There are pros and cons to be had – it’s all about avoiding the pitfalls
Let’s time travel back 20 years. Take a company of about 500 staff, with the HR department employing nine employees — an HR manager, HR co-ordinator, HR administrator, secretary, payroll and benefits manager, benefits administrator, health and safety manager, two payroll administrators and a labour relations manager, with support from a vice-president and a CFO.
Almost all HR expertise came from in-house generalists and specialists. External resources were required only occasionally — a headhunter, a labour lawyer, an actuary and an outplacement firm.
Fast forward to 2016. There is little possibility the HR structure for a 500-person company would look the same. With downsizing, rightsizing and restructuring, HR departments are leaner. HR staff need to be generalists with knowledge in many areas — knowledge a mile wide and an inch deep — from the strategic to the tactical. Automation and technology have reduced HR staff counts.
With the streamlining of HR functions, the increasing use of technology in HR and the complexity of HR issues, it is virtually impossible for an HR practitioner to be knowledgeable and experienced in all areas of human resources.
Just-in-time HR has become a necessity for companies to maintain effective HR functions.
Just-in-time HR enables companies to outsource HR functions to external providers as needed, bringing resources in-house when required, and redeploying resources or ceasing relationships when they are no longer necessary. It’s like the car sharing company Car2Go — borrow a car where and when needed, drop it off when finished, keep it all day if desired, and pay only for the time used.
When just-in-time HR works, the benefits are numerous:
Expertise: Companies get the most current, up-to-date information when it is needed. It’s difficult for one person to know everything about the changes in foreign recruitment practices, newest benefits plan options, the pros and cons of different peer recognition software or the latest apps for employee training. Bringing in specialists as they are required shortens the learning curve and allows for quicker implementation.
Financial control: Pay for services only as they are required. Rather than committing to a full-time salary for an internal HR staff member to have or obtain the necessary knowledge, only pay for the service that is used. By outsourcing some of the HR functions, companies save on the costs of salaries, benefits, perks, pension contributions and other costly payroll expenses.
Best practices: External providers that specialize in a particular area of HR will be current on best practices in the field. They will be aware of or be on the cutting edge of research in the field. By relying on these experts, companies will be at the forefront of HR best practices and make informed decisions on what should be implemented internally.
Outsourcing HR functions, however, doesn’t come without challenges.When done poorly, companies may be in a worse position than they would have been had they done nothing at all.
As an example, a company wanted to automate its performance review and 360-degree feedback process. Rather than designing a system in-house, it decided to outsource the set-up and administration, and automate the process. It spent hours sourcing providers, invested thousands of dollars to set up the software, and trained all managers and staff on how to use it.
One year later, it found the product wasn’t doing what was intended, it couldn’t be adapted to the culture, and the provider increased the rates by moving from a one-time licensing fee to a monthly subscription model. As a result, the company changed providers, went through the set-up and training process again, and re-launched a new system, costing it hours and dollars.
Some common pitfalls to avoid when examining a just-in-time HR model are:
Communication breakdown: If HR functions are outsourced to external providers, information and communication flow may become hindered. Companies will want to ensure relevant information is shared with the outsourced providers so they can perform their functions effectively.
If multiple providers are used, communication is further complicated because these providers may need to have strong communication between them to ensure they are not operating at cross-purposes.
Management required: Outsourcing does not mean internal staff can simply let an external party manage the entire function they have been delegated. An external HR provider, while they have the expertise, still requires management.
The client company still needs to set direction, convey the vision and follow up regularly to ensure processes are on-track. Companies must spend time to ensure external providers are doing what they say they will do and are adding value.
Employer brand dilution: An external provider should be treated as an extension of a company’s employer brand. By outsourcing HR functions, the employer brand may become diluted if the provider is not acting in accordance with the company’s values, mission and vision, or if the employee experience becomes inconsistent.
Extra effort may be needed to ensure external providers can and do represent the company’s culture, message and tone. This is particularly important if the provider is in contact with employees on a regular basis.
When considering outsourcing HR functions or engaging with external HR service providers, ask the following:
• Do they possess skills or expertise not currently available in-house or not needed on an on-going basis?
• Have they been in business a sufficient length of time and will they be around for the foreseeable future?
• If considering a technology solution or SaaS model, do they have a sufficient customer base to have worked out the bugs, or are they looking for guinea pigs to test their model?
• How do they remain up-to-date on the latest developments or best practices in their area of expertise?
• How will you manage the external provider and integrate them into your existing HR department infrastructure?
Whether just-in-time HR will become the predominant way HR departments operate remains to be seen. What is undeniable, however, is the pace of change and the advent of new technology make it difficult for HR practitioners to be experts in all functional areas. Reliance on external providers can make a lot of sense.
Cissy Pau is the principal consultant of Clear HR Consulting, a Vancouver-based firm that offers HR consulting and downloadable HR solutions for small businesses. For more information, visit clearhrconsulting.com.