Platt Perspective on Business and Technology

When and if it might make sense to outsource Human Resources 3

Posted in HR and personnel, outsourcing and globalization by Timothy Platt on January 17, 2013

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.

One Response

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  1. Kristian Svindland said, on January 18, 2013 at 3:13 pm

    Lots of very good info in here. I think that the length of this article portrays accurately how much time a business owner spends on hr related issues and education. So…if a business owner wants to spend time reading up on HR issues and deciphering labor law, then HR outsourcing is not for them. If, however, a business owner wants to spend time growing their business and working with clients to help them, then HR outsourcing frees up hundreds, if not thousands, of man-hours annually.

    Kristian Svindland
    Owner, VP

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