Everything you need to consider about HR outsourcing: outsourcing is a force beyond the virtual organization movement.

Outsourcing is obtaining work previously done by employees inside the Company from sources outside the Company. For example, suppose someone has specialized in an activity that is not strategically critical to our business and can do that cost-effectively. In that case, it is better to get it from outside.

Human Resource Outsourcing is a procedure in which a company utilizes the services of a third party to manage its HR functions.

A company may outsource all of its HR-related activities to a single or combination of services located in offshore destinations like India, China, the Philippines, etc. As a result, those HR functions are not critical, and confidential are outsourced.

HR outsourcing helps an organization gain cost and time efficiencies provides a cutting edge over their human resource strategies, and improves services to their employees. As a result, HR is an essential partner in developing and executing organizational strategy.

Learn about

Introduction and Meaning of HR Outsourcing
Why HR Outsourcing
Types
Forces for Driving
Outsourcing of HR Services
Benefits
Barriers
Future Development.

HR Outsourcing

Introduction and Meaning of HR Outsourcing
Need for HR Outsourcing
Types of HR Outsourcing
Forces for Driving HR Outsourcing
Outsourcing of HR Services
Benefits of HR Outsourcing
Barriers of HR Outsourcing
Future Development of HR Outsourcing

HR Outsourcing – Introduction and Meaning

Outsourcing is a force beyond the virtual organization movement. Outsourcing is obtaining work previously done by employees inside the Company from sources outside the Company. If someone has specialized in an activity that is not strategically critical to our business – and can do that cost-effectively.

The organization gets the advantage in the form of fantastic quality, reliable supply, and price. It can also focus on doing what it is good at – thereby enhancing its competitive advantage.

People are the most critical asset of an organization. As a result, leading companies worldwide are taking a more strategic approach to manage their human resources. They outsource day-to-day human resource functions to focus on strategic HR issues that impact corporate performance and shareholder value.

Human Resource Outsourcing is a procedure in which a company utilizes the services of a third party to take care of its HR functions. For example, a company may outsource a few or all HR-related activities to a single or combination of service providers located in offshore destinations like India, China, the Philippines, etc. In addition, those HR functions that are not crucial and confidential are outsourced.

Recruitment, selection, payroll and compensation management, staff training, and employee benefits are such functions. Thus, the decision by Unilever, for example, in 2006, to outsource its HR activities – mostly transaction-oriented such as payroll administration, applicant tracking, training and development, record keeping, performance appraisal follow up, etc. – to Accenture appears to be in the right direction.

These are people and effort-intensive activities but are routine. Such work can be turned over to a third-party specialist who would deliver excellent results, leading to significant savings in cost and effort. Furthermore, through standardization of processes, the specialist can deliver service at unbelievable speed also.

At the same point, the organization should continue to have transformational HR roles – like attracting and retaining talent, bringing about strategic distinct in partnership with line managers, championing employee concerns, etc. beyond boardrooms and business schools, HR is primarily seen as a powerful tool to attract and retain talent, build workforce capabilities, handle problems and bring out the best in people.

With high attrition rates still haunting most people-intensive industries, an active and vibrant HR can be a crucial differentiator between mediocre and high-performance organizations. Seen against this backdrop, it is not shocking to find that routine activities such as pensions/benefits, stock options, health benefits, and payroll are among the most popular HR programs being outsourced wholly or partially. Moreover, HR outsourcing is growing as HR programs and services become more complicated.

PriceWaterhouseCoopers has changed a Total Human Resource Outsourcing Model, which offers companies end-to-end HR services and a one delivery capability. As per the survey by "The Conference Board and sponsored by Accenture, there are more than three-fourths of executives in large North-American and European firms currently outsource more than one HR function."

Human resource outsourcing is an influential strategic HR initiative. It helps the organization focus on internal resources towards doing what they do best and simultaneously helps control the bottom lines. In addition, HR outsourcing helps an organization gain cost and time efficiencies, provides a cutting edge over their human resource strategies, and improves services to their employees. As a result, HR is an essential partner in developing and executing organizational strategy.

