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.