Is It Right for Your Company?
This paper was developed to provide general background to assist clients in decisions related to outsourcing IT. Please note that this paper presents professional opinions intended to apply generally and that clients must take appropriate care to evaluate them in light of their specific needs. Technology & Business Integrators, Inc. makes no representations, warrantees or guarantees of any sort as to the applicability of the opinions presented in this paper.
What is the HR Involvement with IT?
TBI’s experience points to two different aspects of HR involvement that is very important when outsourcing IT. First of all, active HR involvement and planning is needed in any outsourcing action because of the potential impact on employee jobs. HR planning focus in outsourcing will need to include developing and implementing strategies to: 1) retain the organizational knowledge and skills needed to effectively outsource services (e.g., through provision of opportunities for employees to be hired by the outside service provider, through retention bonuses paid to employees who stay during a service transition period, etc.; 2) assure that affected employees are treated fairly (e.g., given separation packages, provided with similar benefits when transferring to the outside service provider, given opportunity to compete for other jobs within the company, etc.); 3) assure that union agreements are honored in cases where affected work areas have union members; and 4) regularly communicate to employees about outsourcing goals, project status and the outsourcing impact on the organization and jobs, so that they may assess personal opportunities and make necessary career decisions.
HR needs to help the IT organization evaluate outsourcing options, bringing to the assessment their understanding of HR policies and practices and organizational talent needs. From a labor relations’ perspective, they must provide guidance to the outsourcing project on appropriate and necessary employee notifications and any barriers to outsourcing. HR also is in a good position to help evaluate the impact of any retention bonuses and separation packages on the organizational cost of outsourcing. In cases where an organization is facing difficulty in attracting and retaining IT talent, HR can help by documenting turnover trends and hiring costs, contributing to the establishment of the organization’s business case for outsourcing.
Secondly, outsourcing of IT requires HR involvement as a customer of the services to be outsourced. HR operations today are highly dependent upon information technology. If support of the human resources information system that maintains information about employees, jobs, salary and benefits is to be outsourced, HR personnel will need to clearly document their performance requirements for the services. For example, they need to state their requirements for regular update of the HR database (e.g., by 8 AM each week day). Likewise, any batch report requirements need to be documented. HR will also need to establish requirements for maintenance and enhancement of the applications required to process human resources transactions provide management reports on HR trends, provide employee information, or provide public information about employment opportunities. Performance elements of concern might be transaction accuracy, system availability, system response time, customer satisfaction, or timeliness of problem resolution, for example.
Given the importance of IT to HR functions today, HR should also participate in the outsourcing evaluation to assess vendor capability to provide services that meet organizational performance requirements. If some aspects of HR business processes are already outsourced (e.g., benefits administration or payroll), the outsourcing assessment and outsourcing governance structure must also assure that the IT service needs of the third parties who provide such services are considered in the IT outsourcing. HR is the best source of information about cross-functional and cross-organizational coordination needs that must be considered in the outsourcing of HR application systems support.
What is the advantages/disadvantages of outsourcing it from an HR perspective? How do you determine if outsourcing it is right for your company?
The advantages and disadvantages of outsourcing IT from an HR perspective will vary by organization. In general, outsourcing is viewed as valuable for organizations in two cases. The first is in cases where internal costs of providing effective services are higher than desired. There are often significant cost advantages to be gained from outsourcing to a vendor who can use economies of scale to lower cost overhead in IT infrastructure areas. The second is in cases where personnel are too bogged down in the day-to-day, routine work to pay sufficient attention to activities that are more strategic. When the day-to-day, routine work is outsourced (e.g., in IT data center operations, routine application maintenance, help desk, desktop support, etc.), it can free up key personnel to focus more on what comes next and how to gain greater business value from IT for the organization.
Another HR consideration is that, for company employees that are offered jobs by the vendor organization (a common arrangement in outsourcing), the outsourcing may actually provide improved career opportunities. In IT in particular, there are many service providers for whom infrastructure services is their core business as opposed to a staff support function. Where this is the case, employees can gain wider career opportunities from transferring to work for an outsourcing provider than they could by staying with the company that is outsourcing.
Any outsourcing action requires careful consideration of the impact on human resources both from the individual employee perspective, as discussed above, and also from an organizational effectiveness perspective. When TBI assists companies in conducting outsourcing assessments, care is taken to consider the outsourcing impact on retention and future development of human resources. Organizations need to assure that, after the outsourcing, they will retain sufficient knowledge of and skills related to outsourced functions to enable enterprise strategy development related to and program management of outsourced functions. Outsourced services must still be managed. They require strategic direction by the customer organization. In IT, for example, a small CIO staff organization is often retained who plan strategy, direct operations overall, guide investment in new technology, and work with the business leaders to assure that organizational needs are met. In terms of outsourcing program management, establishment of specific new organizational roles and structures are often called for in order to accomplish customer and vendor relationship management functions, performance analysis, financial analysis, contract management, and other functions related to effective management of the outsourced services.
In summary, if outsourcing the IT department what are the steps for HR to take as a customer of the outsourced services:
- Document HR’s IT performance requirements
- Assist in evaluating vendor capability to provide needed technology support services to HR
As a member of the outsourcing assessment team:
- Identify labor relations issues that must be addressed
- Help create a baseline of current operations, developing information about compensation of affected employees
- Help craft and test various retention bonus and severance package scenarios
- Evaluate the impact of outsourcing on employee relations/employee career opportunities and organizational talent requirements