This Briefing Paper explores the emergence of HR system outsourcing, a form of outsourcing that can potentially cut costs, reduce risk and enable organisations to make better business use of their HR systems. In an HR system outsourcing set-up, customers pass responsibility for system maintenance, efficiency improvements and data management to a third party.
The paper argues that:
- While the cost and quality factors that influence outsourcing decisions vary from company to company, outsourcing can potentially provide a more cost-effective approach to HR system management. A third party service provider should be able to maximise economies of scale and streamline HRIT resource allocation across numerous clients.
- Practitioners’ experiences show that by taking advantage of the grey area between system maintenance (an operational expenditure item) and new development (often a capital expenditure item) HR system outsourcing can provide a means to fund projects that would otherwise require senior management sign-off.
- Other factors for the business case analysis include potential improvements in:
- Risk reduction, particularly where organisations are over-reliant on one or more specialist employees for HR system management.
- HRIT efficiency, where outsourcers take advantage of the broader range of skills and resource at their disposal to squeeze greater efficiencies out of the system.
- Flexibility in handling system management peaks and troughs.
- Maximising system capability – for example, by identifying software capability that may have been purchased under the original licence for the HR management system but never used.
- Maximising system enhancements – for example, by supporting newer technologies such as manager self-service that may stretch the capabilities of an in-house team.
- As with any outsourcing arrangement, the success or failure of the relationship will depend in part on how well responsibilities are defined and allocated, and whether the parties build a meaningful partnership. It’s important that the relationship between the two parties is strong enough to focus on solving problems when they arise, rather than allocating blame or simply imposing penalties.