In 1996 Annington Homes Ltd, a London, UK-based real estate firm, acquired 57,000 homes from the UK’s Ministry of Defence (MoD), making it the largest private owner of residential property in the U.K. Annington faced significant business process challenges after the acquisition.
With such an acquisition, there was no such thing as gradual growth for the company. During the first few months everything was “new” since there were no inherited procedures; Annington had to design expense forms and set up payroll. “The acquisition made it necessary for us to establish internal procedures and processes immediately,” explains Barry Chambers, Finance Director at Annington. To maintain a competitive advantage, Annington looked to outsource its human resources (HR) function.
Though the U.S. has been a forerunner in outsourcing HR, Europe is now experiencing a similar growth, especially in the U.K. Nelson Hall, a Berkshire, UK-based BPO research firm, forecasted that the UK’s HRO payroll market would grow from $380 million in 1999 to $1 billion in 2002, as both large corporations and small businesses look to concentrate their efforts on the processes more core to the survival of their businesses.
Testing the Waters with a Simple Process
Annington Homes is a good example of this growth. In 1996, the property management company began its HR outsourcing initiative with a baby step: it outsourced its payroll function to Moorepay, a bureau payroll service. Moorepay is part of the RebusHR Group, a service provider based in London, UK, that has worked with HR professionals for more than 30 years.
Annington decided to outsource its payroll function because the business process was time consuming and costly to perform in-house. In addition, there were no staff members with this expertise. In previous positions, Chambers had worked with Moorepay, so when he joined Annington in 1998, selecting them was a natural process.
Satisfied with its first foray into outsourcing, Annington explored outsourcing the entire HR process. At the time two Annington employees, both untrained in this field, handled its HR needs. Chambers says the company’s size did not warrant an in-house HR specialist.
However, company needs did require the expertise of a specialist, which made outsourcing the HR function attractive. The company was increasingly seeking professional advice from external organizations because “employment law was becoming increasingly complex,” Chambers reports. In addition to knowing when and what to ask (a challenge for professional property managers), Chambers says this outside help was “costly.”
In addition, the HR process was complex. Annington had 50 employees with many specialists with an HR culture of individual contracts and salary packages. Confidentiality of personal information was important. Chambers says Annington did not feel comfortable it could achieve this confidentiality because of the small number of employees. “Our office environment was informal,” the executive says.
Expanding the Scope of the Outsourcing Engagement
Already pleased with Moorepay’s efficient payroll services, Annington approached RebusHR to see if the organization could act as its ‘virtual’ HR department and provide an offsite service with ready access to professional support.
According to John Mackie, a senior consultant at London-based research firm Morgan Chambers, European companies tend to stick with outsourcing service providers they already have a relationship with. “They want to deal with a provider they know, due to fear of a new player failing to deliver,” he comments.
After undertaking an audit of Annington’s needs, RebusHR developed an employee handbook and introduced key policies and procedures. It also developed a series of tailored training programs for employees, as one of Annington’s key objectives of the outsourcing project was to focus on the personal development of individual staff members.
In 2001, Annington extended its contract with RebusHR for an additional three years, which led to the service provider identifying and implementing a number of projects that have helped transform the business. They developed an appraisal system and reviewed health and safety policies in the workplace and on Annington’s housing sites.
Chambers says that incorporating these projects into its outsourcing arrangement rather than approaching and funding them on an individual basis provided Annington with a 20 percent reduction in HR costs.
One of the biggest successes of the relationship has been the staff’s acceptance of RebusHR as Annington’s HR department. Adapting to an offsite HR function was a significant change for exployees with no experience in dealing with departments at multiple locations.
“Obtaining HR services from a ‘remote’ provider is often a new experience for smaller companies, comments Gerald Dawson, a Principal Personnel Consultant at RebusHR. He says organizing monthly visits to Annington’s premises “has really helped us be seen as an intrinsic part of the company.”
Employing core staff to manage these external relationships allows the real estate company to benefit from focusing on its core business. “This means we can be flexible should our business encounter changes in its level of activity. I think more smaller businesses will consider this model for both its flexibility and cost effectiveness,” says Chambers.
Lessons from the Outsourcing Journal:
- Outsourcing HR can transform smaller companies unable to justify costs or logic of employing a full-time, in-house HR Director.
- Outsourcing service providers can help small companies deal with increasingly complex employment laws.
- Independent HR service providers can implement policies and procedures, communicate complex changes in employment law, and tailor staff development programs to meet individual requirements.
- An offsite HR function offers flexibility, a significant reduction in project management costs, and ensures confidentially of personal employee information.
- The UK is readily adopting HR outsourcing as a strategy to enhance HR services.