Feature

posted 13 Mar 2006 in Volume 8 Issue 9

Outsourcing the solution

While firms have seriously invested in expanding their support departments in recent years, there is growing debate as to the value of outsourcing areas such as human resources.

This article is about whether human resources (HR) departments should be outsourced but, as a framework, could equally well be applied to most, if not all support departments or, indeed, the business as a whole, although generally this form of outsourcing is called a sale…

The general issues to be considered in outsourcing projects are:

Risk;
Quality;
Consistency;
Employment costs;
Sick cover;
Holiday cover;
Cost per square foot;
Opportunity cost per square foot;
Utilisation of scarce resources;
Skill availability;
Confidentiality;
Reputation.

But let us ready ourselves for outsourcing the HR department.

What is an HR department?

It is often a good thing to know what we are talking about before we begin. In this case, it is difficult because HR is such a generic term (as was the earlier incarnation, ‘personnel’) that one cannot be sure of what the term means in a particular firm.

It is best defined by reference to the responsibilities of the HR department, keeping in mind that in a professional-services firm, different members will require different things. This will often depend not only on the requests of a particular department but also the demands of individual partners and managers. So the definition becomes a fluid and unsatisfactory thing, although, let’s face it, such is life in a professional-services firm.

What does the HR department do?

The HR department is likely to be involved in any number of functions depending on the particular firm. A generic list is likely to include:

Administration;
Record keeping;
Advising management;
Assisting staff on issues concerning that individual;
Assisting partners and directors on issues concerning that individual;
Keeping the firm legally compliant on employment issues;
Facilitating the appraisal coaching and mentoring processes;
Advising on best practice;
Strategic advice;
Facilitating and implementing the periodic salary-review process;
Facilitating and implementing bonus schemes;
Facilitating career-development schemes;
Keeping the competitiveness and appropriateness of the overall salary and reward packages under review;
Communicating with members of the firm at different levels and in appropriate ways;
External branding and PR;
Advising clients of the firm;
Representation at management board and low levels;
Participation in change-management projects;
Participation in projects that change office processes;
Participation in recruitment of partners and directors;
Participation in recruitment of staff;
Participation in all promotions.

Not all HR departments will be doing all of these things all of the time, but any particular firm’s list is likely to be long nonetheless.

We have now made a start on the process of deciding whether all or part of the HR department can be outsourced, because we at least know what it does. During the process of understanding what it does, it will become clear that there are a number of different types of thing being done. We can take a look at these things and then categorise the list to bring clarity to what is going on.

HR people are not line managers

A function of HR is not to line manage members of the firm (outside of the HR department). There may be exceptions where a member of support staff needs a line manager and a more suitable one than a member of HR cannot be found. In a professional-services firm, however, HR is not there to line manage the client-facing departments. Line management within those departments will generally (or possibly ideally) be within a pyramid structure culminating with the group or department head.

For example, in a traditional law firm a secretary would be managed by a solicitor who will be managed by a junior partner who will be managed by the head of department. None of this should involve HR in a line-management sense.

Record management

Is there any support department that has to keep as many individual records as the HR department? It seems unlikely, given that it has to record for each member of the firm all personal details, career details, appraisals, sickness, holidays, training records and anything else that legislation or management require.

In fact, not all of these things need to be recorded by HR, but it very often happens that way, which is something we will return to below.

Administrative duties

With all of the record keeping required, it is hardly surprising how much administration goes on in HR. But this is far from the end of it. Every time a new recruit is required, a mass of administration is generated. Just how much depends on the way in which the recruitment process is handled, but at the most basic level it usually falls (thanklessly) on HR to ensure that the expectations of the proposed recruit are in line with the firm’s existing reward structures and career-development plans.

Every time there is an internal complaint from a colleague, it falls to HR to ensure that the complaints procedures are complied with, fairly applied and properly recorded. In fact, it will often fall to HR to ensure that everything is properly recorded. For example, in a law firm, HR may be responsible for ensuring that the annual applications for practicing certificates are properly made and this may include countdown reminders for the need to complete the period’s continuing professional development (CPD).

Advisory

The HR department will have expertise and experience unlikely to be available elsewhere within the firm. This gives it a position of importance when it comes to advising on HR-related issues. If effectively undertaken, it will also ensure consistency of approach throughout the firm, something vital if staff discontent is to be avoided.

Strategic and board-level representation

People issues in a professional-services firm are inevitably strategic as we approach board level. Many firms will expect the HR director to be a member of high-level boards and even without this participation HR needs to contribute to strategic discussions. At one level, this may be input to an understanding of demographic and remuneration trends.

It may also be the highest level input on contributing towards decisions on global moves – for example, the cultural dynamics of firms from different countries coming together.

What the HR department should do

What the HR department should not do is anything that it is told not to do (if only life in a professional-services firm were that easy). An easy answer is to point to the list of duties and keep to that list. The main problem is that there is a great deal that the client-facing groups of lawyers, accountants, architects etc., should be doing that is simply not done and not enforced by the group head. This results in the HR department picking up the pieces and taking on duties beyond its remit. What then occurs is that the client group thinks (genuinely thinks) that it does not have responsibility for completing certain tasks; that HR should do it; or it is safe to wait until HR requests its completion.

Even then, it may just go on some remote exception report that is never actioned with serious sanctions.

