In outsourcing discussions, skill enhancements need to be discussed in terms of value
An outsourcing arrangement offers the opportunity to create innovations within organisational processes
Most business case conversations about deciding whether to outsource an HR process depend on approximations and “gut feeling.” HR finds it difficult to communicate outsourcing metrics in business-friendly terminology. Speaking the right language can prove to be the difference between go or no-go decisions to outsource an HR process.
In order to standardize and make operations more efficient, organizations outsource various components of the HR value chain. From basic non-core processes, such as Payroll, Benefits Administration, and Employee Record-Keeping, HR service providers have steadily evolved over the years into servicing central core functions, such as human capital management. Most organizations still struggle with identifying the baseline criteria for outsourcing decisions. The key criteria for outsourcing decisions are typically grounded on opinion and approximations around what constitutes core and non-core HR competencies. In the organizational context, it is typically a team of senior leaders who debate and discuss the primary reasons why a particular process should be outsourced; and on most occasions these discussion lack data-driven arguments. Oftentimes, disagreements arise because it is difficult to obtain quantitative data to differentiate core from non-core functions. Experts recommend four business communication tips backed by data-driven metrics that can help drive the business case.
Skill-Level Enhancements― There are two ways by which outsourcing arrangements provide an opportunity to access and enhance skills level. Firstly, the organization gains access to specific process skills of the outsourcing service provider. Owing to the service provider specializing in specific processes, the organization gains access to higher skills in executing those processes. In addition, outsourcing frees up time for internal staff to enhance skills, and employ their existing skills in higher-level work. In outsourcing discussions, skill enhancements need to be discussed in terms of value. Quantitative insights on effectiveness, efficiency, and skill level enhancements can help drive these value conversations. What would make sense to the business― it is worth saying that outsourcing the process can reduce turnaround time by X unit points. Hard figures are hard to contest.
Better Spend Alignment― Through the reduction of fixed costs by achieving economies of scale, outsourcing arrangements can prove more financially viable than setting up internal operations. There are also opportunities for lowering labor costs by gaining access to professionals with specific skills in more cost-effective locations. An outsourcing arrangement also offers the opportunity to create innovations within organizational processes by accessing the expertise of multiple clients accessible to the service provider. In terms of quantifiable data, these translate into the one on one mapping of cost differentials associated with infrastructure, staff, process development, and innovation between owned and outsourced processes. Business is more interested in knowing how outsourcing a particular process lowers direct labor costs by X units, skill development costs by Y units, and innovation costs by Z units.
Reduction of Resource Loss― Oftentimes the company bears the costs and risks of losing employees, thereby resulting in additional costs of hiring, training, service risk, and execution delay. Outsourcing ensures that the risk of resource loss is borne by the service provider. While presenting an argument it is important to quantify the monetary value of hedging risks of resource loss. Business language for resource loss reduction revolves around how outsourcing hedges risks of resource loss by X units per unit of output/service.
Improved Technology Access― Outsourcing can result in upgrading processes into more advanced technology platforms that may otherwise by prohibitive to roll out internally within the enterprise. In addition to quantifying the direct monetary gain of utilizing an advanced technology platform, it is necessary to quantify how the introduction of advanced technology affects business efficiency metrics. Rather than saying that outsourcing opens access to higher technology of a service provider, it is worth mentioning the extent of how the technology improves unit productivity and service efficiency.
While greatly helping push the business case for outsourcing, speaking the language of business also helps an organization define clear service expectation metrics. HR can leverage various tools to collect and track metrics for driving the business case. But the biggest transformation, that many experts believe HR needs to bring, is a change in mindset that embraces analytics and data-driven decision making as a part of everyday existence.