As HR/benefits outsourcing becomes a larger part of employers' overall business strategy, industry professionals' primary job no longer is putting out small fires. Rather, practitioners are blazing trails toward workforce and organizational development.
"One of the goals will be to turn HR from a back-office administrative role into a trusted business partner," says Jeff Croyle, partner and managing director for TPI's human resources practice, a global sourcing advisory firm. "If they can take that [administration] away, the resulting smaller HR function is going to be a trusted business adviser to internal organizations."
In addition to helping HR/benefits pros take on more leadership within their organizations, outsourcing offers "access to a greater level of expertise, whether it be expertise in the people or expertise in technology," says Glenn Neville, practice leader at Towers Watson.
Other outsourcing advantages include:
1. Increased compliance. A 2011 survey by Aon Hewitt showed employers rank compliance over productivity in determining absence management program success. So it's not surprising that the same survey showed that 41% of employers currently outsource leave of absence programs, compared to 17% in 2004.
2. Greater flexibility in response to change. Bswift, which offers software and services that streamline all aspects of HR, recently released a report showing that only 22% of employers still used manual benefits enrollment, and 45% (up from 21% in 2010) offered partial employee self-service enrollment in 2011.
"Outsourced solutions are able to leverage [automation] and make many changes on an ongoing basis," says Rich Gallun, CEO of bswift. "Last year, when every employer had to deal with the challenges of changing dependent eligibility rules in the face of health reform, in-house solutions had a difficult time being modified in a short time frame, whereas we delivered different options to clients in time for open enrollment last fall."
3. Decreased costs due to streamlining. Due to streamlines resources, outsourcing companies also can perform tasks at lower costs because of streamlining, Croyle says.
"As a result of growth, service providers started to grow their market share, and growth led to new technology and user-friendly self-service functionalities, which leads to a reduction in call-center representatives, which leads to lower costs in the bottom line," he says.
Outsourcing risks
While handing off tiresome and complex administrative benefits functions seems like a dream come true, it's not without potential risks:
1. Disorganization equals disaster. One misstep to avoid is for employers to ensure their benefits house is in order before partnering with an outsourcing firm, experts say. Failure to do so can lead to the failure of an outsourcing relationship.
"If [employers] don't have a buttoned-down process, and they're handing it off to a vendor, expectations can be widely missed," says Neville. He advises employers considering outsourcing to "spend a little time evaluating processes and get them in order before you ask a vendor to come take over. At least you know what you're handing over."
2. Sagging benefits of scale. Many companies want exclusive contracts that maintain a dedicated group of people to manage their work.
"[Some employers] don't want their processes to be mingled with any other company. This means that when you go into outsourcing HR, you see collections of people that are doing the same work that's being done by other teams," says Jim Champy, chairman emeritus for consulting at Dell Services. "There are real issues of how you get benefits of scale but still provide the same kind of service."
3. Employee dissatisfaction. Companies that have outsourced sometimes face dips in employee morale because of the switch.
"The biggest risk is that if it's not done well, employees will start to think that the company doesn't care about them," says Champy. In addition, more employee questions and complaints go toward an employer's internal HR/benefits team - which is the outcome employers are looking to avoid when outsourcing in the first place. "If you're going to outsource HR, you've got to make sure you have a quality provider," Champy advises.
Akin also says the first call from to a vendor is the most crucial: If a call is dropped, or the customer service representative doesn't answer cordially on the first call, employees will feel it.
"If [outsourcing vendors] deliver customer service in the first call, there will be less repeat calls," Akin says. "You're not having to develop strategies to deal with what the outsourcing people told your employees."
Making benefits like banking
Although outsourcing is not a perfect solution, there's no denying that when it works, it works.
"Outsourcing through technology can be a benefit for employees. Think of banking. Few go into banks to transact directly with tellers today, and we do our banking through technology. This gives us 24/7 access to those services," says Dave Ulrich, professor at the Ross School of Business, University of Michigan, and a partner at the RBL Group.
These days, employees don't necessarily expect to have someone down the hall to ask about how to reorder a lost health insurance card; they expect to go online.
"Companies tend to get used to it quickly. In fact, from a generational perspective, as we get the younger workforce in, they're completely comfortable with getting information about getting benefit information online," says Tammy Erickson, director of talent insight at Moxie Software.
If employees do get used to it, it creates a great space for the profession to grow.
"At the heart of HR is career development, advising and training," says Champy. Those things, he says, need to stay in-house. "If you can outsource the administrative functions, you can focus on careers."
