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Our Editorial Advisory Board (EAB) is an elite group of senior players in our industry. Each member is an expert in a very precise niche. At the same time, the fundamental qualification for membership is breadth beyond expertise. We actively recruit seasoned leaders who have a definite point of view.
Every couple of months, we create a virtual brainstorming session, the HRExam Poll. Each member is asked to respond succinctly to a topical question. The answers always paint a picture of the state of the industry.
This month, we asked, “What is the one HR Silo that should be outsourced and what is the one silo that should never be outsourced?”
Fourteen members of the EAB weighed in.
Taken in its entirety (and we’ll be publishing all of the input on Wednesday), show massive general agreement on the principles and practice of outsourcing. The members of the EAB unequivocally held to two simple principles:
If it is repeatable, it can be outsourced. Anything that does not generate significant, measurable strategic value should be considered for outsourcing.
Things are changing more rapidly than it appears. Once upon a time, in the not too distant past, outsourcing was the bane of the HR Department. Today, the question is not ‘how to outsource’ but ‘when’ and ‘how best to manage it?”
Outsourcing is so common that we don’t even usually call it that.
Using Software as a Service (SaaS) is an outsourcing decision. Software had to be licensed and then installed on servers paid for with internal capital. Today’s subscription models place the capital burden and risk management squarely on the shoulders of the vendor.
Even more interesting is the way that large SaaS providers are becoming providers of a broad range of integrated services through the same subscription business model. Any more, software comes populated with data and the people who interpret it. These costs used to be a part of headcount.
The untold story is that HR requires new management skills and techniques. Operating in a world where basic work is done through subcontracts and subscriptions requires different approaches. You can not treat a vendor the way you can treat a subordinate (though plenty of people are trying).
In the aggregate, our EAB found that any process worth doing well is worth outsourcing.
Tomorrow: some surprising nuance in the findings.
HRExam Poll 2.1: Outsourcing Recommendations part 2
The most extreme position taken by one of our Editorial Advisory Board members (Ami Givertz) was that the only HR function that shouldn’t be outsourced is the function that chooses outsourcing partners. In this view, HR becomes a Program Management Office that manages the series of subcontracts for the HR services that the organization consumes. It’s more like an extension of the purchasing department with HR expertise. Program Management is different than project management.
The very interesting possibility is that by turning HR into an Acquisition oriented operation, it’s possible to unleash its strategic weight. With execution details delegated to performance oriented contracts, the HRPMO is free to optimize the blend and direction of its services. Standing above the fray, powerful ROIs can be generated where once there was a cloud of chaos and urgency.
Program Management is a time-honored approach to the management and execution of complex relationships. It was first deployed in the Defense Industry and then honed to a science in NASA programs. Implicit in the PMO approach is the idea that the relationship between a Program Office and its subcontractors is complementary to the accountability required to make things work. You can not treat a subcontractor the way that you treat a subordinate.
Theoretically, a PMO works in five key areas (according to IBM):
- Governance: Defining roles and responsibilities, and providing oversight
- Management: Planning and administering both projects and the overall program
- Financial management: Implementation of specific fiscal practices and controls
- Infrastructure: The program office, technology, and other factors in the work environment supporting the program effort
- Planning: Activities that take place at multiple levels, with different goals. The program plan is not a traditional plan
What is most illuminating about this simple suggestion is that it showcases the major skill deficits in most HR shops.
For the most part, the PMO approach is unknown in HR Departments. The core skills seem unnecessary to people who are trying to get the tactical requirements met. A PMO requires a kind of discipline in the generation of requirements, the description of problems and the vision for the organization that is often otherwise unavailable.
Rusty Rueff notes that outsourcing organizations (RPOs in particular) have matured into technical and execution powerhouses over the past 15 years. Each generation of downsizing produces better and better outsourcing, he says.
The management of excellent subcontract providers requires excellence in the team that manages them. We expect that you will see the idea of an HRPMO increasingly as the function takes its proper role in the management chain.
HRExam Poll 2.1: Outsourcing Recommendations part 3
Here’s a graphic look at the sugestions and recommendations from the HRExam Poll
There are a number of notable things about the graph.
- No one on the expert panel suggested that all of HR’s functions should always be performed by in-house people.
- The same percentage of our experts thought that Payroll and Recruiting should be outsourced.
