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What is the percent gain in profit by hr outsourcing?
Dear sir/madam,
I am researching on HR outsourcing for my company. Kindly let me know the approximate gain in bottom-line/profit that is achieved through HR outsourcing
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5 Answers
Dear Varun,
You have made an excellent question! Unfortunately, I don't have real figures on this. On the other hand, by having worked for a Business Process Outsourcing provider to world class companies on this, I am able to share some of our Client's critical factors of decision:
1. Core Competency Focus. This may sound very obvious, however it still tops the arguments our Clients mentioned. "We are a consumer products, media, etc. company, and do not want to put more efforts on HR".
2. Economies of scale. Having a critical mass of specialized HR agents in different domains (HR operations, staffing, payroll etc.), provide with a broad range of experts in such areas.
3. Flexibility. Even when it takes an initial effort to transition the HR operation to an outsourcer, it eventually pays off. This service becomes very flexible once in full operation. The company can increase/decrease its requested servcies if this is backed up by a flexible contract.
4. Clear, well defined metrics. Usually this is a key differentiator from an HR insourced vs outsourced service. You can define as many metrics as it makes business sense: Turn Around Time, Quality, Cost just to name few of them.
5. Career path. Some of the companies are worried about not being able to provide a growth path for their HR employees other than having them moved into the company´s operations. This is not always in the best interests of the HR employees.
In summary, there is a number of qualitative benefits of outsourcong the HR operations. I know how important the bottom-line/profit is but don't have that information now. (I should look for it or find a way to measure it accurately as this may be an interesting/complex calculation according to the number of "sending and receiving" countries you want to include in your assessment).
Best regards,
Enrique Baez, PMP
The first step is to get a HR assessment from HROs to determine your baseline cost, liability and business impact. A good HRO company will be able to present you with the best options to improve your cost and demonstrate the positive impact their organization can do to your bottom line. Some companies such as the Barbelo Group offers free HR assessment to help you determine what's best for your company. Let me know if you need more information. I can send you more information that's targeted to your specific industry. I hope this helps
Charina L Flores, PHR
You can figure out the cost of Human Resources, Payroll and Benefits, by looking at your total cost and breaking it down to hourly cost per employee. However these functions are not going to show up in your profit and loss. Cheaper is not better... These function show up on the balance sheet as a cost. I would suggest to you to look at these functions as part of your attraction and retention model. Your engaged employees are what gives you a competitive advantage. Developing your attraction and retention model, is critical to your growth and development as a organization. What are your ethics? Its more than Payroll and Benefits, its how you want to do business. You need professionals that can help you develop everything you are going to need. Its more about measuring skill and quality and creating the right environment.
Obviously, the answer is "it depends." The key is "right-sourcing." Here's one way to categorize the tasks performed by your HR team:
1. Competitive Activities:
Does this work directly make our strategy happen?
Does it directly impact the value offering(s)?
Will it create sustainable differentiation?
If we were forced to give up control of work, would this be the last thing we would give up?
2. Enabling Activities:
Are the outputs of this process used by or consumed by Competitive Work?
Does it enable Competitive Work?
Does the corporation consider this an enabler because of its values/ beliefs?
3. Necessary Activities:
Is it essential to the business, but not to gaining market share?
Is it only a potential disadvantage?
Could we afford to be at par with our competitors?
4. Compliance Activities:
Do we do this to comply with regulatory requirements?
If allowed, would we stop doing this work?
For Competitive and Enabling work, we should strive for excellence. For Necessary and Compliance activities, we should seek efficiency. By categorizing your work into these four categories, you can begin to answer the question of where the work is performed - in-sourcing or out-sourcing.
The percentage will vary from company to company and outsourced process to outsourced process. I've outsourced processes and received a 7 to 1 return with improved customer service as an added bonus. I've outsourced others at break even for no other reason than to get them out of my department.
The simplest way to figure the ROI is determine the cost of doing it internally and the cost of outsourcing it. If there is a savings then to realize a contribution to the bottom line you cannot spend the savings on something else. It can be that simple and doesn't need to be over complicated.
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