Seven Keys to Successful HR Outsourcing

July 7, 2008

By Nicole Sherard-Freeman, SPHR, Lead Client Change Management Consultant, Ceridian

During the last decade, industry analysts such as Everest, Gartner and others have made some interesting and spot-on observations about HR and payroll outsourcing trends. The HR and payroll outsourcing market is one of the fastest growing segments in business process outsourcing (BPO). The increase in HR outsourcing activity is, in large part, due to two dynamics. First, the full realization that a value-added HR department cannot be all things to all people. The greatest value an HR professional can deliver is in aligning a company's people practices (talent management, recruiting, succession planning, performance alignment, etc.) with its business strategy. And second, the reality that maintaining the technology, process and compliance components of an in-house HR administration solution can be very expensive, requiring expertise that just is not cost effective to maintain.

HR outsourcing solutions are more about business needs than what is happening in the larger economy
Ceridian has noticed an increased interest in outsourcing in Michigan over past years. Is it due to the pressure in Michigan's economy? Perhaps. But a good HR leader always evaluates the function's administration model and explores alternative solutions that could make more sense for their business.

HR, payroll and benefits administration typically top the list. Many HR leaders are also starting to consider the administrative requirements of their strategic HR programs, such as recruiting and talent management, compensation planning, and learning management solutions.

Understand potential key HR outsourcing benefits
Outsourcing HR, payroll and related administration can help companies grow their business. For small companies, outsourcing HR can be an integral part of helping the business focus its attention on profitability, growth, retaining customers and on new product or service development -- the core elements of making companies successful. In mid-to-large companies, HR administration can be time consuming and complex. Too little attention to HR laws and regulations can cost a company money, time and customer goodwill.

Leverage your provider's expertise
Evaluating an outsourcing model can be a good investment of your time and could be instrumental in freeing up the company's HR leader to help find and develop the workforce you need to support customers, enter new markets and improve profitability. Like any investment, though, outsourcing is not likely to net a good return if you are not clear on what you want to achieve by outsourcing, do not want to take advantage of your outsourcing partner's expertise or are not willing to change your processes and practices to fit your provider's model. While the business may have to give up some of the homegrown, customized HR practices performed today, in the long run it will avoid the excessive cost of providing custom HR solutions.

The following four additional considerations can help guide companies through some of the difficulties of acquiring and implementing an HRO solution.

Know what you want to achieve through an outsourcing partnership
Is it cost-savings? Then be sure to have a clear idea of your total expense, including what you are likely to spend on the cost of maintaining or upgrading your current solution. Are you looking for an HR transformation? Then remember that outsourcing your administration is just one component of increasing the added value of your company's HR function. Want to keep your staff, but significantly upgrade processes or technology? Then remember that a good HR service provider can offer you more than one type of outsourcing model.

Do not underestimate the value of your current subject matter experts (SMEs)
In a rush to achieve immediate cost savings by outsourcing, some clients redeploy or release their HR subject matter experts. That is a mistake. You need the intimate knowledge that your SMEs have of your current practices and requirements to ensure that your new solution meets the mark.

Dismiss outdated perspectives on client-vendor relationships
Old perspectives can leave you or your service provider in an adversarial, win-lose situation. Current thought leaders know that the best relationship is a partnership. You are in it together for the life of the partnership -- you and your service provider should be engaging each other in a robust dialogue about best practices, and you have to be open to modifying your current processes where it makes sense. There is a reason your provider is an expert in this line of business. Take advantage of their expertise. If your service provider does not come to the table prepared to offer you best practices, run -- do not walk -- in the opposite direction! You do not want a service provider to do "your mess for less." You want a partner who is committed to helping you stay current in your thinking about your HR service delivery model.

Recognize the natural tension of change
Underestimating or neglecting how people experience change in your company is one of the number one reasons that large projects -- including outsourcing -- fail. How your colleagues experience change becomes the elephant in the room. Everyone knows it is an issue, but no one has a clue how to address it. Not everyone on your team or in your company will be open to the changes an outsourcing service model may bring (and some days, that may include you). To make your outsourcing partnership work, you will need to manage multiple stakeholders, some of whom may have conflicting agendas. You will need to be open to the normal dynamics that occur when you change policies, processes or roles to fit your outsourced model. Select an outsourcing partner that brings experience and a plan to help you work through the challenges and opportunities that outsourcing brings.

Over the past decade, Nicole Sherard-Freeman has experienced both sides of the HR and payroll outsourcing equation. For the past five years, she has contributed to the growth of Ceridian's human resource outsourcing (HRO) business, working directly with Ceridian clients to ensure their HR and payroll outsourcing relationship delivers the best possible return on their investment. Nicole has also been a "buyer" of HR outsourced solutions. During her tenure with a large financial services company and a boutique HR consulting and administration firm, Sherard-Freeman was directly involved in making decisions to outsource administrative and payroll functions. Her experiences have given her insights into the growing HRO phenomena. For companies contemplating HR outsourcing, Sherard-Freeman has several suggestions for how to make the outsourcing solution a success.

Note: Some of these comments originally appeared in an article in The Daily Dash, an e-publication of WWJ Newsradio 950. Farming It Out: Human Resources Outsourcing Becoming More Common