In an economy that is increasingly moving away from being a Manufacturing Based to a Knowledge Based workforce the necessity for a properly engaged and productive workforce is key to the success of any organization. As a Technical Sales Guy I look to the history of Human Resources or Human Capital in a very similar way that I do with my IT clients. In looking to that history, there are many shared experiences within the two departments but one seems to have found its groove and the other continues to struggle with being taken as an equal partner in many organizations. This might be why many of the functions of HR can be and are often outsourced to 3rd party firms…but is that the right decision long term???
Outsourcing functions seems to be a trend that really starts to pick up during a recession or economic down times but is it the right long term decision? I did some scouring around the internet and there are some very valid reasons to outsource part if not all of the functions to a Professional Services Organization but I really think about the longer term impact on the culture and sustainability of an SMB that does not put real value in the Management of People.
In an Article titled Why HR Outsourcing? from Creative Business Resources there is a compelling argument for offloading the minutia of HR Functions away from Senior Leadership and into the more capable and cost effective hands of a 3rd party. For very small businesses with 1-30 employees this makes very good sense but in the article it starts to move the bar away from Micro-Businesses and firmly into the SMB Space.
I have read many points of reference over the past several months that point to why HR fails to be considered a Strategic Partner with organizations but this article actually points to a reference from the Society for Human Resource Management with a quote “Reduce costs and free up time to devote to revenue-generating activities… gaining a competitive advantage.” – SHRM Foundation, Independent Study on HR Outsourcing.
At any point that the topic of Reducing Costs comes up it seems to peak the interest of many senior executives and puts a smile on their faces but what is the real cost of HR Outsourcing? With some interesting data from Watson Wyatt Worldwide indicates that the average operating expense for HR functions for each full-time HR employee is $284,982 there is a compelling reason to pass the expense off to a 3rd party but when you do this…there are some pitfalls:
- Privacy and Compliance issues when HR or any function is outsourced
- Vendor Selection is plentiful…with both start ups and long term successful organizations available
- Are there real savings available that offset the loss of control
- All or Nothing or Piece by Piece
The decision to send any job function outside of the work family is one that should not be considered lightly but for many organizations it is a stark reality that HR is not at the forefront of their long term strategy even if they belong to the Business Philosophy of “People are our Greatest Asset”.
I leave you with a parting shot from the Visionary Business Thinker Peter Drucker:
“The most important, and indeed the truly unique, contribution of management in the 20th Century was the fifty-fold increase in the productivity of the MANUAL WORKER in manufacturing. The most important contribution management needs to make in the 21st Century is similarly to increase the productivity of KNOWLEDGE WORK and the KNOWLEDGE WORKER.”
Drucker (1999, p135)
Can a company that off loads the management of its people achieve this level of Productivity Efficiency? Only time will tell but regardless of my personal feelings about HR or the implications of Outsourcing…I would much rather deal with a physical person than a mysterious 1-800 Number.
Chris J Powell