By Donna J. Bear, Human Resource Institute (HRI)
The destination is clear—HR needs to become an efficient and effective strategic partner—but of the various roads that lead there each has its own appeal and its own set of hazards. Here are three possibilities:
1. Outsourcing
This “super expressway” allows external experts to handle the repetitive tasks that tend to weigh down the HR function, freeing HR to focus on more strategic matters and thereby enhance its effectiveness. It’s a road that’s widely chosen. Just over two-thirds (67%) of employers outsource at least one HR activity, according to a 2004 study of over 900 HR professionals by The Bureau of National Affairs, Inc.
It’s also a road that, once entered, rarely sees U-turns. Gartner, Inc.’s managing vice president, Linda Cohen, said, “Once enterprises outsource, few of them take operations back in-house. Satisfactory outsourcing relationships encourage enterprises to analyze the longer-term benefits of outsourcing.” Nearly three-quarters (71%) of HR professionals strongly or somewhat agree that their role has become more strategic with the outsourcing of HR functions, according to respondents to a 2004 survey, the Human Resource Outsourcing Survey Report .
But the outsourcing approach presents a lot of “construction” along the way. Turning over the reins of any HR function is a complex endeavor. The key to a smooth road is the planning, preparation and execution required before it gets traveled. Although this approach may get you there quicker, in the long run companies may miss some of the nuances that make for a pleasant and memorable journey. Relationships with employees can suffer when an outside party becomes the “face” of the organization.
2. Shared Services
This approach has HR generalists decentralized and posted in each business unit and a centralized core of specialists available to provide services on demand. Consolidating HR service delivery through a shared services model offers several advantages, such as avoiding duplication, developing standard practices, leveraging technology and often significant savings. The consolidation of services offers economies of scale that can provide greater flexibility to internal customers and more choices over the products and services they receive.
This multifaceted “highway” system with its network of local stops also gets the job done, ensuring that HR services are delivered while reaching out to become more familiar with internal customers. But just like travel that requires frequent fuel and food stops, shared services may not always be the most efficient route.
One firm with a successful shared services initiative is Absa, South Africa’s leading bank. Absa launched a shared services strategy that provides HR support to strategic business units, raising hopes that it might also be able to compete as an offshoring hub. The installation of fiber optic cable between Europe and South Africa in February 2003 enabled South Africa to join India, China and others in the competition for a piece of the offshoring pie. The bank has already been chosen to handle the back-office processing for one U.S. insurance company and hopes to evolve its current model and extend Absa’s offerings to include HR services to other South African customers or to firms in other countries.
3. Internal HR
This approach delivers strategic value by virtue of knowing the internal customer inside and out, a relationship that can be developed and maintained only through constant face-to-face access. This “back-roads” approach is one that must be traversed at a more leisurely pace, but it results in some of the richest knowledge of human capital and perhaps an insight into employees that data alone cannot provide. In fact, the desire to maintain face-to-face contact with employees is one of the most popular reasons organizations decide not to pursue outsourcing. According to the Human Resource Outsourcing Survey Report from the Society for Human Resource Professionals, 61% of the nearly 300 HR professionals who participated in the 2004 study indicated that as their primary rationale.
Concluding Thoughts
Whatever road is taken, creating a top-notch HR function means becoming more strategic. Research from The Hackett Group suggests that companies with world-class HR functions are more likely than other organizations to link business strategy to workforce strategy and to clearly state that workforce strategy. The business advisory group also found that less is more. Its study shows that world-class HR organizations spent 27% less per employee annually, had 35% fewer HR staff per 1,000 employees, and experienced 61% fewer voluntary terminations and 43% fewer involuntary terminations.
There is no one best road to take. Staffing.org says, for example, that in the past four years some of the best-performing firms were nearly evenly split between those with centralized versus decentralized HR. So the options are open. Companies may choose to follow different roads for different purposes, outsourcing some HR duties while assigning others to in-house experts. But it is clear that HR needs to set the direction toward a more strategic role.
HRI is a not-for-profit, academic-based research institute whose mission is to research, develop and disseminate information and insights on the trends and strategic issues impacting the management of people in organizations today and in the future. For more information, contact Jay J. Jamrog at 727-345-2226 or jamrog@HRInstitute.info.
Documents used in the preparation of this TrendWatcher include:
- Bureau of National Affairs, Inc. HR Department Benchmarks and Analysis 2004 . BNA, July 2004.
- Burkholder, Nick. “Centralized or Decentralized, Outsource or Not.” Internet [http://www.staffing.org]. August 4, 2004.
- Chartered Institute of Personnel and Development. “Into Africa.” People Management, Internet [http://www.peoplemanagement.co.uk]. January 15, 2004.
- Esen, Evren. Human Resource Outsourcing Survey Report .
- Alexandria, VA: Society for Human Resource Management, July 2004.
- Gartner, Inc. “Gartner Predictions for Outsourcing 2004.” Tekrati, Internet [http://www.tekrati.com]. February 19, 2004.
- Gelman, Lisa and David Dell. HR Outsourcing Trends. New York: The Conference Board, 2002.
- Quinn, Barbara. “Consolidating the Business of HR.” Canadian HR Reporter . ProQuest. February 25, 2002, p. 17.
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