HR Outsourcing Hits Prime Time | Article

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One of the easiest ways to grow overnight is to acquire another company. One of the challenges of any merger is to merge each partner’s software. More often than not, each player has a different legacy system. Amalgamating the two can be “a convoluted mess,” reports Marc Pramuk, senior industry analyst for e-HR for International Data Corporation (IDC) in Framingham, Massachusetts.

One of the most efficient ways to tackle this problem is to outsource most or all of the merged company’s HR functions. “Outsourcing the entire HR process gives companies a clean slate,” says Pramuk.

Outsourcing everything in the HR field, however, is a major change for large companies, says Pramuk. In the past they only outsourced pieces of the HR process. “Companies outsourced their payroll or they didn’t,” explains the analyst.

The Internet is fueling this trend toward total HR outsourcing. New technology allows employees to take a “self-service” approach to HR. Employees can check how much vacation time they have left or how much they contributed to their 401 (k) plan on the Web. And they can do this whenever it’s convenient for them. They don’t have to call the company during business hours and ask for help. “More and more end users want access and control over their benefits information,” says Pramuk.

The Importance of HR Portals

Much of the current HR outsourcing revolves around the creation and maintenance of these employee portals. Pramuk says many companies are turning to application service providers (ASP) who are using first tier HR applications like PeopleSoft. The ASP module gives these companies “access in a preconfigured way to large enterprise software and all its benefits,” he notes.

Medium sized companies have led the way in outsourcing their employee portals to ASPs. Pramuk predicts more and more larger companies will leverage technology the same way.

There are other reasons why HR outsourcing is sitting in the spotlight. America’s labor shortage has elevated the importance of HR. And, in many cases, it is the last piece of an enterprise resource planning (ERP) system companies have left to implement. Its time has come.

In addition, all the usual reasons to outsource HR apply. Outsourcing reduces administration costs, provides an increased level of service, and offloads mundane processing so companies can focus on more strategic issues, like where to open a new office. Pramuk points out executives today need to tend to the culture of their companies — the values that make them prosperous — and leave the HR processing to the outsourcing vendors.

Add all these things to the stew and it explains why “HR is getting a lot more attention,” says Pramuk.

Partnerships Move HR Suppliers Closer to One Stop Shopping

The analyst predicts that this year partnership growth among HR providers will continue. Many HR providers don’t have hosting experience. Many hosting companies don’t have HR training. So HR providers are partnering with technology companies to provide the services the buyers are demanding.

On the buyer side, buyers currently have to deal with dozens of HR vendors to receive the shopping list of services they need. These include multiple recruiting companies, a payroll processor and a benefits vendor. This year, however, Pramuk predicts suppliers will add additional services so buyers will be able to dealer with fewer HR vendors to get the job done. “We are getting closer to one stop shopping,” says the analyst.

Pramuk also notices that companies are moving from supplying big company pension plans to offering employees 401 (k) plans. The hallmark of these plans is that individuals are responsible for selecting their own investments. Companies will automate (through outsourcing) the employee’s ability to choose these investments. They will not have to funnel their business through brokers. “There used to be a person between the individual and the brokers providing the benefits. Now technology is becoming the go-between,” says Pramuk.

The analyst believes this new direction will fuel “a rapid amount of change.”

Lessons from the Outsourcing Primer:

  • Mergers are causing companies to outsource most of their HR functions so they don’t have to amalgamate two legacy HR computer systems.
  • End users want access to their benefits data. This is leading to a demand for the creation of employee HR portals.
  • HR vendors have little experience with Web hosting, so they are partnering with these companies to provide portal services.
  • The current labor shortage is putting HR in the spotlight.

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