For some people it’s not whether to outsource, but how much? There are degrees of technology outsourcing, services and full BPO. There are a few areas where outsourcing is pretty standard. These would obviously be payroll, benefits, retirement and technology hosting. While some of these may have more market adoption than others, these are certainly widely accepted as common practices. Payroll and benefits administration are some of the older outsourcing industries. Almost nobody wants to administer a 401(k) plan or pension in-house. And hosting became acceptable in the late 90’s and has remained that way.
Then there are a few areas where outsourcing is not yet accepted with without question. SASS vendors providing a variety of services along with hosting and routine functionality enhancements are a growing force that the ERP’s are getting closer to being ready for battle with. Full service HR BPO has gained some notoriety in recent years as companies try and prove their ROI and vendors try to stabilize their pricing and service models.
The outsourcing question is not much about what the industry is doing and more about what happens to fit for your organization. However, one should note that what the industry is doing can be a good indicator of capabilities and maturity in any outsourcing segment. The hot topic is not an indicator. For example, the SASS industry mentioned above has been growing steadily for years with great success. They haven’t received nearly as much hype as HR BPO which actually only has over 100 installed clients. While looking at the trends is useful, separating fact from fiction and hype from experience is important to note.
Some of the fit questions you might ask are also questions you might ask in other parts of your HRIT strategy. If you decide full ERP is the way to go, you may be eliminating outsourcing opportunities. If you have a single outsourcing vendor approach, it’s hard to do anything but HR BPO as there aren’t many vendors who can do it all.
You might also have some organizational needs that define the oursourcing decision. What are your data privacy requirements and if your employee data is sitting in someone else’s data center, are the security measures secure enough? What I find most often though, is that one thing drives outsourcing of individual functional components: the internal organization doesn’t have the skills and competencies to manage the process without running up additional process costs or running into compliance problems. These are some of the primary keys to why payroll, benefits and retirement outsourcing are so prevalent. High regulatory requirements combined with specialist knowledge make outsourcing both the process and the risk an easier decision.
Whatever your outsourcing decision, don’t do it because everyone else did (or didn’t). Have your organizational needs drive the decision.
We’ll continue the discussion tomorrow…