The Case for HR Outsourcing

There is an accelerating global trend to outsource various business processes (BPO) such as IT, Customer Relationship Management, Accounting, Employee Benefits Administration and Procurement.* Over recent years Human Resource Outsourcing (HRO) has been gaining ground, with numerous national and international companies going down this path.

Whilst HRO is increasingly popular with large employers, 3HR's HRO services are specifically tailored for smaller companies employing 1-500. HRO in this sector can be particularly beneficial and the potential advantages can be summarised as:

• the opportunity to make significant savings on the current cost of in-house HR
• ability to gain access to HR expertise not generally available in-house
• able to free up time and resources enabling the company to concentrate on core business objectives
• ability to improve HR service to its end users
• ability to gain access to otherwise expensive online technology

HR Outsourcing – Current Trends

What is HR Outsourcing? Simply put, it is defined as the purchase of HR services from a third-party supplier.  Companies usually outsource in order to reduce costs, improve efficiencies, to gain access to enhanced expertise and technology or to deal with increasing competition.

The extent to which a company will outsource is usually related to the amount of in-house HR expertise and resource it already has.  Some companies outsource all of their HR function; most select from a menu of services to fit their current needs.

The influential HROA annual global survey on the current state of HR outsourcing is an eagerly awaited document. Now in its fifth year, this independent and authoritative report makes interesting reading.

The recently published 2008 study shows a continuing growth in outsourcing.  Survey participants include 129 mainly multi-national companies with headquarters  located: 55% in EMEA (Europe Middle East & Africa),  39% in the Americas and 6% in the Asia-Pacific/Australia region. Almost three-quarters of the respondents operate in ten or more countries. There was a broad industry distribution from manufacturing to hotel groups. Half of all respondents employ more than 25,000 people globally.

Outsourcing is increasing

Amongst multi-national employers, HR outsourcing continues to be a dynamic, fast-moving and expanding area of business process outsourcing. However, the main focus is on transactional services although recruitment processing, generally seen as a strategic HR function, is showing massive growth. Expatriate administration outsourcing is also growing quickly. The increase in the number of companies willing to outsource the whole of their HR function is also surprising. Many have realized that rather than having HR as a fixed cost it makes good business sense to purchase an HR service tailored to the size and scope of the company and then contract additionally for specific projects such as training and development, recruitment and selection, compensation and benefits, and occasionally redundancies.

Shown below is a chart indicating how outsourcing various aspects of HR has increased, in some instances dramatically, from 2007 to 2008.

Extract of Summary Findings:

88% are outsourcing (or planning to) payroll (78% 2007)
82% are outsourcing (or planning to) employee benefits: pensions/healthcare (65% 2007)
77% are outsourcing (or planning to) recruitment/selection  (45% 2007)
76% are outsourcing (or planning to) expatriate and relocation administration (50% 2007)
63% are outsourcing (or planning to) training and development (45% 2007)
58% are outsourcing (or planning to) HR/Benefits online information systems (47% 2007)
25% are outsourcing (or planning to) assessment/performance appraisals (23% 2007)
32% are outsourcing (or planning to) the entire HR function (15% 2007)

Current and Future HR Outsourcing, 2007 and 2008