As is evident, HR is critical to an organization's functioning. HR responsibilities include all the related functions that work towards employee well-being, including payroll, benefits, hiring, firing, and keeping up to date with state and federal tax laws.

Increasingly most big firms are getting their HR activities done by outside suppliers and contractors. For example, employee hiring, training and development, and maintaining statutory records are usually contracted out to outsiders. For example, P&G has signed a 10-year, $400 million deal with IBM to handle employee services.

IBM will support almost 98000 P & G employees in nearly 80 countries with payroll processing, benefits administration, compensation, planning and relocation services, and travel and expense management.

The past competitive challenges of the global marketplace are creating demand for expert human resource outsourcing. As a result, the outsourcing providers, to manage the non-value-adding administrative business function of their businesses, thereby facilitating the businesses, can focus on their cost competencies.

Outsourcing is the procedure done for a company by another company or people other than the original Company's employees. For example, outsourcing entails buying a product or process from an outside supplier other than producing this product in-house.

HR Outsourcing is emerging as one of the world's most exciting business trends. It shows the need, recognized by increasing numbers of organizations, to focus on their core business areas and outsource processes that add little or no value to achieving their business objectives.

HR Outsourcing – Need

Many factors will contribute to an organization's decision to outsource its HR functions.

The following are a few of the needs of HR Outsourcing:

Enabling businesses to concentrate on primary operations
Cost savings – whether direct or indirect
Helping to maintain a stable, cost-effective operating platform
Transferring focus from internal processes to the achievement of business goals
Realizing investment in HR transformation or IT systems
Ensuring compliance with regulatory, legal, and best practice requirements
Transferring risk for people issues

HR Outsourcing – 3 Broad Types:

Application Service Provider (ASP)
Business Process Outsourcing (BPO)
Total HR Outsourcing

HR Outsourcing can be divided into three types:

Type # 1. Application Service Provider:

A host of companies specialize in providing hardware and software applications to support large organizations, including application vendors like PeopleSoft, Oracle, etc., which have developed application packages to support the human resources activities of an organization.

They install, customize and provide support for running these applications. First, the main disadvantage with ASP is the costs associated with application software. Second, the implementation of the application software is a little doubtful.

Type # 2. Business Process Outsourcing:

The significant difference between BPO and ASP is that in BPO, the client is in direct contact with the employees through call centers or support centers. MNCs generally go for BPO as they operate in many countries and employ a considerable number of people. While certain firms wish to have the power to control human resources, others hand over the power to the service providers.

Type # 3. Total HR Outsourcing:

In this type of outsourcing, the whole HR function is managed by the service provider. There is not any specific HR department in the organization. The client organization only has senior HR professionals who are also HR strategists. In addition, the service provider does a host of non-strategic functions and employee contact.

HR Outsourcing – 3 Forces Driving the Engine of HR Outsourcing

When a third party trusts a company's management, they are expected to provide the whole range of human resource services against payment. Three main forces are driving the engine of HR outsourcing.

Firstly, high human resources turnover places a severe challenge on the HR department to design services similar to their competitors. When employees change their employer, organizational HR practices for customized services give way to standardized services.

The power of organizational culture is not that effective to attract people from outside or retain existing employees for long if the prospective or the present employees have no interest in knowing about it. Faced with depleting stock of talents, an increasing number of companies are trying to benchmark their HR practices with one or the other competitors to catch up with them both in terms of their expenditure on human resources and human resources productivity.

More and more HR services are likely to get standardized as employees change their employers. This has been a concern for technically qualified managerial employees whose development costs are high and time-consuming. Though such imitative HR practices do not affect employee turnover intention, companies get cost parity for controlling their employees.

The second force for HR service standardization is the research findings on human behavior under various contractual and organizational control conditions in the public domain. The availability of such findings on employee behavior and expectation shapes the domain knowledge of organizational HR managers and the expectations of potential and current employees.

Example: A manager expects and demands a bonus from their employer because they have learned about such practices from friends working in other companies or may have read about it in a newspaper or book.

A third force that makes outsourced HR services an option is the increasing inroad of IT and developed communications systems in the management of human resources. An external HR service provider could produce such standardized services and sell them to many similar organizations.

