To Outsource Or Not To Outsource, These Are The Questions

If Only We Could, Tea Party First!

Before Bill Kutik has a chance to tease me about the intensity (aka length and depth) of this post, be forewarned that there is serious “how to” material below.

Every organization outsources parts of HRM, almost no matter how your define outsourcing.  From using 3rd parties to do background checking or COBRA administration (both of which are always done with some flavor of BPO, with the provider supplying the people, process and technology) to using 3rd party assessments and drug testing services to every flavor of 3rd party payroll services, outsourcing is central to the HRM delivery system — and it has been for as long as I’ve been working.  So the question isn’t should we or shouldn’t we outsource but rather what, when, how, to whom, at what cost, with what governance, etc. 

The right way to approach HRM outsourcing is to consider this option for various HRM processes in the context of developing an overall strategic HRM and HRMDS plan.  Just “Follow The Yellow Brick Road” (https://infullbloom.us/?p=823  https://infullbloom.us/?p=848  https://infullbloom.us/?p=865  and  https://infullbloom.us/?p=885) to develop your plans if you don’t already have them. 

But with or without having developed such a strategic HRM and HRMDS plan, because of the prevalence of outsourcing in HRM, we’re always getting hit with the “Why don’t we outsource X?” questions.  The purpose of this post is to equip you to get in front of those expressions of outsourcing interest or opportunities for further outsourcing so that you’re not blindsided and immediately on the defensive.  Using these questions may buy you enough time to do a proper strategic HRM and HRMDS plan so that you’re not caught off balance by the next outsourcing suggestion/proposal.

When you’re faced with the “Why don’t we outsource X?” question, or preferably before you get that question, you should always ask (and be prepared to answer) the following:

• Is this outsourcing proposal compatible with our strategic business and HRM plans (e.g. to improve our competencies in our strategic HRM processes), or is it intended to address temporary tactical problems (such as a reluctance to invest in the next HRMS upgrade)?
• Are the outsourcer’s employees going to give us better service than our own workforce? Why? How? In the face of tight deadlines and downward pricing pressures?
• What will we do with any displaced staff?  Are we prepared to let them go or do we really have better, more important, more profitable uses for their KSAOCs?
• How will we continue to develop excellent HRM and HRMDS strategists, HR generalists and specialists, and HRM software vendor and outsourcing provider managers if we accept this outsourcing proposal?  With this part of HRM done by a 3rd party, what will we give up in developmental opportunities?  Does it matter?
• How will we control costs with sufficient granularity if the provider bundles everything into one fee?  What pricing structure(s) would work best for us?  Is that what is proposed?
• What are the implications of this outsourcing proposal if we merge with another organization of our size? What if we divest a major part of our organization?
• What are the implications of this outsourcing proposal if another organization wants to buy us?  Are there any unattractive contract buyout provisions?  Any unattractive migration considerations if we were to move to the acquirer’s capabilities?
• What are the implications of this outsourcing proposal if we sell off peripheral businesses and focus on our core business(es)? 
• How are contract fees adjusted when business activity slows and/or we downsize?  What about when we grow and/or business activity quickens?
• How do we know that these financial projections are accurate?  What assumptions (simplifying, optimistic, or plain misleading) have been used to prepare these numbers?
• Since change is a sure thing, how can we be sure that the proposed outsourcing contract will protect us as much as it protects the outsourcing provider when change happens?
• Against what change scenarios should we test this proposal?
• What changes will our employees/managers notice?  Will these changes be received as positive?  What’s the upside and downside on their reactions on their productivity and on organizational outcomes?
• Will our best HR and HRMDS staff resign the minute they sense the intent of this outsourcing proposal?  What’s the upside and downside if they do?
• Why is this being discussed/proposed now?  What’s the impetus for this outsourcing proposal?
• Is the timing of this suggestion/proposal convenient with respect to our HRMDS planning cycle, budget cycle, organizational change cycle, etc.?
• What is the fit between what’s being proposed in terms of process design, data structures, business rules, etc., and what we do today or wish to do?  What scenarios should we use to test all the important topics?
• Is the impetus for this outsourcing proposal contained in an investment plan to bring our current HRMDS to meet the standard needed to sustain our business? 
• If we took a careful look at what our HRMDS needs to support our business outcomes, would we be shocked by the level of investment?
• Are there any unspoken motivations behind this outsourcing proposal, e.g., is it a substitute for examining what may have been poor decisions already made in our choice of ERP vendors, systems integrators, benefits consultants, etc.?
• Are there internal politics at work? Is it possible that the proposer is hoping to deflect attention from their own part of the organization by stirring up some dust in HR?
• Is it possible that the outsourcing provider putting forth this proposal has something other than our business needs and best outcomes in mind?

