Why outsourcing vs. insourcing? 

Experts have long maintained that by outsourcing certain nonessential HR functions, companies stand to reap significant rewards.  Some of the more visible benefits can include:

·      

        Reduced costs

·       Improved service delivery

·       The ability to focus on core business

·       An opportunity to leverage expertise not available internally

HR outsourcing has grown more prevalent during the past five years and the trend is continuing.  Industry research forecasts that HR and benefits outsourcing is expected to generate nearly $60 billion by 2005.

Who bears the Burden of Benefits Administration?

The fundamental differences between in-sourcing and outsourcing from a plan sponsor’s perspective: 

   Outsourcing places responsibility for the continuous improvement of a company’s HR and benefits administration on the provider whose core competency is human capital management.  In addition, the administration provider assumes the challenge of recruiting, hiring, training and retaining the specialized human capital management talent needed.

      Insourcing prevents an external service provider from managing all the human capital and processes for a company’s HR and benefits administration by placing that responsibility completely in the hands of the company’s internal human resources department.

According to HR Outsourcing Trends – a survey conducted by The Conference Board involving HR vice presidents, CFOs and CEOs from 165 companies – the two most commonly outsourced activities were transactional and administrative HR functions.  Ranking below those processes are employee communications, HR information systems (HRIS), assessment and recruiting.

Today, organizations realize they must reduce their HR costs while improving service.  For many companies, outsourcing has become a key part of their HR strategies.  However, determining which, if any, HR functions should be outsourced can be challenging.

To ensure the best HR strategy, companies should evaluate the potential benefits of outsourcing and consider business drivers, such as reducing costs, improving service delivery and maximizing internal resources.

Deciding to Outsource HR functions 

Selecting an outsourcing provider is a daunting task, to say the least.  Before deciding to outsource, companies should conduct an assessment of their internal resources.  For some companies, outsourcing the bulk of their transactional HR functions – including recruiting, benefits administration, labor relations, payroll and compensation – to a single provider is the best solution.  Many find managing a single vendor to be easier and more cost-effective than managing the day-to-day HR administrative functions.

According to The Conference Board’s survey respondents, the most important criteria for choosing an outsourcing provider were:

·       Guaranteed service levels

·       A proven track record

·       Guaranteed costs savings

·       A compatible corporate culture

Clearly, cost savings is just one of several factors companies should consider when outsourcing.  Variables such as efficiency and reliability must be carefully evaluated as well.  Other important variables cited in the survey responses were the provider’s professionalism, expertise and technological efficiency. 

A company’s relationship with an outsourcing provider is typically a long-term partnership.  As a result, companies should consider:

·       The accountability of the provider

·       Whether the provider has a schedule of ongoing process improvements such as web-enabled HR processes continually upgraded with the latest technology