How to get the best out of an outsourced HR model

In a recent article ‘Is it time to rethink your HR model?‘ we explored the different alternatives to outsourcing HR as well as the benefits and challenges of doing so.

In the recent webinar on the same subject, there were some great questions about whether it is possible to outsource HR business partnering and whether staff suffer a lesser service if HR is outsourced. This article answers these questions.

Understanding HR business partnering

Firstly, a few words on business partnering. This is an HR operating model which was first introduced by Professor David Ulrich in the late 1990s. In Ulrich’s model there are three strands:

1. Shared services (usually centralised and ‘transactional’) which deal with HR administration
2. Centres of excellence (specialist knowledge relating to reward, learning and development, recruitment and talent management)
3. Strategic business partners (HR professionals working closely with line managers to align HR strategies with business goals)

This can work well in larger organisations, but does not always fit smaller organisations. The role of an HR business partner in a smaller organisation might be different. They would still ensure alignment with business goals but could take on additional responsibilities. What is important is to clearly define what you expect from your HR business partner.   

I would argue that a good, outsourced HR provider should be able to understand your organisation, however complex, and support you in replicating whatever business partner service an internal HR function provides.

The best way to introduce business partnering as an HR operating model is to consult with the business to jointly define and co-create the model that will work best for you.

Tips for selecting a suitable outsourced HR provider

The actions you take to select a suitable outsourced HR provider are similar to any third-party contractual arrangement.

Here are five key tips to help you get it right:

1. Understand your existing HR service provision, including the cost-base, responsibilities and level of service, and set these out in some terms of reference.
2. Establish a shortlist of preferred suppliers.
3. Meet with selected outsourced HR providers to consider their ‘fit’ with your organisation. This will include their level of HR expertise, whether they provide the HR services your organisation needs, their cultural fit and geographical proximity.
4. Communicate with other organisations that currently use the outsourced HR providers to establish how satisfied they are with the service and what watch-outs and learnings they can offer you.
5. Identify who will be the key relationship manager and agree regular reviews of the service. Identify and agree metrics, including benchmarks of acceptable and unacceptable ranges, as part of your service-level agreement.

The need to complement – not undermine – internal HR

How can you ensure that an outsourced provider does not undermine any internal HR professionals or give a lesser service to existing staff members?

The answer is to involve any internal existing HR professionals in the discussion and decision over which outsourced provider to work with.

Part of the terms of reference should include an element of skilling any internal staff so that the organisation, as it grows, can scale up and expand the team. It is also important to ensure that staff have access to the outsourced HR provider along the lines of the service-level agreement, making sure the lines of communication between any internal HR team, line managers, their teams and the outsourced HR provider are very clear.

Hybrid models of HR outsourcing

You may find that all you need from your HR function cannot be found in one provider. In this case, consider a hybrid model, whereby you identify the areas that your main outsourced HR provider will cover as well as the specialised expertise, such as specific training, remuneration benchmarking or career mapping, which need to be outsourced separately.

The more time spent considering these elements, the better. Making poor decisions around outsourced HR will create confusion and will lead to a reduced HR service.

Please contact Hafton HR at [email protected] or [email protected] if you would like a free consultation regarding your outsourcing model.