The Debate: In-house vs. Outsourcing for Globalized Companies
The debate over whether it is better to outsource your human resources function or use an in-house department is one which has a number of factors to consider; not least with regards job losses and the money which can be saved by making the correct choice for your business.
In 2009, it was reported by the Chartered Institute of Personnel and Development (CIPD) that 69 percent of companies in the UK were providing their own HR services wholly in-house with no outsourcing at all. However, it also said that it expected this figure to fall considerably— to 42 percent.
The main driving factor that can be critical for the growing trend in outsourcing HR jobs is the fact that firms which choose to do so can make substantial savings in the long run on their outgoings. However, this is not without its shortfalls, as any outsourcing of HR operations can and will lead to wide-scale job losses within the company, which can result in a drop of morale for those who are left behind.
In recent weeks, both of these factors have been illustrated in the United Kingdom, with the Ministry of Defense announcing that it is to use HR firm Serco on a four-year contract. Due to the fact that it will be able to get rid of a substantial amount of staff over the course of this four-year contract, it is estimated that the ministry will make a savings of somewhere in the region of £71 million. However, this has also caused issues with staff members in the department, with the potential for 36,000 jobs to be lost as a result over the course of the outsourcing contract.
When it comes to globalized companies though, there are issues which can be solved by keeping the HR services in a single place through an outsourced company.
For example, if a company on a global scale has many offices and other departments situated across the world, it can be far less hassle and more efficient to keep its HR processes all in one place. This helps to streamline overall costs, and keeps the number of different HR offices required to a minimum.
Another factor which can be key in outsourcing over in-house HR is the simple aspect of time. To create an in-house department, companies need to not only invest money in hiring and setting it up, but also need to spend a considerable amount of time making sure that staff are trained correctly to do the job. With outsourcing, this is simply not the case, as the staff will be in place and already up-to-speed on the nature of the job at hand.
However, there can also be advantages to a company for using in-house services rather than giving a contract to an outside company. For example, if the firm has a particularly complex way of working, it can be better to use specialist in-house experts, rather than making the move to a company which will inevitably have to take time and spend in order to get up to speed.
It is also the case that companies can have a greater level of trust and rapport among their staff if they have an in-house HR department. If all of the people involved in a chain are working for the same company, then there will be a greater opportunity to build up a relationship, and staff will feel less skeptical about what is being done by an outside influence.
Robbi Wendel, IS service manager at Nissan said: "We see that when our employees have that in-house touch, they just have a better comfort level – a comfort level that you don’t have when it is outsourced."
In addition to this, it can be the case that by using an outsourced company, the strategy of HR professionals can become completely separate from the corporate strategy of the company, which means that this may not be taken into account when it comes to decision making on day-to-day running in HR.