If you think these are tough questions, the best are yet to come!  Here are more zingers for evaluating any unsolicited outsourcing suggestions/proposals that come at you, not as an intended and very sensible byproduct of strategic HRM and HRMDS (human resources management delivery systems) planning—although they’re useful in that context as well—but as a response to the “Why aren’t we moving more aggressively to HRM BPO?” question often asked by a returnee from the latest provider briefing or sales event cloaked in thought leadership.  Here we go:

• Who’s going to manage the financial aspects of this outsourcing proposal to ensure that we achieve the intended results?  How?  Do we have the people, processes, and technology to do this effectively?  What would it take to put them in place?  Has this been factored into the outsourcing idea or proposal?
• Who’s going to manage the implementation, including systems integration, aspects of this outsourcing proposal to ensure that we achieve the intended results? How? Do we have the people, processes, and technology to do this effectively?  What would it take to put those people, processes, and technology in place?  Has this been considered in the outsourcing proposal?
• Who’s going to manage the performance aspects of this outsourcing proposal to ensure that we achieve the intended results?  How?  Do we have the people, processes, and technology to do this effectively?  What would it take to put those in place? Is this part of the business case for the outsourcing proposal?
• Has our lawyer negotiated at least as many HRM outsourcing contracts as the outsourcing provider’s lawyer?
• Do we have the legal and vendor management horsepower needed to make this work for our organization?  What is that aspect of the arrangement going to cost?
• Where will our HR executive, CFO, CIO, or other executives be two years from now?  Will they be as enthusiastic (or as unenthusiastic) about this proposal if they are going to be judged long-term on how well this strategy works for our organization?
• Where will our outsourcing provider’s account executive, operations executive, or other executives be two years from now? Do they have as much at stake as we do professionally? What’s their track record for delivery? What’s their record for staying in place long enough to experience the reality of meeting their commitments?
• What if the outsourcing provider our organization likes and selects is then acquired by an outsourcing provider our organization rejected because of their management style, ethics, customer service track record, technology, geographic coverage, etc.?
• How easily can our company get out of the outsourcing contract?  What if the outsourcing provider we like and selected decides to exit the business (for whatever reasons)? How easily can our organization find another provider, migrate to that provider, and absorb the costs and disruption of such a change?
• Frankly, how can our organization escape from any comprehensive HRM BPO provider, among many other considerations, when a full self-service rollout is part of the proposal and any change in that rollout, e.g. to another provider’s self-service software, would be visible and disruptive to our entire workforce?
• If we accept this outsourcing suggestion/proposal, is there any going back once it’s implemented?  If our company changes its mind in two or three years, what’s involved in bringing this activity, function, process, or integrated processes, along with the relevant HRMDS components, back in-house?
• What would it take to move to another provider once we have implemented with the first one?
• Is our company going down an irreversible path? Do we care?

As strongly as I support the use of HRM outsourcing — from gaining access to expertise via the use of expert resources to using business applications packages rather than “rolling our own” to every flavor of HRM and IT process outsourcing — there really are some outsourcing proposals that should be drowned at birth.  Hopefully, some of the above questions can be used, judiciously, as the cement shoes for that purpose.  But even when the outsourcing suggestion/proposal is otherwise reasonable, when it has emerged during a well-run strategic HRM and HRMDS planning project, there are still many questions you need to ask to address the fit between the outsourcing suggestion/proposal and your way business needs and way of doing business.  There are also important questions about what potential providers can offer, and why you would consider a specific approach and provider.  Sounds like we’ll need some more intense posts before we leave this topic.