As a result of enormous volume generation, it can support significant technological investment, which will reduce the organization's operating cost substantially. In addition, benchmarking internal processes, including HR processes, allows one to gain knowledge from enough practices of others and avoid the expensive exercise of learning by failing. But processing this market-related HR information requires dedicated employees, which an organization can find too expensive because such information is used only occasionally.

Since market practices change timely, an organization spends considerable resources tracking those changes, which may be used once in five years. The areas that mark such fast standardization are:

Employee search services.
Developmental resources for specialized expertise.
Industry practice for employee performance appraisal systems.
Compensation and incentive practices in similar industries.
Employee management for low-value standardized jobs.

Because of its business in these areas, an external vendor is likely to have more knowledge about market practices than a single organization. By outsourcing services from outside, an organization can gain the knowledge intensity of its HR personnel. Hiring and developmental Services, Performance Management, Compensation, and Benefits Management, and a Few Others

Under the pressure of competition, a company increases its purchase of manufactured parts and services generated by other companies. However, it also considers many other innovations for outsourcing new areas of its processes. Human resource outsourcing is such a new area that is going for external servicing.

Like many other functions, the human resource function is also undergoing significant changes in its content, processes, and outcomes. Concerns for more strategic use of a company's human resources and demands for developing their competencies in line with the Company's long-term business goals are growing.

Faced with increasing pressure on its margin, most are trying new employment relations where employees work side by side with different employment contracts. In addition, there have been increasing demands and suggestions for using new methods for evaluating the direct contribution of human resource management services in company business.

Among these varieties of innovations, the most radical and notable is the process innovation of human resource management outsourcing, whereby a company buys either a part of the complete requirements of its human resource services from an external vendor. Even in emerging industrial markets like India, this business process innovation of HR outsourcing is increasingly felt.

Like outsourcing of other areas of a company's processes like maintenance, catering, or IT services, which can be defined and described clearly and can be put into a contract with relatively limited risk on company performance in other areas, the same cannot be said about human resource services.

Human resource services involve the entire organization, and any inconsistency, short¬cut, or opportunistic behavior on the service provider will seriously impede a company's long-term competitive advantage. Further, when a vendor makes a contract to supply particular physical objects or goods, they can exercise complete control over when and how much of the goods are to be sent to a client's premises.

But the similar cannot be said when a vendor makes a supply contract for providing employment services to a client. As a result, a vendor or a client has little control over the quality of service the contracted employee sent by the vendor.

Company human resource-based competitive advantage is sustainable because it is difficult to duplicate by others. Moreover, it cannot be replicated because the critical sources of such competitive advantages cannot be seen and managed only by undocumented and invisible cultural instruments developed over time. Nevertheless, under the pressure of competition, outsourcing HR services is making steady in-roads into business processes.

Choice of Services for HR Outsourcing:

Organizational competitive advantage starts from generating unit or group-level capabilities that emerge from employees sharing and exchanging knowledge. These processes are facilitated by careful deployment and development of employees based on internal assessment of individual employee expertise, aspirations, and personal dispositions.

The relational capital of the employees makes them perform efficiently while the same employees may fail to deliver if placed in another group. This relational history between employees is purely tacit knowledge-driven and cannot be placed on a contract.

It can only be handled by somebody with considerable experience with the employee concerned and the culture of the Company. In other words, the HR services of a company can be outsourced as long as the responsibility of capability generation is in the hands of the internal managers.

Outsourcing an HR service to an external agent, an organizational advantage is not likely to dissipate as long as this implicit part of the HR service is kept intact within the internal managers. This is because they are known for the culture of the Company and are bound with the organization under a long-term contract.

The following processes can be followed for outsourcing a few of the HR services from outside:

1. Hiring Services:

Recruitment is the human resource services with which knowledge carriers from outside are brought into a company. The external market gets its supply of human resources or knowledge carriers mainly from households, academic institutes, and industries. All those people who look for jobs are available in distinct types of markets. Prospective employees search for jobs using varieties of means and media.

There are markets where an employer can find its employees. However, these employee markets differ not only in terms of the number and qualities of employees available but also in terms of the willingness of a new hire to continue the employment relations with the Company for a good many years.

