http://www.hrmasia.com/resources/outsourcing/hr-outsourcing-talking-point/179976/

HR Outsourcing - Talking point

Shalini Shukla03 Oct 2013

Outsourcing of HR functions is a reality for many companies, large and small, today. The benefits affect owners, C-suite executives, HR managers and employees, and can include cost savings, and access to highly skilled professionals and advanced technology, which can collectively result in a sustainable competitive advantage.

The broad adoption of HR outsourcing across Asia-Pacific has also emerged as a key finding of regional research conducted by Talent2, a leading HR and business process outsourcing provider. The Talent2 Asia-Pacific Market Pulse Study found that across Australia, Hong Kong, China and Singapore, the majority of HR executives (80-90%) are now considering HR outsourcing as a solution to key challenges cited, including search and recruitment (64%) and employee retention (50%).

Commenting on these findings, John Rawlinson, CEO of the Talent2 Group, said: This research reinforces that ongoing skills shortages are hampering organisations across Asia from finding the people they need to drive top line business growth. Whats interesting here is that HR executives are focusing on different ways to address these challenges namely through outsourcing, and investment in learning and development.

The fact that the overwhelming majority of HR executives are outsourcing HR functions (or are considering doing so) represents a massive shift in the industry even compared to five years ago. Nelson Halls June HR Outsourcing Index backs this up with the industry reporting a 10% increase in confidence in the HRO sector over the last quarter. It clearly shows that outsourcing is now being considered as a strategic solution, rather than a cost-cutting tactic in response to the global financial crisis, Rawlinson continued.

Across the region, all markets are seeing strong utilisation of outsourcing as a solution to many HR challenges, with 95% in China, Australia and Singapore seeing clear benefits of outsourcing. In Hong Kong, 91% are seeing clear benefits of outsourcing, while regionally 16% of HR managers are turning to outsourcing as a means of addressing skill shortage problems.

Indeed, interest in HR outsourcing has increased significantly in Asia in recent years. Recently, our outsourcing department has been getting more enquiries on outsourcing services from many companies, says Charles Liaw, Director, Times Software. It could be that companies find it tough to recruit new staff and retain existing staff.

What to outsource?According to the Talent2 Asia-Pacific Market Pulse Study, 71% of HR executives across Asia outsource all or part of their search and recruitment function. This (40%) is the function most likely to be considered for outsourcing, followed by employee learning and development (17%) and payroll (12%). More than 40% of executives in Singapore are already outsourcing their payroll function.

Sujay Bhat, Regional Director Business Development (SEA & India), Aon Hewitt, says that HR operations can essentially be split into tactical and critical ones, with tactical transactions being commonly outsourced. What is outsourced and what aspects are retained depends on the governance and control mechanisms in place.

For example, performance evaluation conversations cannot be outsourced, says Bhat. To be effective, the process needs a dialogue between the manager and the employee. However, workflows for conducting the performance review process and data gathering, can be performed via a cloud-based outsourced tool. With recruitment outsourcing (RPO) on the other hand, HR can allow their outsourcing partners to sieve through resumes and enable the HR function to focus on a select few resumes, from which the final candidate can be chosen.

While different HR functions and transactions within functions can be outsourced, some are end-to-end outsourcing while others are part outsourcing. This is because companies can leverage on the HR expertise/technology they already have and partner with outsourcing service providers to fill gaps, says Bhat.

HR Outsourcing is evolving, he adds. While flexibility and value are key drivers, cost optimisation is still significant; for instance, companies can decide whether to engage in onshore, offshore or near shore outsourcing models. Ultimately, the HR fraternity wants options.

Why outsource?With outsourcing, companies are able to improve their HR functions, as service providers typically specialise in relevant fields (see Table 1).

Amongst the many benefits of HR outsourcing, some include improved efficiency and effectiveness, access to world-class capabilities that may not be available internally, and reducing business operating costs, says Liaw.

According to the Talent2 Asia-Pacific Market Pulse Study, a key benefit of outsourcing is that it enables businesses to free up resources and play to their strengths, by focusing on their core competencies (53%).

Outsourcing also offers stability to many businesses, with 42% finding it to be a benefit in relation to coping with peaks and troughs in business activity.

However, there are some drawbacks also associated with outsourcing, the main risk being that external providers often lack detailed knowledge about the business (65%). Cost (48%) and a lack of consistency from outsourcing companies (47%) are also considered drawbacks by some HR executives.

Interestingly, the survey found that in China, security and confidentiality issues were cited as an obstacle for considering outsourcing (44%).

In Singapore, I think it has become a trend for companies to outsource their non-core activities and HR functions because it is hard to allocate a suitable candidate to do the job (in view of the Manpower Ministry cutting quotas to hire foreign talent and difficulty to recruit locals and permanent residents), says Liaw. Management would prefer to allocate current manpower to improve company focus to bring in more business and revenues.

Outsourcing is here to stay and grow, he concludes.

Which shore works best?

Depending on the proximity to your business location, you can outsource work to an offshore, near-shore or onshore locale.

Offshore refers to a foreign location that is far away in distance and, more importantly, far apart in time from your primary place of business.

Near-shore also refers to a foreign locale, but one that is much closer to you.

Onshore is a locale in the same country as yours.

Of the two considerations, distance and time, the latter is the most critical. All other factors being equal, it is much more effective to work with a near-shore partner that is in the same time zone as yours than it is to do it with an offshore vendor that is three or four time zones away.

Source: Nearsoft

Table 1Benefits of HR Outsourcing

Reducing business operating costs to improve in company focus

Improving efficiency and effectiveness

Enhancing the corporate image of the company

Having a more flexible and adaptable organisational structure

Gain access to world-class capabilities

Free internal resources for other purposes

Accessing to resources that are not available internally

Save tangible and intangible administrative cost

Save the cost to buy the Payroll/Human Resource/e-Modules

Save time and cost to upgrade hardware and payroll software due to changes of government rules and regulations.

Disaster Recovery

Source: Charles Liaw, Director, Times Software

HR meets IT

According to a survey conducted by Republic Polytechnic (RP) and the Singapore HR Institute (SHRI), larger companies are more likely to use HR Information Systems (HRIS). However, less than 50% of companies, regardless of size, currently use HRIS for strategic HR operations.

This leaves HR operations such as learning and development, performance management, and career development largely within manual systems, despite the survey showing that improved strategic HR management was in demand from HR practitioners.

The main motivation behind implementing a new HRIS was to cut down on paper work and time spent managing operational HR functions, thereby allowing greater focus on strategic HR tasks.

79% of respondents to the study felt that HRIS systems were too costly to implement, and 58% did not know about government subsidies aimed at reducing these costs.

The survey also revealed that HR practitioners using a fully integrated HRIS had the highest satisfaction rate amongst their peers.

HR information systems support organisations drive to increase their efficiency and productivity through better human capital and developmental management for their employees, said Erman Tan, President, SHRI.

Through the effective use of such technology, HR managers can focus more of their attention on people relations and strategic matters, helping their organisations achieve greater efficiencies and raise productivity, he adds.