A few years ago, Professor Ram Charan created quite a stir by suggesting splitting the HR department into two halves and doing away with the CHRO’s role!
While he may not have talked about outsourcing then, organisations are looking at it today.
The pandemic has forced organisations to change their approach to work and come up with ways to ensure more efficiency.
“The strategic roles, handled by specialists, need to remain within organisations, while the rest can be outsourced.”
Rajesh Padmanabhan, HR specialist, shares, “In future, HR teams will be a lot leaner and a lot more specialised in their roles. This will allow organisations to save on costs and expand access to deep expertise.”
Yes, certainly leaner, but not extinct. What most HR leaders suggest is that, while some part of the HR function can be outsourced, some part has to be managed internally.
Naresh Kumar Puritipati, CHRO, Lactalis, is of the opinion that there are certain roles in every HR department which are strategic in nature and are handled by specialists. These need to remain within organisations, while the rest can be outsourced.
Adil Malia, HR specialist and CEO, The Firm, concurs. “Roles which personify the art of HR management such as emotional connect, counselling and coaching among others, cannot and should not be outsourced,” he explains further.
In some of the functions within HR, the outsourcing model is quite rampant. For instance, in learning & development (L&D), organisations have already taken the leap towards digital transformation and there is no going back. A third party is being considered for many roles, such as content developers or training managers.
“Roles which personify the art of HR management, such as emotional connect, counselling and coaching among others, cannot and should not be outsourced.”
This opens up avenues for the internal HR team to concentrate more on strategy and culture, thus making life simpler in the longer run.
However, are organisations open to outsourcing other departments within the HR function?
To answer this question, we need to divide the HR function into three buckets, namely, shared services, centre of expertise (COE) and the human resource business partner (HRBP), who actively integrates business strategy with people management practices.
In any mid to large organisation, around 70 per cent of the HR function is HR operations or employee services, which are actually shared services. Around 20 per cent is occupied by COE, which is talent, rewards and learning, talent acquisition and human resource information system (HRIS) or human resource management system (HRMS). 10 per cent of the overall function is the HRBP, which is embedded in the business.
According to Padmanabhan, almost 70 per cent of the roles involved in managing life cycle transactions and processes, can be outsourced.
“It is better to depend on external help when it comes to shared services, and derive both optimal cost and services.”
The human resource business partner will always need to be part of the organisation as that individual is responsible for a critical function. However, when it comes to the centre of expertise or shared services, there is plenty that can be outsourced.
Within the COE, there are certain areas which can be readily identified and outsourced.
When it comes to the learning and development function in companies, in many places it consists of a large team containing several roles, such as a deep specialist, content developer, delivery teams, programme administration and specialists who design the content and curriculum of the process. Here, the crucial roles are those of the specialist who is responsible for the learning design and curriculum. That individual needs to be aware of the learning needs of the organisation and also needs to be an expert on talent architecture, or else the relevance will start declining. The role of the specialist, who is in charge of designing and defining the L&D strategy of the organisation, needs to remain internal while the rest can be outsourced.
When it comes to talent acquisition, organisations can look at outside help. The entire campus management process can be outsourced as well. At the same time, HR pundits warn against outsourcing the hiring for senior level and strategic positions within the company.
Looking at HRIS, the maintenance and running of the system should be an inside role, while development and implementation can be outsourced. Also, talent management roles need to be part of the internal team, while the rewards function can be outsourced, as is already being done in many cases.
When it comes to shared services, HR leaders aren’t unanimous on outsourcing.
As Puritipati points out, “Many organisations have an internal HR shared services, but, these areas have the potential to be outsourced.”
Srikanth Karra, CHRO, Mphasis, believes, “Outsourcing shared services is not advisable as there is the issue of sharing confidential information with a third party outside the organisation.” He further mentions that functions like payroll processing and recruitment can be easily outsourced as they contribute to volume and efficiency for the company.
Padmanabhan differs, “When it comes to shared services, it should be outsourced unless the organisation is sizeable enough to run an internal captive shared services. It does not make sense to look at shared services internally, unless it is at least 2000 seater cross-functional shared services. It is better to depend on external help when it comes to shared services and derive both optimal cost and services.”
Malia shares that there are certain areas of HR that are mechanical and repetitive and do not add critical value to the role. “Organisations have a large number of such roles which can be outsourced to add better value so that organisations can benefit,” he adds.
Raj Raghavan, SVP and head-HR, Indigo, presents a balanced view on the subject. “Much like a customer needs a phenomenal customer experience, an employee needs a top-notch employee experience,” he mentions at the outset before cautioning, “Although companies have the option of outsourcing internal functions, they need to be careful.”
Raghavan is not against outsourcing. However, he firmly believes that irrespective of whether one outsources or insources, leaders need to take responsibility for ensuring that quality employee experience is delivered and there is value added. He emphasises that a cheaper way of doing things should not be the reason behind hiring a third party. “If one is unsure of delivering the same employee experience through a third party, then one should not go forward with it”, he concludes.
One person who is completely against outsourcing is Professor TV Rao, chairman, TVRLS, and founder-president, National HRD Network. He opines “Machines and consultants are good aids, but an accomplished and mature HR department — which is empathetic, compassionate, a researcher and spiritual guide, helps achieve work-life balance and at the same time integrates individual development with the organisation’s — is a must.”
“Leaders need to take responsibility for ensuring that quality employee experience is delivered and there is value added. If one is unsure of delivering the same employee experience through a third party, then one should not go forward with it.”
“Hence, the question of doing away with HR departments by substituting them with consultants or technology should not arise. HR is beyond technological solutions. Do not insult people and their talent by assigning the job of managing them to machines and consultants,” advises Rao.
Today, when organisations are looking at leaner structures and are focussed on cutting costs, outsourcing is probably a good way to go. Outsourcing is not new to the human resources function either. Dependency on consultants is a form of outsourcing that has been in practice for a long time. However, now it may scale up.
“The question of doing away with HR departments by substituting them with consultants or technology should not arise. Do not insult people and their talent by assigning the job of managing them to machines and consultants.”
The pandemic has forced orrganisations to rethink how they work, and sharpen their edges to ensure more efficiency.