Kick your system outside; pushing HR systems out of house is becoming the 'in' thing to do

HR Magazine, August, 1999 by Joe Dysart

Outsourcing HR systems is becoming an increasingly popular solution to problems plaguing the profession. Whether facing challenges associated with mergers and acquisitions, providing timely updates to Y2K-vulnerable computer systems or relinquishing mundane responsibilities, many HR professionals are finding that sending their HR systems out of house is a viable, practical solution.

This move toward outsourcing technological functions appears to reflect a general business trend. "Many companies are focusing their IT resources on their core businesses and have made the decision to outsource any function that they consider non-strategic," says Bobbye Jopling, a spokeswoman for Ceridian HR/Payroll Systems, based in Malvern, Pa.

One big - and relatively recent - development is that HR professionals are more often making the decision to outsource. "Five years ago, the outsourcing decision was primarily an IT [information technologies] decision," says Keith Rudy, a vice president of The Hunter Group, an outsourcing consulting firm based in Baltimore. "Now, HR professionals are becoming more knowledgeable about how their IT systems work and are taking greater ownership of their systems."

If outsourcing decisions loom large in your future, you'll probably need to consider a number of factors to ensure you make the right choice. Here are some tips that can help guide you.

Who Should Outsource?

Companies with earnings above $300 million are among those most likely to benefit from outsourcing HR systems, consultants say. Ideal candidates also include companies that are looking to increase their service standards significantly - especially if those companies are not interested in developing the inhouse IT infrastructure required to achieve those standards.

"Organizations that desire best-of-breed application software and high-end production infrastructure should seriously consider the option," says Mike Harper, vice president and general manager of US-internetworking, an HR outsourcing provider based in Annapolis, Md.

Harper adds that "any company experiencing challenges, including implementation and maintenance of client/server systems, is an ideal candidate for outsourcing."

It is for exactly those reasons that Don Scheeler, director of compensation and benefits at Baltimore-based Sylvan Learning Systems, chose outsourcing provider ADP, of Roseland, N.J. "We needed better reporting tools that would support management in making informed decisions," he says. "We also wanted to distribute secured information access to HR employees and line managers, with the goal of moving to a self-service environment in the future."

But the reasons to outsource don't stop there.

Firms plagued with Y2K problems also are turning to outsourcing, says Jopling. "Outsourcing can help these companies move to a Year 2000-compliant solution quickly - and with minimal up-front costs," she says.

Additionally, a number of companies going through mergers and acquisitions are exercising the outsourcing alternative. "Many of these companies have determined that using HR outsourcing can help absorb the new employee base associated with acquisitions," Jopling says.

The comprehensive quick fix offered by some of the larger outsourcing providers has proved a siren song for many beleaguered HR managers, helping them accomplish many goals at once.

"Outsourcing provides us one of the best ways to accomplish a number of HR objectives simultaneously," says Peter DiToro, a vice president at BankAmerica, which uses service provider PricewaterhouseCoopers, based in Fort Lee, N.J. "We have realized improved customer service, reduced administrative head count and dramatically increased consistency in benefits delivery. Over the long term, we expect lower costs as well."

How much you stand to save from outsourcing may be hard to predict because few service providers are willing to put a precise amount on the cost of outsourcing. However, Margaret-Ann Cole of PricewaterhouseCoopers estimates that an average client spends approximately $1,000 to $1,500 annually per employee for outsourcing a full array of HR functions; handled in-house, those same support functions might cost $1,800 to $4,000 annually per employee, she says.

Jane Rudewick, an assistant secretary benefits officer at JeffBanks, based in Philadelphia, has seen significant savings since moving to an outsourced solution from Ceridian. "I anticipate that we'll save one month a year in data-entry time alone," she says. "Once we have the information in the system, everything will be automatically generated so we won't need to do any benefits data entry into the payroll system at all."

When Should You Outsource?

Service providers and consultants differ on when a company should begin to outsource, but most agree that HR departments wallowing in the mundane aspects of their functions or suffering from a sudden loss of key HR personnel should probably outsource sooner, rather than later.

Says Cole: "Several companies we have spoken with have lost a large percentage of their in-house expertise, often the result of a merger or acquisition. For example, a company with poorly documented processes often has a handful of people with a great deal of knowledge. When they leave, suddenly a host of problems crops up."