HR outsourcing and ‘employee satisfaction’

Many organisations realise that shared service centres cannot replace their
HR presence on the floor and the scope of HR outsourcing is, thus, evolving
rapidly. Firms need someone to constantly communicate with their
employees even as they navigate through the various HR systems. More
Indian organisations may actually emerge with an HR outsourcing model
which is a lot more humane and a lot less cost-driven.

Ganesh Chella

There is much delight among global HR Outsourcing (HRO) firms given that
the global HRO business is expected to reach a staggering $100 billion by the
end of this year and the growth trend continues to look robust.

While I am hearing a lot about costs being saved, very little is being spoken
about what employees have to say about their satisfaction. I really wish we
could get to hear more about this.

Fortunately, we do not have to try too hard to understand this. Given that
most HR outsourcing arrangements are based on a “service delivery” model
either through a centralised shared services model or a partial outsourcing
model (Global Services, quoting Benchmarkreports.com) it is possible to
predict this from some of the research and insights relating to the service
delivery models for external customers.

HRO is an integral part of the BPO industry and its scope is rapidly evolving
to include areas such as payroll, benefits administration, training, recruiting,
performance management, compensation management and so on.
Employees typically get support through the Web, mail, phone and a limited
amount of face-to-face interactions.

Complete HR outsourcing is difficult and, when, attempted is likely to

impact the employee’s every day experience of working in the
organisation and, therefore, lead to poor satisfaction.

The reasons

HR outsourcing tends to under-deliver on the “people interaction”

dimension of the employee value proposition.

In his book, We are all in Services now, Professor James Teboul defines value
proposition as the benefits offered by the company as they are perceived by
its customers in relation to competitive offerings. He has defined five key el
ements constituting the value proposition.

Three of these five elements are extremely relevant when applied to an

employee context:
the process interaction which defines how easy or difficult it is for the
employee to interact with the organisation to get things done;

the people interaction or the extent of empathy, attentiveness,

consideration, responsiveness employees get in their interaction and the
extent to which the accumulated knowledge about the employee is reflected
in the quality of the in teractions and the extent to which his interactions are
enlightening and fulfilling;

credibility of results and reliability or the assurance that things will work as
promised and that someone will intervene to fix it if it does not.

HR outsourcing firms depend on their ability to convert every HR need into a

well-defined process and the resultant set of rules and steps to make it
scaleable and standardised.

What is of concern is the over-dependence on the process interaction

dimension at the cost of neglecting the people interaction dimension.

To me the difference between a credit-card customer and an employee is the

fact that employees expect to be treated as integral members of the
organisation with unique needs, aspirations and problems and count on the
organisation and the HR professionals to use their accumulated knowledge
about them to solve their problems well and with consideration and
flexibility.

For the organisation, each interaction is meant to be an opportunity to sell

the organisation’s value proposition, clarify its policies and practices, deliver
key messages and develop an accumulated body of insight about what is on
the employees’ mind. Most important, the interactions are great
opportunities to reinforce the organisation’s commitment to the employee’s
needs and expectations.

By defining these interactions as mere transactions, processes and service

level agreements (SLAs) that can be outsourced, organisations are likely to
lose out on delivering the empathy, attentiveness, respect, willingness to
help, and a certain amount of grace and unity in the relationship that
employees want. In fact, the problem becomes acute when things go wrong.
The service recovery process is quite often messy and complicated.

HR operations cannot be separated from HR strategy

One of the key arguments in favour of HR outsourcing is that by outsourcing

the operational aspects, HR professionals will be freed up to engage in more
strategic issues. This is far from true. Many of the employees’ problems do
not present themselves in neat and discrete ‘operational’ packets. The
solutions to many issues are quite complex and often require the
involvement of one or more managers, assessment of the potential impact of
decisions on peers, judgment about making exceptions based on special
considerations and so on. Quite often, insights to shape new policy emerge
from a deep understanding of operational issues and implementation
realities. Business leaders refuse to engage with HR on strategic issues
unless some of their burning operational issues are addressed. The
separation of HR operations from HR strategy is, therefore, untenable.

HR outsourcing cannot replace HR presence

Many Indian organisations realise that shared service centres cannot replace
their HR presence on the floor. If the current trends are any indication, there
has been a huge surge in the demand for HR professionals. The HR-to-
employee ratio is not falling and is, in fact, being debated constantly.
Organisations are realising that they need someone to constantly engage
with their employees to communicate the value proposition, clarify their
understanding of the same, support them even as they navigate through the
various HR systems and processes, solve their problems and demonstrate to
them that they matter.

In fact, the organisations with high engagement scores are the ones with
“empathetic presence” and not “excellent processes”.

This trend is welcome and I believe that more and more Indian organisations
may actually emerge with an HR outsourcing model which is a lot more
humane and a lot less cost-driven. As the preferred destination to address
the world’s outsourcing needs, may be India will show the way!

