Blended HR

Instead of choosing between HR outsourcing and shared services, many companies opt for a blend of both

Blended HR

Posted by Annalie Radburn on October 20, 2015.HR Outsourcing (HRO) and HR Shared Services (HRSS) have been common HR operating models for many years. Both models offer value, and each approach has specific strengths and considerations. While organizations have commonly leaned towards one or the other, in recent years we’ve seen a trend toward a more blended approach. Many organizations are finding they can strategically adopt shared services for certain functions while outsourcing others in order to reap benefits from both models.

The case for outsourcing
Outsourcing can allow organizations to benefit from the outsourcing provider’s economies of scale across multiple clients. When deciding to outsource, ensuring that a holistic sourcing strategy is in place will enable the impact of integration across the full operating model to be part of the decision-making process. Using an outsourcer transfers the talent risks (such as recruiting costs and turnover) to the provider and allows the organization’s HR staff to concentrate on more value-added activities, such as partnering with the business, rather than handling routine administrative tasks.

Outsourcing generally works most effectively for transactional operations rather than high- touch activities such as employee relations and performance management. Deloitte’s 2014 Global Outsourcing and Insourcing Survey shows that the top five areas of HR outsourcing are call center management (43 percent), expat administration (35 percent), HRIS maintenance and support (34 percent), payroll time administration (30 percent), and recruiting and staffing administration (21 percent). Benefits administration has long been popular for outsourcing, and employers continue to look for optimized benefits outsourcing opportunities.

Outsourcing became a cost-saving strategy in the early 90’s; however, at the time, the market was immature and needed to develop to become more effective. HRSS centers gained popularity in the mid 90’s, and many organizations used this approach. It allowed companies to standardize their HR processes, which helped facilitate the move to outsourcing when it matured. Today many HR providers have built HR transformation into their implementation approach to avoid a “lift and shift” scenario that might result in transferring outdated or “broken” systems or processes. This means that it is not essential for organizations to have an impeccable HR model before making the decision to outsource.

The case for shared services centers
Shared services centers can be an effective means of increasing the size and diversity of the management pool, and many organizations rotate employees through shared services as a means of exposing them to multiple aspects of HR. In many organizations, shared services centers were set up initially because companies didn’t want to disperse their HR community either throughout the country or across the globe. They wanted HR to be more centralized—or at least regionalized—so they could leverage the resources more effectively and, in many cases, save costs. Sixty-two percent of respondents to Deloitte’s 2013 Global Shared Services survey include HR in their shared service centers.

Originally, the processes moved into HRSS were highly administrative. Over time, however, HRSS centers began to take on more complicated functions that require specialized skills, thus increasing the need to upskill staff and increase the training provided. Many HRSS centers also lost staff because they wanted to go into HR generalist roles.

Making the choice
Certainly, the decision to outsource, manage in-house, or blend the two—and which functions to manage in what way—depends on an organization’s specific situation. The objective of either model—or a hybrid, blended approach—is to deliver a compliant and positive employee experience at the right cost and to have HR service capabilities that can expand and adapt to the needs of the business. Employers will make different decisions regarding outsourcing and shared services depending on company culture, the ability to leverage internal capabilities, and their vision for optimal service delivery.

To choose the most effective path, organizations should:

  • Remain objective—let the analysis uncover the appropriate solution
  • Develop a solid business case of the alternatives
  • Define the benefits and risks of each approach
  • Understand the business needs and risk appetite

The final point to note is that when deciding on the most relevant approach, it is key to have an in-depth understanding of the business requirements, organization needs, and third-party capabilities to ensure expectations are clearly set and able to be achieved.

Annalie Radburn is a senior manager in the HR Transformation practice of Deloitte Consulting LLP. She has morthan 20 years of global HR and management consulting experience. Over the last 10 years she has focused on global business transformation needs and helped multiple clients to address complex business challenges.

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