With varieties of people joining the labor markets at different stages of their career, organizations find reaching out to the right market for hiring a few good quality employees who will stick with the Company for some number of years a very costly and risky affair. It requires a good amount of investment to keep track of changing employee profiles of different markets. Furthermore, an employer may use such market-specific knowledge assets only occasionally.

Further, with the growing entry of employment practices, these features of the employee market are also changing very rapidly. Most of the activities required to get a potential employee interested in the company positions are highly repetitive and are amenable to computerization.

Thus, specialized agencies have developed a database of po¬tential employees of various kinds, which a company can fill its position in a much shorter time. This is the main reason why employee search service is one of the first human resource services that has been outsourced to external vendors.

A company that hires its employees through outside vendors must protect against losing its competitive edge through such suppliers. There are numerous ways by which organizational knowledge assets and sources of competitive advantage can diffuse to competitors. Firstly, the vendor may send the same list of employees to you and the competitors or send a better list of candidates to your competitors.

This means the average characteristics of the employees received by both companies can be very similar. Under such conditions, the human resource-based competitive edge can be protected only by keeping the selection part of the employee hiring service in the hand of the internal line function. Within an expected average, there is room for variations among the potential candidates.

A human learning system that is non-mechanical and tacit knowledge-driven can spot the presence of such variability in a pool of candidates. Finally, the organizational capability originated from the joint efforts of a group of employees. Keeping this final choice in its hand ensures that a selected employee has the required learning capability and social-relational skills compatible with other employees.

In other words, though explicit knowledge about the market is bought from outside, its conversion into tacit valuable knowledge for the Company is still kept in the hand of the internal management.

For a company where employee diversity is an essential requirement for implementing its business policy, employee selection must incorporate the assessment of characteristics of the potential employees. This can be done when the final selection is still kept in the hands of the management.

2. Developmental Services:

In the outsourcing of external developmental resources, companies purchase explicit market-developed knowledge. Moreover, since many other organizations are experimenting with newer innovations in management processes, an organization can enhance the capability of its employees by giving them exposure to those practices of other companies. Thus, there is an economy of scale in the acquisition and compilation of such information.

And, some organizations, e.g., academic institutes and professional workforce training institutes, specialize in information acquisition, structuring, and presentations to prospective learners.

If an organization straightaway uses similar external knowledge for its internal employee development, then it will not get any competitive advantage over the competitors. Therefore, to gain a competitive advantage from an externally designed and delivered explicit knowledge, an organization again should use a human learning system to convert such explicit knowledge into internally practical tacit knowledge.

This talk of externally purchased knowledge into internally proper tacit knowledge can be compelling if the learner's choice is not left to the external vendor but is managed by the internal managers. They are well acquainted with the employees. Such an option must take into account not just the company requirements of trained employees but also the ability and aspirations of the learners.

Not all employees are willing to acquire knowledge, nor do they have the similar ability to internalize them and work as a source of learning to others. Therefore, both requirements of development for a particular area and the person who should be developed must be left in the hands of the line function manager who is familiar with the Company's long-term strategic goals and the expectations and abilities of the potential trainees.

Before sending employees to any externally provided developmental program, an organization should carry out a thorough internal learner identification.

By placing a group of selected employees who have gone through a standard learning program together, it can increase the scope for converting such externally acquired explicit knowledge into internally practical tacit knowledge and ensure that such externally procured organizational knowledge capital will not diffuse quickly.

3. Performance Management:

Organizational performance evaluation includes measurement at three levels: total organizational level, group or departmental level, and individual employee level. Performance information at the entire organization and group or department level is knowledge-intensive primarily, and their measurements are less controversial. However, there can be a few areas that are tacit and personalized knowledge-intensive.

A company can outsource evaluation of those parts of its organizational performance that are explicitly knowledge-intensive, keeping the subjective and qualitative part of the assessments in-house.

In individual employee assessment, the scope of outsourcing is extremely limited because much of these assessments are subjective and tacit relational knowledge-intensive. On the other hand, individual performance assessment uses tools and techniques continuously improved upon and is explicit knowledge-intensive.

