This is my eighth installment in a series in which I discuss issues and considerations that would go into determining whether Human Resources functions and processes should be retained in-house, or whether they should be outsourced to third party providers – and if so for which services (see HR and Personnel, postings 134 and loosely following for Parts 1-7.)
I ended Part 7 by noting that:
• Capacity to readily monitor systems and processes in place, and not just as a matter of written and intended policy but as they are carried out in practice is essential. And this is where the potential challenges of in-house versus outsourced enter this story, and within the in-house paradigm locally distributed versus distant and centralized in-house. And managing this as a due diligence matter means maintaining positive operational control based on a clear understanding of what is being done and how and for whom, everywhere in the business’ organizational systems and for all of its personnel. And this brings me to the second, closely connected set of issues that I proposed as topic for discussion at the top of this posting: monitoring and tracking HR performance itself as a due diligence and risk remediation exercise.
And I turn to that here, beginning with some basic observations:
• For most Human Resources processes and their applications, consistency and transparency are vital. Individual employee privacy and confidentiality have to be protected but there is an overriding need for employees to see themselves as being treated fairly and consistently with others in their workplace, and without possible grounds for claims of bias.
• Business operations and processes, and internal methods carried out through third party providers can often be hidden from the hiring company in their details with only input and direct output visible, and this applies to outsourced HR and Personnel processes and their implementation as much as it does for any other types of business processes.
• A lack of transparency and resulting inconsistencies can arise in-house too. But these issues are usually easier to identify and characterize when everything is being done in-house then when they are outsourced.
• This clearly has due diligence and risk remediation implications where both consistency and demonstrable consistency are desired goals, and where opacity in the What and How can foster discrepancies in process and outcomes and at the very least create perception of unfairness. And this brings me to the point I cited above as topic for today’s posting: seeing and evaluating HR systems, and course correcting and evolving processes and practices in place so as to systematically lessen the likelihood of this bias.
The points of this discussion become particularly important here because most businesses and their Human Resources services in fact systematically and widely violate the basic principles of consistency and transparency that I have been discussing up to here and for at least one core functional area and with a range of impact that spans essentially their entire personnel rosters. I intimated at this when I wrote Part 7 of this series and I present and discuss it here: specific employee by employee salary levels.
• Most every business with employees and a headcount that go beyond that of a single owner, has at least something of a list of defined employee positions that need to be filled. And each of them generally has at least a loosely defined set of employee qualification requirements and a list of responsibilities that would have to be fulfilled to meet at least minimal required performance standards for employment.
• And bringing this into focus for purposes of this posting and discussion, most every such defined position also carries with it a set allowed compensation range, and with minimum, maximum and average salary levels that employees in those positions would hold. An employee, according to this compensation model, would never be placed in a position with the business at a compensation level below that minimum as determined for the position, and if their compensation were to rise to and exceed the maximum set, they would have to be promoted in order to stay within range – assuming they stay with that company.
• The difference between lowest and highest can be fairly big, and this is important as it means an annual salary increase does not automatically and always have to mean a promotion due to pay exceeding a set maximum. And the salary ranges in place for all employees can be and generally are adjusted up periodically to account for inflation and salary increases that are provided simply to maintain at least the same real income levels received.
• This is where things get interesting. There is often some overlap between the compensation ranges available for one position and the next level up (e.g. with some programmers at least potentially being paid more than some senior programmers.) When a new employee is hired (say a new senior programmer) the business generally seeks to bring them in towards the low end of their position’s pay range so they will not have to be promoted for at least a few years. A more junior level programmer who has been with the company a while might actually be getting paid more than the more experienced and higher level senior programmer they report to. And of course there can be significant salary differences between same level and same position type employees – and in patterns that do not necessarily match up with current job performance review scores.
• What happens if someone with access to this information as to who is getting paid what, gets careless and leaves a printout of it in the photocopy room and employees involved get to see it?
• That, I add is a very explicitly real world example that I have seen played out, and a lot of people were very upset as a result of it. In this case the salary list covered the entire Information Technology department and the HR staff member who made copies of this listing for a meeting was in a hurry and left the original in the photocopier – and for convenience they had used an IT department photocopier as it was closer and not blocked from use by a long line of other waiting users. So this posting is about consistency and transparency where that is what is needed, but it is also about confidentiality and opacity where that in fact is seen as required too.
• There is a reason why individual salaries can and do differ in this way. Most businesses seek to negotiate the lowest compensation package they can when hiring a desired best fit job candidate, and negotiations can lead to different starting salaries from day one that can diverge father apart as raises are set as a percentage increase over current salary. 5% of $80,000 is a larger number than that same 5% level but of only $65,000, and annual increases cumulatively expand the differences – and even without additional exemplary performance based increases being added in.
• There is a reason why individual salaries received by a business’ employees constitute one of that business’ most closely guarded secrets – and this is not just to limit what competitors would know when trying to hire away best employees. This is also to limit conflict and ill-will as current employees compare notes and see how their compensation levels compare with those of their colleagues.
One of the core, foundational reasons why consistency and transparency are so important is that inconsistency and opacity do not work, long-term and people do find out. HR and business policy in general seek to preserve privacy and confidentiality over personal employee information and for a variety of reasons. That is required by law in most countries and legal jurisdictions and it is good business practice anyway. Salary and other compensation details are seen and rightly so as protectable in this way. Many and even most businesses conflate that with a strategy to keep their overall payroll expenses down and the result is this opaque and unbalanced policy and practice.
And with that as a pervasive if negative-example case in point, I turn back to the issues of in-house versus outsourced. The overall goal of HR managed and tracked processes might be transparency and consistency but this takes place in the context of need for individual confidentiality and privacy, and both to protect the individual employee and as this situation highlights, to protect the business too. Monitoring and tracking, and course correcting and adjusting as needed are important and even vital. Any outsourcing agreements with HR or related providers have to allow for and even actively support this.
If a business is to violate, and even systematically and pervasively violate the core principles of operational and process consistency and transparency it needs to have very specific reasons for doing so. And it needs to know where this is being done and where there is operational risk from discrepancies arising and certainly where any veil of opacity might be lifted, intentionally or otherwise. And where differences do of necessity arise as for example where employees based in different countries get different benefits such as health insurance coverage, it is important that this be understandable and that it seem reasonable – and that it not be just a source of potential unpleasant surprise if someone leaves the wrong papers in the Xerox machine room. Identifying possible friction points that can arise here through outsourcing and resulting loss of hands-on control and oversight need to be considered when contemplating any business process outsourcing, and that certainly applies here for Human Resources outsourcing.
