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Five recommendations for HR outsourcing

  • Operation viability, costs, risks, change management, and of course the selection of the most suitable provider are pillars for successful human resources outsourcing.

Madrid, 19th May  2011 – To resolve the many doubts and uncertainties that arise while outsourcing a management process, Meta4, a world-class leader in managing and developing human and intellectual capital management (HICM) discusses some key factors that companies should consider when outsourcing HR business.
Basic issues such as operation viability, costs and risks, the selection of the best-fit provider or change management are issues that must be analyzed for success with proper outsourcing.

1 .- Operation viability: The most frequent reasons for addressing HR outsourcing are cost savings and optimization of tasks. Generally, the main processes outsourced are those considered "administrative" and which not add value to the business of the company. One of the first analyses a company must perform is to detail all points and activities of the process to outsource, identifying the key issues. For instance, in payroll outsourcing it is vital to define the payroll cycles and dates, security in data and validations.

2 .- Costs: The tenet to always uphold is that short and long term costs, investments and risks always deliver a positive balance in favour of the outsourcing process. The first figure often used as a reference is the provider’s bid price but companies should be aware that this external cost is not the total value of outsourcing. The company must be aware that internal costs are also incurred, which must be assessed and added to the provider’s bid price. Usually incorrect assessment of internal costs is what often causes the failure of outsourcing.

3 .- Risks: There are two types of risk should be assessed. The first one is what the organization faces if the provider stops rendering the service. Some of the measures for controlling this risk are choosing providers of repute and who have a solid customer base, the transfer back or migration plans the provider can offer, and above all, the ability to retrieve information at once, something that allows the transition to another operator in a reasonable timeframe.

The second set of risks is the possible errors made by the service provider and the subsequent impact these may have for the company. Contrary to what may seem, for this type of risk, outsourcing offers more guarantees that in-house operation. For example, in HR outsourcing, if a payroll operator makes a mistake, there is a contract with service levels to regulate the existing relationship and respond to the impact generated.

4 .- Offers and providers: The market presents a multitude of offers with different scopes, services and implications for internal costs so it is often difficult to dissect them for generating an even comparison. The main task performed by the person in charge is the request for proposals, setting up a procedure for comparing and evaluating them and selecting a provider that meets the required criteria.

5 .- Change management: HR departments tend not to be geographically dispersed and their structure is usually simple, this is why change management associated with outsourcing does not normally involve special problems. Usually this kind of transformation results from the need for some other change that has emerged in the company, like the need to migrate to another information system, recruitment of professionals, management changes, etc..

Knowing the main reasons for change will play an important role in ensuring a smooth transition, as this controlled perspective always provides solid reasoning for overall understanding.