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AHRI PULSE SURVEYHR OUTSOURCING

HR:PULSE

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The outsourcing of HR activities is certainly not a new phenomenon. For many years organisations have engaged third parties to perform business functions on their behalf. That more than half (53 percent) of the respondents to this survey report that their organisations fully or partially outsource some of their HR activities, is an indication of the prevalence of the practice. With advances in technology, however, the solutions offered by outsourced organisations are becoming increasingly innovative and tailored to the specific needs of organisations. As a result outsourcing is becoming an increasingly attractive business in Australia and the broader Asia-Pacific region. The fact that one in five respondents (20 percent) whose organisations don’t currently outsource, indicate a plan to do so in the next three years, is indicative of a trend.

Many respondents note that because the human resources function is integral to organisational success, it is crucial that outsourcing optimises rather than limits HR and wider business capability. Encouragingly, six out of ten respondents (60 percent) believe outsourcing HR has positively impacted on HR’s ability to focus on strategic operations, with the same proportion reporting it has positively affected the productivity of in-house HR employees. That said, a substantial minority of respondents (31 percent) believe outsourcing HR negatively affects career development opportunities for HR employees, with a similar proportion (31 percent) reporting a negative impact on the operational costs of HR.

Early in my own career, I learned the two fundamental laws of outsourcing – you don’t outsource a business function you don’t properly understand, and you don’t outsource an activity which is part of the organisation’s strategic competitive capability. The results of this latest

AHRI survey show these two laws of outsourcing are still true today. In my view, to fully outsource HR is probably asking for trouble, and an inevitable later reversal when the top team that did it is itself also turned over. Selective outsourcing of HR makes sense and these survey results give good guidance as to where, and how this can happen in the best interests of the organisation and its people.

The results of this survey illustrate that the potential side effects of outsourcing HR functions should not be underestimated. While there are many potential benefits, there are also risks, and it is vital that organisational context, culture and goals are factored into decision making. As the survey findings indicate, experiences of outsourcing vary from organisation to organisation, and there are no definitive answers as to whether organisations should or should not go down this route. The findings of this survey suggest that organisations are well advised to undertake thorough research on the capability of providers, cost-benefit analysis, risk-assessment and identify a clear sets of objectives in order to find best solutions.

Peter Wilson AM Chairman Australian Human Resources Institute

FOREWORD

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This is the first HR Pulse survey that AHRI has conducted on HR outsourcing. I trust the findings in this report offer some useful insights into the AHRI members’ views and experiences of outsourcing HR activities. The results offer a mixed bag of perspectives, and it is clear that the jury is still out on many of the issues involved. It will be interesting to conduct a similar survey in the near future in order to compare results

I would like to take this opportunity to express my appreciation to those members who contributed to the survey, and I trust its findings will be of value and interest to HR practitioners and the organisations that employ them.

AHRI members are able to access further information on HR outsourcing via the AHRI Assist portal.

Lyn Goodear Chief Executive Officer Australian Human Resources Institute

Acknowledgements

Project Sponsor: Peter WilsonProject Director: Lyn GoodearResearch Coordinator: Dana GrgasAuthors: Paul Begley, Femi Hardwick-Slack Design: Jasmine Atay

AHRI would also like to thank its Research Advisory Panel members for their input into this survey.

© Australian Human Resources Institute, October 2015

FOREWORD

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SURVEY OVERVIEW

The survey that resulted in these findings was conducted online in June and July of 2015, and communicated by email to a sample of the member database of the Australian Human Resources Institute.A total of 332 respondents returned answers to the survey. Responses were treated anonymously.

You should only outsource, when you are positively certain that the function, talent or expertise cannot be performed by, or does not exist in, the current HR department.”AHRI survey respondent

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KEY FINDINGS AT A GLANCE

• More than half of respondent organisations (53%) either fully or partially outsource some of their HR activities

• Of the organisations that outsource, the top three activities outsourced are:

1. Employee assistance/counselling (fully or partially outsourced by 86.3%)

2. Training and development (fully or partially outsourced by 82%)

3. Executive development/coaching (fully or partially outsourced by 81.4%)

• The top three reasons why organisations choose to outsource are:

1. To access skills not available internally (54.3%)

2. To reduce operational costs (41.7%)

3. To increase HR’s capacity to operate strategically (29.1%)

• Around six out of ten respondents believe outsourcing HR has had a positive impact on the productivity of HR employees (62%) and on the ability to focus more on strategic operations (60%)

• Outsourcing has had the least positive impact on career development opportunities for HR employees, with only 20.1% of respondents reporting a positive effect in this area. This is followed by the effect on the engagement levels of HR employees, with just a third (32%) of respondents reporting a positive impact in this area.

