If the Shoe Fits ...: Before Outsourcing Your HRMS, Make Sure the Provider's Systems Are a Good Match for Your Long-Term Business Needs

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Outsourcing an HR management system (HRMS) platform--paying someone else to run, maintain and upgrade the software at your site or theirs--can save money and improve service. But the HR executive who is choosing an outsourcing partner should determine whether the provider is committed to investing in technology and people over the long haul, and whether the provider's systems have the capabilities needed to meet the customer's specific technology and business requirements.

The long-term benefits can be substantial, but HR executives who think outsourcing is easier than selecting and implementing their own HRMSs are in for a rude awakening.

"This can be more bewildering than choosing an HRMS," says James Holincheck, an analyst at Gartner Inc., an information technology (IT) research and consulting firm in Stamford, Conn. For example, the relationship between customer and outsourcer needs to be tighter than the relationship between customer and HRMS vendor, he says. "Choosing an outsource partner is a hard and complex decision because there are more dimensions than choosing HRMS software."

Further complicating this decision is the fact that HRMS outsourcing is still in its infancy, relative to other forms of outsourcing. In a survey of 122 large companies last year, The Conference Board, a New York-based business research and consulting firm, and Accenture HR Services, based in Chicago, found 8 percent had fully outsourced their HRMSs, 18 percent had done so partially, and 14 percent had plans to do so. By comparison, 76 percent had fully or partially outsourced their 401(k) programs, and 8 percent planned to do so, according to the Conference Board/Accenture survey report, HR Outsourcing: Benefits, Challenges and Trends.

The main reason companies outsource their HRMSs is to reduce costs. "Many companies are looking ... to reap the benefits of new technology without capital investment," the Conference Board/Accenture study concludes. About 80 percent of the survey respondents listed cost savings as their driving motivation.

However, many larger companies, while also interested in managing HR costs, are fueling the growth in HR outsourcing with their efforts to move beyond transactional HR. That requires a solid partnership between the employer and the provider. (For more information, see the Special Report on HR Outsourcing in the July 2004 issue of HR Magazine.)

But when it comes to finding that kind of partnership, large companies face both a challenge and an opportunity--one that smaller firms may not be able to afford: considering the pros and cons of what Lowell Williams, vice president and …