Outsourcing Companies - HR outsourcing: the basics

Teneo is a fast-growing IT company, which generates sales of £8 million largely by reselling American products in the UK with added services. Companies such as Teneo employs about 30 staff but outsource its payroll, employee benefits (including pensions) and much of its recruitment using outsourcing companies. It even pays an organisation to produce its employment contracts and company handbook.

Rising trend

According to a survey from the Chartered Institute of Personnel and Development, organisations expect to outsource more in the future. While 69 per cent of UK-based respondents deliver administrative HR functions wholly in-house, that number is set to fall to 42 per cent by 2010. That said most of those companies who anticipate moving away from an in-house model will still keep some processes within the organisation, rather than outsourcing everything.

One factor that has been critical to the growth of outsourcing is its potential to offer cost savings. It’s a controversial point, not least because those savings often mean redundancies. Phil Clarke, a director of HR consultancy Independent, is ‘convinced’ that cost is still the number one driver of outsourcing decisions, whatever spin outsourcing providers or their clients may put on it.

Mixing it up

The decision of whether or not to outsource can be straightforward if you’re a smaller organisation: if you don’t have the expertise and can’t afford to hire another person, it’s a no-brainer. For larger companies that have ongoing HR needs, it’s perfectly feasible to bring specialists in-house, or use a mixed approach.

Flying start

Airport retailer World Duty Free (now part of the Autogrill group) is another company that recently faced a big hiring challenge: recruiting staff for new outlets in Heathrow’s Terminal 5. Head of HR Geoff Hall says that 150 staff were required, all of whom had to undergo an extensive security check including references going back five years. Given the timescale, the company’s in-house HR team simply could not have coped.

Cost reductions were roughly 20 per cent when you factor in management time saved, and the pre-interview screening process improved too, so that five jobs were offered for every ten candidates interviewed, as opposed to the usual three. The commitment of the line managers doing the interviews increased tremendously because they were seeing better people.

Avoid the traps

Here are five of the most common pitfalls when outsourcing HR functions:

1. Don’t incentivise your outsourcing provider purely through cost, says Independent’s Clarke. ‘Often, a company will structure the deal with its outsourcing provider purely around the cost saving, and not around the quality of service. They will probably achieve the saving, but what will be the consequences?’

2. If your outsourcing decisions involve redundancies, make sure these are handled strictly by the book. Bevitt urges, ‘You’re dealing with HR professionals, so if you get it wrong, they’re going to know.’

3. Teneo’s Carey stresses the importance of providing a clear, detailed brief to recruiters. ‘If you give too wide a brief you will get a whole pile of CVs and end up sifting through them, doing the agent’s job for them.’

4. On the flip side, using outsourcing companies for recruiting a large number of people shouldn’t be too rigid in their approach. Thibault of Geoservices explains, ‘When you standardise and rationalise companies, the danger is that you will always recruit the same kind of people.’ As a result, you may lose useful pockets of specialist knowledge in your organisation and end up with an overly homogeneous workforce.

5. Remember the basics. Norman Pickavance, group HR director at Morrisons, says that it’s important to keep a handle on essential admin tasks, such as payroll and the handling of annual leave, ‘otherwise you risk doing great strategic things but not knowing how things are operating on the ground’. Bevitt agrees: ‘Payroll should be the easy bit, but I’ve sometimes seen it go wrong as part of a bigger [outsourcing] deal, and it’s a really bad start.'

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