(The author is the founder and CEO of totus consulting, a strategic HR

Consulting firm. He is also the co-founder of the Executive and Business
Coaching Foundation India Ltd. He can be reached at
ganesh@totusconsulting.com)

HR Outsourcing
A business that utilizes HR outsourcing assigns the management of all functions
relative to the human resources needs of the business to a third party provider who
specializes in the management of human resources. HR Outsourcing is typically viewed
as a cost effective method of managing all or a portion of the human resources related
operations of a particular business.

1. HR Outsourcing Overview
2. Considering HR Outsourcing
3. Should You Consider HR Outsourcing?
4. Functions You Should Consider For HR Outsourcing
5. Finding an HR Outsourcing Firm Right For You
6. Interviewing Your HR Outsourcing Firm
7. Increase Efficiency
8. Drawbacks
9. Increasing Employee Satisfaction

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1. HR Outsourcing Overview
The term and concept of `outsourcing' became popular during the increased economic
and corporate growth of the 1980's. Outsourcing presents the opportunity for an
existing business to delegate specific tasks associated with a particular business
function or departmental functions within their organization to an external entity that
specializes in the management of those particular functions. For example, if a
business was to consider the outsourcing of the functions and responsibilities relative
to the human resources needs and requirements of that business, they would seek to
hire an individual or outsourcing firm that specializes in the operations of the many
functions of a human resources department. These include employee benefits
administration and maintenance, payroll, recruitment and termination related
processes and procedures, and employee training and development programs. The HR
outsourcing firm or individual would then be assigned the management of the
particular human resources needs of the company and paid a fee for their services.
Those who provide outsourcing services are subcontracted, not employees of the
company to which they provide their services.

A large number of smaller businesses that experience rapid growth will consider HR
outsourcing as a viable alternative to hiring internal staff to accomplish the tasks
associated with the human resources needs of the business. HR outsourcing can often
help to fulfill the strategic goals of the business to reduce costs and allow for the
current staff's skill sets, experience and energy to be strategically directed towards
the aspects and functions of the business at which they are most effective. This makes
the staff able to pursue those tasks that will be most profitable for the business as a
whole.

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2. Considering HR Outsourcing
Different businesses have different human resources needs depending upon the size
and scope of the business and how comfortable the executives are relinquishing some
of the functions of the business to a third party. There is a large assortment of HR
outsourcing firms that will meet the needs of a variety of businesses. While some HR
outsourcing firms provide a wide variety of human resources related services, others
may specialize on just a portion of HR functions, such as recruiting or payroll
administration. It is possible and quite common for a business to outsource all or just a
portion of the hr functions of the company to a human resources outsourcing firm.

Those businesses that outsource HR tend to be small to mid sized firms with a number
of employees ranging from 10 to 1500. For these businesses, HR outsourcing is utilized
as a strategic approach to relieve their internal staff of hr related responsibilities and
focus on the core operations of the business. In outsourcing, the functions of the HR
department, the firm can access the experience and knowledge of hr professionals to
improve employee relations, ensure regulatory compliance, and help to manage and
reduce operating costs.

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3. Should You Consider HR Outsourcing?

A small or mid sized business in the midst of rapid expansion is rarely prepared to
handle their increasing HR needs. Although human resources related tasks and
functions will increase as the business grows, the HR requirements associated with the
business might not quite seem to warrant the hiring or the salary of an internal staff
member to manage their human resources functions. HR Outsourcing presents the
alternative of effectively managing human resources related functions in a cost
effective manner. This enables the business to access professional advice and
assistance with a concentrated focus on dedication to HR accuracy and can also help
to improve employee relations.

An HR Outsourcing firm can save small to mid size companies money by allowing the
business owners the time to concentrate on the daily operations and strategic goals of
the core business as opposed to using that time to manage human resources functions.
Professional HR Outsourcing firms are often intimately familiar with the most cost
effective employee benefit programs, such as less-expensive health insurance and
401k programs, and will be able to present a variety of plans to accommodate the
needs of your employees that adhere to the company's budgetary guidelines. HR
Outsourcing also connects the business to an expert in the area of conflict
management and payroll.

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4. Functions You Should Consider For HR Outsourcing

If you and your staff do not seem to have the time or the proper resources to manage
human resources related tasks, you may want to consider outsourcing some or all of
the HR related functions of your business. There are many HR functions that can be
professionally administered and managed on behalf of your company by a professional
HR Outsourcing firm including payroll administration, employee benefits and risk
management. However, you must feel comfortable with an outsider managing your
human resources functions. If you do not have adequate resources to manage your HR
needs and are comfortable with both the cost of an HR Outsourcing firm and their
managing your HR functions, you may want to consider an HR Outsourcing firm to
fulfill the HR needs of your company.

If you hire an HR Outsourcing firm to handle payroll administration, you can expect
them to accurately produce checks, deal with holiday, track sick and vacation pay,
and handle taxes. Hiring a HR Outsourcing firm can also provide access to the
experience of these professionals in the area of employee benefits, HR management
including hiring and firing and risk management functions including worker's
compensation and employee safety policies and procedures. Often, HR outsourcing is
simply more economical than learning about all of these items on your own.

