HR outsourcing now an option for mid-sized firms, vendors say

Once the exclusive domain of giant corporations, outsourcing the HR function is now on the table for organizations with as few as 2,000 employees

Molson. Air Canada. CIBC. BMO. It’s a pretty impressive list of some of the giants in Canadian industry. What do they have in common? Outsourcing the HR department. They’ve all tinkered with the idea of, or have implemented, moving the non-strategic parts of their human resource function and shipping them off to a third-party.

Outsourcing the HR function has been, for the most part, the exclusive stomping ground of very large organizations. It simply didn’t make sense from an economic standpoint for organizations with less than 10,000 workers to consider dumping the HR function to an outsource provider.

But the times, they are a changing, at least on the HR outsourcing front. Technology has evolved and dropped in price, and vendors are co-operating in an effort to offer a complete HR outsourcing solution to mid-sized firms.

Accenture HR Services recently announced a partnership with three firms that allows “smaller” organizations — those with 2,000 to 10,000 employees — to outsource HR.

Glenn Davidson, director of configurable HR outsourcing solutions for mid-sized organizations for Accenture HR Services, said firms in this category have the same needs and wishes as large clients when it comes to outsourcing, but many vendors haven’t been able to offer the total package at an affordable price.

“They want to reduce costs, improve services and focus on their core activity,” said Davidson. “They want workforce analytics, they want employee self service and manager self service and all those tools and techniques that the bigger companies have and they’ve been led to believe that they should have.”

But getting these services is easier said than done. The technology has been expensive, implementations time-consuming and organizations have had to piece together new systems with old systems to get everything humming. At a recent HR technology tradeshow in Chicago, Davidson said he saw plenty of people trying to learn as much as possible about the array of offerings in the market.

“I can’t tell you how many people are going booth to booth just to learn as much as they can, for instance, on all the recruiting software that exists or all the performance management software that exists,” he said. “They want the new tools but they really don’t want to have to deal with its purchase, its implementation and its ongoing use. They’re looking for an outsourced solution, and nobody’s been able to do it.”

Accenture tried to do it on its own, but the business case just didn’t make sense. Davidson said they could have built something from scratch but it would have taken Accenture 18 to 24 months, at a minimum, to come up with an HR outsourcing system for mid-sized employers.

“I’m not sure, at the end of this, I would have been at a price point that I would have been able to deliver these services to customers because I would have had to increase the costs to recoup my own investment and time,” he said.

So, in lieu of its own system, it decided to form a partnership with three outsource providers — Genesys (for payroll), Spectrum HR (for the bulk of the HR activity) and CitiStreet (for pensions) — to provide a total package for mid-size employers that is controlled and managed by Accenture.

“Customers will be able to avoid the upfront capital costs, they will reduce their overall HR costs, they’ll get rid of the day-to-day transaction management activities that they’ve had to incur for so long so that they can focus on their more core activity” said Davidson. “And we’re going to deliver it at a price point that we believe is going to be really competitive and it’s certainly going to raise eyebrows in the industry.”

Van Zorbas, a senior outsourcing consultant with Hewitt Associates, an HR outsourcing and consulting firm, said many outsource providers have been in the medium-sized market for quite some time.

What’s changing now, though, is that organizations in the 2,000 to 10,000 employee-range are looking for bundled offers from outsourcing providers rather than just one service, such as payroll or pensions, as has been the case in the past.

“That’s where the real demand is coming from,” said Zorbas. “Things like benefit administration or defined contribution administration have been outsourced for a long period of time, but now bundling together with one provider that can provide payroll services and HRIS information services is really something that’s a hotbed.”

Technology has made bundling an array of services together feasible, because different systems can be tied together and have one common source of data, he said. That hasn’t always been the case.

“I think it’s definitely the technology that has changed,” he said. “The cost to get into technology has changed, so the amount that it costs to actually set up these systems is starting to come to an economic situation where it makes sense and it allows them to have some savings and allows them to integrate all these platforms together and that’s really what has been the driver at the mid-market level.”

And while completely outsourcing the administrative portion of the HR function is tough for organizations with fewer than 10,000 employees, let alone 2,000, he said he can see a point in the future where even the smallest organization can reap the benefits of outsourcing the HR department.

“I definitely foresee in the future the technology allowing companies that are 100 workers or 10 workers even to have virtual HR departments,” said Zorbas. “They already outsource their IT infrastructure or their IT support centre to Dell or a company of that nature.”

In Canada the mid-sized market is the fastest growing segment of the business, simply because there aren’t that many organizations with more than 10,000 employees, said Zorbas.

“It’s just because of the marketplace in Canada,” he said. “I think globally you would say bundling (of HR) services for more than 10,000 is the fastest growing market in outsourcing. But here in Canada, the reality is that we don’t have many global organizations with that many employees.”

To read the full story, login below.

Not a subscriber?

Start your subscription today!