of HR processes to a single efficient vendor. Such "end-to-end" solutions can be very tempting for firms that become tired of dealing with complex webs of outsourcing relationships, though the danger of putting "all their eggs in one basket" might give some pause.
For more information on the Accenture/Conference Board survey, see
http://www.newswise.com/articles/2002/7/OUTS.TCB.html and
http://www.outsourcing-hr.com/trends.html
To order a copy of the study based on the survey, see
http://www.conference-board.org/publications/describe.cfm?id=591
For a look at the new magazine HRO Today, go to
http://www.hrotoday.com/
For other articles on outsourcing HR, see
http://www.outsourcing-hr.com/
HR outsourcing has become the rule rather than the exception among large U.S. firms. In fact, today about two thirds of responding Fortune 1000 U.S. companies either fully or partially outsource five or more HR functions, according to a recent survey conducted by Accenture, a management services firm, and The Conference Board. The most often outsourced HR areas include 401(k) programs, health benefits management and pension benefits, while the least often outsourced area is employee communications.
The study suggests that U.S. companies are on the forefront of this particular trend. They're twice as likely as their European counterparts to outsource large parts of their HR services. This doesn't mean, however, that European firms won't eventually catch up. In fact, the survey shows that companies in both regions plan to do more outsourcing in the future.
What's more, changing to outsourcing feels like a permanent move. Fewer than 1% of HR functions have been brought back in-house after they've been outsourced. And fully 90% of the executives responding to the survey say they would still outsource despite any problems they may have encountered.
The growth in the HR outsourcing field looks fairly assured, with market firm Dataquest projecting that the industry will grow to $37.7 billion in 2003, up from $13.9 billion in 1999. There's even been the recent launch of a new print publication devoted to the subject, Human Resources Outsourcing Today.
But these outsourcing trends do not mean, as some might assume, that companies are adopting HR outsourcing with plug-and-play ease, or that they're using outsourcing to rid themselves of in-house HR expertise. For one thing, there's little evidence that the rise of outsourcing has reduced HR staff levels on a macro level. In fact, data from the annual Society for Human Resource Management/Bureau of National Affairs survey shows that, among large companies, there were slightly more HR staff per 100 employees in 2001 than there were in 1995.
Moreover, HR outsourcing is more than a cost-cutting strategy. HR professionals are championing it as a way of efficiently handling transactional HR duties and allowing them to concentrate their resources on strategic HR, suggests a new benchmark survey conducted by the Human Resource Institute. As one HR professional responding to the survey put it, "Outsourcing firms are best used for transaction-type services.... The more unique the plan document and/or policy compared to other employers, the more difficult the outsourcing."
And even the transactional duties can be hard to manage. Another HRI respondent stated, "Systems integrations with outsourced vendors have been a challenge. As our business changes (i.e., we acquire new units), it's very difficult (and expensive) to get the systems to talk with one another."
The findings suggest that there is no silver bullet approach to outsourcing. HR services are not a commodity that can be automatically bought from the lowest bidder. They're services that have a huge impact on the employer/employee relationship, so there needs to be a sense of partnership between service providers and the companies they serve. "Two-way communication is critical when outsourcing," recommends one HRI respondent. "Making sure the outsourcing [firm] understands your needs and expectations will ensure a successful transition of duties." Another notes, "A strong established relationship must be in place."
As companies develop good relationships, they may become more willing to outsource a wide range of HR processes to a single efficient vendor. Such "end-to-end" solutions can be very tempting for firms that become tired of dealing with complex webs of outsourcing relationships, though the danger of putting "all their eggs in one basket" might give some pause.
For more information on the Accenture/Conference Board survey, see
http://www.newswise.com/articles/2002/7/OUTS.TCB.html and
http://www.outsourcing-hr.com/trends.html
To order a copy of the study based on the survey, see
http://www.conference-board.org/publications/describe.cfm?id=591
For a look at the new magazine HRO Today, go to
http://www.hrotoday.com/
For other articles on outsourcing HR, see
http://www.outsourcing-hr.com/