HR in 2008

HR strategy is becoming a core competency that is needed by managers in all corporate departments. Any successful business owner or manager today should have a solid grounding in HR skills when managing talent, in addition to a degree of understanding of finance to allocate and determine budget for his/her area, and some understanding on the IT needs of his/her function. Hence, “HR strategy” is not something that is silo-ed into a single HR department, but is pervasive across an organization’s management. The HR department should be the driver and facilitator of sound HR practice across the management team, and ensure these HR practices are aligned with their organizations’ strategic goals. With many businesses undergoing complex change with outsourcing, globalization and this predicted economic downturn, the role of HR has never been so important as it is today.

What Should Small Businesses Outsource?

Question:  Generally speaking, when does it make sense for a small business to look into outsourcing?
Answer:  Always. Even if you are able to perform the task in-house, you must ask yourself: Is this the best use of my business resources? What is my level of in-house expertise? And, do I have the available resources — financial or human — to manage these processes or functions? Another important factor is cycle time. By when do I need the process or feature completed? Look at the income potential and ask: What is the financial benefit of doing this activity in-house vs. outsourcing? These are the questions you need to ask every time you make an outsourcing decision.

Question:  What types of functions should a small business consider sending out-of-house?
Answer:  Absolutely everything, unless it is your core business function, and I am not saying you shouldn’t examine that if it is applicable. If you can’t create significant value by retaining a function in-house, you are jeopardizing success by duplicating what’s already available and forgoing your best opportunities. There is no need to try to reinvent the wheel. Proven programs from outsourcers can be a real value; they are known for quality, if you complete your due diligence. In commenting on the outsourcing process, I am reminded of participating in a workflow process as a commercial banker. Every time an employee left the company, the vacant position would have to be justified prior to hiring a replacement. A cross-functional team would evaluate the job and ask: How can we do this differently? How can we do this better? I think this is analogous to weighing what you can and should do in-house vs. what you can outsource.

Be Precise with Payroll

Let your payroll system get out of hand, and you’re going to hear from at least two powerful places: your employees themselves, and the taxman. Organization is a must, and there are many tools at hand to help take control of the task.

You can create timesheets by making templates in spreadsheet, which can also keep track of vacation and sick time and be entered into a payroll system for payment and precise recordkeeping. Or you can outsource this function to a Human Resource Organization (HRO), which frees up your time and money. You can also mix it up a little – do the time-tracking yourself and outsource only the payment.

Taxes and withholding vary geographically, so if your doing payroll yourself, be sure to keep up with the rules. If you outsource, that will be included in the service. Because outsourcing costs vary, figure out what you can afford and make it work.

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Risk Management

PEOs and ASOs generally offer risk management and safety programs that include workers’ compensation coverage and OSHA compliance assistance. These programs are designed to help you avoid unnecessary downtime and protect your bottom line.

What Suppliers Want

Anyone who reads outsourcing research knows, most advice is geared to us buyers – how to get the best deal, what supplier to select, how to exit a contract, etc. Everything seems to be designed for the buyer and I guess that’s understandable as we hold the purse strings. Who cares about the poor old supplier, right?

Well, the outsourcing advisory firm Alsbridge went out and spoke to a numerous suppliers concerning their issues in the marketplace. (Click here to see research). When asked what suppliers want most from the relationships with their clients, the key issue they responded with was that the client and supplier should have both mutual respect and mutual responsibility.

Conclusion

These comments are worth focusing on. The typical “hardball” approach to vendor selection does not encourage respect. In fact, the selection process is typically more adversarial than respectful. The question of a client having to take some responsibility for the quality of their own program management is another critical comment. When outsourcing goes wrong, it’s often not because of a hopeless supplier, sometimes it’s because the company buying the service fails to effectively interact with the supplier?

Think about it.

PEO Market Share Growing

Despite having been around for decades, the idea of Professional Employer Organizations (PEOs) is still picking up steam.  Per IDC analyst Lisa Rowan and long-time industry observer Carrie Aaron PEOs are gaining momentum among small and medium-sized companies.
They point out that whether you’re speaking with investors or current providers, those people already engaged in the PEO industry are consistently upbeat about the prospects for growth.  One reason is the small business market opportunity is strong in the United States given its size and growth. Employment among small employers increased at a growth rate of nearly 12 percent from 1999 to 2006, according to the BLS. Small companies employ half of all workers in the U.S. private sector.

Top 10 Reasons to Outsource

Buying a Team of Experts

Here’s an excerpt from Jennifer Schiff’s article Outsourcing HR Reaps Benefits for Small Business.

Another benefit of using a human resource outsourcer — also known as a Professional Employee Organization (PEO) or an Administrative Service Organization (ASO) — as opposed to hiring someone in-house, is the depth and breadth of expertise these companies bring. Put another way, instead of hiring one generalist, you get dozens of industry-specific experts.

“Small employers typically don’t have the resources to hire in-house experts on payroll tax and employment law compliance, although they are subject to most of the same laws and regulations as large employers…Outsourcing gives them access to that expertise at a fraction of the cost and helps them mitigate risk.”

(Note: According to a recent study by the Small Business Administration, legal costs for litigation alone can cost a small business up to $150,000 — and that’s not including damages, loss of time and emotional hardship.)

You might be a candidate for outsourcing if…

 …the phone’s ringing off the hook, employees are working overtime to handle the overload, or your website is buzzing with activity.

These are all “good” problems we wish for, but are you ready if they become a reality? Today’s business happens at warp speed, and efficiency is a key hallmark of success. One way to gain efficiency is to focus your energy on the things that are of core value to your business. Keep those activities in-house, and put your non-core functions on the hot seat – even small business outsourcing is a reality in today’s business environment.

Choosing an HR Firm

For some businesses, cost alone is the deciding factor in vendor selection. Other companies place a higher value on commitment to quality or a cultural fit with it’s vendor. When evaluating a firm you should also consider:

1. It’s range of outsourcing services

2. It’s expertise in your industry

3. It’s overall HR experience

4. It’s understanding of your priorities

5. It’s resources

6. The flexibility of its contracts

Depending on the types of things you need to outsource, you may choose a professional employer organization (PEO) or a hybrid outsourcing firm. See the previous post “Worker Leasing” for an explanation the services that such organizations provide.