- Nearly the same percentage thought that Performance Management should be outsourced as thought it should never be subcontracted.
- Although 64% of the panel thought that Strategy and Generalist functions should never be done outside, not one of our experts recommended it for external performance.
The largest single takeaway is that subcontracting essential HR functions is widely understood as the norm.
Here are the detailed responses from our EAB members. The table offers a quick summary and the full responses are in the remainder of the text.
What you see here is the breadth and diversity required in real thought leadership. Each member of the team tells the story from their perspective resulting in a resource that can help you frame your argument.
|Analyst||Consider Outsourcing||Never Outsource
|Heather Bussing||Investigations of discrimination or harassment claims||Performance Reviews or the decisions that come from them
|Bob Corlett||Transactional HR||Leadership and Performance Management|
|Jay Cross||Anything that could be done by a machine||Everything that requires / improves your ‘secret sauce’|
|Dr. Todd Dewett||Paperwork dense / compliance related functions||Talent Management / Leadership Development|
|Marc Effron||Everything is on the table||HR Generalist / Business Partner|
|Claudia Faust||Transactional Processes||Recruiting|
|Amitai Givertz||Transactional Processes: Payroll, Benefits and Recruiting||Selection of an Outsourcing Partner|
|Colin Kingsbury||Low ROI functions where mediocre|
work is accepatable
|High ROI Functions where real advantage can be gained|
|George LaRocque||Admin and Transactional Processes||Workforce Planning and Strategy Development|
|Neil McCormick||Recruiting||Human Resource Strategy|
|Mark McMillan||Benefits Administration||Talent Strategy Development|
|Rusty Rueff||Talent Acquisition||HR Generalists / Business Partners|
|Steve Smith||Recruitment||Knowing your business|
|Hank Stringer||Recruitment / Staffing /|
Onboarding / Exit Interviews
|Compliance processes and issues|
A. One? Outsource everything that could be turned over to a machine in time, e.g. benefits administration and payroll.
B. One? Keep everything that requires your secret sauce, e.g. management development, keeping core values alive, mentoring.
A. Always outsource investigations of discrimination or harassment claims to an employment lawyer that is not with the company or the firm that will be defending any lawsuit. You need someone who has experience, knows the legal issues and who will make the most objective analysis of the investigation. You also want someone who can be an unbiased witness, because your defense team can’t.
B. Never outsource any part of performance reviews or any decisions that come from them. No review process substitutes for the additional knowledge and relationships that are based on being there everyday and provide a fair and accurate picture of what is really going on –both good and bad. You would also get completely torn apart by opposing counsel if it ever resulted in a lawsuit.
A. I think it is time to explore a full outsourcing of Talent Acquisition. Companies can’t afford to layer on fixed costs but they still need great talent quality and potentially volume. It takes too much time and heavy lifting to scale up and down with internal recruiters, even though they may be contract recruiters. The machine sputters, pops and backfires as demand goes up and it groans and seizes as demand declines. The RPOs have caught up with sophistication, technology and finesse. After the early 1990 downsizings HR Relocation Departments disappeared and when they came back they were called onsite services provided by companies like Prudential, Cendant and Coldwell-Banker. The people who managed the moves of relocating employees sat in the cubicles next to the Staffing or Compensation Departments and they looked like employees, acted like employees but were outsourced and had behind them the power of companies who were investing in technology and services because they had scale, heft and focus. The same can be done with Talent Acquisition and it is time to move that way.
B. I tend to never say never, but I would be most hesitant to take away the senior generalist/business partner. When done well, these are full-fledged business leaders who practice the craft of HR to grow, improve and reinforce the fundamentals and performance of the business. Even the employee relations portion of their work could be outsourced but nothing replaces that trust, influence and impact that a right-hand HR Generalist can provide. They could be the only person who is not outsourced, but I think these people should be on the depth chart for bigger and other things in the company and they should be employees.
A. Outsourcing is a decision about where to spend your limited energy. The CEO of a government contractor once told me that if his accounting systems were given an “A” rating by government auditors, he would feel that he overinvested in accounting. In his case a “C” would have sufficed, and the extra energy spent getting to “A” should have been redirected to something that delivered more value to his customers.
