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Outside the box
As companies continue to search for new ways of reducing costs and increasing operational effectiveness, human resources (HR) and resourcing are being considered increasingly as possible outsourcing opportunities.
The specific processes that are included in an outsourcing arrangement vary from organisation to organisation. Some organisations may outsource virtually all of their HR processes, while others select specific components such as payroll, recruitment, benefits management and training. To date, the most common elements to be selectively outsourced are recruitment and payroll.
A number of well known global organisations have outsourced part or all of their HR function, for example Boots, Procter and Gamble and Unilever.
Sharon Sunley, director of HR at Apodi, believes that, from an HR director's perspective, "The ability to outsource the whole or part of the HR function can be of great benefit to any organisation. Having the ability to deal more effectively with the peaks and troughs of HR operational work is very attractive and can deliver tangible benefits to the organisation. In turn, this can free internal resources to concentrate on more strategic and complex issues that directly support organisational performance such as talent development, succession planning, strategy development and implementation."
Historically, HR directors would not seriously consider outsourcing core elements of the HR service due to the environment and the HR agenda being different then. However, in an increasingly tough economic climate, where cost containment is a key factor, it's a reality that HR directors and managing directors have to give serious consideration to outsourced solutions.
Recruitment outsourcing is also increasingly prevalent as the war for talent and a shortage of the 'right' talent stretches HR departments that have to hit demanding recruitment targets.
Gill Morgan, director of resourcing at Apodi, explains: "Outsourcing the recruitment function can create a 'seamless' centre of excellence for the recruitment process, which drives business efficiencies such as reducing time to hire, lowering recruitment costs and the rationalisation of multiple sources of recruitment."
War for talent
Recruitment has become a battle ground for many businesses. The tightening of the labour market and the shortage of 'right' candidates with the skills appropriate for today's workplace challenges means that employers need to reassess fundamentally how they attract and retain those people who are vital to the future prosperity of the organisation.
For many organisations grappling with the 'build it or buy it' choice, the decision is not easy – staff training has fundamental cost and time implications, with high attrition always a possibility in a competitive market. However, turning to the marketplace for people can result in salaries spiralling for key, sort-after groups of employees. Either way, the business result is slimmer margins.
Recent surveys by Kelly and CIPD (Chartered Institute of Personnel and Development) indicate that 69 per cent of companies are finding problems with recruiting staff and 80 per cent of these companies quote a shortage of skilled staff as their major issue.
Gill Morgan believes: "Outsourcing recruitment with the right partner can allow HR teams to focus on strategic issues, while leaving talent sourcing to an experienced external organisation with the essential tools and resources at its finger tips."
Key issues
So what are the key issues to consider in the HR and resourcing outsourcing debate?
The potential advantages of outsourcing include:
• Acquiring new skills – companies may find that there are skills deficiencies in the existing team and decide to source these skills externally.
• Focus on core competences – businesses often make a decision to focus all internal management time on certain core functions and outsource the rest.
• Increased flexibility – the service can be turned on and off or modified easily as the organisation's needs change. Often businesses experience large swings in work volume – outsourcing can turn what may be a fixed internal cost into a variable external cost.
• Cost reduction – it may be possible for a company to reduce costs by outsourcing if the outsourcing company is able to achieve economies of scale that the company itself cannot access.
• Frees HR resources to operate more strategically – internal managers often spend the majority of their day handling the detailed operations of their functional area. The outsourcing of tactical processes within the function allows managers to focus on more strategic issues.
• Increases effectiveness of HR delivery – experienced outsourcing providers can often deal with HR processes more effectively as this is part of their core capability, for example recruitment may be undertaken faster, reducing employee turnover costs and speeding up the pace of growth.
Any organisation considering an outsourcing strategy for HR and recruitment must not take this lightly. The following potential pitfalls should be clearly examined:
• Don't outsource what you don't understand – organisations need to ensure they have a clear handle on what it is they require from an outsource provider and that they implement and monitor the appropriate service level requirements.
• HR and resourcing outsourcing does not absolve the organisation of good people management practices, nor of overall responsibility for the provision of HR services – metrics should be put in place to ensure that the performance of the outsourced provider is carefully monitored. The internal management team must also continue to take ultimate responsibility for the welfare and care of its employees.
• In some sectors, HR outsourcing arrangements are often long term (5–10 year contracts are not unusual) – an understanding of the organisation's current and future business strategy is important before any contractual arrangement is negotiated.
• Loss of local knowledge and processes which instead reside with the outsource provider. Organisations have to keep close contact with the outsourced provider to ensure that they maintain a working knowledge of key processes and developments. A true partnership arrangement, therefore, becomes essential.
• Establishment of processes that are not suited to the company – first and foremost, the organisation should ensure that any processes used by the outsource provider are tailored to suit their own internal requirements.
Pharma firms are now looking at outsourcing their HR and recruitment capabilities, both in periods of growth and when they are scaling back. Julian Trimming, MD of Nycomed, who recently outsourced his firm's HR capability in full says: "When restructuring the company, we wanted to retain those elements that were key to delivering a competitive advantage, while looking at more flexible, cost-effective options for some other areas. Outsourcing as we do it, allows us to cope with the peaks and troughs of activity and, importantly, for a small organisation to have quality advice at our fingertips from people who know and are involved in our business."
Mike Stowe, managing director of SpePharm UK, approached his HR needs from a different angle. "As a growing company we really need a high-level HR capability, however, my employee numbers simply do not justify a full-time head, let alone an HR department and the associated cost. Nevertheless, I am determined to provide my employees a 'best in class' service with relevant policies and practices as we grow.
"Outsourcing our HR capability gives me access to both strategic and operational support for a smaller cost than recruiting the expertise on an in-house basis. It is proving to provide me with a 'bigger bang for our buck' as we have continuous access to the full range of HR services, from strategic support through to the management of everyday employee related issues and challenges. It is also 'future proof' as it is scalable and allows me the benefits of a wealth of experience at a reasonable cost."
As this topic gains momentum within the industry, one thing is for sure – outsourcing of HR and recruitment is fast becoming a major consideration around the boardroom table. Whether the debate centres on selective outsourcing or on the full service, pharma cannot afford to ignore the potential benefits that outsourcing of HR and recruitment gives.
The Authors:
Sharon Sunley, HR business unit director and Gillian Morgan, resourcing director at Apodi