I am going to finish this series here at least for now, though I fully expect to continue several lines of discussion that I have at least touched upon in these postings. Meanwhile, you can find this and related postings at HR and Personnel and also at Outsourcing and Globalization.
This is my seventh installment in a series in which I discuss issues and considerations that would go into determining whether Human Resources functions and processes should be retained in-house, or whether they should be outsourced to third party providers – and if so for which services (see HR and Personnel, postings 134 and loosely following for Parts 1-6.)
An auto manufacturer builds cars; a retail business sells the products and services that it offers and maintains: for its products as it has them in inventory and for its services through support staff availability. An online service provider offers web hosting or web site development expertise, or online security or any of a wide range of other services that it has built its business around. All of them and more generally have at least something of a Human Resources service or department in place. But few businesses see that as their mission or as the reason behind their being the business they are. HR is more usually seen as a necessary but largely incidental support capability and as part of the background business infrastructure – when it is thought of at all. And I add, for most businesses HR does not usually come to the direct and focused attention of a business’ executive officers unless something has in some way gone wrong. Here, I am not writing about in-house or outsourced or about finding hybrid combinations of those approaches where certain HR functions are kept in-house and some are farmed out. I am simply writing about Human Resources in general.
I have been touching in this series on a range of issues that come up and that need to be addressed when making an in-house or outsource decision here, but there are some core areas that I have left unstated, at least for their operationally significant details. My goal in this posting is to note and at least begin to address a few of them. And I begin that by focusing in on precisely what I mean when I refer to Human Resources as playing an essential due diligence and risk remediation role. And I will continue that with a discussion of really seeing and evaluating HR systems and processes in place and before the wheels leave the road and problems have already arisen and to the level where senior management would be apprised. These considerations, I content, have to be thought through and strategically planned for if a valid in-house versus outsourcing decision is to even be considered, let alone decided upon. And I begin this posting and ground all of this intended discussion in terms of due diligence and risk remediation.
• Human Resources and its Personnel staff manage the personnel files of individual employees. They also participate in hiring and onboarding processes and managing benefits for current employees, and separation processes of whatever type that might be called for on a case by case basis. And this is just a broad outline description with multiple gaps as there are a wide range of contingency processes that they enter into and even manage, and certainly insofar as the processes involved would be standardized across all employees.
• For purposes of this discussion if nothing else, I would divide the due diligence and risk remediation implications of all of this into two broad areas, both of which have already been briefly noted.
1. Overall consistency requirements: Managing HR and Personnel functions and processes according to a systematically and consistently followed pattern means that all employees across the range of a business and its table of organization are treated consistently. Ad hoc and one-off in how a business critically performance reviews and rewards its employees, to cite one area of possible examples, create differences that can quickly lead to a perception of bias and discrimination, and if not along lines such as race or religion that are legally protected in many countries, then in how employees in different offices or functional areas are treated. So consistency and uniformity might not mean everyone or even anyone is completely satisfied with their terms of employment and in how they are managed as an employee through these processes – but everyone knows they are being treated equally fairly and that no one is being offered undue advantage. (I am going to explicitly discuss an intentional and common exception to this rule in my next series installment, but for most HR processes this is considered central.)
2. Specifically risk remediating processes: Human Resources also specifically and explicitly manages a series of directly due diligence and risk remediation processes and challenges, and developing and managing consistent and effectively available workplace discrimination and harassment identification and remediation processes are only one part of this side to Human Resources systems.
• Even the most diligently planned out and executed response to and management of the issues and processes of those numbered points do not mean all employees are managed and rewarded identically. To cite an area where consistency and transparency is vital, one employee who has worked at the business more than some minimum set number of years might be awarded extra annual vacation time over that afforded to a newer arrival employee, and a first year employee might only get legal weekday holidays off until they hit that one year mark as a very real world type of example. But any employee who has hit that five, for example, year mark of employment would get that extra week of paid vacation time off. And every new employee would become eligible for the basic paid vacation time package after their first year. Consistency of pattern with an understandable rationale is what matters here.
• To further clarify this point of consistency, sales personnel and others who travel for the business and are away from home for periods of time as a result might be allowed to personally keep rewards points offered by the airlines used for their business trips. This is a type of benefit that would only accrue to some employees who happen to do business travel for the company. But a fair and consistent policy here would militate against any claims that some employees are offered special benefits. And as long as business travel opportunity was not being determined along discriminatory lines that would not be an issue.
Capacity to readily monitor systems and processes in place, and not just as a matter of written and intended policy but as they are carried out in practice is essential. And this is where the potential challenges of in-house versus outsourced enter this story, and within the in-house paradigm locally distributed versus distant and centralized in-house. And managing this as a due diligence matter means maintaining positive operational control based on a clear understanding of what is being done and how and for whom, everywhere in the business’ organizational systems and for all of its personnel. And this brings me to the second, closely connected set of issues that I proposed as topic for discussion at the top of this posting: monitoring and tracking HR performance itself as a due diligence and risk remediation exercise.
This is my sixth installment in a series in which I discuss issues and considerations that would go into determining whether Human Resources functions and processes should be retained in-house, or whether they should be outsourced to third party providers – and if so for which services (see HR and Personnel, postings 134 and loosely following for Parts 1-5.)
I began a more detailed discussion of in-house and outsourced Human Resources for a multinational company in Part 5 and I continue that here, turning to consider performance metrics and monitoring and business effectiveness in that, and the due diligence issues of accountability and responsiveness.
• Ultimately, effective business performance metrics all connect into and inform that business’ financial performance. And collectively the suite of business metrics in place should all meaningfully enter into and form a performance model that maps out a business’ strength and competitive position and in its immediate here and now and for moving forward.
• One measure of the effectiveness of a proposed or implemented metric is the clarity and directness in which its values measured can be correlated with direct measures of financial and cash flow position. That I add can be difficult to do for many functionally important types of metrics. But whether a given directly measured and quantified metric immediately maps onto a monetary measure, or this mapping is more indirect, the best metrics are objective and independent measurements of them would yield similar results.