These markets or industry-specific knowledge, e.g., the format of the performance appraisal system or the weights given to different types of measurements, viz., financial results, observable behavior, or personality traits, can be outsourced. An organization can gain knowledge from the practices of other companies doing business in a similar industry.

The advantage of such external sourcing of measurement format is that a company can acquire the design of a successful company in a similar industry without spending much on its actual design.

The actual outcome of a formal performance evaluation system depends not only on the format used for measurement but also on how it is applied to assess an individual employee's performance, i.e., how performance data is generated. This execution part of performance evaluation is tacit knowledge-intensive and must be handled by someone responsible for supervision and observation of the employees.

The action of the internal line function, the explicit knowledge-driven performance evaluation form, gets converted into usable knowledge in the Company. However, since such measurement involves extensive use of prior experience of the line function manager and is mainly driven by the Company's internal culture, such knowledge cannot diffuse quickly to competitors even though the format for measurement has been bought from a third party.

4. Compensation and Benefits Management:

Compensation is an essential part of the human resource services, ensuring an adequately skilled workforce to the Company and its various positions. Unless the compensation for various positions is adequate to reimburse the qualification and experience required, it may fail to attract the right people for those positions. As a result, though, it will be harder to retain such employees for long.

Since the leading utility of a well-designed compensation is to attract and retain employees in the organization, the compensation system and method must be as per the practices of its competitors. It means an external designer of a compensation system can perform an excellent job than an internal expert.

For ensuring consistency among many other employees and fairness in compensation of any employee, compensation growth is linked with a few indicators, including educational qualification, work experience, and performance results. Though the performance assessment process is tacit knowledge-intensive, the outcome of such a process is explicit knowledge or data.

Once a compensation formula is decided, an algorithm can be used for a software program administered repeatedly to calculate all the employees' compensation. The system administrator was calculating employee compensation that need not be working in the Company. Instead, it can be contracted to a third party with sufficient technical skills and modern IT infrastructure.

5. Reward and Incentive Management:

Rewards and incentives are used to motivate employees to go beyond their call of duty. A sound reward system attracts the right kind of employees and encourages them to work to maintain organizational capabilities. Moreover, a reward that is well linked with the achievement of objective outcomes is a powerful motivating force for employees to work hard and show the desired behavior.

However, such objective outcome is primarily available at the unit and group level for most managerial positions. There are positions for which an employee's contribution to organizational goals can be related to the incumbent skill, competency, and motivation. This means an organization can outsource reward management at group and unit levels but not at the individual level.

The benefit of such outsourced reward management is that a supplier can bring in expert knowledge from the market and provide a reward system used in the industry.

However, even if the reward at the group level is driven by explicit knowledge, there is still the implicit knowledge-driven reward when such group-level rewards are distributed among the team members. Moreover, trust among members and faith and confidence in the leaders ensure that such internal distribution of rewards based on the leader's personalized knowledge about individual employee competence and contribution will not encourage the development of destructive inter-member competition or jealousy.

Thus, the key to maintaining competitive advantage is trust and faith in the organization's internal culture and the team.

6. Specialized Consultancy Services:

Consultancy is a fast-growing service business in many countries, including India. There are several reasons that this business has been growing so fast. First, many big multi-functional and multi-product companies occasionally find a mismatch between the workforce required and the staffing available both in terms of number and quality in various departments. This happens as organizational processes have inertia and are often hostages to their past successes.

Many organizations can change their internal policies and departmental human resources allocations simultaneously as the external environment. However, distinct interests groups with their distinct powers and pulls shape any change in an organization's policies.

Faced with the growing challenges of operating cost and declining share of a company's products in the market, a management team often looks for an objective and neutral assessment of internal functional departments. Unfortunately, intense inter-departmental opposition often makes it more difficult for an internal expert to assess internal functions accurately.

There are specialized consultancy organizations that collect, process and sell such organizational process-oriented information. With the growing importance of process innovation and risk in such innovations, the market for consultancy services is sure to expand very rapidly.

7. Management of Employment Relations for Low-Level Jobs:

Along with outsourcing selective parts of human resource management services, another HR outsourcing is emerging as new development. Company A allows another Company B to manage its whole department. Company B will bring its employees to Company A's premises and supervise them while working there. The contract of Company A is only with the founder of Company B.

