Revenue related to outsourcing the human resources (HR) process grew 65 percent in 2001 over 2000, reports Marc Pramuk, IDC senior analyst for HR services. "That means the market for HR BPO is two-thirds greater than it was a year ago. That's very strong growth," says Pramuk. IDC is a global provider of technology forecasts and advice based in Framingham, Massachusetts.
Supplier data also shows that revenues related to outsourcing an individual process - such as payroll, health benefits administration, pension/retirement benefits administration - grew just under 10 percent in the same time period.
Pramuk says the buyer responses indicated between 40 and 60 percent of the companies already outsource certain HR functions, chiefly payroll, health benefits administration and pension/retirement benefits administration. Seven percent of the companies that haven't outsourced any HR functions to date plan to do so in the next 12 months, Pramuk reports.
Pramuk says the growth of the HR outsourcing comes not so much from the increasing technology and capabilities to remotely operate HR through the Internet, but the costs and expertise required to manage and harness the power of that technologyπs potential.
With roots going back over a decade, powered by HR software and later the Internet, employees can now manage the majority of their HR needs themselves 24/7. Employee self-management has yielded increased efficiency and timeliness in the delivery of services by removing layers of personnel from the process.
While this progressive step can enhance HR productivity and empower employees, it does not exploit the advantages of outsourcing in transforming the HR process into a proactive business tool. Pramuk reports many of these programs were pre-Internet technology and were not built as Web-enabled applications. "You are not truly realizing all of the potential when you just plug in the software," Pramuk says.
For example, a supplier knows how to utilize the company's HR database to provide information that can help the company in planning, forecasting, and noting trends. This data can include skill assessment, training effectiveness, personnel deployment, and competencies to identify the capabilities to optimize the workforce. With expanded workforce data, executives can ascertain weaknesses and strengths within the infrastructure of the analytics of the company for strategic planning.
"Outsourcing suppliers specialize in business intelligence. That is all they do. They have time to integrate it into their services. You can improve information circulation across the company in areas of recruitment, staffing, education and training," explains Rebecca Scholl, senior analyst BPO for Gartner Dataquest IT Services. Gartner Dataquest is a research and advisory firm based in Stamford, Connecticut.
Scholl further explains that outsourcing can improve information circulation across the company in areas of recruitment, staffing, education and training. HR in-house professionals can focus their time upon proactive pursuits, which benefits the company's strategic goals. Pramuk points out that when a company automates HR by outsourcing, HR executives are relieved of "between two thirds and three quarters of the routine administration."
Additionally, Scholl points out, other departments and HR may not be communicating with each other. Everyone comes together when an outsourcing arrangement arrives.
Outsourcing Provides a Path to Accountability
Outsourcing HR also provides the tools for performance reviews and accountability, continues Scholl. She says most companies have no metrics for cost or performance and therefore no accountability. "Once a company outsources its HR, it can track these services and hold the supplier accountable through penalties in the contract," she explains.
Pramuk's recent study concluded that these two factors - quality of service and the expertise of the supplier - were the top factors in influencing the outsourcing decision in today's economic environment.
Today, outsourcing transforms HR from an operating cost expenditure to a corporate advantage. Pramuk concludes, "The technology and cost savings is helping companies to decide to outsource."
Lessons from the Outsourcing Journal:
- HR outsourcing grew 65 percent last year, according to an IDC study.
- Outsourcing harnesses new technology to produce additional data for strategic business planning.
- Outsourcing HR allows the company employees to focus on strategic areas since almost three-quarters of their routine work is provided by the supplier.