• This consistency is vital, as even measures that look to directly map to cash flow and financial strength, but that are subjective and loosely scaled are going to offer little real value.
• Human Resources metrics are in many cases less easily directly correlated with a business’ financial metrics. But they can and should be considered significant and certainly as overall due diligence and risk remediation measures, and for determining the valuation of specific employee’s work performance. The goal here should be in taking the arbitrary and subjective out of them, as much as possible.
• Arbitrary and subjective there, translate directly into increased risk through the creation of inconsistency and perceivable and even legally provable bias.
This, up to here applies to businesses in general and their HR performance metrics. And I add one more piece to this general discussion here that would go into more specifically discussing in-house and outsourced HR in a widely distributed and multinational context:
• Metrics that measure work performance at the individual employee level may be developed and maintained primarily by Human Resources as a service, and personnel files that collectively contain that performance data might be held by HR for all official records copies in employee personnel files, but actual performance data that is gathered according to these metrics is usually collected by those employees’ managers – who are not in Human Resources and who in many cases have only a vague understanding of HR and its processes.
• So clarity and ease of consistent use and without specialized knowledge or training are vital if these metrics are to work in practice and without those problems of arbitrary or subjective inconsistency and bias.
Actually meeting these functional due diligence constraints and goals can be difficult and require effective ongoing monitoring and manager training, even when the entire business and all of its departments and functional areas are located under one roof. This becomes more of a challenge where a business is distributed across multiple, distantly located offices. And maintaining this type of system calls for focused expertise when offices are located across a range of cultures and languages, and when they have to work in several or even many legal contexts as well.
• Even when the business itself resides in its entirety under one roof, this type and level of complexity and this international challenge can apply when HR is outsourced, and certainly when that outsourcing is to an off-shore service provider.
• That is why third party customer and employee support services located in countries such as India, that work with businesses in places like the United States and Europe look for help desk and support employees who are fluent in the languages that they would need for their work. And many of these businesses go further and proactively train their customer-facing employees in the cultural details and nuances of their target customers – making sure for example that support personnel who would work with Americans speak American English, and those who would work with clients from the UK, speak British English. I have even seen these businesses, and particularly in India train their customer-facing personnel in target country small talk. They might never need to know professionally, the name of the home stadium for Manchester United (in the United Kingdom) or the Mets (in the United States) but cultural awareness involves familiarity in a sea of details as well as in general patterns and principles.
A key to success here, and for either in-house but distantly located Human Resources, or for outsourced services is in building the connections and bridges needed to keep the metrics gathered relevant and consistently objective – and understandable in a consistent manner to all involved stakeholders so this can be possible.
And this means making these and related issues both understood and relevant to a business’ strategic planners and operational leadership. And that calls for ongoing due diligence reviews of Human Resources as a service as well as by Human Resources.
I am going to turn from discussion of what Human Resources tracks and measures, to one of performance tracking those HR services themselves in my next series installment – an operational and strategic process that is too rarely effectively carried through upon and even as it has become a real due diligence requirement. Meanwhile, you can find this and related postings at HR and Personnel and also at Outsourcing and Globalization.
This is my fifth installment in a series in which I discuss issues and considerations that would go into determining whether Human Resources functions and processes should be retained in-house, or whether they should be outsourced to third party providers – and if so for which services (see HR and Personnel, postings 134 and loosely following for Parts 1-4.)
I have been discussing HR functionality in more general terms up to here, and for businesses in general. I turn in this posting to consider some of the specific issues and challenges that arise when considering outsourcing all or part of Human Resources for a multinational corporation. And in that I begin by noting that:
• As our collective systems of businesses and marketplaces have come together globally,
• With that driven by both real-time online and telecommunications connectedness and by progressively more involved supply chain and other collaborative business systems,
• Multinational approaches have become more realistic and attractive for progressively smaller, leaner business operations.
So for the 20th century and certainly for the mid-20th century a term like “multinational corporation” would essentially always mean massively large and with tremendous headcount – and Human Resources would all but certainly be maintained entirely in-house. Today, that form of multinational still exists and that model still holds. But “multinational” per se and in an incorporated business context can also mean smaller and lean and agile – but geographically dispersed for more direct and immediate connection to local marketplaces and with consumer-facing personnel drawn from those dispersed markets and their cultures. For that more 21st century multinational corporation phenomenon, outsourcing operational functionalities that are not core to mission, HR included, can be seen as a viable option and in part if not in whole.
That said as a foundation point for discussion to follow, I begin this posting with an observation that I initially raised at the end of Part 4 when writing in anticipation of this installment (rephrased and edited here):
• Think of centralized and distantly located Human Resources in the multinational corporation setting as a discussion of where “in-house outsourcing” might make sense. And that is how a business’ employees would see this – as in-house outsourcing and whether or not they use anything like that term.
I particularly pick up on the term “in-house outsourcing” there, where that is how a business’ employees would see this, as meriting explanation.
• One of the key sources of concern from employees when they see their HR is being outsourced, is that the people who will manage their personnel-facing and supportive services are going to be outsiders, unfamiliar with their business and their work context. The concern there is that these distant HR professionals will not know the business and its operations, or what it really does or its culture or any of the individual people there.
• And that is coupled with concerns that it would be very difficult if it is even possible to find the same person in follow through when a personnel-related issue comes up, and even when this involves problems and concerns that employees involved see as personally very important to them.
• When an employee of a multinational, based in an office or facility in a different country and time zone from the corporate home office has to reach back to that home office, or to some other distantly located within-business satellite facility for HR support they can and often do feel those same concerns. A distantly located voice on a phone or online contact can seem exactly that – distant and distantly connected.
• This, I add is a perception that would not necessarily apply to standardized and less personally individual processes and their fulfillment, such as getting and submitting a standardized form as a routine matter. There, even automated online services and self-help online download capability often suffices. But this perception can become pressing and for either third party outsourcing or in-house but distant HR, for more personal problem-resolution issues and particularly where the person in HR reached is from a different culture and where there are communications challenges (e.g. from time zone differences or stemming from language differences, accents and/or understandability.)
• The biggest problem, I add, in any of these situations, that is more likely to arise when reaching out to distantly located HR personnel who work in a very different setting is when they come across as just reading from a script and as being only able to do that. Distant and disconnected, I add, can lead to that and to a perception of that.
