Outsourcing is as old as organized political and economic systems. Specific personnel was often contracted by the government to collect taxes in the ancient Roman Empire. During the Industrial Revolution, rapid technological advances resulted in increased production. This advancement led to a shift from horizontal partnerships to complex, vertical relationships that were geared towards the attainment of the organization’s goals.
Human resource outsourcing entails the delegation of one or more human resource service(s) to an external provider, who owns, manages and administers the delivery of the services based on pre-determined performance metrics. Outsourcing of human resource function(s) has become a common phenomenon globally. Organizations, regardless of their size, find themselves having to replace, supplement or broaden their operations by outsourcing aspect(s) of their HR consulting services. Just like with every other business decision, the decision to outsource the human resource functions cannot be made without considering the contextual factors. The organization must consider the economic, social and legal landscape it operates in.
1. Cost-effectiveness
The current business environment is cost conscious and competitive. The rapid changes in the external operating environment are making it necessary for the organization to adapt fast. With the increased focus on profitability, organizations find themselves subjecting their departments to cost reduction measures. HR demands oversight, innovation, and resources but it does not directly give returns. Outsourcing human resources function (s) helps the organization focus on the core competencies. By outsourcing HR functions, the size of some of the HR functions can be reduced. Innovative solutions can be implemented resulting in a reduction of the cost of executing these functions. The innovative solutions put an organization in a better position to maintain a competitive edge. HR specialists that would otherwise be out of an organization’s reach due to the cost of hiring them can benefit the organization with their skills and expertise as external HR experts.
2. Enhances legal compliance
Organizations grow over time hence the need for mergers, acquisitions, and expansion. In light of this, organizations need structures and HR processes that are capable of blending of corporate cultures, handling layoffs and consolidation of employees. Outsourcing HR functions would appeal to an organization during a merger or an acquisition because specialized personnel would be superfluous after the completion of the project. Organizations must also comply with various legislation and regulations.
An external HR expert provides temporary staffing solutions that enable an organization to set policies and procedures on health care, overtime compensation, pension reform, and benefits eligibility. While this can be carried out by internal HR departments, keeping up with the regulations is demanding. It may call for an increase in the number of personnel working in the HR department as well as the resources devoted to the department. An organization is better off hiring a subject matter expert to handle matters of compliance.