Avoid the 10 Major Pitfalls of Outsourcing

Achieving desired results from outsourcing HR functions requires a well-planned strategy. Here are mistakes that you can avoid.

1. Taking a tactical rather than a strategic approach. It makes good business sense to approach the decision to outsource HR or benefits service delivery from a strategic, long-term and integrated perspective, rather than a short-term “fix” to an immediate need. Be sure you can answer the following question: What will be the role of the HR function over the next five to 10 years?

2. Not addressing organizational resistance. Consistent and frequent communication and management of change are needed from the beginning of the outsourcing effort. Remember to focus not only on employees, but also on other stakeholders, including senior management, line managers, HR staff and all others in staff functions that interface with HR.

3. Ignoring current costs and service levels. Having a solid baseline knowledge of your real costs and service levels will make it possible to evaluate your true needs for outsourcing and deliver a solid business case to senior management. Take the time to utilize the resources you’ll need to understand current costs and service levels in advance.

4. Not clearly defining service delivery models and expectations. A carefully constructed “service delivery model” defines how ongoing services will be structured and performed. It should include the roles and relationships of all parties involved with service delivery and the communications and technology links between them. Establish your vision for service delivery before stepping into the marketplace to evaluate vendors.

5. Not becoming familiar with the outsourcing market. Vendors differ in such areas as business philosophy, approach to account servicing, functional expertise, investment in technology and long-term business vision. Learn as much as you can about vendor differences, as well as the outsourcing marketplace as a whole.

6. Poorly defining the business case. As with any business initiative, even the best recommendations can be defeated if adequate homework hasn’t been done. Provide senior management with a thorough understanding of the current situation and the value to be received through outsourcing in terms of cost, quality and service. If outsourcing seems to be the best business answer, make a convincing case for why it would be best for your organization.

7. Inadequately designing the vendor evaluation and selection process. A well-organized and thorough vendor selection process is essential. It must incorporate objective, weighted criteria on which to evaluate vendors. Enhance organizational “buy-in” by establishing a well-balanced, cross-functional selection team, and include someone who is experienced with outsourcing vendor selection.

8. Failing to develop performance outcomes. Clear and meaningful performance outcomes help an organization communicate expectations to a vendor and assess whether the vendor is living up to its commitments. Determine the types and levels of service that are important to your organization, and how performance will be measured, reported and monitored.

9. Not preparing a negotiating strategy and identifying a capable negotiating team. The lack of an informed negotiating team or a well-defined strategy can be costly, delay the process and possibly damage relationships. Involve at least one person throughout the vendor selection process who will be involved in negotiations to ensure there’s continuity between the vendor relationship/scope of services that the selection team envisioned with the contract that’s ultimately negotiated.

10. Underestimating implementation and vendor management. Implementation typically requires a significant amount of time and resources for both the organization and the vendor. Establish an implementation team and develop an effective project plan that clarifies team members’ roles, levels of involvement, realistic time frames and target milestones. Furthermore, the skills needed for effective vendor management are distinct from those needed for administration and transaction processing. Identify the roles and activities of those who’ll be involved in ongoing vendor management and prepare accordingly.

Workforce, September 1998, Vol. 77, No. 9, pp. 44-45.