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Many companies fail to realize the full financial and strategic benefits of outsourcing because in their enthusiasm for "what goes" they devote insufficient attention to "what stays." HR leaders need to understand that outsourcing success means having the courage to transform the make up, organizational design, and strategic priorities of HR. For the retained HR, this represents a once-in-a-lifetime opportunity to enhance its value to the business.
According to a recent survey by Hewitt Associates (Hewitt Research Study, 2004), more than 60 percent of companies outsource part or all of HR administration. By contracting out technology maintenance, data management, HR customer service, and other HR processes, companies aim to reduce costs, improve service levels, and free up time for their HR leaders to focus on critical business issues. As the HR outsourcing industry matures and brand name companies such as Prudential, Sony Electronics, Proctor and Gamble, and Sun Microsystems sign multiyear HR business process outsourcing (HRBPO) agreements, more companies are exploring broad-based HR outsourcing.
The focus now is on the new HR function in the post-outsourcing world. Many companies fail to realize the full financial and strategic benefits of outsourcing because in their enthusiasm for "what goes" they devote insufficient attention to "what stays." HR leaders need to understand that outsourcing success means having the courage to transform the make up, organizational design, and strategic priorities of HR. For the retained HR, this represents a once-in-a-lifetime opportunity to enhance its value to the business.
Why Companies Outsource HR
Outsourcing is increasingly part of business strategy, particularly at high-growth firms. Cost savings is an important part of the equation, but in a recent survey at least half of executive respondents said that a "better focus on core competency" and "improved business processes" were among their top three reasons for outsourcing (Hewitt Research Study, 2004). The most common reasons for outsourcing, whether it is benefits, payroll, employee data management, or all HR administration, include:
1. Focus on the core business. Companies that outsource can free up staff from HR administration to focus on more strategic work: activities that are integral and differentiating to the business.
2. Drive cost savings and efficiency. By outsourcing, companies can reduce operating costs and minimize the need for additional capital expenditures...