Outsourced HR

Staffing Institute

One of the greatest challenges facing organizations is workforce design: who does what work when?  Employees can be hired to complete any work and provide any service.  And any work can also be outsourced.  Any work that is not completed by an employee is outsourced.  Organizations have been approaching this dilemma for almost twenty years by asking “What should we outsource?”  There greater challenge is how to select and manage the outsourcing provider whether it is a communications firm, a HRIS provider, or a comprehensive outsourcing provider.

The implications of bad hires are significant but better selection processes and instruments are available and organizations can consistently make good hiring decisions.  Still, the burdens and issues of employment have increased the amount of work outsourced.  And as sometimes happens with compelling trends, clear decision-making is obfuscated resulting in either an operation lacking accurate performance documentation or an abject failure with significant and lasting implications.

By inclination, choice, and design, human resources has been further and further removed from these workforce allocation decisions.  HR has not even offered much of value in non-HR workforce design and structure planning.  Contractor, consultant, and outsourcing decisions are made with virtually no HR input whatsoever. 

CareerXRoads’ Gerry Crispin notes that whenever the economy shrinks HR outsourcing is not driven by HR, but rather finance or general management.  This devaluation of organization HR is a challenge for those HR executives whose jobs have not been outsourced.  These challenges offer HR leaders the greatest opportunity to meaningfully contribute towards their organization’s total human capital efforts. 

We are a steadfast supporter of the human resources function, because we have documented the value HR can bring to an organization.  However workforce design is so fundamental to organization success that who drives it is not as important as the decision making process itself.

HR outsourcing decisions should be approached holistically.  Employees, consultants and contractors, and the outsourcing of any human capital-intensive operation are all categories of human capital and each is a potential resource for any given work.

Considering the progress in astronomy, biology, chemistry, and physics, it still amazes me that we are just starting to understand the human capital.  Our research has determined that human capital has four dimensions:

  • Human Capital Factors
  • Categories of Human Capital
  • Human Capital Cycle
  • Performance

The first dimension, human capital factors must drive any resource allocation, outsourced or otherwise.  And the first and most important of the factors are the organization mission and objectives.  As simplistic as it sounds every organization decision should be driven by these two factors.  As we never tire of extolling, a leader’s most important responsibility is to establish the right objectives.  Any human capital allocation decisions must support these objectives.  And once the right objectives have been determined, all decisions that follow are invariably easier, and better.

The Human Capital Cycle is analogous to a life cycle for any category of human capital.  Candidates are attracted, recruited, and some ultimately become employees.  As employees they may be developed and retained – or leave the organization.  Similar cycles apply for consultants and contractors and outsourcing providers, and as with employees, should include selection and evaluation throughout each stage of the cycle.

Performance is last and ultimate dimension of human capital.  What is the result – the productivity and efficiency contributed by human capital?

Next, the organization must understand current performance metrics, if any, associated with the work being evaluated.  A long performance history is not necessary, most work changes too much to make anything more than a snapshot of current performance worthwhile.  At this point, potential performance parameters of each potential human capital category must be considered.  You should be prepared to calculate any employee performance metrics but consultant and contractor and outsourcing providers should present their own.  After the potential external providers have presented their claims ask them to document them.

We have spoken with an RPO firm that promised “average cost-per-hire savings of at least $500” but did not substantiate the data. We have seen thousands of performance claims from external providers including leading advertising agencies, software companies, and outsourcing providers.  While almost all of these claims have been without basis, we have learned not to exclude the providers of false performance.  Our culture is measurement adverse and few organizations have demanded anything beyond the hype.  But translating and comparing hype is fruitless and unnecessary.  Demand the documentation and compare apples to apples.  It’ll make your decision-making easier and ultimately drive performance improvement for all providers.

After the category of human capital has been selected you should structure and contract for continuous improvement.  This cannot be accomplished without ongoing measurement and reporting.  And this information will allow you monitor and continually evaluate performance.

There are five steps to effective outsourcing:

  1. Prepare to measure
  2. Check objectives
  3. Evaluate all options
  4. Structure and contract for continuous improvement
  5. Evaluate

Follow these and you can be assured that you’re making good business decisions.