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Why HR Outsourcing Adds Value to an Organization

Outsourcing is as old as organized political and economic systems. Specific personnel were often contracted by the government to collect taxes in the ancient Roman Empire. During the Industrial revolution, rapid technological advances resulted in increased production. This advancement led to a shift from horizontal partnerships to complex, vertical relationships that were geared towards the attainment of the organization’s goals.

Human resource outsourcing entails the delegation of one or more human resource service(s) to an external provider, who owns, manages and administers the delivery of the services based on pre-determined performance metrics.  Outsourcing of human resource function(s) has become a common phenomenon globally. Organizations, regardless of their size, find themselves having to replace, supplement or broaden their operations by outsourcing aspect(s) of their HR functions.  Just like with every other business decision, the decision to outsource the human resource functions cannot be made without considering the contextual factors. The organization must consider the economic, social and legal landscape it operates in.

The strategic objectives and financial plans of the organization define the scope and direction an organization desires to take. This makes every outsourcing decision unique.  Some firms we have worked with in the past have contracted us to do psychometric testing or training. Others have outsourced their entire HR function to our organization. In spite the fact that making the decision to outsource HR functions is multifaceted and complex, organizations ought to embrace HR outsourcing for the following reasons:


1. Cost effectiveness

The current business environment is cost conscious and competitive.  The rapid changes in the external operating environment are making it necessary for organization to adapt fast. With the increased focus on profitability, organizations find themselves subjecting their   departments to cost reduction measures. HR demands oversight, innovation and resources but it does not directly give returns. Outsourcing human resources function (s) helps the organization focus on the core competencies. By outsourcing HR functions, the size of some of the HR functions can be reduced.  Innovative solutions can be implemented resulting in a reduction of the cost of executing these functions. The innovative solutions puts an organization in a better position to maintain a competitive edge. HR specialists that would otherwise be out of an organization’s reach due to the cost of hiring them can benefit the organization with their skills and expertise as external HR experts.


2. Enhances legal  compliance

Organizations grow over time hence the need for mergers, acquisitions and expansion. In light of this, organizations need structures and HR processes that are capable of blending of corporate cultures, handling layoffs and consolidation of employees. Outsourcing HR functions would appeal to an organization during a merger or an acquisition because specialized personnel would be superfluous after the completion of the project. Organizations must also comply with various legislations and regulations.

An external HR expert provides guidance that  enables an organization to set policies and procedures on health care, overtime compensation, pension reform and benefits eligibility. While this can be carried out by internal HR departments, keeping up with the regulations is demanding.  It may call for an increase in the number of personnel working in the HR department as well as the resources devoted to the department. An organization is better off hiring a subject matter expert to handle matters of compliance.


3. Implementation of  HR tech

Improvement of the quality of HR services calls for improvement of the systems as well as training of employees and managers. ICT solutions in HR assist in enhancing the quality of the employee-management relations.  ICT solutions ease HR functions such as leave-planning, appraisals, evaluations and health care insurance. Once an organization has a system in place, regular updates need to be done in line with the trends in the business environment. Some systems are only useful for a given period while others are embedded into the daily functions of the HR department. An external HR   expert can significantly reduce the financial burden associated with introducing new technological   solutions into an organization. HR tech solutions such as virtual workforce leadership and virtual analytics can be carried out for the benefit of an organization by an external HR expert.