Every minute someone remains on your payroll you are investing in their education. We do not live in a static world, people must constantly adapt to new circumstances. (“Did you get the memo? We’re putting new coversheets on all the TPS reports before they go out now. So if you could go ahead and try to remember to do that from now on, that’d be great…” Office Space)
So, to decide what functions to keep and what functions to outsource, simply ask yourself: If I invested more time and energy to continuously improve our ability to do __(insert function here)___ will that investment yield any of the following results: A competitive advantage in the marketplace. An impact our customers would care about. If improving a function yields no external advantage, then seriously consider outsourcing it so you can focus your energy on something that does matter.
Using this test, most of transactional HR administration falls into the outsource category (payroll, benefits, etc.). Conversely, most of Human Capital does not (recruiting, talent management, workforce planning).
B. What should never be outsourced is leadership and performance management – defining expectations, and making a personal connection between your team and the mission. Consider outsourcing absolutely everything that prevents you from leaving your office to work directly with the people who achieve your organization’s mission.
A. Recruitment … because most organizations suck at it. OK, I know what you’re saying. The unemployment rate is still hovering at postwar highs. Well, look at the unemployment rate for those 25 and older with college degrees – 4.8 percent for December. Those are the difference makers, the people who you have been hiring, are hiring and will be hiring in the near future. For those people, the War for Talent never really went away. Recruitment Process Outsourcing (RPO) can find better people, faster and at a lower cost than you can on your own. The Europeans figured this out awhile back. And 2011 will be the year that RPO finally gets on the radar in the U.S.
B. Knowing your business. Most HR folks can tell you which HR areas they want to outsource in the next few years, but what are your business’s core initiatives for the next 12 to 36 months? Too many HR people don’t have a clue. Read the annual report. Talk to sales and finance. Understand the direction of the business, then mold your HR (and outsourcing) strategies to fit it.
A. The function that should be outsourced: any paperwork-dense compliance-related function. This will allow you to have a focused outside specialist chase down numbers and facts for reporting internally and/or externally depending on the specific function, freeing your people to focus on more valued added functions. This also takes a common target for employee ridicule (justified or not) and removes it from the formal organization, potentially supporting improved employee relationships (especially between HR and everyone else).
B. The function that should never be outsourced: talent management / leadership development. As HR continues its journey towards a permanent seat at the strategy table, nothing provides HR pros the opportunity to demonstrate their knowledge of the business better than the thoughtful programs and resources they assemble which show a detailed knowledge of the specific knowledge, skills, and abilities required in the workforce.
What is one HR function you should consider outsourcing and why?
It goes without saying that transactional processes that can be delivered with greater efficiencies than could be achieved in-house should be outsourced. Payroll and benefits come to mind, and, depending on the nature of the beast, recruiting too.
However, there are processes within HR that are not widely outsourced that could benefit from being managed externally. For example:
a) Exit interviews: The benefit may not be in lowering operating costs but in ensuring consistency and objectivity in gathering the data that feeds other core HR functions/decision-making: retention programming, employer branding, performance management, etc.
b) Managing complaints/whistle-blowing: Employees are more likely to be forthcoming, and the feedback and recourse for employers more reasonable, if complaints could be handled by an ombudsman. Having an independent party arbitrate complaints and oversee compliance issues would likely mitigate risk too.
What is one HR function that should never be outsourced and why?
That depends on the levels of complexity within the organization and its maturity. For example, highly complex and mature organizations should not outsource HR functions that impact competitive advantage – workforce planning, performance management, succession planning, organizational culture, etc. — while smaller organizations would derive competitive advantage if they would outsource those things, traditionally viewed as sacrosanct.
The single HR function that should NEVER be outsourced is the selection of an HR outsource partner.
A. Recruiting / Staffing / On Boarding / Exit Interviews – Because talent matters to the execution of the business plan…without the right talent executing the right plan success is futile. How we recruit and on board the right talent directly relates to how well they will do their job in our culture while interviewing those who leave us helps us to understand who they are, why they left and IF we need to make changes in culture, personnel, business model et al. Third party voices motivated to do a good job – the right things can have greater impact and believability with all internal and external parties involved in the recruiting process. Too many internal voices managing these strategic initiatives gets political and that is not the right way to attract and retain great talent.
B. Compliance process and issues. They know it, it is administrative, it is important and must be done for the good of the company. Those with internal ties and loyalties to the company have a vested interest in insuring compliance and administrative processes are handled appropriately.
