HR Outsourcing and Shared Services

 

Introduction: Human Resource (HR) outsourcing and shared services have become prevalent strategies for organizations seeking to streamline their HR functions, improve efficiency, and reduce costs. HR outsourcing involves the delegation of specific HR activities to external service providers, while HR shared services centralize HR functions in one location or service center to serve the entire organization. This approach has evolved due to the increasing complexity of business operations and the desire for organizations to focus on core competencies.

 

 

HR Outsourcing

HR outsourcing involves contracting third-party providers to handle various HR functions, such as recruitment, payroll processing, benefits administration, and employee training. Organizations outsource HR functions to reduce costs, improve service quality, and access specialized expertise. The main drivers for outsourcing include the need for scalability, flexibility, and the ability to focus on core business areas (Lawler & Mohrman, 2012).

 

Benefits of HR Outsourcing:

 

Figure 01 : Benefits of HR Outsourcing

Source : https://uventures.com.sg/outsourcing-hr-services-guide/ 

1. Cost Efficiency: Outsourcing HR functions can lead to significant cost savings by reducing the need for in-house HR departments and allowing firms to leverage the economies of scale provided by outsourcing vendors (Kakabadse & Kakabadse, 2005).
2. Access to Expertise: Outsourcing allows organizations to tap into the expertise of specialized providers who offer up-to-date knowledge of best practices, regulations, and technologies (Tannenbaum, 2017).
3. Focus on Core Business: By outsourcing HR functions, companies can focus on strategic business objectives rather than administrative tasks (Tannenbaum, 2017).
4. Risk Management & Compliance: Outsourcing helps organizations to mitigate risks while complying to the set rules & regulations.

  

Risks of HR Outsourcing:

1. Loss of Control: Outsourcing can lead to a loss of control over critical HR functions, which may affect the quality of services or lead to misalignment with organizational culture (Cascio, 2018).
2. Data Security Concerns: The delegation of sensitive employee data to third-party vendors raises concerns about data security and privacy breaches (McIvor, 2008).
3. Hidden Costs: While outsourcing can offer cost savings, there are often hidden costs associated with managing outsourcing contracts, monitoring performance, and ensuring compliance (Kakabadse & Kakabadse, 2005).

 

HR Shared Services

HR shared services refer to the centralization of HR functions into a single service center that handles HR transactions for the entire organization (Buss, 2008). Shared services aim to improve efficiency, standardize processes, and reduce administrative overhead. The concept of HR shared services has grown alongside advances in information technology and globalization.

Benefits of HR Shared Services:

1. Standardization and Efficiency: Shared services centralize administrative tasks and create standardized procedures, leading to streamlined operations and reduced duplication of efforts (Buss, 2008).
2. Improved Service Delivery: Centralizing services allows HR departments to focus on providing high-quality services, such as employee development and strategic planning, while transactional tasks are handled efficiently in a shared services model (Cascio, 2018).
3. Cost Savings: Shared services reduce redundancy by consolidating HR functions, thereby reducing operational costs and improving resource allocation (Lawler & Mohrman, 2012).

Risks of HR Shared Services:

1. Resistance to Change: Employees and managers may resist the transition to a shared services model due to concerns about losing personal contact with HR representatives or fear of job losses (Cascio, 2018).
2. Complexity of Implementation: The transition to a shared services model can be complex, requiring significant investment in technology and training (Buss, 2008).
3. Reduced Flexibility: A one-size-fits-all approach in shared services may not meet the unique needs of different business units or employees, leading to dissatisfaction or inefficiencies (Tannenbaum, 2017).

 

HR Outsourcing and Shared Services in Sri Lanka

HR outsourcing and shared services have become more pivotal elements in HRs perspective in Sri Lankan context. To get expertise HR knowledge into the business unit is the key expectation in this regard while ensuring the reduced cost relating to the Human Resources Management.

 

Being an employee attach to the banking sector, it can be clearly witnessed that most of the associated services like security services, transport services, courier services etc are already been outsourced to ensure the reduced cost while establishing the expertism & quality standards.     

 

 

 Video 01: What is HR Shared Services? Benefits of HR Shared Services.

Conclusion

HR outsourcing and shared services offer numerous benefits, including cost savings, improved service quality, and the ability to focus on strategic business goals. However, both approaches also come with challenges, such as potential loss of control, security risks, and employee resistance. Organizations must carefully evaluate their needs, business culture, and long-term objectives before implementing these strategies.

References:

Buss (2008). Human Resources Shared Services: A Case Study. London: Palgrave Macmillan.

Cascio (2018). Managing Human Resources: Productivity, Quality of Work Life, Profits (10th ed.). New York: McGraw-Hill.

Kakabadse & Kakabadse (2005). Outsourcing: Current and Future Trends. Thunderbird International Business Review, 47(2), 183-204.

Lawler & Mohrman (2012). Building a Future-Oriented HR Organization. Stanford: Stanford University Press.

McIvor (2008). Outsourcing: Insights from the Telecommunications Industry. New York: Routledge.

Tannenbaum (2017). HR Outsourcing: Concepts, Tools, and Best Practices. Human Resource Management Review, 27(3), 247-257.