Is it time to rethink your HR model?

If you work in an INGO, you will know how severe an impact funding cuts are having.

The USAID cuts alone have reduced INGO funding by £6bn. On top of this, in 2023/2024, the UK government reduced its spend on aid from 0.7% of Gross National Income to 0.3%, and the UK aid budget is likely to continue at this lower level for the foreseeable future.
 
These reductions mean the international development sector has had to make serious cutbacks – and one of its targets has been operating costs.
 
Private companies have also been considering cost savings. Their approach has been to outsource some or all of their functions, such as IT, finance and human resources (HR). A recent Insignia report suggests that 57% of companies now outsource at least one HR function and claim an average return on investment (ROI) of 191% from this HR outsourcing.
 
This level of ROI suggests it is something INGOs could also benefit from. Here are some of the different outsourcing HR models INGOs can consider:

• Outsourcing the full HR function: Outsourcing to a specialist HR consultancy company which manages all the main HR responsibilities
• HR consulting and fractional HR: Hiring experts for specific projects or part-time strategic guidance (fractional HR), combined with some internal HR executive support
• HR information systems/software: Using software platforms to manage HR tasks, often with access to expert support
• Hybrid model: Combining an in-house HR generalist with outsourced specialists for specific functions (e.g., payroll, benefits)
• Shared services model: Creating a centralised internal HR hub for multiple business units or large organisations

So, what are the benefits for international NGOs?  

• Cost savings: Outsourcing HR can significantly reduce the costs associated with hiring, training and maintaining an in-house HR department.
• Access to expertise: HR outsourcing companies are specialists with extensive knowledge and experience in human resources management. This ensures an organisation has access to top-tier expertise and best practices.
• Enhanced compliance: Keeping up with changes in employment law and regulations can be challenging. HR outsourcing firms stay abreast of legal updates and ensure that all HR practices comply with current laws.
• Scalability and flexibility: As organisations grow or face seasonal fluctuations, their HR needs change. Outsourcing provides flexibility to scale services up or down based on current requirements without the need for long-term commitments or adjustments to internal staffing levels.

What’s the downside of HR outsourcing?

Having looked at the positives, the downside cannot be ignored. Organisations face potential loss of control over key processes, plus confidentiality risks, communication barriers and concerns about hidden costs. Additionally, there is the risk of undermining internal HR expertise. Organisations also risk becoming overly dependent on external providers, which can lead to operational disruptions if the outsourcing relationship falters.

For any organisation considering a new model of HR practice, it is important to carefully evaluate which model or models will work best for you. More importantly, there is a need to foster a good relationship with the outsourced HR provider, in a way that promotes the organisation’s culture while passing on valuable skills and learning to existing internal HR staff.

For more information, join the webinar on 19 March at 11:00 am (GMT).