Free Survey : Assessing HR’s Priorities
13 March 2009

Free HR Briefing Paper : The Business Case for HR System Outsourcing

An assessment of the potential benefits and challenges, from IT cost and efficiency to HR effectiveness.



Daniel Whitmore


HR transformation Technology


This new Briefing Paper from Webster Buchanan Research explores HR system outsourcing, an arrangement where customers pass responsibility for system maintenance, efficiency improvements and data management to a third party.

Arguing that this is a business decision for HR, not just a technology decision for IT, this paper looks at the challenges and potential benefits, from cutting costs and reducing risk to enabling HR to get better value from its systems.

Executive Summary :

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

Download the Free HR System Outsourcing Briefing Paper here.