Processing the business of HR

by 07 Aug 2007

Its easy to outsource many HR business processes. In fact, HR business process outsourcing (BPO) is a booming market. Teresa Russell talks to two companies that have delivered business results and realised significant savings thanks to careful selection and management of providers

International research has shown that as many as half of outsourcing deals fail to deliver business results or cost savings. Payroll, staffing and benefits as well as training are currently hot areas of outsourcing, according to 2006 Asia-Pacific research from IDC.

“HR and training comprise one of the key drivers of BPO in the APEJ [Asia-Pacific excluding Japan] region, but there is still needs to be a mindset change that sees HR as a strategic business partner within corporations,” says Conrad Chang, author of the Asia/Pacific (Excluding Japan) Human Resources and Training Business Process Outsourcing 20062010 Forecast and Analysis. “Recruiting, retaining and motivating talents would be one of the key challenges for HR outsourcing vendors, as enterprises demand the right skills at the right place, at the right price for their businesses,” he adds.

L&D outsourcing

Outsourcing learning has always been acceptable in HR circles, as companies often don’t have the skills in-house to deliver specialist training. Sally Trad, HR adviser, recruitment, learning and development for Investa Property Group, says she only outsources specialist training that is either compliance-related, or training which must be delivered within a short space of time. Both are usually outside the capacity of the HR team.

Investa is an Australian-based diversified property company. It has 650 employees across Australia, supported by an HR team of nine (including two in payroll), with the HR director on the executive. Its 13-fold increase in staff numbers since 2000 has been the result of both acquisitions and organic growth. Of the companies that were bought over that period, some had outsourced learning and others had done internal training.

As part of a broader L&D initiative earlier this year, Trad implemented a group-wide harassment and discrimination training program over a short period of time. “We didn’t have the specialist skill or the resources around the knowledge area, so we contracted the Learning Factor and agreed on training outcomes and the training format,” explains Trad. Both employee and manager programs were delivered to all staff across six locations over a four-week period of time.

Payroll, EAP, super and other HR outsourcing

Sydney Airport Corporation Ltd manages and develops the domestic and international airport asset in Sydney. Once the public service, it was corporatised in 1998 and privatised in 2002. SydneyAirport comprises around half the portfolio value of the publicly listed Macquarie Airports Management Ltd.

The organisation’s 300 employees range from blue-collar and tradespeople looking after the airfield and baggage system, through to professional staff.

Peter Jones, human resources manager at SydneyAirport, says that post-privatisation there has been a major focus within the company on outsourcing. Car park management, security screening, IT services, the majority of facilities management and some aspects of other functions have all been outsourced.

“We see ourselves as the manager and developer of the asset. We are not interested in doing the day-to-day running of the airport, if we can get others to do it. We retain services such as the baggage system that are critical to our business,” explains Jones. He says that the main catalyst for outsourcing has come from cost pressures to minimise operating expenses and a need to focus on core opportunities that maximise the value of the asset.

When Jones joined the organisation two years ago, there were six people in HR – 2.5 of whom were dedicated to payroll and HRIS. “I had just come from a role in the finance sector where three people managed payroll for 1500, so I found it difficult to justify 2.5 people paying just 300,” he recalls.

As a medium-sized enterprise, Jones says it is very expensive to maintain a good body of skills in payroll and HRIS – especially around legal compliance. He outsourced this aspect of HR to Talent2 Works and today has just three people in HR.

“We know what we used to spend on direct staffing and the cost of running a system internally. We pay a ‘per head, per pay’ fee to Talent2. The cost of that is less than half of what it was previously. We are saving over $100,000 each year,” says Jones.

In 2000, Sydney Airport outsourced its salary packaging and in 2003 fully outsourced its superannuation – both due to escalating legal compliance costs and administration time. Jones has initiated the outsourcing of all exit interviews, because he believes he gets a better quality of response when departing employees are not talking to company staff. He has also had cause to outsource other one-off projects and tasks, such as negotiating unfair dismissal claims. “It’s better to buy in the capability when you need it,” he says.

Jones has retained recruitment internally, mainly because of cost pressure, but also because annual staff turnover runs at just 7–8 per cent. “Our continuing role is to work with business managers to provide HR services that support their strategic goals, rather than operational issues,” says Jones.

Key outsourcing issues

Although outsourcing rids HR of many operational tasks, it brings with it a need to manage the relationship with providers and ensure that business outcomes are achieved within time and budget.

There are several issues that Trad sees as key to successful outsourcing. She says the first thing to do is to identify a quality provider who can deliver a seamless service. “You have to develop a good relationship with them and your organisations have to be culturally aligned. Before you start, you must understand your own business requirements and the outcomes you expect, so they can be clearly articulated to the provider. Ideally, there are KPIs and procedures in place to ensure the desired outcome is achieved. Feedback is critical and in this instance, we got feedback from both employees and the provider along the way, making the whole process a very positive experience,” she says.

Jones says that although he knows there are multiple providers in many areas of outsourcing, he knows just a few, because many are not high profile. Consequently, he sources providers through networking, word-of-mouth and trade magazines.

“The biggest issue is managing the ongoing service. You outsource the operational tasks. You don’t abrogate your responsibility to understand what is being done. They [providers] don’t know your business, so you have to make sure they learn it,” he says.

Jones has a six-monthly ‘check-in’ with all his providers. Some are formal arrangements and others are informal. He keeps a log of issues, initiatives, concerns and ideas that create an ongoing agenda. “This is absolutely crucial, otherwise things just drift along and nothing ever changes,” he says.

He says it is important to know where the lines of responsibility are drawn. “I used to be reluctant to escalate any concerns higher than the account manager. But now I remind myself that I can hold them accountable, because I’m paying them. We may not be the only ones experiencing a problem, but we may be the first ones to report it,” he says.

When referring to payroll outsourcing, Jones has been delighted with the calibre of the technology he has access to. “We would never have been able to afford this type of technology in-house. We also use a provider who runs a dedicated service centre day in and day out. This ensures a very high quality of output,” he concludes.

HR BPO trends

In IDC's interactions with key decision-makers among end-user companies, HR is the most ready adopter of outsourcing. However, in the Asia-Pacific (excluding Japan) (APEJ) region, the portions of HR that tend to get outsourced fall into what IDC categorises as processing services - bulk outsourcing, volume-based, cost-driven, and mainly automated. Hence, payroll would be one of the most commonly outsourced functions within HR in the APEJ region, but purely strategic HR outsourcing is still at its early stages in many countries.

Source: IDC report, Asia/Pacific (Excluding Japan) Human Resources and Training Business Process Outsourcing 2007- 2011 Forecast and Analysis