Canadian enterprises are improving customer service by outsourcing IT-enabled human resource processes but many of them have a poor grasp of the costs of working with outside parties, according to an industry-wide survey.

Watson Wyatt

Worldwide, an HR consulting firm with Canadian offices in Toronto, said Thursday more than half of the 127 companies participating in its survey said they were unaware of their ongoing outsourcing costs.

A potentially bigger problem, according to Watson Wyatt technology solutions practice leader Ed McMahon, is that a large majority aren’t even aware of the total costs associated with providing health-care or pension plans. This makes it difficult for firms to make an educated decision about outsourcing, he said.

“”How you can say you’re going to reduce your costs when you don’t know what your costs are?”” he asked.

Having handed off much of their IT infrastructure to companies like EDS and IBM, many enterprises are now considering the outsourcing of non-core HR functions, including defined benefit (DB) pension plans and group and health care (G&HC) plans.

Companies vying for a great piece of the HR outsourcing market include ADP Canada and Ceridian Canada, who also assist in managing and maintaining applications associated with HR functions from vendors like PeopleSoft, Oracle and SAP. J.P. Perron, vice-president of marketing at Ceridian Canada, said many customers are realizing they don’t need to run some parts of their HR applications in-house, which means Ceridian inherits systems through some outsourcing deals.

“”Obviously, people are looking for consolidation,”” he said. “”They’re really trying to ask themselves what are the two or three things near and dear to me that are going to allow me to maintain a high level of expertise in my staff, and what are the things currently being done that are not nearly as influential?””

Don McGuire, vice-president of client services at ADP Canada, said bringing in some IT management expertise helps show clients there are benefits to outsourcing beyond headcount reduction.

“”People do realize that technology does change quickly, and if you don’t outsource, you’re always looking internally for resources to get you to the next level,”” he said. “”I bet you any company can sit down and discuss with you about how many versions they’re behind in their accounting system, their payroll system.””

McMahon said the Watson Wyatt survey showed very few Canadian firms are willing to completely outsource HR tasks, but there are also few who keep everything internal.

“”PeopleSoft is not useless; SAP HR is not useless — these systems have a place in the overall HR function . . . it ought to be a mix,”” he said. “”I find it quite troublesome that there’s this rush to outsource.””

Just as IT outsourcing has allowed some firms to focus their existing resources on areas like application development, Perron said HR outsourcing leaves customers more free to concentrate on vendor management and succession planning.

McGuire agreed.

“”I don’t see a lot of value in maintaining a lot of the transactional-type things that people in their HR department do, like picking up the phone and saying ‘Yes, you’re covered by dental plan X2,'”” he said.

McMahon said potential outsourcing clients will have to do a critical assessment of whether they have the skills to deal with third parties. If they don’t, they’re going to have to acquire them quickly.

“”The act of managing these relationships and keeping your outsourcer honest also implies some business activity, and some cost,”” he said. “”Neither of those costs are typically represented in the outsourcing scenario, often prepared by someone who has a vested interest in the outcome.””

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