A. A list of usual suspects would include the processes of recruitment, vendor management, learning management, payroll, health benefits for a start. As we’ve been asked to nominate just one then I’d go about the selection by looking for the tactical deliverable that gives the biggest return in terms of improved value for money. (Value for money being the economy, efficiency and effectiveness of the activity). This may vary from organisation to organisation. Typically though, the tactical delivery of recruitment activity offers large returns for even modest improvements in regard to value for money.
B. While I never say never I would find it extremely difficult to consider outsourcing any activity that related to development or management of Human Resource Strategy. Managing the strategy and the high level delivery (outsource relationships) are key. If the strategy is correct the tactics can comfortably be outsourced as long as these relationships are managed effectively.
A. While I don’t advocate outsourcing for every company or culture, I do believe that HR should *consider* outsourcing all infrastructure, administrative functions, high volume transactional processing, and the tactical execution of those functions.
Why? HR needs to focus on where they have the most impact for the employee and, in turn, the organization. This is not in filing forms, publishing documents/paper and managing automated systems. If it doesn’t require “native cultural intelligence” or a deep understanding of your business , then it may be cost and time effective to outsource it.
If your HR team is spending time on administrative tasks, highly repetitive transactions, managing infrastructure for those functions, then they are not in the field and on the floor gathering the information and giving the insight to ensure the company is ready to reach its objectives and handle its next challenge.
B. Workforce Planning and Strategy Development – in any form. Why? Understanding where the business is today – where it’s going – the existing and required resources has implications that can not be satisfied with a part time view – or a perspective that is anything but tied directly to the outcomes. This can’t be one of a “portfolio of considerations and decisions” it has to be the only consideration. It’s too critical to the business.
A. Benefits administration. Of all of the administrative functions, this one is the furthest from impacting the competitive advantage of a company.
B. I don’t believe in the word “never” and I think that the the word “outsource” can be misleading. For instance, companies might outsource executive recruitment to someone like Spencer Stuart for a CFO search. The executives involved in working with Spencer Stuart will most likely be very engaged in the process.
The real question is the engagement and competency of people involved in completing the work. This can be equally bad or good between insource or outsource. What’s that old saying – “Eskimos have 100 different words for snowflake.” Perhaps we should invent a more complex language for the topic of outsourcing. At gunpoint, I would say that a company cannot outsource the development of their talent strategy.
The answer to both lies in a single clarifying question: What makes you special? The greatest challenge in business, now more than ever, is not to measure up, but to stand out.
Your clients, employees, hiring managers, and candidates swim in a sea of infinite choice and unlimited information. Best-practice guidelines are useful as a touchstone, but it’s worth bearing in mind that all your competitors are reading the same things you are. Using them as a how-to guide will lead you to be more like everyone else in your industry, which is to say, less special. They are a ruler, not a blueprint.
Greatness, in companies and individuals, is defined less by reliable competence in all things than by overwhelming excellence in just one.
HR oversees a vast assortment of responsibilities, many of which, for any given company, absolutely must get done, but do not offer any opportunity to be special. And, it is important to attempt to see differences as an outsider would.
Like a field biologist breathlessly describing how the tiny curl at the tip of a leaf distinguishes a flower as an entirely new species, the things which domain experts care deeply about often appear of trivial importance to the rest of the world. And here, perception often carries the weight of fact.
So, “different enough” often means very different indeed. In my view, unless you can think of a good way in which a certain function can be performed differently in-house, then the question of outsourcing is merely one of operational practicality. By the same token, if you can think of a way to do something better, in a way that really matters, then any function is fair game to perform internally–the one company that *doesn’t* outsource payroll may in fact be the cleverest of them all.
I recommend outsourcing transactional activities which require targeted expertise and have measurable outcomes; payroll, feedback mechanisms, talent attraction. These activities can be planned and delegated, freeing up internal resources to focus on strategy, quality, and communication.
That said, the more control you need over how a transaction happens, the less you should consider outsourcing it.
And although I would consider outsourcing some recruiting functions (sourcing and executive search, specifically), I would never eliminate recruiting as an internal HR function; the need for internally knowledgeable deal-making-and-closing experts is too close to the heartbeat of the business, and in vendor hands that are poorly managed or just plain greedy the business stands to lose too much.
