On the outs


Many CEOs have long struggled with
the role of human resources and
how to hold its leaders accountable to the same types of ROI measurements as
other business units. The reasons behind
this can lead to a great debate of which
came first, the chicken or the egg. But one
thing is certain: regardless of the reasons
behind the perception of the Human
Resources (HR) Department as nonstrategic and tactically focused, the expectation
for improved results and accountability by
senior management is increasing.

One concept that is gaining popularity
among CEOs is outsourcing some of the
human resources functions. By removing
purely administrative functions, the remaining staff can spend more time on human capital strategies and hopefully support a greater
number of company employees without
adding to their own staff.

“There are many reasons behind the outsourcing movement,” says Christoph
Jenkinson, senior solutions specialist for
the Employee Service Delivery Practice at
Watson Wyatt Worldwide. “The globalization of many companies along with the
need to comply with increasing regulations
is bogging down many HR departments.
Outsourcing is a solution to the challenge.”

Smart Business spoke with Jenkinson
about the solutions created through HR outsourcing and how CEOs can lead the change.

Why are more CEOs outsourcing human
resources functions?

They understand that the transactional portions of the human resources functions bring
little strategic value to the organization. As
the global war for talent heats up, CEOs want
more creative energy and accountability for
human capital plans to emanate from HR.
CEOs want HR to develop and oversee policies, develop strategies, and be drivers of
employee satisfaction. Payroll processing,
for example, requires little creativity, so it
often makes sense to outsource it. Within
human resources, many of the sub-units have
operated in silos, and that has created
process redundancies and duplicate costs.

Also, outsourcing as a business concept
has matured and so has executive management’s confidence in it. Originally, the concept was applied to noncore, noncritical
functions. Now, business leaders have seen
that success can be achieved by outsourcing noncore but critical functions such as
payroll and time-card processing.

What HR functions are being outsourced?

I mention payroll because there have
always been numerous providers of outsourced payroll processing, and they work
efficiently and cost effectively. One of the
barriers to outsourcing this company-wide
has been the increased globalization of
companies and their work forces. We are
now starting to see an emergence of universal pay plans, and the world seems to be
adopting a general payroll standard with
slight variations for each country. Following that trend, we are starting to see
payroll processing suppliers go global.

In the past, there was also a mindset that
global payroll processing was complicated,
so many managers were ‘hands-off’ and left
payroll processing to each country leader.
With Sarbanes-Oxley compliance requirements, it is important to know what is
going on everywhere with payroll and take
accountability.

Can employee benefits be outsourced successfully?

The outsourcing of employee benefits is
gaining popularity among CEOs. The
increased regulations imposed under the
Consolidated Omnibus Budget Reconciliation Act (COBRA) and the Health
Information Privacy Act (HIPAA), for
example, mean that human resources must
constantly stay up with the changing laws
and keep the company in compliance.

Small or medium-size firms can often
reduce their costs when insurance coverage is purchased through a third party,
such as a staff leasing firm, by leveraging
their buying power. Even in the cases
where outsourcing is cost-neutral, there
are other advantages to outsourcing the
administration of benefit programs and the
burdensome legal compliance activities.

What should CEOs do to lead outsourcing
change?

Senior executives must be involved in the
decision to outsource and be on board
with the change. CEOs should be involved
in taking the steps that generally comprise
an outsourcing decision roadmap, like
defining business and functional requirements, defining decision criteria, preparing
an RFP, developing a vendor evaluation
tool and conducting due diligence.

It is important to know what adds value to
your organization and to have a vision of
where you want to see HR spend its time and
energies. While payroll and benefits are the
most commonly outsourced functions, the
outsourcing of many other HR functions —
such as full recruitment outsourcing and
technology outsourcing — is starting to
emerge. Through greater scalability and by
affording the time for HR to focus on becoming a strategic partner to business unit leaders, the outsourcing of human resources
functions is gaining traction among CEOs.

CHRISTOPH JENKINSON is senior solutions specialist for
the Employee Service Delivery Consulting Practice at Watson
Wyatt‘s San Francisco office. Reach him at (415) 733-4144 or
[email protected].