Long-Term Pain from Short-Term Gain?

The HR function is rapidly becoming the latest focus for outsourcing in a financial services industry still striving for further cost efficiencies. But Chris Callaway sounds a cautionary note.
Many readers may have been surprised to learn from Wanda Warhaftig’s article on outsourcing and offshoring in the last issue of Argent that relatively-few customer call-centres are actually outsourced, and only a small proportion of these are located offshore. IT is by far the largest sector in terms of global outsourcing, but human resources is in second place, accounting for about 15% of all outsourcing.
There is no doubting the recent growth in outsourcing – expenditure in Europe, for example, doubled between 2002 and 2004 – nor that these trends are likely to continue. A recent survey suggests that 57% of HR professionals see outsourcing as a way of concentrating on more important issues, with only 19% seeing it as a threat to HR. There has, of course, been a degree of adverse press coverage, but this has tended to focus on customer-contact centres based in India and on ill-starred government IT contracts, and companies will be encouraged by further developments such as the recently-announced ten-year $575m deal between BT and Accenture.
In fact, the consensus amongst the pundits is that these trends will accelerate in the medium term, with single process HR outsourcing (worth £27 billion in 2004) projected to increase to more than £42 billion in 2008, and multi-process outsourcing (where organizations outsource more than one element of, in this case, HR to the same company) expected to grow by 21% a year to $7 billion in four years time.5 Such rapid growth clearly reflects the desire and opportunity for significant cost-cutting6 and process streamlining, but it is important to recognize that there are certain tactile areas to which outsourcing cannot add value without potential downsides elsewhere in the organization.
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