Instead of choosing between HR outsourcing and shared services, many companies opt for a blend of both
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 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into their implementation approach to avoid a “lift and shift” scenario that might result in transferring outdated or “broken” systems or processes.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
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
To choose the most effective path, organizations should:
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.