A. Every HR function except the HR generalist/business partner function should be on the table for outsourcing. Why? Well, we should actually flip the question and ask which HR function has proven so valuable that it should be in-sourced? Like any other function, HR has no independent right to exist. To have an internal HR department there should be a clear value equation that shows why the myriad of available external resources can’t meet those needs.
B. The HR business partner should be the day-to-day “talent manager” who is an integral part of the operating team. The company knowledge and trusting relationships required to excel in that role are only gained from being an insourced function.
Have you noticed the noise about whether or not job hunters should pay for help? The controversy swirls around theLadders (the $100K plus jobsite). Various pundits, most of whom seem to be recruiters, are unsettled (sometimes vehemently unsettled) by the idea that a job hunter could or should spend money in pursuit of the next job. There’s even an international component.
I wonder whether the HR and Recruiting professionals who are a part of the mob calling BS on The Ladders understand the implicit conflict of interest in their stance.
It’s odd, don’t you think, that the people who benefit most from job hunter ignorance are the most vocal in their criticism. After all, if prospective employees can easily find their way through the huge volumes of data, would they really need so much career advice and support? Hands down the loudest critics are those who benefit most from job search ignorance.
It would be something different if this was a chorus of hiring managers decrying the idea that sifting through job data is a value added service.
Let’s take a closer look at the question of who pays for job hunt assistance. Isn’t it really the case that the candidate always pays?
- Lets start with badly designed employment websites. They are the vast majority. The extra time that a candidate takes to search through a badly executed site is precisely a cost to the job seeker. Candidate pays.
- Who ultimately pays for executive recruiting fees? There are only two possible answers: stockholders or employees. Doesn’t it seem likely that a candidate’s salary would be higher if there were no headhunting fees? That the compensation budget for a given position is part salary, part recruiting fee? Candidate pays.
- If you make the short list and are interviewed for the job, who pays for your time and effort? Candidate pays.
- If you apply for a job by sifting through a kajillion jobs from Monster, SimplyHired, Indeed or some other source. Candidate pays in time and effort.
- In the days of the newspaper, you had to have a subscription to see the jobs. Candidate paid.
Simply, the candidate always pays. The critics are making a distinction between cash out of pocket and the cost of waiting, inconvenience, lost opportunity and unnecessary effort. Seems like a distinction without much merit. Candidates can and do pay for all sorts of services.
There’s a double irony in this kerfuffle.
The history of Monster.com is instructive. During the time of their hyperbolic growth, the web was full of dark criticism of the Monster culture, pricing and sales approach. While the folks at Monster central put in some effort to change the company’s reputation, the hard reality was that strong criticism is a symptom (and maybe even a cause) of strong growth.
In a high growth phase, any publicity is good publicity. The critics may be a part of theLadders growth engine.The louder the noise, the faster the growth.
I was a part of the group invited to New York to get to know the Ladders. With the wind at their back and taller mountains to climb, the company is investing in a variety of ways to get their story out. The junket to the tony Standard Hotel is just a tiny part of theLadders charm offensive. The Ladders is trying to buy attention and credibility as it moves in the general direction of an IPO (my interpretation).
The folks at the top of the now 400 person organization are real veterans (and winners at that) of the dot com era. The two cofounders got to know each other as central figures at HotJobs, the company that introduced super bowl advertising into our industry. Back then, HotJobs invested the equivalent of a quarter’s worth of revenue in the super bowl ad. The IPO and ultimate sale to Yahoo are a part of the DNA at theLadders.
What I saw during the time I spent with theLeaders at theLadders was pretty instructive. The company is growing. Their ambitions are big. They know what they’re doing.
Like Monster before them, the company is full of machismo, arrogance and certainty. These are essential elements for a team headed towards the public markets. An IPO is a window through which you pass, not a destination in and of itself. The get together seemed to be an attempt to reach out and understand the limits of the market.
But, they weren’t really looking for answers.
As the bunch of us wandered through the corporate offices, it was hard to ignore the effect of having their current commercial running on endless loops on huge monitors all over the place. The 400 twenty-somethings working in the din of a bullpen with no offices seemed immune to the writhing bodies trying to desperately please the boss (that’s the commercial). If the job hunter pays business model starts the controversy, the latest ad campaign throws gasoline on the fire.
Desperate to please. Isn’t that who gets the job most of the time? Are the critics really mad because theLadders out-cynicals the most cynical?