HR OUTSOURCING – WHEN, WHAT & WHY

The broad adoption of HR outsourcing across Asia-Pacific has emerged as a key finding of regional research conducted by Talent2, a leading HR and business process outsourcing provider. The Talent2 Asia-Pacific Market Pulse Study found that across Australia, Hong Kong, China and Singapore, the majority of HR executives (80-90%) are now considering HR outsourcing as a solution to key challenges cited, including search and recruitment (64%) and employee retention (50%).

Commenting on these findings, John Rawlinson, CEO of the Talent2 Group, said: “This research reinforces that ongoing skills shortages are hampering organisations across Asia from finding the people they need to drive top line business growth. What’s interesting here is that HR executives are focusing on different ways to address these challenges – namely through outsourcing, and investment in learning and development.

“The fact that the overwhelming majority of HR executives are outsourcing HR functions (or are considering doing so) represents a massive shift in the industry – even compared to five years ago. Nelson Hall’s June HR Outsourcing Index backs this up with the industry reporting a 10% increase in confidence in the HRO sector over the last quarter. It clearly shows that outsourcing is now being considered as a strategic solution, rather than a cost-cutting tactic in response to the global financial crisis,” Rawlinson continued.

Across the region, all markets are seeing strong utilisation of outsourcing as a solution to many HR challenges, with 95% in China, Australia and Singapore seeing clear benefits of outsourcing. In Hong Kong, 91% are seeing clear benefits of outsourcing, while regionally 16% of HR managers are turning to outsourcing as a means of addressing skill shortage problems.

Indeed, interest in HR outsourcing has increased significantly in Asia in recent years. “Recently, our outsourcing department has been getting more enquiries on outsourcing services from many companies,” says Charles Liaw, Director, Times Software. “It could be that companies find it tough to recruit new staff and retain existing staff.”

 

What to outsource?

According to the Talent2 Asia-Pacific Market Pulse Study, 71% of HR executives across Asia outsource all or part of their search and recruitment function. This (40%) is the function most likely to be considered for outsourcing, followed by employee learning and development (17%) and payroll (12%). More than 40% of executives in Singapore are already outsourcing their payroll function.

Sujay Bhat, Regional Director – Business Development (SEA & India), Aon Hewitt, says that HR operations can essentially be split into tactical and critical ones, with tactical transactions being commonly outsourced. “What is outsourced and what aspects are retained depends on the governance and control mechanisms in place.”

For example, performance evaluation conversations cannot be outsourced, says Bhat. “To be effective, the process needs a dialogue between the manager and the employee. However, workflows for conducting the performance review process and data gathering, can be performed via a cloud-based outsourced tool”. With recruitment outsourcing (RPO) on the other hand, HR can allow their outsourcing partners to sieve through resumes and enable the HR function to focus on a select few resumes, from which the final candidate can be chosen.

While different HR functions and transactions within functions can be outsourced, some are end-to-end outsourcing while others are part outsourcing. “This is because companies can leverage on the HR expertise/technology they already have and partner with outsourcing service providers to fill gaps,” says Bhat.

“HR Outsourcing is evolving,” he adds. “While flexibility and value are key drivers, cost optimisation is still significant; for instance, companies can decide whether to engage in onshore, offshore or near shore outsourcing models. Ultimately, the HR fraternity wants options.”

 

Why outsource?

With outsourcing, companies are able to improve their HR functions, as service providers typically specialise in relevant fields (see Table 1).

“Amongst the many benefits of HR outsourcing, some include improved efficiency and effectiveness, access to world-class capabilities that may not be available internally, and reducing business operating costs,” says Liaw.

According to the Talent2 Asia-Pacific Market Pulse Study, a key benefit of outsourcing is that it enables businesses to free up resources and play to their strengths, by focusing on their core competencies (53%).

Outsourcing also offers stability to many businesses, with 42% finding it to be a benefit in relation to coping with peaks and troughs in business activity.

However, there are some drawbacks also associated with outsourcing, the main risk being that external providers often lack detailed knowledge about the business (65%). Cost (48%) and a lack of consistency from outsourcing companies (47%) are also considered drawbacks by some HR executives.

Interestingly, the survey found that in China, security and confidentiality issues were cited as an obstacle for considering outsourcing (44%).

“In Singapore, I think it has become a trend for companies to outsource their non-core activities and HR functions because it is hard to allocate a suitable candidate to do the job (in view of the Manpower Ministry cutting quotas to hire foreign talent and difficulty to recruit locals and permanent residents),” says Liaw. “Management would prefer to allocate current manpower to improve company focus to bring in more business and revenues.”

“Outsourcing is here to stay and grow,” he concludes.