Outsourced HR is working, but what does it cost?

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 more than half of the 127 companies participating in its survey said they weren’t aware 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 large piece of the HR outsourcing market include ADP Canada and Ceridian Canada, who also assist in managing applications associated with HR functions from vendors such as 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 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 IT management expertise shows clients there are benefits to outsourcing beyond head count reduction.

“”People realize that technology changes 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 few Canadian firms are willing to outsource all 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 such as application development, Perron said HR outsourcing leaves customers free to concentrate on 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.

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Jim Love, Chief Content Officer, IT World Canada

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