HR outsourcing slow to take off

by Craig Donaldson

WHILE A multitude of IT service providers, payroll specialists and offshore companies are gearing up to provide full service HR business process outsourcing (BPO), a global research firm has found that organisations across the Asia Pacific are putting HR BPO on the backburner.

Cathy Tornbohm, principal analyst for Gartner, says that only a few large deals have been signed for HR BPO in the last few months, and put its sluggish adoption down to a number of reasons.

“HR is a low priority when restructuring, as the cost savings will not be as significant as those obtained from focusing on operational issues,” she said.

Other reasons include the different HR-related regulations that Asia Pacific businesses have to deal with, depending on the country, while employee data protection issues also curb the use of offshore services, reducing the opportunity for major cost reductions.

Speaking at a regional BPO industry conference sponsored by ADP Employer Services, Tornbohm cited a Gartner survey of regional companies which found that HR processes already account for almost 60 per cent of the BPO market in Asia Pacific, whereas the outsourcing of sales and marketing only accounted for 10 per cent.

She predicted that the trend will be increasingly hard to ignore, and said that the Asia-Pacific will be one of the fastest growing BPO markets in the coming years. Gartner has predicted that US$42 billion ($54.5 billion) will be spent on IT based processes accessed via BPO by 2008.

Tornbohm said that investment in HR BPO will be driven by the desire to cut costs. “This can be done by using every opportunity to consolidate HR procurement, reduce administration on key processes and decrease the involvement of senior business managers in administrative HR tasks,” she said.

Moving to a more flexible cost model – which aligns tasks and HR resources, rather than general shared costs – will also allow companies to define flexible working relationships.

“Companies with very large HR teams operating in industries that are under a lot of pressure to decrease costs have been among the first to adopt HR BPO,” she said.

There are three types of organisation currently leading the HR BPO charge across the Asia Pacific, according to Tornbohm.

Public sector organisations are operating under pressure from the legislature to reduce costs and increase back office efficiencies, she said. Pan-Asian organisations and subsidiaries of large global corporations are also at the forefront of HR BPO, as are local private organisations in the financial services, telecommunications and manufacturing sectors.

“The HR BPO market in Asia Pac is overwhelmed with vendors trying to build on their payroll or IT service capabilities, or from those with specialist HR processing backgrounds.” She said this is an important step to building a sourcing strategy to understand the specific characteristics of providers.

“These players are worth considering, particularly if you have a large Pan-Asian HR team that would benefit from a reduction in administrative tasks.”

With the global trend towards outsourcing of administrative tasks and non-core business, another survey also found that Australian chief executives are prepared to outsource HR over the coming year.

The Executive Connection survey of 239 Australian CEOs found that professional staff in the IT, finance and HR fields (47 per cent) are most likely to be outsourced, followed by trades people (25 per cent), sales and marketing (11 per cent) and administration (5 per cent).