Integrated HR Outsourcing

HRO is the outsourcing of an integrated group of HR processes to an external partner. Typically the contract combines systems, end-to-end processes, HR staff, and infrastructure. HRO got off to a flying start in the late 90s with a series of landmark deals by major players, including BP Amoco, Nortel Networks, BT, and BAE Systems. Given the pivotal and pervasive role of HR, the choice between HRO and an in-house solution should be based on much more than a comparison of costs. Some observers claim that integrated HRO is intrinsically more difficult than other kinds of outsourcing. Others say that any lull in the double digit growth rates of HRO is an inevitable and natural hiatus between early adopters and mainstream acceptance, and that the HRO market is exhibiting many of the evolutionary characteristics seen in the initial stages of today’s more mature forms of outsourcing, like during IT outsourcing’s early days in the 1980s. Both analyses have some merit. But whichever of them is closer to the truth, the consensus now is that the trend for HRO is upwards.

While many early HR outsourcing agreements were based solely on the projected cost savings for the client, today’s outsourcing contracts should be based on the strategic value of the outsourcing relationship. In some cases, outsourcing may not fit with strategic goals. This is why it is imperative that, before embarking on an HR outsourcing arrangement, organizations achieve a solid understanding of costs and human resources service requirements. The first step should involve a sourcing diagnostic, which is an evaluation of the current state of HR in the organization. The sourcing diagnostic will result in a snapshot, capturing how and where the HR department is allocating its resources, in terms of people, process, and technology. The second step should be an examination of the HR department’s business objectives, along with a determination of the best ways to deliver on those objectives, either by outsourcing all or some HR components, or by not outsourcing anything. It is important to remember that, while outsourcing is one service delivery model, it is not the only one.