In any extensive manufacturing or service Company, many jobs are required for its business but are not directly related to its primary business. For example, let us take a shipbuilding company employing more than 5000 employees. To provide tea, coffee, and food, it needs an extensive canteen facility. This canteen has to contact more than 50-60 employees to cook and serve food and drinks to its various departments.

To grow the Company, these services are essential. Still, their relations with its primary business are not direct, and the effects of service failure from these departments on the company market performance are not immediate. Moreover, many of these services were managed through internal departments and controlled through the hierarchy in the past.

But the problem of having such an activity as a part of a shipbuilding activity is that a manager overseeing such activities may not gain any knowledge that can be utilized in other departments of a shipbuilder related to shipping. Therefore, a manager who has worked for, say, ten years, very efficiently overseeing a catering service in a shipbuilding company will not find a befitting position in the hierarchy. They will reach a career ceiling very rapidly.

The net effect is that no manager will be interested in working as a Canteen Manager if they find no further growth in that line. As a result, these types of service areas are fast going for contract employment.

Like a consultancy service that is not a permanent job, contract employment is suitable for those areas of business where the jobs are permanent. Still, the services are in non-core areas of the Company. A contractor generates the services in the client premise using all the facilities required for service generation. A contractor will provide only the employees.

Such externally served services are suitable arrangements both from the point of view of the client organization and from the point of view of the employee who an external vendor engages. The external contractor can engage many employees and managerial staff to provide similar services to many other companies and use a specialized managerial hierarchy to supervise workers.

From the client's perspective, it can redeploy employees on those services that give knowledge and competency in line with its core business. Most manufacturing companies have started engaging external vendors in their premises to get a lot of their low-end services: maintenance services, IT management, security services, catering services, through contract.

From this core versus non-core analysis that promotes companies to go for external servicing of some functional regions, contractual employment of workers is quite popular in specific industries. Seasonal industries, e.g., the woolen garments industry, cannot afford to have too many employees in its permanent role as its primary business depends widely over different times of the year.

Industries that run on a project mode, e.g., the building construction industry, will engage many workers on a contract basis because their demand varies according to the project cycle time. BPO industries go for contractual employment as many of them are heavily dependent on a few clients. If a big client does not renew its contract at the end of its present contract, it cannot engage the employees.

On the other hand, if a contractor engages them, they can be redeployed to another BPO firm. For example, in India, Team-Lease Service is a prominent contractor that provides many employees to BPO companies.

Highly export-oriented industries are susceptible to the frequent slump of demand for their goods and services caused by international business cycles. Therefore, the net worth of any such organization whose business is dependent on international markets could get wiped out in a short time if it has to cam- the entire burden of its employees that it hired during the boom time.

There are varieties of regulation-mandated payments for regular employees, e.g., benefits and welfare, which are fixed irrespective of whether a company has any business or not. To protect it from the burden of payment for employees without any job, these industries hire many employees under the contract category whose payment burdens could be avoided by not renewing their contracts of the current period.

HR outsourcing has the following benefits:

Risk reduction and transfer
Flexible solutions and costs
Access to broad skills and knowledge
Enable in-house HR to keep an eye on strategic matters
Remove non-operational distractions from the line
Access to industry better practices
Remove pressure to manage and motivate a diverse in-house HR team
Give Employees a more robust career path
Increase commitment and energy in non-core areas
Turn fixed cost into a variable cost
Lower costs to superior provider performance and provider's low-cost structure
Gain market access and business-minded opportunities through the provider's network
Commercially exploit the existing skills
Expand sales during periods when revenue growth could not be financed
Accelerate growth by tapping into the provider's developed capacity, processes, and systems
Produce cash by transferring assets to the providers
Reduce investment in assets and free up these resources for various other purposes
Improve operating performance
Improve management and control
Improve risk management
Acquire new ideas
Manage credibility and image by associating with superior providers
Obtain skills, technologies that would not otherwise be available
Enhance efficiency by focusing on what you do best to transform the organization
Increase product and services value and customer satisfaction
Increase flexibility to meet changing business conditions, demand for product and services, and technologies
Provide increased efficiency;
Help maximize organization resources;
Provide cost savings;
Help public-sector organizations be up with the modern technology and innovations; and
Provide the best service.
Allow HR practitioners to keep the focus on their core non-administrative functions;

There's not any doubt that HR outsourcing for public-sector organizations is on an upward trend — witness the state of Florida's recent $280 million, seven-year deal to outsource its human resources functions to a company that will take over such tasks like benefits and payroll administration and recruiting and training.