And this brings me to the core issues that need to be dealt with when setting up and managing Human Resources for a multinational.
• Efficiency and reduction in duplicated staffing and efforts will drive the centralization of these operations. This definitely applies to businesses that overtly pursue lean and agile business models and strategies but it is important for cost containment reasons in general.
• But select functionalities will in many cases need local participation and resolution too.
• A department or service such as Human Resources always works best when all stakeholders involved see their needs and concerns as being listened to and understood, and taken care of. And for some issues, local and even face to face can best facilitate that.
• Risk remediation and basic due diligence considerations can mandate that certain functional areas (e.g. management of harassment and discrimination charges and limiting their likelihood) be managed with a clear understanding of local and national law in place, and with local or at least same-nation-as-office involvement and oversight.
• The important point and the operational and strategic challenge there is to know which functionalities to centralize and which to localize and to what levels of localization. This might mean a combination of globally centralized, country or regionally localized, and specific office or facility localized as one possibility but that is just one way to parse localization versus centralization.
• The important point here is to think this through strategically and with more than just short term operational costs in mind as determining criteria with those only drawn from bookkeeping. Employee satisfaction and long term for that, employee retention are important. So is conveying an appealing and supportive message about the company and both in marketing in general and in reaching out to attract the best possible candidates when hiring. Local and personal can be important messages, and particularly where the alternative is distant, cookie-cutter standardized and impersonal.
• And as noted above, risk-based costs and potential costs are important here too. But even with all of these drivers for maintaining a local HR presence, size and scale of offices involved become important too. And with that I go back to the small, lean and agile multinational. Its distributed offices might not be large enough for them to be able to cost-effectively maintain even just one dedicated HR staff member.
• So in those circumstances it might be better to seek out best practice approaches for providing what is more like locally based, personalized HR service even if from more of a distance. And with that I refer back to a detail mentioned two bullet points up where I noted levels of locality and finding the right mix. And I repeat what I cited above as the most serious challenge to credibility and effectiveness, where HR personnel seem to simply be reading from scripts, and I add when the same people can’t be reached for follow-through.
• Personalize and even with distantly located HR services. And set up your systems so that the same HR staff members either provide follow through, or go through a mutually understood and agreed to hand-off to a colleague with that agreed to by the employee client and by the HR staff member who would provide that follow-through. Build interpersonal relationships in this, with people working with people they know and who they feel from experience they can rely upon.
I am going to follow this with a series installment on outsourcing HR functions and processes for when third party outsourcing is deemed acceptable. I will, among other things discuss performance metrics and monitoring and business effectiveness in that. I will also discuss foreign outsourcing in this context. Meanwhile, you can find this and related postings at HR and Personnel and also at Outsourcing and Globalization.
This is my fourth installment in a series in which I discuss issues and considerations that would go into determining whether Human Resources functions and processes should be retained in-house, or whether they should be outsourced to third party providers – and if so for which services (see HR and Personnel, postings 134 and loosely following for Parts 1-3.)
I said at the end of Part 3 that I would turn to discuss the issues of in-house versus outsourced Human Resources from the employee and manager perspective in this posting and I begin doing so by grouping all employees – with and without management responsibilities in their job descriptions and responsibilities, into one group of constituent stakeholders. And I bring their experience and needs into focus with an example that generically would be familiar to most any reader of this posting: calling a phone system customer help or support desk and particularly during off-hours.
I am writing explicitly about HR support and its availability and effectiveness, but cite a more widely experienced working example that would include help desk support in general, as outsourced HR help desk and phone based support carries with it essentially all of the same strengths and weaknesses as are found when consumers call for retail business or manufacturer customer support. All of these are third party provided from the caller perspective and both can involve connecting with people who are very distantly located and who are primarily if not exclusively reading from scripts, for any actual answers provided. And they can be badly written and inflexible scripts and read through the barriers of language and culture differences.
I have a lot of colleagues who I really respect professionally in places like Mumbai and Chennai, India (formally known as Bombay and Madras, respectively) and in businesses that provide third party help desk support. They and their competitors, collectively comprising a minor growth industry, have come to play an increasingly significant and pervasive element to the help desk and customer support system and for a tremendous range of commercial enterprises. And I add that some of my own best experiences in reaching out for help desk support as a consumer and business professional have come from distantly located professionals who spoke expertly and with concern for the customer. But I have to add that some of my most difficult and frustrating experiences have come from having to deal with poorly trained help desk and support personnel, reading from badly drafted scripts who did not have anyone to escalate a call to that they could not handle. And it is the bad experiences that we remember and talk about.
When an employee seeks help from a distant third party Human Resources center, chances at that they are calling about an issue or a problem that is very significant to them. This holds with equal force for lower level employees and for senior managers, or for anyone in-between. And when a business brings onboard a third party HR provider that comes to be seen from shared negative stories, as being more of a problem itself than an answer to problems, that raises questions about the competence of the business’ leaders in general. If they cannot run their own business for its internal functioning and in ways that are supportive of the people who work there, what can they do right?
• This creates problems for rank and file employees and for their managers as they have to deal with members of their teams who are distracted and upset.
• This can negatively impact upon overall business productivity.
• This type of challenge can and does negatively impact on staff retention and particularly for employees who are most difficult to replace with special combinations of skills and experience – that other businesses would be eager to hire away. Bad workplace experiences can in effect help lead your most valuable employees toward the exit.
• And I have to add that when communications disconnects and related problems stemming from poorly outsourced HR cause breakdowns in addressing issues such as discrimination or harassment challenges, that leads to very high level risks for the business as a whole and with potential consequences that can become very severe and very quickly.
• And once a Human Resources capability that was in-house is outsourced and dismantled, it can be difficult and expensive to recreate it back in-house again if outsourcing this area of business functionality has not worked out. Outsourcing is not irrevocable or nonreversible but doing so carries with it at least a short term costs-barrier that would have to be accepted and dealt with and that can be significantly large.
I write of this as a set of due diligence and risk identification and remediation issues, and outsourcing or keeping in-house an area of business functionality is always at least in significant part exactly that. From an employee perspective, outsourcing HR can be risky and with risks that outweigh benefits if it is not done effectively or if the wrong HR functions are shipped out.
