Letting Go: Outsourcing HR
There’s no denying the trend toward HR outsourcing. In fact, most of the U.S. companies currently experiencing rapid growth – 83% – are outsourcing at least some or even all of their HR functions, and they say they plan to continue to do so for at least the next two years (“Almost All,” 2005). But organizations must outsource in a thoughtful way. Before spending countless hours reviewing vendors’ offerings, they should consider the following points.
First, know your reasons
Whether and what to outsource will be influenced by the reasons for outsourcing. Companies often share similar motives. Below are some of the top reasons mentioned in recent surveys conducted by Hewitt Associates (Stopper, 2005), Towers Perrin (2005), Mellon Financial Corporation (2005) and PricewaterhouseCoopers (“Almost All,” 2005):
• achieving cost savings and freeing up capital for use elsewhere
• allowing HR professionals to focus on the core business of the company
• improving business processes
• improving services to employees
• providing access to leading-edge technologies
• shedding the burden of navigating through the complexities of regulatory compliance
• focusing on strategic HR
• improving quality of service.
Beware the fallout
With all of these good motives, executives sometimes overlook the impact outsourcing can have on employees. Even if the decision to outsource doesn’t result in any employees losing their jobs, change can breed fear and doubt among both HR workers and those who rely on them. Failure to address the people issue can lead to lower morale, lower productivity and a poor outsourcing relationship. Mark Goulston, SVP of emotional intelligence for business consultant Sherwood Partners, emphasizes that communication is critical during an outsourcing event. “Rumors are really destructive…. Uncertainty breeds fear, fear breeds panic, and panic breeds paralysis. Employees who don’t panic start polishing their resumes,” says Goulston (Overby, 2004.
And, certainly, a tense work environment and unwanted turnover can interfere with the perception of the positive outcomes of HR outsourcing. Therefore, time and effort should be invested in preparing both the HR staff – and employees companywide – for the changes they will experience.
Reduce the pain
The time for communicating the outsourcing decision is sooner rather than later. Terry McKenzie, director of employee communications at Sun Microsystems Inc. in San Francisco, advises telling the HR staff even before a provider is chosen. And no one should be so na