Platt Perspective on Business and Technology

When and if it might make sense to outsource Human Resources 2

Posted in HR and personnel, outsourcing and globalization by Timothy Platt on January 9, 2013

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?

I am going to continue this discussion in my next series installment there. Meanwhile, you can find this and related postings at HR and Personnel and also at Outsourcing and Globalization.

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