The Value Of HR Outsourcing

The promise of outsourcing is economies of scale. Executives know their companies do certain things well, and to succeed, one must focus on one’s strengths.

Human Resources has spent the last thirty years evolving into a catch all of the employer-employee relationship, and on paper, it makes sense to outsource the more troublesome, or less efficient pieces of your HR operation. Bringing in a company that specializes in background checks, or recruiting, or employee evaluations allows your company to focus resources, training and management on the processes, materials and services you excel at.

So why doesn’t it seem to be working? The HR Marketer asks the question that is currently making the rounds of the HR conferences: What’s the Matter With HR Outsourcing.

From an outsider looking in, it honestly does not seem like the HR outsourcing industry has evolved all that much since Exult pioneered the concept of large-scale HR outsourcing in the late 1990’s (Exult went public at $10 per share in 2002 and was purchased by Hewitt in 2004 for for $6.30 per share). Even the experts disagree about the fundamentals of HRO as captured by Jessica Marquez in her story about HRO from last year’s NY HR Week Conference & Expo – I’d expect the dialogue amongst HRO experts to be a little further along at this point in time.

The issue is possibly one of complexity, but also control. Complexity comes from the processes that are built up over time to handle a company’s hiring and employee policies. People are not machines, and so the standard economies of scale might not apply across every industry. The deals might be too focused on revenue, and not on quality. Or it could just be a matter of adjustment.

Outsourcing is a discipline that should be graded on a curve. There is an adoption curve to getting the maximum value out of an outsourcing agreement, and companies just aren’t far enough along that curve yet, perhaps because the rate of change in the global economy and the local workplace has accelerated in the last thirty years.

The key, as in all projects, is to focus on manageable goals. Setting realistic milestones and building a trust factor between vendor and client takes real commitment. Large projects require people who mesh together well, and when the focus is on revenue, the urge to cut corners is usually stronger then getting the job done right.

Outsourcing has a strong future, but it’s going to grow from small successes, not enterprise-level agreements.