Why Companies outsource HR?

While reading about HR and its changing landscape in future, I stumbled upon an interesting article that defines trends that would dominate HR by 2020 and the number one trend according to the research was- “Emergence of HR Outsourcing on a big scale

As per the article of The New Talent Times, by 2020, in-house HR teams will grow leaner. It predicts that many transaction-heavy HR jobs will be entirely outsourced to HR agencies or specialists. Dr. Janice Presser, CEO of The Gabriel Institute, goes so far as to say, “Entry-level HR jobs, as they currently exist, will all but disappear as transactional tasks are consigned to outsourced services.”

This helped me in realizing that HR outsourcing will cause a landscape shift in the world of HR which is at the crossroads of technology disruption today. Many researches also predict that the pace with which HR is going in confluence with technology is not the same in which the technical skill gap of HR professionals is getting filled and hence, the technical aspect of HR calls out for outsourcing more than ever.

Rapidly changing market dynamics and global competitive pressures have caused organizations to spend more time focusing on their core business. Organizations are fast realizing that they can't be all things to all people. So companies now, be it a software company, a service provider or a manufacturing firm, decide what they are good at and outsource everything else, i.e., focus on their core competency, and let someone else do the rest in a more efficient and cost-effective manner.

As a result, human resources outsourcing is becoming increasingly prevalent. The number of companies outsourcing HR activities continues to rise, and the scope of outsourced HR activities continues to expand. HR outsourcing can happen in HR functions, like payroll administration (producing checks, handling taxes, dealing with sick-time and vacations), employee benefits (Health, Medical, Life insurance, Cafeteria, etc), human resource management (hiring and firing, background interviews, exit interviews and wage reviews), risk management, etc. Outsourcing has become a common response to manage people and technology resources strategically, enhance services, and manage costs more effectively

Looking at the current scenario, future trends and multiple researches, HR outsourcing will help organizations grow in the following ways:

·      Saves Money – This remains one of the top reasons as to why organizations opt for HR outsourcing. Especially for the start-up space in our country where in budgets are tight and need for hiring and managing the best talent is high, HR outsourcing is the definite solution. For smaller organizations, getting your hiring needs outsourced from agencies is much cheaper than hiring people in in-house HR department and also, it offers better results. The task which is mostly outsourced is the recruitment and that explains the emergence of so many recruitment agencies to cater to the hiring needs of these small organizations.

·      People Analytics – This is the new buzzword in the HR industry and experts conclude that this is going to be a game changer for the industry. Big data has transformed all functions of business and it is instrumental for HR too. The need for today’s business is to base decisions on data and numbers. To adopt this in HR, organizations need specialists in people analytics which is a rare skill in market today. Outsourcing can provide a solution for this through People analytics specialists.

·      Training – Training needs of the organizations are seasonal but often critical. And more often than ever, Learning and development experts are not hired in in-house HR teams. L&D Professionals and trainers are often outsourced and thus, L&D agencies form the next big major in outsourcing space after recruitment agencies.

·      Software needs – Various Human Capital Management software solutions are available today to reduce administrative and book-keeping tasks for HR. Big MNCs usually buy these and train their HR departments however SMEs cannot go for this. These needs are often fulfilled by outsourcing wherein Payroll experts, Benefit administration experts manage the administrative needs of the organizations through software solutions and domain expertise

·      Reliving in-house HR teams from administration – Outsourcing transaction heavy jobs is not only done for money reasons but also because these administrative tasks can often overwhelm in-house HR teams and eat all the time that can take away focus from value-adding HR functions. Hence, to reduce administrative burdens from the teams, tasks like payroll administration are often outsourced. And thus, outsourcing can help organizations by letting them focus on tasks that do value-addition.

·      Risk Management – Compliance, Employee’s legal issues, Employee manuals are certain other tasks where you need a lot of expertise and if you do not know how to hire that expertise, always go for outsourcing.

·      Health and Benefits- Setting up employee benefits is difficult and time consuming. In fact, in major companies a human resource specialist could be assigned to nothing but benefits administration. Human resource consulting groups can simplify most health and benefits administration, primarily during the initial set up period.

·      Change Management- Organizations often implement strategical and structural changes that can create a lot of disruption if change implementation is not taken care of from the base level. Example is the recent trend of M&A wherein an organization’s entire culture can change due to its acquisition and that may leave employees overwhelmed or untrusting. Such situations require special HR Consulting and change management techniques which is often outsourced by organizations

In the nutshell, HR outsourcing saves your time, money and gets you better and faster results. And going by trends, this business is here to stay and grow given the growth of SMEs in India. It does not mean that in-house HR teams will become any less important in future but its structure would be required to change from more generalists to more specialists. Another skill that in-house team will need to adopt in is being tech-savvy. Future HR solutions of the organizations will be coined by the synergy of both in-house understanding and outsourced skills.