• Almost half (49%) of respondents believe their organisation will increase the scale of outsourcing in the next five years. This is greater than the proportion of respondents (37%) who would like to see their organisation increase the scale of outsourcing.

• The top three reasons why organisations choose not to outsource are:

1. To maintain full control of all HR functions (50.8%)

2. To develop expertise in-house (34.9%)

3. Concerns over the effect it may have on the service delivered (33.3%)

HR outsourcing provides access to better processes, systems and support in an efficient and flexible manner.” AHRI survey respondent

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DEMOGRAPHICS

TABLE 1: ORGANISATION INDUSTRY332 RESPONSES

ANSWER COUNT PERCENTAccommodation and Food Services 5 1.5%

Administrative and Support Services 8 2.4%

Agriculture 7 2.1%

Arts and Recreation Services 1 0.3%

Construction 12 3.6%

Education and Training 43 13.0%

Electricity 3 0.9%

Financial and Insurance Services 16 4.8%

Health Care and Social Assistance 42 12.7%

Information Media and Telecommunications 13 3.9%

Manufacturing 25 7.5%

Mining 12 3.6%

Professional 48 14.5%

Public Administration and Safety 23 6.9%

Retail Trade 10 3.0%

Transport 8 2.4%

Wholesale Trade 5 1.5%

Other 51 15.4%

FIGURE 1: ORGANISATION SECTOR 332 RESPONSES

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DEMOGRAPHICS

FIGURE 2: WORKPLACE LOCATION332 RESPONSES

FIGURE 3: NUMBER OF EMPLOYEES IN ORGANISATION332 RESPONSES

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DEMOGRAPHICS

TABLE 2: OCCUPATION 332 RESPONSES

FIGURE 4: WORKPLACE STATE OR TERRITORY332 RESPONSES

ANSWER COUNT PERCENTAcademic 4 1.2%

Accountant/Finance 1 0.3%

Administrator 6 1.8%

Barrister/Solicitor 1 0.3%

Consultant 35 10.5%

HR Administrator 11 3.3%

HR Coordinator 16 4.8%

HR Advisor 53 16.0%

HR Manager 73 22.0%

Senior HR Manager 58 17.5%

Director/GM/CEO/Executive 50 15.1%

Other 24 7.2%

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DEMOGRAPHICS

FIGURE 5: GENDER332 RESPONSES

FIGURE 6: AGE GROUP332 RESPONSES

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DETAILED FINDINGS

Figure 7 reveals that just over half (52.7%) of respondent organisations currently outsource (either fully or partially) some of their HR activities. Just under a tenth (9.3%) of respondents do not currently outsource any HR activities but plan to in the next three years, while the remaining 38% do not outsource and have no plans to do so in the future.

WHAT PROPORTION OF ORGANISATIONS OUTSOURCE HR ACTIVITIES?

FIGURE 7: DOES YOUR ORGANISATION CURRENTLY OUTSOURCE (FULLY OR PARTIALLY) ANY OF ITS HR ACTIVITIES? 332 RESPONDENTS

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ORGANISATIONS THAT CURRENTLY OUTSOURCE HR ACTIVITIES

FIGURE 8: WHAT ACTIVITIES DOES YOUR ORGANISATION OUTSOURCE?175 RESPONSES

Employee assistance/counselling is the most frequently outsourced activity, and is fully or partially outsourced by 86.3% of respondents’ organisations. This is followed by training and development, which 82% of respondents report is fully or partially outsourced, and then executive development/coaching, which 81.4% report to be fully or partially outsourced.

Performance appraisal is outsourced the least, with only 10.9% reporting that this is outsourced in their organisation.

Figure 8 also reveals that organisations are more likely to fully or partially outsource the recruitment and selection of executives than non-executives. Almost three-quarters (73%) report that the recruitment of executives is fully or partially outsourced, compared with 63.6% for non-executives. Likewise 40.7% report the selection of executives is fully or partially outsourced, compared with 33.8% for non-executives.

DETAILED FINDINGS

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FIGURE 9: WHAT IMPACT HAS THE OUTSOURCING OF HR ACTIVITIES HAD ON THE FOLLOWING?175 RESPONSES

Figure 9 reveals that 61.7% of respondents believe outsourcing has had a positive impact on the productivity of HR employees. A similar proportion (60.3%) report that outsourcing has had a positive effect on HR’s ability to focus on strategic operations .

