Effectively Addressing HR Outsourcing Issues

Updated: October 06, 2008


A $25 billion industry, HR outsourcing has staked its reputation on addressing companies' pain points — challenges ranging from reducing in-house human capital costs to ensuring regulatory compliance. In fact, a 2008 i4cp (Institute for Corporate Productivity) report revealed that 95 percent of the 231 companies surveyed reported that they at least partially outsource one or more HR functions. Another i4cp survey on cutting costs found that 63 percent of the 301 responding companies plan to use outsourcing as a way to reduce expenses through 2009.

Not every HRO (Human Resources Outsourcer) arrangement, however, has a happy ending and providers aren't always able to meet clients' expectations. Over the years, some outsourcing deals have had to be renegotiated while others have been brought back in-house. Now more than ever, companies are demanding their money's worth from an HRO contract. Here's how to make sure your company's unique pain points get the attention they deserve.


It's not enough to simply sign on a dotted line and expect an HRO to take over from there. Rather, a company needs to foster a strong relationship with an outsourcing vendor that's based on ongoing and open communication. "You can't outsource your leadership," said Jennifer Perrier-Knox, a senior research analyst at Info-Tech Research Group . "You need to have a point person in place in your organization whose primary responsibility is managing your vendor relationship. That person needs to be the keeper of the strategic vision of your organization and he needs to have a strong relationship with a key contact point at the HR outsourcer."

Building such a relationship requires meeting (either in-person or virtually) on a monthly basis, as well as arranging for an HRO representative to pay quarterly on-site visits to discuss a company's current and anticipated challenges. "In light of today's economics , people's morale and their sense of job security are going to get a little shaky," said Perrier-Knox. "So over the next little while, the presence of an HR outsourcer contact on at least a quarterly basis would make the most sense."

While you can't expect an HRO to handle HR functions in the same way they've been managed in-house, there should be some commonalities in approach. And the more commonalities you can establish, the more likely your pain points will be resolved. For this reason, companies should engage in a vetting process that involves looking into an HRO's practices regarding privacy and confidentiality, vendor relationship management, SLA (Service Level Agreement) reporting and feedback mechanisms. "You can't always anticipate a cultural divide," warned Perrier-Knox. "Vendors don't always do things quite the way you would so you always need to pick an outsourcer that is going to map itself to the way you do things. You shouldn't have to change the way you do things to match them."

One of the most effective approaches to ensuring that your expectations are being met is to draft a detailed SLA with an HRO. For starters, an SLA should outline current in-house levels of employee satisfaction so that a vendor will match these levels, at a bare minimum. After all, failure to do so could have calamitous results. "If employees are not receiving that same sense of support, warmth and interest from the HR outsourcer, then dissatisfaction levels will increase," said Perrier-Knox.

Making sure you find out about mounting employee dissatisfaction before it's too late, however, isn't always easy. For this reason, Perrier-Knox recommended putting a proper feedback channel in place, such as an online survey, that measures everything from how quickly an HRO responds to employee inquiries to the availability of affordable benefits packages.

The Bottom Line

By taking these important steps, companies can greatly increase their chances of ensuring that an HRO arrangement delivers relief to those hard-to-reach pain points.

For more on HR outsourcing, read our comprehensive Buyer's Guide: HR Outsourcing. Also, be sure to check out more related research briefs, such as "HR Outsourcing: Not Just for Small Companies" and "HRO vs. PEO: What's the Difference?."

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