Before agencies dive into outsourcing, they need to be prepared with some prior knowledge. For example, they should have a good idea of which functions can be outsourced and that are core functions that need to stay in-house; they should investigate various outsource vendors to find the right match, and they should have clear and accurate life expectations about why they are outsourcing and what the cost savings.

The desire to outsource is brought on by trimming costs or upgrading to a new system. Sometimes the relevant resources are not available in-house. And sometimes, an agency wants to free up personnel and time to focus on its core, strategic activities. Providing better service is usually right up there at the top of the list of outsourcing objectives.

Although the Conference Board study focused on large corporations, public-sector organizations can also find helpful information in the findings. According to Dell, organizations looking to outsource should understand the implications of outsourcing and get good advice and counsel because many things can go wrong. For example, HR outsourcing can be the solution for smaller agencies and organizations that don't have many resources to invest in new technology. Instead, the outsource Company puts the dollars into technology research and development, says Dell.

The Conference Board studies general trends, finding that transactional HR functions are commonly outsourced. Companies are interested in outsourcing strategic functions, including employee communications, HR information systems (HRIS), assessment, and recruiting as they move towards comprehensive outsourcing.

HR Outsourcing – Internal Common Barriers and Some Other Barriers

As per "HR Outsourcing Trends" by the Conference Board, the following are the most common internal barriers to outsourcing:

Questionable cost/benefit justification;
Inadequate readiness of people and systems;
Organizational resistance from within HR; and
Inability to manage relationships with outsourcers.
When an organization outsources an activity, it also gives up a considerable amount of authority. Again, this is because it does not have complete control over the outsourced activity.
Outsourcing may be economical in the present context, but there is a risk involved as outsourcing costs may go high in the future.
Outsourcing, when associated with downsizing, may tarnish a company's image.
Outsourcing may not be the motivating force for the Company's existing employees as they fear losing their job.

The same study found various other common barriers with outsourcing include:

Lower-than-expected service levels;
Loss of control;
Huge employee turnover at the outsource provider;
Difficulties managing the provider;
Higher-than-expected costs;
Employee resistance; and
Cultural differences.

HR Outsourcing – Future Development: Outsourcing and Technology, Managing the Outsourcing Relationship Restructuring and Outsourcing and a Few Others

Organizations are focussing more and more on their core competencies. These changes have made the role of the HR manager vital for the organization. In addition, various future developments have to be dealt with before and after making the outsourcing decision.

Some of them are:

1. Outsourcing and Technology:

Technology is the main factor that has changed the HRM domain. Emerging technologies like HRIS, application software, and self-service human resource packages have changed the administration of HR services. As a result, organizations unable to keep up with technological changes decided to outsource their HR activities.

2. Managing the Outsourcing Relationship:

There is a high need for specialists who are good at managing the outsourcing relationship. The specialist should nurture the relationship over time, which requires considerable experience and foresight on both parties. In addition, the relationship should encourage a culture of knowledge sharing.

3. Monitoring and Evaluating Vendor Performance:

Beforehand the HR activity is outsourced, the performance standards for the activity have to be known to the vendor. Thus, there is a high need for frequent communication between the outsourcer and the vendor. To enhance performance, the organization can also resort to schemes that share the amount saved due to a reduction in compensation claims with the vendor.

4. Role of HR Manager:

HR managers need to have multiple skills. They must be adept at solving business problems along with managing human resources. In addition, they should play a vital role in the formulation and implementation of business strategy. Unfortunately, HR managers who are generalists and can fit into any role are in short supply. Due to the lack of availability of HR generalists, organizations may resort to HR outsourcing.

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