The results indicate that outsourcing has had the least positive impact on career development opportunities for HR employees, with only 20.1% of respondents reporting a positive effect in this area. This is followed by the effect on the engagement levels of HR employees, where just under a third (32%) report a positive impact.

DETAILED FINDINGS

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OTHER IMPACTS OUTSOURCING HAS HAD ON THE ORGANISATION?Respondents were asked to describe any additional impacts outsourcing has had on their organisation. Below is a sample of the comments provided.

POSITIVE“ Ability to focus more on staff and to support other

smaller divisions within the company who are without internal HR”

“ Reduction of risk and legal compliance has significantly improved. Furthermore, change management has taken place much faster than normal as HR is not directly involved in internal politics, which have prevented HR improvement”

“ Business partners are able to focus on the tactical and strategic needs of their business rather that the transactional operational work.”

“ Widens the availability of service when we need it”

“Provides flexibility in working options for HR team e.g. part time”

NEGATIVE“ Having the administration of payroll outsourced

has led to a disconnect between HR and payroll.”

“ De-skilling our own staff and creating a climate of anxiety about which role will go next.”

“ Lack of appropriately skilled resources at critical times (shared resources), lack ability to select HR resource based on skill set required. HR don’t have a profile, we have to remember to engage them, they don’t know the business or the industry. A major fail for us as a method of service provision”

“ Has shifted more work to people managers in the business; increased frustration for HR because outsourcers do not manage the whole issue and make mistakes”

“ Non HR employees felt under-supported when we took their HR colleagues into centres of excellence and remote services were implemented”

“ Reduces collaboration across HR functions and synergy of business-wide functions”

DETAILED FINDINGS

All depends on what types of services are being outsourced and the quality and structure of the service being delivered.” AHRI survey respondent

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TABLE 3: WHAT ARE THE MAIN REASONS WHY YOUR ORGANISATION OUTSOURCES SOME OF ITS HR ACTIVITIES? (UP TO 3 ANSWERS COULD BE SELECTED) 175 RESPONSES

ANSWERS COUNT PERCENTAGEReduce operational costs 73 41.7%Improve service delivered to employees 48 27.4%To reduce number of HR employees needed 45 25.7%Access to skills that are not available internally 95 54.3%Access to more advanced technology 14 8.0%Improve service efficiency 38 21.7%Relieve pressures on HR employees 39 22.3%Increase HR’s capacity to operate strategically 51 29.1%Improve metrics/measurements 2 1.1%Improve reduce legal risk/improve compliance 45 25.7%Other 11 6.3%

Table 3 indicates that organisations’ main reasons for outsourcing HR activities are quite varied, and many of the options have a similar level of representation. The reasons given most frequently were to access skills not available internally (54.3%), to reduce operational costs (41.7%) and to increase HR’s capacity to operate strategically (29.1%).

FIGURE 10: IN THE NEXT FIVE YEARS, DO YOU THINK YOUR ORGANISATION WILL...175 RESPONSES

Figure 10 reveals that almost half of respondents (49.1%) think their organisation will increase the scale of outsourcing in the next five years. Just over a third of respondents (37.1%) believe the scale of outsourcing will remain the same, while only 13.7% believe it will decrease.

DETAILED FINDINGS

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REASONS WHY THE SCALE OF OUTSOURCING IS EXPECTED TO INCREASE

“ Keep overhead costs low, outsource to “experts” who can provide quick turnaround”

“ To get access to more sophisticated technology and skills in areas that we currently do not have”

“ Ensure that our HR staff are not overloaded and for specialist skills that we no longer have in the business”

“ To focus on core strategic tasks”

“ As business builds its confidence in outsourcing partner’s capabilities, we can look to outsource broader, more complex activities”

“ The need to access more efficient and flexible HR services that can harness up to date technology solutions quickly”

“ Reduce staff numbers”

REASONS WHY THE SCALE OF OUTSOURCING IS EXPECTED TO REMAIN THE SAME“ Our company has struck a good balance which

has taken many years. Any changes will be minimal and negligible.”

“ We outsource to access skills that are rarely needed. For example, outplacement services for redundancies. We don’t foresee this increasing or decreasing in the next five years.”

“ We intend to build the internal HR team in headcount and also experience”

“ I think we have the balance right between what should sensibly be outsourced and what should remain in-house. Outsourcing everything would provide a real disconnect between the organisation and the service and be detrimental to the operation of the business.”

