Impact of HR Outsourcing on Business Performance

Figure 01

Outsourcing on Business Performance

Human resources outsourcing evolved from hiring payroll processing companies in the 1990s to delegating tasks previously performed by human resources assistants and specialists, such as recruiting, coordinating benefits and handling unemployment claims. Some small businesses outsource entire human resources departmental functions; however, many companies outsource singular processes.

Who Outsources HR Processes

Figure 02

Small businesses to large corporations decide for one reason or another that outsourcing human resources functions is a way to improve efficiency and minimize staffing costs. Large organizations that employ thousands of people may find it's simpler to outsource a process, such as payroll, rather than employ two to three payroll clerks and purchase sophisticated technology than engage the services of a company that focuses entirely on processing payroll. The growth rate of HR outsourcing is likely to increase as more small businesses focus on their product and service offerings instead of staffing an in-house human resources department. (Birkinshaw, 2001)

HRO Effect on Business Performance

Figure 03

Business performance is an important consideration when small business owners weigh the pros and cons of HRO. One school of thought is that a small business can focus its energy and expenditures on developing the product it sells. This enables a small company to allocate its resources to areas that include engineering and research and development, instead of recruiting staff, maintaining personnel files and other human resources tasks. The other school of thought has more to do with human capital and talent--a small business owner may find herself without the talent she needs to build an efficient human resources department. In this case, HRO resolves the dilemma small business owners face during the search for an in-house human resources expert. In the first scenario, a small business directing its focus on product design and sales may determine the expense of HRO can be easily justified by more attention given to product sales. A small business that doesn't have the requisite talent to lead a human resources department can justify the expense of HRO by the confidence in the level of competency HRO companies offer. (Beckstead, 2009)

Continued Impact on Business Performance

Figure 04

When small businesses initially utilize HRO services for transactional processes, the selection of a strategic human resources leader can become a priority. The search for human resources administrative practitioners without expertise in HR strategic management can then take a backseat for now. An HR strategic partner should be the first hired for development of a human resources department. OutsourcingInformationTechnology.com editor Beth Rosenthal observes, "Small-to-medium businesses may have a hard time recruiting highly skilled staffers without the benefits they expect. Once your company carves a position in the market with your product offering, your executive leadership team--including your human resources executive--can then begin to work collaboratively to form a full-service human resources department and bring in-house those previously outsourced functions. Still, you may discover that outsourcing some human resources functions is in the best interest of the company. As your business grows, resources committed to HRO may turn into a wise, long-term decision that improves the services your human resources department can provide to its internal customers, your employees.

References

Beckstead, 2009. Transforming talent into strategic impact. Journal of Service Research, 3(1), pp.12-17.

Birkinshaw, 2001. Continued Impact on Business Performance. Impact of HR Outsourcing on Business Performance, 13(2), pp.131-37.