A common example of this is appraisals. Groups will rarely action appraisals until HR sends a reminder; then they go unperformed with little if any sanction for failure. There is often a correlation with seniority in this problem that indicates a general lack of buy-in to the importance of appraisal at the higher levels, and is an indicator as to why there is a lack of sanction. It should not be for HR to chase up these issues; it should be for group heads (supported by more senior management) to engender a spirit of responsiveness to the benefits of appraisal and attendant personal development.

On the other hand, at a strategic level, HR might suggest an appropriate sanction for failure to participate in the appraisal process.

Should HR record sickness and leave? If no-one else is gong to do it, they should, but this begs the question of how they get to know about these things? They get to know because they are told. The process involved in this telling may commence with a variety of things: a telephone message, handwritten note, dictated note or e-mail.

Whatever the source, it seems abundantly clear that rather than the employee being the source of the information for a member of HR to enter the record, the employee herself could enter the record and take out an awful lot of middleman unproductiveness. So, HR should not be responsible for keeping records concerning individuals that they themselves could keep up to date.

HR software

Most of us have at some time suffered from poorly implemented software applications and strategies. It would be an un-balanced world if this did not include HR professionals.

Thankfully HR software applications are these days more relevant and better modelled, with easy enough implementation plans so firms can begin to gain real benefits from this business machinery. An example is enabling individuals to input their own personal data, leaving HR only to check it (if needs be) and utilise the data.

The software is fairly straightforward and, with simple database enquiries, can usually offer insights into the way that people within the business are behaving, and the way in which behaviours are differing within various areas of the business, whether horizontally (across departments) or vertically (by seniority), or in relation to any other criteria your HR professionals might offer as interesting. The important issue is that the information yielded by this software assists strategic understanding and planning. Perhaps this promotes recognition of HR as a strategic resource.

Making the outsourcing decision

So far in this writing we have only talked about some of the things that HR may do and probably should not do. This is basic fact-finding so we are a long way from making the outsourcing decision.

On completion of this phase we will know what we think HR should be doing, we should also know what they are doing. We will have identified the differences between the two. We will not at this stage decide on how to resolve the differences because this is likely to evolve out of the decision about whether or not to outsource. However understanding the differences and the causes of them will likely offer valuable insights into behavioural issues.

We will also be able to compare the staffing ratios of our HR department with perceived norms. In a professional-services firm the ratio of HR staff to others is often said to be 1:50 but this ratio must be treated with caution depending as it does on what is required of the HR department.

How to make the decision

The decision process should start with an assessment of what HR should do and what it actually does. The next step is an assessment of the elements of HR work that could be outsourced and those that cannot. For example, record keeping might be outsourced to a hosted provider, whereas representation on the management board might not. Each element needs to be examined for its value to the business and the level of internal representation required.

The culture of the business also needs to be assessed, for what is possible in one firm may be simply unacceptable in another.

Also it is not simply about the cost of providing HR services – it is also about the quality of those services and the way in which they are valued by the firm, perhaps the most important elements given the importance of HR within a people business.

By listing all of the issues and attaching an appropriate weighting to each one, a decision matrix relevant to any particular firm can be constructed and an objective result obtained. At this point it may be better to ignore cost issues and make the initial decision on quality and culture grounds.

The next step may well be to obtain cost quotations from service providers and this may be across the whole range from individual consultants who may assist with specific issues to across-the-board providers. The relative cost of those providers, together with the relative internal costs, will offer a further insight and enable an enhanced decision matrix to be constructed.

We should then be well placed to make the right outsourcing decision for the firm as well as having informed ourselves about what we should be doing and who should be doing it.

Get buy in for the decision

Exactly who makes the decision and the formal decision-making process will depend on the governance and indeed culture of the firm. The decision process itself may have been so idealistic that the whole firm has truly bought into the agreed level of outsourcing.

Alternatively, the larger part of the change-management challenge is about to start. Whatever the position, buy-in is necessary and will require careful planning and implementation.

Remember the effect on other departments

Almost any form of outsourcing is likely to cause disquiet within a firm. The nature of the likely disquiet should be assessed and steps taken to diffuse any difficult situations that develop.

At an early stage of the implementation the reasons for the outsourcing should be explained, and honesty and comfort offered about the effect on the HR department and other colleagues. The concerns may be imagined, but for the individual experiencing anxiety they are all very real and this needs sympathetic treatment as part of the change-management process.

Implement it

Having made the decision, you need implement the plan. During the decision-making process, a procurement and implementation plan should have been developed; this can now be brought up to date, ready to press the implementation button. As long as the previous stages have been well executed and everything is well documented, implementation should follow within an agreed and realistic timescale.

The implementation process should be rigorously followed, with an accountable project leader and regular review meetings. Given that this project is likely to involve changes to processes across the firm, accountability using readily measurable targets for all concerned is vital.

Once the project has commenced, regular review meetings should honestly reflect on what is going on, the successes/problems so far and the challenges ahead. Once the project is completed the whole thing should be reviewed, not only to learn more about that project but about how better to conduct projects in the future.

HR departments: Should they be outsourced?

Hopefully, it comes as no surprise that this article does not offer a precise answer to the question. It has possibly offered, however, an insight into some of the issues that need to be considered and how the project as a whole might be approached. If it has not, then Managing Partner magazine might just reconsider some of its outsourcing!

Michael Wood was formerly executive committee chairman at Bircham Dyson Bell. He is now a management consultant. He can be contacted at michaelatwork@btinternet.com