Don’t Outsource Only When It’s Too Late

hr health check comic


In my role as a HR professional since 2010, I observed a steadily growing demand for outsourcing of daily HR administration particularly for management of employee payroll and benefits. I habitually asked each company why they chose to outsource.


The common replies were:


HR is swamped and needs more time for higher value work”,

Our administrator just left the company”, or

The new person on the job is inexperienced and will benefit from external expertise”.


Sometimes the client simply prefers having their confidential information managed externally or needs the vendor to provide the legwork for better process management.


Often mentioned too is the importance of cost savings which had a nasty habit of popping up the moment service fees for the outsourced work are discussed. Can’t blame them, it’s really a fundamental consideration.


Automate administrative work


From the reasons cited it became apparent that these companies viewed routine HR administration as a peripheral corporate function where ownership of the capability was not critical. Routine reports from the vendor were sufficient for the clients to keep up to date with payroll activity.


On several occasions my question would be redirected back in the form of “why should I use your services versus adopting an affordable product internally to boost productivity?” Cheeky. Why indeed. Surely a good software makes basic HR administration idiot-proof. For one it’s cheaper than paying for a service.


The answer is you should, if all you seek is automation of a singular non-core function to reduce operating expense, and you’re certain of the said product’s capability. But don’t overlook the benefits of outsourcing core functions or a cluster of adjacent functions. I recall discussions on payroll quickly turning into a full review of the client’s HR policy, setting up proper documentation, pushing for efficient workflow and recommending productivity tools across functions – finance, sales and recruitment.


Control is more important than ownership


Control over critical capabilities counts for much more than mere ownership. With outsourcing, control can exist via a service level agreement (SLA) for on demand access to professional experience and tested methodologies.


Let’s take a step back to look at the bigger picture. Factors that weigh in on what to outsource differ based on a company’s size, stage and sustainability. But the principle behind outsourcing must be consistent. Your company could have ten or a thousand people, early stage aiming for high growth or mature and operationally stable with good profits. At any point your business must have a focus to be competitive with a strategy that optimises available resources.


Outsourcing should not be your last resort


With optimisation in mind, our first tendency will be to look inwards, to assess available talents and resources for redistribution of tasks. Followed by evaluating new hires for specific skill sets.


Outsourcing typically exists as a fallback, only if necessary and temporary at best. Is there a chance you’re afraid of being held hostage by your service provider as dependency increases. Maybe it’s concern over ongoing disclosure of sensitive business information. Perhaps it’s difficult to see value growth over the years.


While you’re content to dismiss outsourcing as an interim solution, your service providers are heavily incentivised to pursue service continuity. Churn is costly to a business due to customer acquisition cost, loss of up-selling and referral opportunities, potential loss in brand value and disruption to processes. You understand this because you have customers too.


Find partners who keep up with technology


A good service provider, and you could very well use the term ‘service partner’ instead, evolves with your business. Initially the service value could be knowledge expertise (“I never knew that law existed!”) coupled with implementation of a strong scalable workflow (“previously I struggled to get my stakeholders to change habits”). Topped off with the support of smart technology (“everybody adopted the new software with ease”). Ideally this arrangement is approved at a fraction of the cost to insource. Even if a premium is imposed the afterthought should be “it was worth every dollar”.


As business demands grow, expanding the outsourced scope can really make sense. And that’s when progressive partners jump in to lengthen the value chain. It’s really no surprise that they will be the biggest advocates of productivity tools that band into an integrated suite. Newer enterprise solutions are actively moving to cloud and openly sharing capabilities with one another. Because of this, service partners are quickly evolving from focused specialists to process improvement consultants for multiple business functions.


They actively explore new software, compare features, test user support level, push for new enhancements, recommend integration with other products, all the time knowing that with every recommendation made their own reputation is at stake. Despite what you’re inclined to think, their service commitment is to you not the software company. It’s really only natural for them to advocate products they genuinely value.


Explore improvements for other business functions


Many of us love the ease of use that’s typical of good SaaS products yet it’s nice at times to have a product expert objectively guide us through the pros and cons of their recommendations. We’ve all experienced that moment when we’re undecided about the purchase, needing that extra bit of validation to commit. Validation from a reliable source I might add.


Your next query on ‘accounting practices’ could proceed to an insightful discussion on good bookkeeping practices, proper tax reporting, compliant payroll processing, and fair allocation of employment benefits like leave and claims. The conversation can then progress from business regulations to business efficiency by exploring new technology for customer management, service support, chat, logistics, inventory, and analytics. All in a day’s work for an enlightened service partner.


Service and product quality are inseparable


More recently I started a mission to design a product for service partners. No it’s not a service marketplace, there’s enough people solving that problem already, honestly. It’s a cloud productivity software (specifically for HR administration) that makes perfect sense for progressive service partners. Because it empowers them in the two areas that matter most – access to in-depth domain knowledge plus full flexibility in design and configurations to cater for a multitude of client requirements.


The same way you don’t like to be held hostage by your service provider, they don’t like to be held hostage by product companies. Service & product quality are inseparable when considering value.


Thus far our mission has been supported by many partners and direct users who are tired of other products that refuse to evolve. They understand the importance of adapting to remain competitive. And they are the ones that continue to be your best choice for a long term partnership. I’ll say it again, outsourcing does not have to be a short term option.


Rethink your strategy when you select your service partner. Move away from labour arbitrage and cost savings to higher value creation. You decide: 1) pay for a known set of outcomes or 2) pay for value you couldn’t realize on your own.


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