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Strategies for Effective Human Resource Outsourcing

Human resource outsourcing has come of age as a crucial factor in efficient business administration. HR providers are increasingly willing to partner with clients to develop customized solutions. For some clients, this means an end-to-end solution. For others, the HR outsourcing team functions as an extension of in-house HR resources. Customization allows companies to implement outsourcing strategically, cutting costs and boosting efficiency while leveraging in-house core competencies.

A Strategic Approach to Human Resource Outsourcing

HR outsourcing has evolved into a versatile resource. "There is substantial variation across firms in the strategy employed to guide the outsourcing process," explains Robert L. Heneman in his guide to outsourcing, Human Resource Management in Virtual Organizations. The optimal human resource outsourcing strategy will differ from business to business, depending on internal resources and expertise. Approaches include:

  • Outsourcing only routine administrative tasks, freeing in-house human resources staff to focus on high-value pursuits or core business goals.
  • Outsourcing the HR infrastructure such as benefits administration software and other technological HR solutions.
  • Outsourcing high-level, strategic human resource functions such as recruitment, to take advantage of the outsourcing providers expertise.
  • Outsourcing the entire operation, relying on the provider to design and deliver all HR services and programs.
  • Engaging the outsourcing provider as an expert consultant in order to streamline internal processes, increase productivity, and/or train in-house HR staff.

Three Human Resource Outsourcing Roles

The different strategies for implementing HR services have shaped how service providers work with clients. Businesses researching human resource outsourcing will encounter different models of the client-provider partnership. Heneman identifies three common approaches to human resource outsourcing:

1. HR Designer/Strategist

In this scenario, the human resource outsourcing provider serves as an expert consultant, either troubleshooting specific HR issues or overhauling the HR program design. The provider doesnt take over human resource processes or transactions, but supplies expert knowledge to streamline internal processes.

2. HR Provider

In the traditional human resource outsourcing relationship, the HR provider assumes responsibility for a range of administrative activities. The goal of this approach is cost reduction. The third-party provider realizes economies of scale by standardizing routine human resource services across multiple clients.

3. Professional Employer Organizations

Professional employer organizations form a close partnership with companies, becoming the employer of record for the workers. This contractual relationship enables the PEO to take full responsibility for human resource functions, from payroll to benefits and beyond. The PEO strategy is popular among small and mid-sized businesses, which use outsourcing to ensure compliance without building a costly internal HR department. With administrative functions taken care of, smaller businesses are free to devote resources to core competencies and production.

Human resource outsourcing providers have evolved to meet growing market demand for HR services. Todays HRO service providers take on various strategic roles to reflect each clients unique requirements and resources.


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