Globally, the trend of outsourcing HR functions is seen as a new driver of business value and growth, and in the Australian market, recognition of the value of HR outsourcing (HRO) is steadily building momentum
Globally, the trend of outsourcing HR functions is seen as a new driver of business value and growth, and in the Australian market, recognition of the value of HR outsourcing is steadily building momentum.
For some time now, organisations both from the private and public sectors in North America and Europe, have been leading the way. The key drivers for HR outsourcing include factors such as cost reduction, higher levels of customer service and more time for HR professionals to focus on business critical human capital strategies instead of administrative HR tasks.
The business, demographic and economic pressures impacting organisations in the US and Europe are increasingly influencing top management’s view of HR. Now acknowledged as among the most value-adding business functions with a fundamental role to play in executing corporate strategy, HR business processes are beginning to be re-evaluated and new HR models considered.
One of the noticeable differences between North American and European organisations, when compared with Australian organisations, is the size of the business and number of employees. Australia’s mid-sized organisations have generally maintained a cautious approach to HR outsourcing, with a view that only larger, multinational organisations seeking greater economies of scale can benefit.
But this view is starting to change. Smaller-sized companies, including those in the public sector, need to work just as effectively as larger firms and often with fewer resources. After a decade of downsizing, the beginning of a conscious effort to re-invest in the right areas of the HR function is now evident, with businesses focussed on delivering both bottom-line benefits and top-line growth strategies for the organisation.
The emphasis is changing from beyond simple cost reduction to the support of a more strategic role for HR. Of critical concern is talent management, leadership capability and employee engagement, and HR outsourcing is emerging as a solution that can enable companies to assist in achieving this focus.
Generally speaking, Australian companies are still not fully aware of the flexibility of HR outsourcing and the growing selection of outsourcing options available to them. However, there is potential for early adopters of HR outsourcing here to gain competitive advantage if outsourcing is the HR model that best meets their business needs.
With many local vendors eliminating up-front transition costs and the need to make hardware and software purchases, the decision to do more than just upgrade HR software to maximise the HR function is becoming increasingly attractive and accessible.
With more overseas case studies illustrating the dynamics of the client/vendor relationship, Australian companies are in a good position to evaluate the viability of an HR outsourcing model.
A recent survey by New York-based research firm The Conference Board found that HR outsourcing is now firmly embedded as part of HR service delivery for many top-ranked organisations. The Conference Board surveyed 120 companies in North America and Europe and found that 76 per cent currently outsource one or more major HR functions, with 80 per cent saying they would do so again. None said they planned to take any of these outsourced HR functions back in-house.
With leading providers offering ‘end-to-end’ solutions covering the entire employee lifecycle – from attracting applicants, managing their performance and rewarding them – many clients form partnerships with single providers.
One large manufacturer involved in the Conference Board study, for example, moved from relationships with 15 vendors to a single provider, and reported a 60 per cent reduction in HR administration costs. The Conference Board survey also found that, faced with the dilemma of managing multiple provider relationships, 23 per cent of respondents intend to move to a single provider in the next three years.
While end-to-end HR outsourcing is still rare in Australia, companies that do outsource tend to focus on specific elements such as recruitment and payroll and they are leading the market in the Asia Pacific region.
As the HR outsourcing market in Australia gains momentum, we will see it expanding in scope and playing a significant role in delivering strategic benefits that will help businesses to become high performance organisations.
by David McGregor, managing director of Accenture HR Services, Asia Pacific. Website: www.accenture.com
