Outsourcing HR

Firms usually turn to outsourcing to cut their expenditure on non client-facing, business-support functions. Outsourcing certain areas of human resources has now started to take off too, but ensuring a good cultural fit is more important than ever where people are concerned.

By Robin Farey, management consultant

Outsourcing continues to be a topical subject in many business sectors, with a rich variety of views on the subject. Human resources (HR) might be expected to be one of the very last support functions to be outsourced by most medium to large professional-service firms, but as previous articles of Managing Partner have shown, some firms see a considerable range of HR activities with outsourcing potential.

A number of smaller firms also seem to believe in the benefits of HR outsourcing, but are adopting a cautious approach, with implementation on a project-by-project basis, and undertaken gradually, task by task. This solution allows them to cost-justify bringing HR in-house, particularly in these days of increasing employment legislation and a rising culture of claims to industrial tribunals.

But first we need to consider the reasons for outsourcing in the first place – what we expect to achieve and how we can ensure our expectations are met.

Aims of outsourcing

We can outsource a range of business-support functions, many of which have little direct impact on the delivery of the core business, for one or more of the following reasons:

Specialist skills and knowledge are required, and there is an element of risk if tasks are not completed correctly, for example in catering, security and building maintenance and repair;
Low-skilled, manpower-intensive tasks are involved that are often completed out of core working hours and require a high level of supervision – for example, cleaning;
Overall costs are reduced through the release of space, economies of scale and a reduced payroll, as with archiving and reprographics;
Management and staffing issues are transferred to a third party, offering increased management focus and greater flexibility in the provision
of resources.

Many decisions to outsource involve all of the above to a greater or lesser degree, and there can generally be a lower risk to the business if many support services are outsourced, particularly if they do not impact directly on the core business.

Pitfalls

On the other hand, it is always important not to poison your clients when they attend meetings, or indeed have them excluded from those same meetings by over-zealous security staff!

Outsourcing doesn’t always deliver expected results, particularly if it is simply seen as a panacea – a quick and easy way of eliminating problems and saving money. It is essential, therefore, that we have coherent reasons and clear objectives for outsourcing before we begin the process; otherwise the result could be a situation worse than before, requiring the whole process to be either repeated or reversed.

General approach

The usual approach to outsourcing in most professional-service firms, certainly in the legal sector, is relatively piecemeal, each function being outsourced individually to a specialist service provider. In other business sectors there is a tendency for facilities companies to be given responsibility for a wide range of functions, including building-services tasks such as maintenance and repair, cleaning, security, or a number of office-services tasks such as mailroom, copying and office supplies. Where this has been tried in the professional-services sector, however, it has often been unsuccessful. This is partly because facilities companies tend to have a ‘one size fits all’ solution and don’t understand the different cultures and needs of professional-service firms. This is evidenced by the relatively small core of specialist providers who have learnt to tailor services to suit individual firms, particularly in the City. They have often built enviable client lists by providing customised catering, security, travel management and other services. The boundaries between these specialist providers are usually clear, with each adhering to its main field of expertise, although this is now changing (see case study).

Service specification

Before inviting tenders for outsourced services, it is essential to know exactly what is wanted in terms of scope and quality of service. This will ensure that those invited to bid are not left to make assumptions, but instead submit proposals and costs based on a common detailed set of requirements, or ‘specification of requirement’ as it is known. It is helpful to both parties if we prescribe the format and content of submissions, so that bidders know exactly how information should be presented and, in due course, we can compare like with like when assessing tenders. If cost is a key consideration, the service specification should also be sufficiently detailed to avoid any hidden or unexpected additional costs arising later on to sour the partnership.

Cultural fit

A successful outsourcing contract is a partnership between two parties based on mutual respect and cooperation. It is essential, therefore, that we feel entirely at ease with the key people from the company with whom we are planning to outsource, not only the directors and senior managers but also the operation and site managers. Before making a final selection from the shortlist of bidders, it is also advisable to visit other sites where the preferred company is already established and imagine those we meet working in our firm with our clients and staff. Are the outsourcing company’s staff well integrated with the client firm, or is there evidence of a ‘them and us’ relationship? Finally, we need to ask whether the company has a similar culture and standards to our own, as well as whether it has first-hand experience of working in the service sector in question.

Implementation

Outsourcing a function for the first time is perhaps more challenging and difficult than replacing an existing outsourced arrangement, even though the relationship with the outgoing company is not entirely harmonious and relaxed. Initial outsourcing usually means the existing staff will be given the opportunity to transfer to the incoming company. However, for many staff, some of whom may have worked for the former firm for many years, this is a stressful and unwelcome experience. In their eyes transferring to another employer is tantamount to having their employment terminated, and this aspect of the process needs sensitive and sympathetic handling. Rules governing these procedures are contained in the Transfer of Undertakings (Protection of Employment) Regulations 2006 (known as TUPE).

The more practical aspects of implementing a new outsourcing contract should be the subject of a detailed implementation plan agreed between the firm and the incoming company – and, if applicable, the outgoing company. Outsourcing involves the management of change and people don’t usually like change in their working environment. They are suspicious of it, so fault may be found with a new company or service arrangements if the opportunity presents itself. A full plan will ensure any teething troubles are minimised.

Conclusion

Outsourcing is not simply a question of making the decision to pass staff, resources or supervisory problems to a third party, nor is it simply about cutting costs. It is essential we understand clearly what is wanted from the outset. Outsourcing is about creating a partnership and smoothly integrating the staff and operations of an external service provider with our own. Deciding to outsource is the easy part – choosing the right company and successfully implementing an outsourcing arrangement is the greater challenge. But if it is completed successfully, it will result in a rewarding partnership for both sides.

Case study: a new approach

Earlier this year international law firm Ashurst allowed its caterers, Holroyd Howe, to take additional responsibility for client reception – an unusual outsourcing decision to say the least. One might have been justified in asking whether it is prudent to give an external provider responsibility for a team that is front of office, interfaces daily with clients and professionals, and is effectively involved in the delivery of legal services. So what lay behind the decision?

Holroyd Howe won the contract to provide Ashurst’s client and in-house catering in 2002. Peter Griffith, Ashurst’s HR and business services director, says: “The company made an effort to understand the firm’s culture and values from the outset and, as a result, integrated smoothly into our operations, working well with the business-services department of which client reception was a part. Such was the success of this partnership that it seemed a natural progression for reception to be subsumed into Holroyd Howe’s operation to create a single team.” The initial surprise might be explained by failing to recognise the common purpose shared by Holroyd Howe and the reception function; namely, hospitality.

In this case, the reason for success was not so much about deciding whether to outsource catering, or even reception, but rather lay in the choice of company with whom to outsource. Holroyd Howe has a similar one-firm culture to Ashurst; recently voted for the second successive year onto The Sunday Times ‘List of Top 100 Companies to Work For’. It is fair to say that this is no mean feat in an industry renowned for low pay and long hours. It is sometimes far from easy to find the right partner for outsourcing, and Ashurst initially had a less than successful experience with catering before turning to Holroyd Howe. Some firms start the process of finding an outsourcing partner by compiling a list of target companies based on the recommendations of other firms, but even then some caution should be exercised. What suits one firm might not meet the needs of another.

Formerly administration director at Freshfields Bruckhaus Deringer, Robin Farey is a management consultant specialising in business support in professional-service firms. He can be contacted at robin.farey@laudit.co.uk