I am going to turn next to consider Human Resources in the multinational corporation setting, and where centralization or dispersed localization, or some combination thereof would make more sense – think of this as a discussion of where “in-house outsourcing” might make sense, where that is how a business’ employees would see this. Meanwhile, you can find this and related postings at HR and Personnel and also at Outsourcing and Globalization.
This is my third installment in a series in which I discuss issues and considerations that would go into determining whether Human Resources functions and processes should be retained in-house, or whether they should be outsourced to third party providers – and if so for which services (see Part 1 and Part 2.)
Towards the top of Part 2, I posited two fundamental questions:
1. How do different businesses assign what for them, would be effective ranges of responsibility to their HR department?
2. And how does their decision as to what Human Resources should be doing and responsible for, determine if it would make sense to outsource some or all of that – and if some, which some?
I focused on the first of these questions in Part 2, organizing my response to it according to whether a business follows a Lean Human Resources, or a Robust Human Resources approach (terms defined there.) And I began to share some thoughts there that addressed the second question as well. I turn here in this posting to more explicitly and fully address question 2, and in that I begin with the fundamentals:
• Start by making an inventory of all of the processes and activities that are carried out in your business related to tracking and managing personnel per se.
• And as one part of this list everything that your business does that is systematic and standardized across the organization and for all personnel there.
• Then look for processes and operations that are separately and independently carried out by different departments, and even if consistently so within those departments, but that would be more effectively carried out through a company-wide standardized and centralized approach. Note that this is a risk management issue as much as a direct costs issue, and this concern applies much more widely than just consistently managing processes to limit, and to respond to discrimination or harassment challenges. Though there, inconsistency in personnel processes within a business as a whole can lead to and even create risk of being challenged on grounds of discriminatory practices.
• Now look for practices that are strictly ad hoc and where personnel issues are simply handled without anything like standardization, on an employee by employee basis or even less consistently than that. This is where you are certain to find inefficiencies and risk.
• The overall goal here should be systematic standardization so employees do not fall through readily avoidable gaps. And one consequence of this is that the status of Human Resources as practiced becomes operationally and strategically visible, and for how lean or robust this service is and for how lean or robust it should be.
And with that I turn to consider the workforce in place:
• Does your business primarily hire or otherwise bring in workers who do not require specialized expertise, or do you require significant numbers of employees with specialized and perhaps even hard to find combinations of skills and experience?
If your business leans more towards the second of those scenarios, then you need to leverage consistent, effective processes for helping you to identify and bring in all of those key personnel, and to help retain them and keep them on the cutting edge for their areas of specialty. This is a situation where a robust HR capability that works closely with a business’ leadership and that is connected into and included in its strategy, can make a positive difference.
When employees in general, have and use readily replaced and even interchangeable skills, a more robust HR approach becomes less pressing. But here, I address the complexity of processes that would go into Human Resources and Personnel services for a business and not strictly speaking who carries through upon and manages them – in-house or outsourced.
Confidential information management becomes a significant factor now, and I add that this brings up new reasons why standardized, centralized systems are important; this is why even businesses with intentionally lean HR services still tend to keep all of their personnel files together in one system – even if it is backed up and duplicated as a risk remediation process.
What confidential or proprietary information would Personnel records hold, and what confidential or proprietary information would employees working in Human Resources see and process and store?
• Obviously, personnel records are going to contain large amounts of confidential information about individual employees – and about all of them in a business from short-term interns through to include the chief executive officer. This means social security numbers and other information that could be used for identity theft, and salary history and other information that people would want kept confidential except where they chose to share it.
• What business proprietary information do Human Resources and its Personnel staff hold in their records? For businesses that work in highly confidential areas and when a lot could be learned as to what they are planning internally, from knowing who is working in what areas and with what specific skills, this can be a lot – and even if the business in question does not see itself as being centered for its defining value in trade secret-protected information.
The more, and the more varied the confidential and proprietary information held by Human Resources, the more important to hold at least key areas of it in-house.
And with that I turn to consider expertly managed, best practices driven third party providers that would provide outsourced Human Resources services. And this becomes at least as much a risk management issue as a direct cost of service issue.
• What is the cost of maintaining this in-house? Take any due diligence and risk management costs into account there in determining that overall cost.
• Now what is your estimated total cost of outsourcing this, and on a functional area and service by functional areas and service basis?
In principle, the cost contribution added in by risk, is a mathematical product of the cost that would be incurred if an unfavorable event were to take place as multiplied by the likelihood that it actually occur. The problem is that the numbers that would enter into this can be difficult to predict, and for both in-house and outsourced options. For third party service providers, their performance history would be needed to develop benchmark values for determining the costs of using them with risk factors included. So their transparency on that would be essential in evaluating them as a valid alternative for moving forward. And in-house, information technology risk assessments and best practices would be central for determining that aspect of overall costs (e.g. confidential personnel records information should not be allowed on readily portable storage media such as flash drives, and capability to transfer information onto them through UBS ports on computers used to store and use this information should be controlled and limited according to explicit risk management guidelines.)
I have just reread this posting to this point and acknowledge that I raise more questions in it than I answer – which probably means I have been writing this to be useful. At this point, anyone seeking to make a meaningful in-house or outsourced decision for Human Resources, should be thinking and planning and deciding in terms of a laundry list of explicit, systematically organized questions. And I have only touched on a few of them here.
I am going to follow this with another, related installment where I will consider issues related to the employee and manager experience faced in these two scenarios – keeping Human Resources in-house or outsourcing it, at least in part. Meanwhile, you can find this and related postings at HR and Personnel and also at Outsourcing and Globalization.
This is my second installment in a series in which I discuss issues and considerations that would go into determining whether Human Resources functions and processes should be retained in-house, or whether they should be outsourced to third party providers – and if so for which services (see Part 1.) I have been writing extensively about HR processes and activities in this blog (see HR and Personnel), and largely from an in-house perspective. I have also been writing on an ongoing basis about lean and agile businesses that do successfully outsource services that they might need, but for which that approach would be more cost-effective. See in that regard:
• My series Virtualizing and Outsourcing Infrastructure (at Business Strategy and Operations as postings 127 and scattered following for Parts 1-10) and
• My more recent discussion of the more extreme case of the virtual company (see Telecommuting and the Marketplace Transition to the Telecompany at Outsourcing and Globalization , postings 48 and scattered following.)
