The HR function should be a critical component of employee wellbeing in any business, irrespective of its size. In many SMEs, the internal HR executives are the jack of all trades and get pulled in different directions. Many SMEs may not have a full-fledged HR department and will be involved in operations like payroll, benefits, hiring, firing, administration, and keeping up to date with tax and employee policies.
Hiring experts are difficult to find and their cost to the company may not be viable but there should be someone to handle that responsibility. Non-compliance or errors in many issues could cause major legal problems for the business later on although the new labour laws framed by the government seem to favour employers. Nevertheless, HR expertise is necessary even if there is no full-fledged HR department. So the Shakespearian question of to be or not to be arises.
In order to leverage expertise in different areas such as policy formation, leadership development and skill building, having someone on a service delivery basis rather than fixed cost makes good business sense. This will also help the enterprise to evolve the policies on talent acquisition, retention, and that elusive concept, employee engagement.
For many SME owners, the word "outsourcing" typically conjures up an image of giving up their baby to a full-time nanny who will not be as attentive or as devoted as they are. A negative image of big corporations eliminating in-house jobs done by familiar faces and bringing in frequently changing unfamiliar faces. The other fear is that many of these jobs may now be performed facelessly from a remote location.
There are many advantages to outsourcing. It helps the top leadership concentrate on the core business while the outsourcing company does routine things that are taken care of by good talent in that area. If the outsourced company is large, one may actually benefit from its economies of scale. You can think of it as using their cloud services instead of setting up your own. The top of the class allows you to pay as per usage and expand on demand. The same would hold for your other routine needs as well.
In his book Marketing Led, Sales Driven, Ajay Sirsi of York University says entrepreneurs need to recognise that they simply do not have time to do the myriad tasks of running the business (such as payroll and taxes) and thinking about the customers and growth strategies. Sirsi believes that nearly 70 percent of new businesses fail within the first five years for two main reasons – either the owners lack a solid business plan or their attention is divided among so many tasks that they suffer from "attention diffusion”.
What are the pitfalls of outsourcing? The biggest downside is that a core competency that is outsourced will make one totally dependent on the outsourced company. This will make you quite helpless in future negotiations and may give the upper hand to an outsider who is ultimately interested in making their business profitable. For every activity outsourced, there are 4 or 5 key parameters popularly called the 'RACI' matrix, which will decide the role of the outsourced and outsourcing companies. There are some activities where the internal team has responsibility and accountability. When things are largely transactional in nature, they can be managed through an outsourced process. Control of core competency is vital. Don't outsource your core competency.
Manufacturing companies have used vendor partners for a very long period of time, and this has worked successfully. A leaf can be taken out of their playbook to see how it can help in HR outsourcing. They have five main principles:
- Do extensive research. Contact multiple suppliers to find the answers to your questions. Request references.
- Visit suppliers to get first-hand knowledge about the quality of their offering, and their capabilities, talent pool and their processes.
- Order a trial run first.
- If everything is as per your needs, decide whether to take a leap of faith.
-Schedule regular visits/inspections and build a trusting relationship.
Once this is decided, it is important to have metrics for critical parameters to evaluate the quality of services provided. These may be timeliness, accuracy, availability, and reliability. There will obviously be financial parameters on the savings or improvement in efficiency etc that will also have metrics. One needs to constantly and transparently monitor this transfer of some of the internal operations to an outsider.
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