Whether for specific processes, or across the full range of Human Resources (HR) activities, outsourcing is a proven and viable strategy to increase the performance of the HR Function.? However, there is no single formula that applies to all organisations; HR Outsourcing (HRO) is being used to address varying strategic objectives and its scope will differ in terms of HR processes and geographies involved.? Organisations need a framework to help them consider the value of HRO to their organisation and their specific circumstances.
The HRO Value Equation
Traditionally, business processing outsourcing is seen as a means of driving efficiency through cost reduction.? Whilst the financial business case is important and should always be understood, forward thinking organisations will consider other factors, in addition to cost reduction, when evaluating and designing
Figure 1 - The HRO Value Equation
Figure 1 sets out the HRO Value Equation as a function of Cost Reduction, the HR Service Model, Business Flexibility, and the Retained HR Organisation. ?Organisations can use this framework to develop and assess the benefits side of a business case for HR Outsourcing, but also need to recognise that these elements are interrelated, for example, the size of the Retained HR organisation will influence the overall Cost Reduction opportunity.
Cost Reduction
Cost Reduction will almost certainly be a key factor for HRO and is generally delivered via labour arbitrage when moving HR work to lower cost locations.? HRO should also provide efficiency barça athletic madrid savings through the aggregation and consolidation of work into fewer locations using specialised delivery resources.? Indeed most HRO solutions have some elements of work that cannot be easily moved out of the home country and so aggregation becomes an important source of labour cost saving.
Though less often included as hard savings in a business case, HR costs opportunities can also go beyond the HR Function and into the wider business when HRO provides an improved HR Service Model and a more effective Retained HR organisation, e.g. through more effective recruiting, reduced attrition and more efficient Manager-Employee interaction.
Organisations need to be realistic when estimating the degree of cost reduction that can be achieved; this requires a detailed understanding of the current HR baseline and the extent of the work that an outsourcing service provider will take on, and also that work which will be retained.?
HR Service Model
The first consideration has to be what to outsource and to whom??? For some it will be about outsourcing single or specific processes to specialised suppliers, e.g. for Payroll, HR Data Management, Benefits Administration, or Recruitment.? For others a full-scope outsourcing to a single generalist supplier will be the right model. ?Part of this consideration needs to take account of the extent of HR process standardisation and the how technology can be used to transform HR services.
The quickest way to cost reduction might be a ‘lift-and-shift’ of the current HR delivery model, but this is unlikely to maximise the long term cost reduction opportunity and will do little to address any fundamental HR service issues.? Transformation barça athletic madrid of the service model provides an opportunity to gain additional efficiency savings and also improve the quality and timeliness of HR services.
Global and multi-national organisations will also need to consider how to service the ‘long tail’ of countries where there are relatively few employees and hence insufficient scale of HR activity to drive a financial case for outsourcing.? One approach is to outsource global, common HR processes that can be delivered from a centralised off-shore location and to retain local HR processes where there is less scale and more local content.? A hybrid HR Service Model such as this might see all countries served by centralised and outsourced HR Data Management and Performance Management Administration and International Assignment services, with other services such as Payroll and Benefits Administration being retained for countries with fewer employees and outsourced only for larger populations.
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