I began this series with a more general discussion of how businesses decide to outsource specific services and functionalities, and then turned to apply some of that understanding to the Human Resources context. And I ended Part 1 with two statements that I begin this posting with, reframed as questions:
1. How do different businesses assign what for them, would be effective ranges of responsibility to their HR department?
2. And how does their decision as to what Human Resources should be doing and responsible for, determine if it would make sense to outsource some or all of that – and if some, which some?
I begin here with that first question, and an acknowledgment that different business owners and managers approach this with very different ideas as to what the terms “Human Resources” and “Personnel” mean. So for purposes of this discussion I propose use of two terms that I have found helpful: lean HR and robust HR.
• A lean Human Resources capability is one that holds operational ownership of and responsibility for a minimum number of personnel-related services that do not smoothly fit into the responsibility portfolio of any other department or service and that relate to completing and holding personnel records.
This means documentation related to hiring and onboarding for each individual employee, and it means meeting with those employees to fill out the paperwork as to what health insurance and other benefits they individually are eligible for and agree to. And this means maintaining records as to job performance reviews, sick leave and vacation time taken, and employee termination and separation when an employee leaves a business. For the separation process they might be involved in a final exit meeting, but they will probably only be so involved insofar as they will hold onto any papers signed and other supporting documentation. They prepare and store personnel files and their contents and manage basic personnel-related activities – only.
Lean HR services are frequently of small staff size, and are usually considered service areas rather than more full-scale departments and even if they are run separately from the larger department-level operational areas in the organization. And lean HR is rarely if ever seen as relevant to overall, higher level operational or strategic planning. The head of this type of HR is never seen as a part of the senior executive team or explicitly brought into the strategic decision making process, except perhaps occasionally and then just to answer specific-information questions for those who do make and shape strategy. Then they leave the room again.
• A robust Human Resources capability is much more usually organized as a full department, or at the very least as a significant level component within a major department such as Operations. And these departments (to settle on a single terminology for simplicity of discussion) carry much wider ranges of responsibility and involvement.
I tend to write a lot more about robust then lean here in this blog and in general and I tend to advocate a more robust HR approach for most organizations that seek to follow more standard business models. A robust HR is significantly included in overall operational and strategic planning, and I add in overall due diligence and risk management discussion too. And the head of a robust HR is more actively involved in the overall operational and strategic planning of the business, whether they are considered a member of the inner circle of this planning team or not. Where their areas of activity are involved they would be in the room to actively participate and not just to provide input on specific and perhaps unexplained issues.
• The leaner an HR system in place, the larger the percentage of it, generally can be outsourced and without loss of operational or strategic control and oversight.
• The more robust the HR system, the more areas it is crucially involved and engaged in, where in-house control and oversight would be more important and even crucial for maintaining business effectiveness with meaningful due diligence and risk management consideration.
• But even in a business with a very robust Human Resources Department, it still would likely make sense to outsource at least certain specific functional areas and processes, and there, I cite by way of example an example that I initially raised in Part 1. When addressing workplace discrimination and/or harassment claims, a business should always bring in third party employee advocates, who involved employees making these claims can meet with and who are not seen as being primarily there on behalf of the business. This makes it possible for them to be, and to be viewed as offering more impartial guidance and opinion and from the perspective of protecting the rights of the employees making claims. (I rarely use the word “always” in a business operations systems development context but this is one where I definitely do.)
And this brings me directly to question 2 as listed at the top of this posting:
• And how does their decision as to what Human Resources should be doing and responsible for, determine if it would make sense to outsource some or all of that – and if some, which some?
A great many and even most businesses outsource, and this is certainly true for businesses with any type of online presence. Even if they chose not to outsource anything else, it is likely they at the very least outsource the hosting of their web sites, with that managed off-site and by a professional web hosting service. So businesses outsource and sometimes without thinking about how that is what they are doing. They simply bring in the services of third party providers for one or two or perhaps more specialized purposes, where it would not be cost-effective for them to manage those operational details entirely in-house.
• For a big ticket retail operation such as an auto dealership this might mean hiring the service of professional, third party leads providers to help bring in new business. They would have their own active Sales department that works to bring in and engage foot traffic from the street, and convert visits to the show room to completed sales however potential customers reach their doors. But to widen their reach they might actively buy third party leads too, to increase the traffic flow to their doors and preferably with people more inclined to buy.
• Their Marketing department would draft and send out advertising and marketing copy, and through a wide range of channels that their information sources suggest are frequented by their target market audiences. But they might still buy third party-developed and commoditized marketing intelligence to help them make better decisions as to where to focus those marketing efforts. And if they want to engage in online marketing, and certainly if that includes specialized marketing efforts such as paid search engine placement and the purchase of key words in paid search campaigns, expert, third party service providers can be invaluable. Managing key word selections and bidding across complex search term portfolios calls for third party expertise if marketing campaigns based upon that are to work, and cost-effectively so.
• Many auto dealerships offer on-site access to insurance coverage for customers buying cars or trucks, and who suddenly need new policies. But few provide this service strictly on their own. They almost always partner with established insurance companies in this and offer their products. They then take a cut of the fees accrued from this additional business for helping those third party insurance providers access to what for them are new markets. And I add that offering a more one-stop shopping experience makes their storefront more attractive place to buy from so this creates win-win opportunities for all parties concerned.
• Their auto maintenance and repair shop may be involved in third party provider relationships too, and certainly for providing specific services where for whatever reason, it would be more cost-effective to do that.
• And such a dealership might still identify itself as, and consider itself to be a completely separate and independent business. It is – it is just that it taps into systems of third party providers for help with services and functionalities that might be important, but that are not part of their core capability requirements that they really need to keep in-house.
• And I add as a final point here, that I have based this discussion of mixing in-house with third party provider-outsourced, on a very real and very specific business that I have worked with. And one area of their operations that they did not even consider outsourcing was their small Human Resources office which they kept busy and entirely in-house.
And this brings me directly to the topic of this posting. If collaborative partnerships with third party outsourced providers can make sense, and at least under appropriate circumstances for internal and infrastructure systems and capabilities, and also for more directly customer-facing services, how do you best decide where this approach would or would not make sense? And what might make Human Resources acceptable or unacceptable for consideration for farming out to third party providers? With that background and its concluding questions, I bring this posting into focus.
