Human resource outsourcing (HRO) is the sensible thing to do

April 2, 2009

As with all other modes of outsourcing this one also promises greater efficiency during recession. An online sourcing survey conducted by a search company TalentDrive for instance revealed that more than half (56%) recruiters do not know how many qualified candidates are their in their databases. The survey reveals that multiple job boards and social networks are making it difficult for recruiters to manage job postings, searching, prescreening and interviews.

So what do they do? Simple. They outsource the extra workload in order to draw more RoI per candidate search. “With the increasing use of job boards and social networks amongst job seekers most firms are contracting out sourcing companies to help find the best candidates,” reveals the research.

As per TalentDrive estimates, an average recruiter spends anywhere between 40% and 60% of their time each day searching for new candidates. That is almost 96 hours a month, at a cost of approximately $3,000* per month of the recruiter’s salary that amounts to a company expense. Can there not be a more efficient way of sourcing talent at less cost?

In “No sweat HR efficiency” a white paper on the HR outsourcing trend, the author argues that today’s dynamic HR systems demand flexible workforce arrangements and optimum utilization of available resources, which is not possible without outsourcing this function to professional employer organizations (PEOs).
In short, PEOs help small and medium enterprises (SMEs) that often lack internal resources to develop and deliver full-scale HR services of their own to cut costs and focus their management bandwidth on core processes.

Human Resource Outsourcing
This does appear to be a major concern during recession, as evident in the 24% growth of the human resource outsourcing (HRO) market in 2007, after single-digit growth-rate throughout 2008 and into 2009, according to AMR Research. And why not when over 50% today’s employee base in major multinationals comprises of expatriates according to a Mercer / Harvard Business School study, 2008? Undoubtedly, “the pressure to standardize policies and processes, manage increased workforce mobility and compliance issues is greater than ever,” says the AMR report.

The only concern, the same as with any outsourcing contract is a PEO vendor’s ability to ensure the same quality as was earlier being delivered by the SME’s internal staff, although even this can easily be verified from experiences of other clients. Another issue that needs to be resolved is selecting a PEO that best suits your needs. Like any other outsourcing deal you need to be aware of the outsource risks, particularly if you are planning to outsource to offshore locations then you need to know the risks of offshore outsourcing and have proper offshore outsource risk mitigation plan to resolve it.

PEOs, it needs to be mentioned differ not just by their record and the price of the service charged, they differ in terms of their domain expertise as well. For instance “one may focus primarily on transactional HR services that are more administrative and routine in nature, enabling SME client to save both time and money; while another may emphasize on providing a broader range of services, including those aimed at affecting long-term HR outcomes,” says the author of the HR whitepaper.
Lastly, trust also significantly influences outcomes from an SME-PEO contract. And in order to move beyond skepticism that can mar a business relationship, it is essential that the outsourcer need first put certain transformational process in place, before switching to the new model. Earlier, only payroll functions were being outsourced. However these days, even talent sourcing and talent management are being assigned to experts with domain expertise in that vertical.

In this context, ADP ® Employer Services, a leading provider of HR, payroll and benefits administration services in a joint report with the Human Resources Outsourcing Association (HROA®) has revealed that the Human Resource (HR) transformation movement is continuing to gain momentum globally. The report uncovered that a full 90 percent of respondents are currently working on HR transformation, up from 75 percent in 2006. Additionally, 64 percent of respondents said that they intend to expand the scope of their HR transformation in the coming years.

The way forward is clear — change the ways you once used to conduct your HR functions, or you will soon be so overwhelmed with the change unfolding around you that you will be completely swept off your feet!


One Response to “Human resource outsourcing (HRO) is the sensible thing to do”

  1. The growth potential for outsourcing: Just a mirage? | Outsource Portfolio on May 18th, 2009 6:02 pm

    […] where does this leave HRO or RPO providers? I recently spoke with a country manager for a relatively new Asia based RPO type […]

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