HR outsourcing is the delegation of one or more HR business processes or functions to an external provider, who, in turn, owns, administrates and manages the selected processes or functions, based upon defined and measurable performance metrics.
Typically, small companies (which do not have the competency to staff a full-fledged HR department) and very large companies (who wish to outsource all routine HR processes so that they can concentrate on core issues) are the ones that have been using HR outsourcing in a significant way. The focus for them is enhancing internal competence and is not just driven by cost.
However, there is a strong business case for all companies to seriously evaluate the role of HR and take a hard look at the activities that can be outsourced. The need to outsource non-core HR activities is supported by a growing awakening about the need to renew and strengthen the employee relations role and function and focus on business partnering.
As per Sloan School of Management, HR performs three basic roles in a company:
1. Basic administrative services and transactions role involved with compensating, hiring, training and staffing where the emphasis is on resource efficiency and service quality.
2. Business partner services role involved with developing effective HR systems and helping to implement business plans, talent management. Here the focus is on knowing the business and exercising influence--solving problems, designing effective HR systems to ensure needed competencies and talent.
3. Strategic partner role contributing to business strategy development and implementation based on considerations of human capital, organisational capabilities, and readiness. The intent would be to develop HR practices as strategic differentiators.
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