Why HR Is Turning to Outsourcing

By Laabs, Jennifer J. | Personnel Journal, September 1993 | Go to article overview

Why HR Is Turning to Outsourcing


Laabs, Jennifer J., Personnel Journal


Outsourcing--having an outside vendor provide a service that you usually perform in-houseisn't exactly a new idea. For years, companies have contracted with outside firms to perform such functions as mail room, payroll, security, data processing and a myriad of other services.

Now, HR professionals are beginning to see--with increasing popularity--the benefits of having outside companies perform some of the functions for which they traditionally have been responsible. These include recruitment, benefits communication, benefits plan design, retirement services and HR recordkeeping services.

Even within HR, outsourcing isn't all that new. For many years, certain HR functions have been outsourced by many companies, including temporary placement (temp agencies now even set up shop on-site), employee assistance programs, 401(k) plans, relocation, medical-claims processing, transaction processing and awards and incentives programs.

As companies demand that management constantly streamline the way the business operates, however, management is taking a closer look at how blending the services performed both inside and outside the organization can help contribute to the bottom line. In these evaluations, outsourcing has become one option on a larger menu of strategies. Some organizations are using it to re-engineer and streamline their HR departments and other functions to be more responsive to customer needs, both internally and externally.

Although outsourcing a function to a third-party vendor isn't always the right solution, say some business analysts, HR professionals are finding that, in the right situations, they can improve efficiency, save money, help focus energy and resources or improve the quality of services through contracting with a vendor.

There are several reasons why outsourcing recently has increased in popularity. Such factors as corporate restructurings, downsizings and the sagging economy have contributed to many outsourcing decisions.

Bruce Pittneger, managing director of general management consulting for New York City-based Towers Perrin, offered this observation at a recent conference: "Restructuring will produce a Swiss-cheese organization: one that has a solid overall form, but is missing pieces." Pittneger suggests that a company's missing pieces increasingly will be found outside the organization as strategic business units buy services formerly provided by staff fUnctions.

As the economy contracts, outsourcing will grow, explains The Trends Journal in a recent article. Faced with the high cost of payrolls and payroll taxes, health-care costs and other expenses associated with full-time workers, businesses increasingly will look to get work done through outside sources, the journal forecasts.

In the temporary-services area alone, outsourcing has become a way that companies can expand and contract their work forces without having the burden of keeping people on the permanent payroll. According to a survey titled The Olsten Forum on Human Resource Issues and Trends. sponsored by Westbury, New York-based The Olsten Corp., 18% (of those companies surveyed) currently outsource their entire flexible staffing departments to a third party.

"Outsourcing is a natural outgrowth of the temporary-services concept of balanced staffing, whereby a flexible ring of temps is added to a basic core of permanent employees on an as-needed basis," says Edward Grant, CEO of Career Horizons, Inc., which is the parent company of Woodbury, New York-based TempForce, Inc. "Outsourcing is proving to be an effective cost saver in helping companies climb out of this recession."

Is outsourcing just a fad? Or is it more than that? According to the 1993 Trend Forecast by The Trends Journal, outsourcing is tenth on a list of trends that are "in" this year, suggesting that next year it possibly could be "out."

Outsourcing also is number ten on Rochester, Wisconsin-based Runzheimer International's list of current industry trends. …

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