This is the first in a two-part series looking at outsourcing.  Part One looks at the need for outsourcing and how to identify the areas of your HR function that should be outsourced. Part Two considers how to make the decision and make the change stick.

How do you get more done with less? How do you decide which aspects of your function you should do yourself and which can be done more cheaply and effectively by others? What are the risks in handing aspects of your function to an outsourced provider? What hidden costs may undermine the potential savings you are trying to generate?

These and many others are the questions which surround the decision of whether or not to outsource aspects of your HR function to save costs or improve delivery times and quality. The focus on outsourcing has increased over the last six months as organizations, faced with shrinking revenues and reducing staff groups, have explored ways to continue to deliver the same level of service to their organizations with fewer people and less cost.

The core aspects of outsourcing are straight forward. There are some aspects of the HR function which are highly transactional and very simple to do. They are processes where volume can generate significant cost saving without reducing the quality, speed and accuracy of the service being provided. One common example of this is payroll where organizations partner with a provider who can capture the pay data and then run the process more accurately and cost-effectively than the organization would be able to do using its own resources. This area is now well-developed so that it can make sense for small organizations to enter into an outsourced agreement to fulfill their payroll requirements.

There are many other areas of the HR function that can be outsourced. These include:

• Recruiting – from finding qualified candidates to hiring the CEO 
  
• Learning and development – from delivery through to full monitoring and career tracking
  
• HR information and analytics – through software as a service, buying only what you need or accessing HR metrics reporting
  
• Employee surveying – from onboarding to hiring manager satisfaction to engagement to exit surveys
  
•  Full HR support – from HR business consulting to HR data management

With all of these options, the challenge becomes how to decide which aspects to outsource and then how to change this aspect of your function successfully so that you achieve the service improvement or cost reduction goals that you have set.

Here are a few ideas to help you start the process of looking for opportunities to outsource.

•  Look for activities that your function does on an irregular basis and which require a lot of review of old information before they can be done effectively.  This is an inefficient part of your HR operation and is costing more than necessary because it is infrequent.
  
•  Look for tasks that take time and feel low value. For example, if management or supervisory level staff are screening resumes then you should be able to get this done effectively for a lower dollar per hour cost.
  
• Look for areas where you or the person doing the activity is clearly not expert or does it because no one else is available. If you can buy expertise only, as you need it, you should increase quality and hold or reduce cost.
  
• Determine the cost per hour of each of your staff members and then ask them to monitor their time against each of the activities they work on. This will give you an approximate cost for each activity and give you a benchmark to see if it can be done cheaper through outsourced provision. (Review activity-based costing to learn how.)
  
• Identify the key activities which make your service to your organization distinct and which you and your team can deliver in a differentiated way with excellence. The try to stop, transfer to other functions or outsource everything else.

Once you have your outsourcing potentials identified, it is important that you check that what you are trying to outsource is a sensible and complete work activity. What this means is that the process or activity you want to get done outside the organization can be clearly summarized or described as an outcome or item. For example, it is clear with outsourced payroll that success is everyone getting paid accurately on time. The results can be tracked and success or failure is obvious. It is harder to outsource activities which have no clear end point and there is a high degree of subjectivity as to whether or not it has been done well.

With these steps complete you are ready for the process of determining the cost /benefit of outsourcing parts of your function and to look more closely at the challenges and opportunities of making this change.

Watch for The Question of Outsourcing - Part Two in the next HRVoice.org on June 11.