Street smart
A pick-and-mix approach to HR outsourcing may dominate the SME market. But some firms in the sector are signing up to large-scale deals
Date:
23 February 2006
Source:
Guide to HR outsourcing
Page:
24
‘It’s probably the best decision we’ve ever made,” says Ian Wainwright, director of operations, UK and Ireland, at QC Data, when talking about the move to outsource most of his company’s HR activities in 2001.
QC Data, a multinational data-management company, was going through a rapid period of growth at the time and had 160 employees scattered across different locations. But the firm was struggling to cope with these numbers.
It was, for example, still running an in-house payroll system designed for companies of up to 40 people. Part of the trouble was that QC Data had an in-house administrative team with a certain level of generalist HR experience, but no specific HR professional qualifications.
“We were at one of those critical crossroads that you get to in the development of a business, which says we have to make major internal investment, or we’ve got to look for a more cost-effective and slicker way of doing this,” says Wainwright.
The company’s response was to invite tenders from outsourcing providers and it subsequently outsourced all its HR, bar recruitment, to Northgate HR.
“They are our HR department,” Wainwright explains. “They do top-to-toe personnel and HR management for us. If it’s got an HR label, they undertake that activity as though they were our in-house HR team. They even sit on our senior management team, conduct business-risk analyses and look at the whole strategic picture.”
As an outsourcing company itself, QC Data was well aware that HR was not its core competence. “What we do well is manage data,” says Wainwright. “Although we have a need for professional HR skills, we didn’t have them.”
Steve Foster, Northgate’s HR business strategy manager, describes the market for this kind of deal as “on the upside of steady”. He says that while there has not been the massive surge predicted after the big Exult/BP-type outsourcing deals were announced a few years ago, there has been steady growth.
However, CIPD research suggests that such large-scale outsourcing in the SME arena is still a comparative rarity. “It’s probably stretching it to say there’s even a real ‘outsourcing’ market,” says Vanessa Robinson, CIPD adviser, organisation
and resourcing.
“Some of it comes down to definitions. People will often describe using a preferred supplier as ‘outsourcing’ – there are terminology issues that cloud the whole area. And, of course, some SMEs will also go for an interim HR manager or a consultant, depending on their need.”
Foster agrees that the market is clouded. “Many SMEs do dip into the market and hire an interim consultant to be their HR manager, or if they want a helpline they might go to Mentor or Croner. But there is a definite outsourcing market. We do multi-process outsourcing, while our main competitors are single-process providers. The likes of ADP and Ceridian might say they are in the outsourcing market, but it’s effectively payroll plus other services. They rarely follow it up with a strategic-level service. My definition of HR outsourcing is where you’re touching several parts of the organisation.”
Penny de Valk, strategy director at Ceridian, points out that the bulk of the SME HR outsourcing market is comprised of this payroll-plus approach.
“In the mid-market, we’re not seeing the big bang, where they get rid of everything and just have an HR director left. They’re really picking and mixing and going for the areas where they have a real weakness. A lot of that involves process management. They want good software, off-the-shelf tools. They’re not in the game for a complete service.”
She says that in the mid-market, where companies have between 500 and 5,000 employees, the big change is that clients are looking for a single vendor to manage their “pick and mix” services.
“They don’t want a recruitment outsourcer to come to talk to them, and then their training and development provider, then their shared-services provider. There’s therefore a lot of consolidation and partnering going on among the suppliers. Sometimes companies will look at Hewitt or Accenture in terms of product offering, but those brands can scare the mid-market. They worry about the expense and how interested the big outsourcers will be in them. Partnership activity is really escalating.”
CIPD research, meanwhile, has also shown that the reasons why SMEs undertake HR outsourcing are not that far removed from those of larger companies – in fact, they are equally ad hoc. Robinson says the major difference between outsourcing for larger companies and SMEs is that for the smaller companies it’s very much about reducing costs – such as those related to technology – and risk.
She cites the example of a small fund management organisation in the City with fewer than 50 employees. “It was bought by a big US financial services company and was told: “You need HR and you need it to be outsourced for risk-management purposes.” When they looked into it, they appointed an HR outsourcing provider to do the whole thing – from job descriptions to contracts to benefits. They decided that they wanted an HR resource they could tap into at any time.”
It was precisely this benefit that attracted Wainwright to the idea of outsourcing QC Data’s HR. “We looked at the costs and what we’d like in an ideal world, then compared that with what we could afford,” he says. “We came to the conclusion that we could have a much better standard of service, with much more control of activities, if we outsourced the whole thing to a professional company who specialised in these activities.”
“We have a very ‘peaky’ need for HR. We can go weeks or months without much activity, then we may have a change of contract – with Tupe or redundancy matters to deal with. We have bursts of frantic activity that require far more people than you could ever sustain on a day-to-day basis in an organisation of our size [98 employees].
“We are also a very dispersed organisation. Our head office is home to only nine people, so this arrangement works exceptionally well.”
• Details of the CIPD research project are available in the executive briefing "HR outsourcing: the key decisions", published by the CIPD in May 2005 and available to buy online at the CIPD Bookstore. See also PM article "Stay Tuned" (19 May 2005).
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