HR outsourcing taking off

Human Resources (HR) will be the next big outsourcing wave as businesses seek the next source of operational cost savings, Compass Consulting is betting.

The outsourcing service provider claims that given the high volume of repetitive business processes, HR is the hottest candidate after IT to received the outsourcing treatment.

Despite being fundamental to businesses, processes such as payroll - the transferring of funds to employee bank accounts – added no strategic value, Compass Consulting managing director Rawdon Simon, said.

“This process is an overhead and the only way it can be done that adds value to an organisation is as efficiently as possible or not at all i.e. outsource it,” he said. “The economies of scale available through outsourcing such functions make this an attractive option and most organisations will be keen to realise such benefits.”

And the benefits are high. According to Simon it was not uncommon for HR personnel to cost $1,000 per enterprise fulltime employee, per year. Through outsourcing, savings in the vicinity of 20-40 percent could be expected.

“The dollar savings however are just one consideration; the real benefit is enabling the organisation to focus on core business, enhancing customer service, quality of services and products, etc. enabling future growth,” he said.

Pointing to recent deals for Coles-Myer and several government departments, IDC research manager outsourcing and BPO, Aprajita Sharma, said that indeed HR outsourcing was taking off in Australia.

“It’s not a comprehensive move to [total] outsourcing, but areas like payroll and purchasing are moving that way,” she said. “Benefits administration – managing bonuses, share allocations etc – is also another big area.”

With a compound annual growth rate of 9 percent through to 2009 predicted for the HR outsourcing market in Australia, the sector stood to be a major opportunity for local service providers, Sharma said.

“There is no interest in off-shoring business process like benefits management,” she said. “Repeatable functions are off-shored but transforming functions like HR are processes organisations prefer to keep on-shore.”

While Compass’ Simon argued that organisations of all sizes could benefit from HR outsourcing, Sharma said that to date that only the top end of the market had made serious investments in the area.

“The interesting statistic in this area is that 70-80 percent of the spend comes from the top 0.2 percent of the market,” she said. “It’s the 500+ seat organisations, not SMB, where outsourcing is taking off.”