The outsourcing process involves knowing your business, setting realistic goals and making an informed decision.
There is a need to demonstrate how human resource functions add-value to the organisation’s bottom-line and to outline the benefits and costs associated with these functions. Consideration of the following key areas may assist with this process.
Know the business
Prior to investigating potential outsourcing services and providers, it’s important to first understand the individual and unique business objectives of the organisation.
Defining business objectives will help establish:
- outsourcing goals
- potential costs and benefits of outsourcing
- potential risks
- what outsourcing model would best meet the needs of the organisation.
Consider what the business needs from a human resources function. How can human resources assist the business to meet its strategic objectives.
Clearly define outsourcing goals
Organisations should evaluate the tangible and intangible outsourcing benefits, decide which functions should be outsourced, and what risks are expected. Ensure that the goals set are realistic and achievable for the specific organisation.
Goals might include:
- reduce costs
- improve service
- align existing roles with organisation goals
- obtain specific knowledge, skills or experience
Determine costs and benefits
It’s essential to ascertain all tangible and intangible costs and benefits prior to searching for an outsourcing provider.
Methods that can be adapted to help estimate the potential costs and benefits of outsourcing include:
- Kirkpatrick’s four-level model of evaluation
- Phillips’ ROI Methodology
Understand and manage risks
It’s important to define, prioritise and manage risks based on their expected impact. Some risks will be beyond the organisation’s control (e.g. external factors like economic climate), however most risks can be managed by:
- selecting the right outsourcing provider
- negotiating a favourable contract
- establishing high-quality performance expectations
- controlling costs
Choose an effective outsourcing model
Models help determine what level of involvement the organisation wants from the outsourcing service provider.
These three models determine the level of control an organisation maintains over the outsourced human resource function.
Basic outsourcing model
- outsourcing only a basic part (e.g. technology) of function
- organisation retains maximum control over activities within function
Example:
Outsourcing one or two limited payroll activities such as end of financial year payment summary preparation.
Selective outsourcing model
- outsourcing some of activities related to function
- organisation retains some control over some activities within function
Example:
Outsourcing some payroll activities such as Human Resource Information System administration, but maintaining others ‘in-house’ such as answering/managing queries and processing leave.
Comprehensive outsourcing model
- outsourcing of all activities related to function
- organisation has minimal control over function
Example:
Outsourcing all payroll activities including answering/managing queries, processing and any other activities that would otherwise be managed ‘in-house’.
Choose a complementary outsourcing provider
Always keep the initial goals in focus and make certain those objectives are central to your evaluation of a potential outsourcing provider. Evaluate outsourcing providers based on their ability, commitment, and approach to meeting these goals. Ensure you have a solid contract in place with the selected outsourcing provider.
Take small steps
Aim to begin with a small, well-defined pilot project or activity. This will minimise initial risks and allows both organisation and outsourcing provider to acclimate to one another. Further decisions should be determined by the rate of success of the pilot and each successive outsourcing arrangement.
Objectively measure and track the results
Monitor data and feedback regularly. It’s important to adapt the outsourcing approach as required to ensure it continues to add value to the business.
Refine as required
Regularly review the feedback and data obtained and make changes where appropriate. Also review the contract regularly and adjust as necessary. The most important thing is to keep communicating. Communicate with the outsourcing provider, the HR team and other stakeholders such as employees and managers. This ensures that expectations and limitations are understood by all parties, and that the outsourcing arrangement has the greatest chance of success.
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Updated February 2022
