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COMMENTARY

The best way to outsource HR? Don’t Add to ...

A reader recently wrote, asking if I’d focus a column on strategies related to outsourcing human resource functions. I was stumped. I was shocked at how little I knew about this subject. I drew a blank.

Not to be outdone, I started to read articles from other writers on the practice of engaging a third-party company to manage HR functions in businesses of all sizes. That’s when I realized the reason I knew so little about the practice is simply that I don’t believe in it. So, it never really crossed my mind.

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I read the arguments of the benefits of outsourcing HR: Businesses owners get to focus more time on revenue-generating activities, and less on administrative work. Outside companies whose staff only do HR can be experts in their field. Costs are lower. HR companies often have self-serve infrastructures that small or medium sized business owners cannot afford. And so on.

I am a big believer in outsourcing in general, when it pertains to aspects of your business for which the tasks or administrative responsibilities are common among many businesses (such as accounting or legal).

But to me, HR is not one of them.

The reason I don’t believe in HR outsourcing is because the people in your organization – your employees and co-workers – are one of the few pieces of your business puzzle that cannot be replicated. Sure, you might have a patented product or a proprietary approach to your business model or a unique location or a handful of trade secrets – but it’s your people who bring all those things to life.

Don’t agree? Stop what you are doing and look around your business. Imagine that same scene, but with all the people removed.

It doesn’t matter if you are in a factory or a warehouse or an office environment. Look around your work space imagining all the people removed, and all you have left is four walls, a roof and some equipment that is generally available to all of your competition – computers, forklifts, merchandise, shelving, even sophisticated robots and automated machinery.

To my mind, what truly sets you apart is how your leverage your ultimate asset: your team players.

Sub-contracting out even menial HR tasks creates a disconnect with your staff, and reduces your knowledge of what they need, besides a paycheque, in exchange for the value they add to your business. It also reduces the flexibility with which your business can respond to their needs.

At one point in my business ownership, I outsourced payroll administration, a seemingly obvious function that is the most common starting point for outsourcing HR. I didn’t like it. I took it back in-house.

I found that the amount of time my admin staff spent gathering the information and sending it to the payroll company was roughly equivalent to the time it took them to enter the data into an in-house accounting system with payroll functions and spit the cheques out ourselves.

More important: If a mistake was made from our end, getting corrective action from the payroll company required a lot of communication, and a wait for the next payroll period to realize the adjusting entry. In-house, we had it done within minutes.

What I appreciated was that my employees spent more time contributing to my business than any other single activity in their lives, with the possible exception of sleeping. So when one of them needed a vacation paid out in an emergency, I could cut a cheque on the spot, rather than hand out a website address or a toll-free number to “self-serve” themselves to a solution – likely a full pay period into the future.

Similarly, when I asked employees for a favour when my business was having an emergency (such as working on a Saturday, staying a bit late or helping some other department), they didn’t hand me a website address or toll-free number for a temp agency.

We worked together. Keeping HR in-house was an important part of my ability to return the dedication, flexibility and responsiveness that my staff showed to me and my business every day.

Since my business’s employees were my true competitive advantage, I felt fine handling and controlling HR admin, payroll, benefits, background checks, insurance benefit plans, vacation management, retention, exit interviews and hiring functions.

Of all the things I think a business should outsource, human resources may just be on the bottom of my list, no matter what your company’s size.

Special to The Globe and Mail

Chris Griffiths is the Toronto-based director of fine tune consulting, a boutique management consulting practice. Over the past 20 years, he has started or acquired and sold seven businesses.

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