“ The CEO doesn’t like spending money on items that can be done internally as a job cross skill function”

“ We only look to outsource activities which are outside our scope of expertise and we will not be looking to increase our staffing levels during this period.”

REASONS WHY THE SCALE OF OUTSOURCING IS EXPECTED TO DECREASE“ Build capability internally”

“ Gain more appropriate skills embedded in the organisation, gain better value (cost may be higher but value improvement expected).”

“ Payroll outsourcing has not been effective. Error rates have increased”

“ As the company grows, there will be more opportunity to increase the internal HR team.”

“ Service provided is not satisfactory and our business has lost control of processes, timescales and service standards. Large number of errors with payroll, general HR functions and lack of communication from the provider is driving the decision to cease outsourcing.”

DETAILED FINDINGS

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Figure 11 shows that 36.6% of respondents would like to see their organisation increase the scale of outsourcing, 45.7% would like it to remain the same, and 17.7% would like the scale of outsourcing to decrease.

FIGURE 11: IN THE NEXT FIVE YEARS, WOULD YOU LIKE TO SEE YOUR ORGANISATION175 RESPONSES

DETAILED FINDINGS

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RESPONDENTS’ REASONS FOR WANTING TO SEE AN INCREASE IN THE SCALE OF HR OUTSOURCING

“ HR outsourcing provides access to better processes, systems and support in an efficient and flexible manner. You are getting what you pay for rather than holding an internal department that will fluctuate with delivery of outcomes”

“ Efficiency, improve image of HR teams as more than administrators”

“ Free up HR staff to work more strategically and to also ensure that HR staff are not overloaded”

“ Transactional HR work is not value adding. HR professionals need to be actively coaching leaders”

RESPONDENTS’ REASONS FOR WANTING THE SCALE OF HR OUTSOURCING TO REMAIN THE SAME“ There have been many cases where the outsourced

providers have not provided a good ROI, although there has been the need to use certain providers to support internal capability. Learning from the past is necessary to inform the future. On quick reflection I think there isn’t any major need to increase or decrease.”

“ To continue to use external expertise only when needed. That is, when the expertise or time doesn’t exist in house.”

“ I think we are at a sufficient level of outsourcing - if we go further we will be removing strategic HR functions. We need to embed the processes as they currently stand and make them more effective. We need to educate the people managers further.”

“ Whilst outsourcing can decrease salary costs, it does not take into account the training costs required etc and lack of engagement from providers”

“ I think the current balance of internal expertise mixed with outsourced HR is working well. HR is well-placed to support the strategic initiatives of the organisation.”

“ To ensure that there are meaningful career paths for HR staff and that the service provided to clients is grounded in solid business knowledge and expertise.”

RESPONDENTS’ REASONS FOR WANTING TO SEE A DECREASE IN THE SCALE OF HR OUTSOURCING“ HR represents the greatest expenditure and the

greatest potential risk for our business. I’m not comfortable trusting an external party to handle this.”

“ Focus should be on building the capability of the staff involved, and increasing our efficiency through improving the infrastructure and technology available.”

“ Many of the functions outsourced (except payroll) draw on professional skills and by outsourcing we are limiting ability to develop these skills in our own HR practitioners.”

“ HR is about the people. Having a visual presence with the people is important. When everything becomes transactional or log a ticket based, to a certain degree it takes the personal approach and the “care” of people element out of the situation. All depends on what types of services are being outsourced and the quality and structure of the service being delivered.”

DETAILED FINDINGS

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FIGURE 12: WHICH OF THE FOLLOWING HR ACTIVITIES DOES YOUR ORGANISATION PLAN TO OUTSOURCE?31 RESPONSES

Employee assistance/counselling was identified by 81.5% of respondents as an activity their organisation plans to fully or partially outsource, making it the most popular selection. This is followed by executive development/coaching, which 76% of respondent organisations plan to fully or partially outsource and payroll administration (72.4%). The least popular activities to be outsourced are strategic planning (25%), policy development (32%) and performance appraisal (32%).

ORGANISATIONS THAT PLAN TO OUTSOURCE HR ACTIVITIES

DETAILED FINDINGS

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TABLE 4: WHAT ARE THE REASONS WHY YOUR ORGANISATION DOES NOT OUTSOURCE HR ACTIVITIES? (UP TO 3 ANSWERS COULD BE SELECTED) 126 RESPONSES

Table 4 reveals the three most common reasons why respondent organisations don’t outsource are to maintain full control of all HR functions (50.8%), to develop expertise in-house (34.9%) and because over the affect it may have on the service delivered (33.3%). The least common reasons are resistance from employees and/or unions (4%), concern about loss of HR jobs (6.3%) and because of a negative experience of outsourcing in the past/elsewhere in the organisation (6.3%).