As a starting point in addressing the two questions raised in the last paragraph, above, I turn to the first and most fundamental step that would have to be taken here:
• You need to know precisely what overall services you might outsource or keep in-house and what they are operationally comprised of, in detail. This means taking an inventory of all of the processes and activities that are directly carried through upon and completed as a part of a service under consideration. This means knowing precisely what other processes and activities are contributed to, for example in different parts of the organization, and certainly where this contribution of effort or results is crucial. This is both a matter of functionality and of processes in place, and of cost-effectiveness where alternatives would be readily available.
• What of this process flow would be disrupted if this service were outsourced, and at what costs to remediate and restore ongoing business operations?
• This includes information security and a host of other due diligence and risk management considerations that might arise if in-house information would have to be shipped out to an outside provider.
Tanking this out of the abstract, I would begin with a simple and clear-cut reference example: web site outsourcing as cited at the very beginning of this posting. An inventory of processes covered under “web site hosting” would include a range of security and continuity of services issues that might be immediately obvious (e.g. keeping a company web site live 24/7 under normal and normative circumstances.) But this would also include rapid recovery and technical support capabilities, and generally on a 24/7 basis that might not be as quickly anticipated, at least in detail. And it would include issues such as load balancing across hosting servers to maintain rapid web site availability and quickly responsive functionality in times of unusually high site visitor activity. That is one that might very well not come to mind until the people involved have seen their site go down, in effect from too much success in bringing in actively engaged web site traffic – or from something like a denial of service attack. All of these process examples, in fact, serve to make outsourcing web hosting a more attractive option.
With that I turn to Human Resources services as noted at the end of my bullet point list above. I could select any major activity area that HR is responsible for as a more focused example here, but will keep this simple with a service area that I have been discussing in my series: Onboarding New Employees (see HR and Personnel, postings 119 and following for this series as a whole, and particularly its Part 12: cultural diversity and awareness, and avoiding discrimination pitfalls.)
Just considering the processes and steps that would be included in that part of the overall onboarding process where non-discrimination and harassment policies are presented, and resources explained:
• One part of this might be to offer a presentation with video clips and other standardized information resources as to what workplace discrimination and harassment are, and about how they cannot and will not be tolerated. This means developing and making use of high production quality, expertly legally vetted informational resources. A well-chosen third party expert provider might in fact be the preferred approach for developing these resources as that approach can both help reduce costs involved in obtaining quality products, and it can insure that these materials meet all necessary standards for thoroughness and approach to topic.
• A second part of this would be in establishing and presenting HR and/or other personnel who could be turned to if an employee feels themselves to be discriminated against or if they are being harassed. On the one hand, it is very important that these be people who are there, and consistently available, and certainly where sensitive issues are going to be discussed. Face to face meetings can really help and in ways that phone conversations with someone unknown and unseen do not, to reassure this employee that they are being listened to and that they will be receiving help. Local and face to face can help in clarifying and resolving issues, and if there is real discrimination or harassment that needs to be addressed, meeting directly with a business representative who takes an employee advocate role and who comes across as being on their side can limit the chances that the business itself become principle defendant in any court actions.
• But continuing with that example, an in-house advisor might be seen as biased against the needs and interests of the employee who is making accusations. Instead of being seen as sympathetic to the needs and situation of the employee, they might come across as only being there to serve the interests of the employer. So if it can be helpful to have people there and in-house who an employee can turn to, it can be at least as important to involve otherwise disinterested third party advisors too – provided they can be actively engaged and where an individual advisor can follow through with any case file and employee who they initially engage with.
So some parts of Human Resources might be effective areas to outsource to third parties, and some might at the very least be more problematical for that. I am going to continue this discussion in a second installment where I will consider the way different businesses assign different ranges of responsibility to their HR department, and how their determination as to what Human Resources should be doing and responsible for can determine if it would make sense to outsource some or all of it – and if some, which some.
This is my fifth posting to a series in which I outline and discuss a new and emerging business approach that is coming to have tremendous impact, and both on marketplaces and economies and on how we do business, and on individual employees as they plan for and carry out careers (see Outsourcing and Globalization, postings 48 and following for Parts 1-4.) And this is where I finally begin to explain why I have stated from the beginning of this series, and in present tense that the approach I am writing about here is (currently) “coming to have tremendous impact.”
So far I have primarily been focusing in my analysis and discussion on two distinct business models that can lead to the telecompany:
• The costs constraint telecompany model, with its focus on limiting fixed operating expenses, and
• The shifting opportunities-oriented telecompany model with its focus on capturing short-term and transient opportunity.
And I have focused on those two approaches as pure play implementations where as a single, coherent operational and strategic approach, a business is strictly and exclusively following one or the other of these business models (see Part 3 for a more detailed discussion of the costs constraint model and Part 4 for the shifting opportunities-oriented model.)
I have in that, focused on where current emerging trends are leading. Here I note that these approaches are still primarily being pursued as strategic options and as components of larger business systems – parts of larger business models that also include elements that call for maintaining in-house staffing. And in this case, large amounts of the workforce at a business at any one time might be working in accordance with a more telecompany approach but the business itself is not strictly speaking a telecompany – at least yet and it does not see itself as being a telecompany either.
This approach however, is already important for its prevalence and impact as a side strategy that is increasingly becoming mainstreamed, and certainly for the better known, cost constraints approach. And the implementation of that form of telecompany approach has become a source of political and socioeconomic contention too, as the spread of telecompany-based strategy as a utilized approach has contributed significantly to creating our seemingly jobless economic recovery from the Great Recession in countries like the United States. And it has led to even greater and more sustained unemployment in countries and regions such as the European Union during this same period.
This posting is about mixed and hybrid strategies and business models, and the reimagining and partitioning of the overall workforce and employer needs according to which employment strategy would make the most economic sense and for which job descriptions to be filled.
Stated as a set of strategic decision questions, from a hiring perspective should a given position be filled according to:
• A cost constraints approach, and according to the logic that there are always more potential hires looking for that specific work, who would in effect compete down what they would ask for in compensation?
• A shifting opportunities approach where costly or not, specialized skills and experience are needed and at a high priority, but only short-term and/or periodically and as a business standard for how it hires in general?
• A more traditional in-house employee approach?
• A more traditional consultant and outsourcing approach that focuses on identifying specific limited ranges of tasks that would best be farmed out, but from the business context of in-house employment as their norm?