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5. Finding an HR Outsourcing Firm Right For You

Once you have decided that you need an HR Outsourcing firm to administer and
manage the human resources functions of your company, you will need to determine
which human resources functions you would like to outsource or if you want the HR
Outsourcing firm to manage all activities and responsibilities associated with your
human resources department. An HR Outsourcing firm can be hired to assume full
responsibility of your company's human resources administration and can also assume
full legal responsibility of your entire staff in regards to hiring, firing and wages. Other
HR Outsourcing firms may offer only specialized professional HR services such as
payroll administration or recruiting.

One service that can be obtained from an HR Outsourcing firm either individually or all
inclusively as part of the overall management of a human resources department
includes payroll administration. An HR Outsourcing firm can produce checks, deal with
sick time and vacation time, and handle taxes. If payroll is one of the functions
managed by an HR Outsourcing firm, the firm will be responsible for keeping up to
date with the requirements of federal tax laws, which makes the HR Outsourcing firm
or human resources department of any business a critical component to the regulatory
compliance and overall success of the business.

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6. Interviewing Your HR Outsourcing Firm

There are many things to consider as you begin the process of finding an HR
Outsourcing firm to accommodate the human resources needs of your company.
Although you will inherently be considering the cost factor heavily, you should also be
considering a cultural fit and one that fits your corporate image. The HR Outsourcing
firm you ultimately choose to work with should clearly understand the priorities and
values of your company.

You should also be questioning any hr outsourcing firm you might be considering hiring
about their range of services and how those services are delivered. Some HR
Outsourcing firms are exclusively web based, while others are a combination of
internet and personal services. You will want to evaluate the flexibility of all contracts
as well as the HR Outsourcing firm's available resources. A great deal of information
regarding the HR Outsourcing firms expertise and general experience can be obtained
from the firm itself and by requesting professional references from the HR Outsourcing
firm. Contacting a professional reference that can discuss with you, on a business to
business level, the reputation and capabilities of the HR Outsourcing firm as they were
applied to their business can provide valuable information to be considered in your
own HR Outsourcing firm decision.

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7. Increase Efficiency
A company that handles all aspects of the entire business internally have much higher
payroll, research, development, distribution, and marketing expenses, all of which are
passed along to their customers. Your company can gain the expertise of an HR
Outsourcing firm's cost structure and economy of scale and give your company an
important competitive advantage. Having the expertise of an HR Outsourcing firm can
also help reduce your company's labor costs by utilizing the human resources related
services of the HR outsourcing firm to focus on the recruitment and hiring process for
long or short term employment. An HR Outsourcing firm should also be able to
understand any project or short term employment needs of the company on a level
that will enable them to evaluate current internal staff as candidates for projects as
they arise.

A good HR Outsourcing firm will have the right resources to be made aware of your
staffing needs and respond quickly. The time it to takes to hire, train and provide the
initial support requirements of a new staff member is typically much less when
performed by an HR Outsourcing firm as opposed to in house management of this
particular human resources function. So the answer is yes, HR Outsourcing can
increase efficiency.

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8. Drawbacks
Although there are many benefits to HR Outsourcing, there can be a down side to HR
Outsourcing as well. Some of the tasks that an HR manager on staff and in house may
be better at accomplishing than an HR outsourcing firm can include recognizing
employees birthdays, building employee incentive programs, and managing disputes
between co-workers. These are the types of functions that are more easily achieved
when there is daily interaction between an HR manager and the rest of the staff.

If you choose to have an HR Outsourcing firm take on the full legal responsibilities
associated with hiring and firing, you will have to be completely ready to relinquish
control of this aspect of the business in exchange for not having to shoulder the stress
or take the time to deal with the various functions associated with hiring and firing.
Although it might initially sound very appealing to let go of all those staffing concerns,
this is something worth heavy consideration before you let go. For those HR
Outsourcing firms that are solely or partially a web based services provider, there are
risks associated with internet security and functionality in general such as consistent
connectivity, reliability of the site and the security of sensitive human resources
related data.

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9. Increasing Employee Satisfaction

There are several ways that HR Outsourcing can increase employee satisfaction as well
as provide a cost effective service to your company. A good HR Outsourcing firm will
have the knowledge and expertise to present alternative and additional employee
benefits that go a long way towards keeping employees happy and satisfied and cost
your company little to offer. Some of the additional benefits that can be administered
by an HR Outsourcing firm include negotiating with national and local businesses to
provide an employee discount program for your employees and lunch time learning
seminars. Many vendors and speakers are happy to come out at no cost to speak to
employees and will often provide lunch for a specific number of employees in
attendance. In addition to proper administration and management of HR to help to
ensure employee satisfaction, an HR Outsourcing firm can be hired to be responsible
for making sure they keep up to date with the requirements of federal tax laws, which
is critical to both the business and the employee, yet can be complicated to manage
for those who are not experts in the field.