ORGANISATIONS THAT DO NOT OUTSOURCE HR ACTIVITIES

ANSWER COUNT PERCENTThe cost is too high 23 18.3%

Concern it may affect the service delivered 42 33.3%

To maintain full control of all HR functions 64 50.8%

Concern about loss of HR jobs 8 6.3%

Resistance from employees and/or unions 5 4.0%

Prefer to develop in-house expertise 44 34.9%

The HR team has enough resources to fulfil all functions effectively 39 31.0%

Negative experience of outsourcing in the past/elsewhere in the organisation 8 6.3%

Concerns over cultural fit and understanding 38 30.2%

Don’t have the resources to manage the outsourcing process 14 11.1%

Other 15 11.9%

DETAILED FINDINGS

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WHAT DO YOU THINK IS THE SINGLE MOST IMPORTANT THING FOR AN ORGANISATION TO GET RIGHT WHEN OUTSOURCING AN HR ACTIVITY?

Respondents were asked to comment on what they think is the single most important thing for an organisation to get right when outsourcing a HR activity. Below is a sample of their responses.

“ Buy-in from all staff that outsourced entity can offer a higher level of measurable service not currently provided in-house.”

“ Do a thorough business case analysis to determine outsourcing is being done for solid business reasons.”

“ Building a strong relationship with the outsourced organisation ensuring smooth delivery of services and communication is two-way. Outsourced organisations can gather a lot of anecdotal feedback about the culture of an organisation or the engagement of certain team members through their interactions with your employees. Two-way communication is important so this feedback is communicated back to internal HR teams.”

“ Ensure the organisation you are outsourcing with takes the time to fully understand your business and its culture.”

“ To ensure that there is still a face within the organisation for staff to communicate with in regards to HR functions.”

“ Service delivery catalogue clearly identifying areas of responsibility for internal HR and external provider.”

“ Like any contracted specialist service provision, an outsourced HR activity must be regularly reviewed to ensure there are no gaps which could undermine or expose your organisation. No matter what the price point you are paying, or the qualifications or credentials of a specialist, you should never assume you can ‘set and forget’ a contractor.”

“ To ensure that the company being engaged to provide the outsourced service is fully aligned with and across the objectives and vision of the organisation, ensuring a comprehensive understanding of the inner workings of the business to be able to effectively deliver on the outsourced HR activity.”

“Managing expectations of stakeholders with regard to HR service delivery and ensuring organisational culture is one that supports change and flexibility.”

“ The single most important thing for an organisation to get right when outsourcing a HR activity is to maintain consistent communication with clients and customers during the outsourcing process. Change to HR functions can be unsettling for those affected including the HR function/team and people across the organisation, so it is important to provide communication and positive reinforcement during times of change.”

“ I think that the objectives must be clear, that the cost must be budgeted and not varied. There needs to be value for money in the service being provided. You should only outsource, when you are positively certain that the function, talent or expertise cannot be performed by, or does not exist in, the current HR department.”

“ Approachability - staff need to have rapport with the HR team so they raise issues like bullying and harassment for quick resolution. They need to put a face to the name.”

“ Knowing the full cost and impact of outsourcing and having a comprehensive understanding of what contract services will really be delivered.”

“ Ensure you are clear on your reasons / objectives for outsourcing. Put in place good commercial arrangements, including KPIs and SLAs that support your objectives. Don’t necessarily go with the ‘cheapest’ option.”

“ Defining the intent of outsourcing upfront as part of strategic planning and understanding the cost/benefit equation.”

“ Balance the outsourcing of HR functions with need to retain innovative HR staff to manage and lead HR strategy alignment.”

“ To ensure that the outsourced company has a genuine interest and is able to assist. Also to ensure employees are happy with it.”

DETAILED FINDINGS

AUSTRALIAN HUMAN RESOURCES INSTITUTE LIMITEDABN 44 120 687 149Level 13, 565 Bourke StreetMelbourne Victoria 3000T (+613) 9918 9200F (+613) 9918 9201

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Disclaimer: This publication represents a sample of the views andperspectives of the AHRI member respondents who contributed to theworkplace survey on which it was based. Although AHRI has exerciseddue care and skill in its preparation, it does not warrant its accuracy,completeness, currency or suitability for any purpose.

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