Balancing Act - Build or Buy HR Capability?
In the early days of Human Resources, the HR office was the realm of pay, complaints, training, attendance, recruitment and just about anything people related. Fast forward 20 years to the world of HR analytics, talent brand and strategic workforce planning and we see a very different function – one that’s viewed very much as a strategic partner to the business according to Capita HR solutions 2016 People Management research.
During this evolution what happened to payroll, employee relations and HR administration? They’ve not gone away, they’re just not the core of what HR does anymore. As the remit of HR expands and responds to the expectation of delivering on business imperatives, today’s HR teams need subject matter experts, specialists and strategists.
At the 2017 HRD Summit in Birmingham we asked participants about what their businesses are prepared to outsource. 49% told us they outsource payroll and just 16% outsource HR. When we asked the same group ‘what’s keeping you awake at night?’ 88% of answers relate to talent attraction, retention, legal matters and learning and development. Only 12% of worries relate to processes such as payroll.
Responses covered broader cultural concerns such as “engagement, health and wellbeing”, and future focused concerns including “thinking about growing, succession planning and the unknown!” and “finding talent that we will need in 3+ years and skills we don't yet know exist”.
As such, are there HR functions at both ends of the spectrum that could be outsourced to allow internal teams to focus where it’s needed most? Payroll outsourcing is widely accepted as an outsourced function where economies of scale and specialist expertise remove transactional pressure from HR.
Can other HR functions benefit from specialist knowledge to address some of the issues keeping us awake at night? Without compromising brand or culture, but instead bolstering support to managers and HR, is there a balance between building and buying HR capability?
Build or buy?
The build or buy debate goes on, especially when it comes to HR tech solutions but what about other HR functions? Our 2016 research looked at the appetite for both building in-house skills, and for outsourcing elements of HR.
According to US based HR commentator, Meghan Biro, an estimated 50 percent of large companies outsource all or part of their HR needs. In the UK, CIPD’s HR Outlook Winter 2014-15 survey found that outsourcing of HR is consistent across organisational size and that payroll is the main area outsourced, followed by providing complex advice. Other elements outsourced include recruitment and legal advice.
Why do companies outsource?
(Source: Managing People Survey 2016)
According to our research, organisations outsource to bring in knowledge, to save time and to supply extra resource. Interestingly, saving money was not one of the top reasons named, neither was compliance nor globalisation which are all areas where outsourcing can support in-house teams.
Managing the risks of ‘Buy’
Beyond training and payroll, why don’t more organisations outsource? According to our interviews, concerns about outsourcing fall into the categories of cost, culture and quality.
“It’s in our company culture to do things ourselves” said one respondent. “We’ve had poor past experience” said another. Others raised concerns about quality of service, value-add, management buy-in and raised doubts about outsourcing could work within their company structure.
How can organisations manage the risks of inviting an external partner to handle such an integral part of their business? Finding the right partner is critical:
• Due diligence – the organisation’s current clients, past clients, feedback, strength in the areas you’re looking to outsource, global capability, commercial models, technology, reporting, KPIs should all be examined in detail.
• Culture – make sure you find a partner that lives your brand, understands your culture and is happy to be integrated into it. The experience for employees, candidates and alumni should be seamless and no different to dealing with in-house colleagues.
• Tailored - identify the capability gaps and strengths of the in-house team and highlight the areas where you know you need support. This is likely to be at the two ends of the spectrum (transactional such as administration and high-risk or highly technical such as legal or analytics).
• Flexible - decide what the external support will look like. Will it be on-site, onshore, offshore or a combination? On-site has obvious advantages for complex cases, onshore but remote can work well for HR administration. Ensure support be increased and reduced according to demand.
• Specialist - the concerns of our 2017 respondents linked to complex future-focused people issues such as strategic workforce planning and dealing with change. A partner needs to have deep specialist knowledge across the HR spectrum.
The balancing act
Outsourcing has the potential to make organisations more effective, efficient and agile. It has the capacity to reduce business risks and to make business more profitable. However, every organisation needs an in-house team to connect strategy with people and links business objectives to HR decisions.
There is a balancing act to be struck to ensure HR teams have the breathing space to innovate and nurture whilst freeing them up from the transactional, and de-risking the complex. Finding that balance starts with defining the aspirational capability of HR in your business, then finding the right partner to work with you to build a high impact HR function.
About the research
Our latest data was collected from delegates at the 2017 HRD Summit. This data is supplemented with data from our Managing People Survey.
The Managing People Survey 2016 was conducted by Exec Survey in partnership with Capita HR solutions. We received 141 individual responses from 135 organisations from a broad cross-section of managers, heads of department, directors and c-suite executives.
To view the full report please visit our website: http://forms.loadpage.co.uk/forms/view/57501ccc8d525b7f49daaaec
Author: Andy Green.
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