I would argue that we are in a transition stage in all of this in which businesses are discovering new balances of implementation, and as such expanding out the overall available universe of business model approaches in use that can be tapped into, in creating value and profit. And the range of pure play business models – models following just one of these employment strategy approaches, is expanding and will continue to do so.
And especially going through this transition period, implementation of even partial telecompany approaches, and certainly cost constraint model approaches will drive a great deal of societal and workforce discontent, and certainly for those who feel themselves dislocated from being pigeon holed into career paths that companies could hire as freelancers and part time employees.
As a final thought here, I see us collectively facing a transition as we proceed into the 21st century, that in many ways mirrors the changes in overall economy, in career demographics and in societal world view that we historically experienced going through the first and second industrial revolutions and the farm to factory movement of the early 20th century (see for example, “From Farm to Factory: Transitions in Work, Gender, and Leisure at Banning Mill, 1910–1930s”.) And we are still in the beginning and early stages of this current telecompany transition and with a great deal still to come.
I am going to finish this series at least for now with this posting but I will continue to post on issues that closely align with and relate to those I have been discussing here. In fact as I first stated in Part 1 of this series, in a fundamental sense everything in this blog connects here as one of my core focal points. Meanwhile, you can find this and related postings at:
• Guide to Effective Job Search and Career Development – 2 (as a supplemental posting),
• Outsourcing and Globalization and
• Macroeconomics and Business.
Telecommuting and the marketplace transition to the telecompany 4 – defining the business model in a telecompany and virtual business context 3
This is my fourth posting to a series in which I outline and discuss a new and emerging business approach that is coming to have tremendous impact, and both on marketplaces and economies and on how we do business, and on individual employees as they plan for and carry out careers (see Outsourcing and Globalization, postings 48-50 for Parts 1-3.)
I have conceptually and functionally divided telecompanies as fitting at least two fundamentally distinct business models in Part 2:
• The costs constraint telecompany model, with its focus on limiting fixed operating expenses, and
• The shifting opportunities-oriented telecompany model.
And I began a more detailed discussion of the costs constraint model in Part 3. My goal in this installment is to outline in corresponding detail the shifting opportunities-oriented telecompany model. Looking ahead, I will follow this with an installment in which I will discuss incorporation of elements of these two approaches into more standard business models, and hybrid business models. But for now, as with Part 3, I will restrict discussion to pure play businesses that pursue a strictly telecompany business model approach, and of one or the other of these two basic types.
The shifting opportunities-oriented telecompany model: If the costs constraint telecompany model is largely a child of economic downturn, risk and uncertainty, the shifting opportunities-oriented telecompany model is a child of expanding and increasingly fast-paced globalized opportunity. And in a fundamental sense, I began laying the groundwork for this posting when I first began posting to this blog, and with my earliest installments to my directory Ubiquitous Computing and Communications – everywhere all the time.
• One of the emerging realities coming from our increasingly interconnected capabilities to communicate and interact real-time and ubiquitously is that we are witnessing our once local marketplaces coalesce into a single global marketplace.
• One consequence of this is that what might have been a marginal niche market product pre-interactive internet can now reach a wide enough interested audience to be economically feasible and profitable to develop, produce and offer.
• And such offerings might hold stable, long term value and both to consumers and to the businesses that provide them. But such offerings might be seasonal or otherwise short term and fad-based, and offer transient if significant business opportunity while they last – for those businesses that can get in and develop to these transient needs and get out again and quickly and on both ends of that process.
The shifting opportunities-oriented telecompany model applies specifically to businesses that would capture transient sources of value as a route to profitability and business strength. This means bringing in a steady flow of hands-on expertise that is only going to be required short term, and in the extreme case a tipping point might be reached where it does not make sense to have a permanent base of in-house employees at all. A true, pure play shifting opportunities-oriented telecompany would have owners and executive managers (who might very well be the same) and they would bring in a dynamically changing flow of temporary and short-term hire consultants, contract workers and free agent employees.
I wrote of a comparable system at the supply chain level when discussing companies such as Li & Fung, Ltd (and see:
• Fung, VK, Fung, WK and Wind, Y. (2007) Competing In A Flat World: building enterprises for a borderless world. Wharton School Publishing
for further details concerning this company.) One of their defining strengths, as I have discussed in postings such as Moving Past Early Stage and the Challenge of Scalability 9: supply chain-ready business models is in their ability and expertise in working with partner businesses to create effective, optimized supply chains on the fly in order to capture immediately available short term opportunity in rapidly changing markets such as seasonal and fad-driven fashions and clothing. The shifting opportunities-oriented telecompany model brings this mutable dynamism into the individual business as it develops and provides for short-term, transient and fad opportunities, where it would not make sense to pursue a multiple-company supply chain approach.
And at this point I both admit do not having anything like a working crystal ball, and acknowledge that what follows might prove naively simplistic and overly limited.
• I see the shifting opportunities-oriented telecompany model working most effectively if not exclusively for small, lean, agile businesses with at most small headcounts of temporary employees, brought in for short-term specialty needs – at least for companies that only pursue this approach.
• And I suspect that a part of this lean agility is going to involve maintaining a minimum long-term physical plant, with the fixed operating expenses that carries. In Part 2 I first defined the virtual company as one based dually on both the telecompany, and the telecommuting and distant worker model.
• And I see this as being most likely in the information and knowledge development arenas, where skills transiently needed by any one organization would be reliably and steadily needed by the business community as a whole. So freelance workers would be able to find and secure steady employment in those specialties and they would be available, even if that meant moving from one short term employer to another in pursuit of best offers.
And these assumptions will all blow up as the first large company tries the shifting opportunities-oriented telecompany model, and lacking that crystal ball, I have to admit that might happen too – even if I do see it as a difficult fit.
As noted at the start of this posting, I am going to turn in my next series installment to consider hybrid business models that include elements of one or both of the telecompany business models. I add in anticipation of that, that I see combined and hybrid approaches as the primary route to telecompany development in the immediate future, with pure play telecompanies coming later and certainly for those that would pursue the shifting opportunities-oriented telecompany model approach. Meanwhile, you can find this and related postings at:
• Guide to Effective Job Search and Career Development – 2 (as a supplemental posting),
• Outsourcing and Globalization and
• Macroeconomics and Business.