Could HR be completely outsourced?

Many thinkers and solutions providers talk about the benefits of splitting the function and outsourcing part of it – but would it work?

Words by Dan Cave | Design by Matt Bonnar

Words by Dan Cave

Design by Matt Bonnar

Recently, HR made mainstream business news headlines. Or, rather, an apparent lack of HR made those headlines. As first reported by BBC at the end of February, Greg Jackson, CEO of billion-pound green energy giant, Octopus Energy, stated that his 1,000+ person firm has no HR department. It is Jackson’s view that HR departments rarely drive the things they should supposedly do: such as making employees happier or more productive. In fact, he gives some of the traditional remit of HR directly to line managers as he has such little faith in the people function.

I believe it’s not possible to outsource HR

Whilst some might think its good that HR making the news isn’t making the news this time for some workplace scandal or failed D&I campaign – in fact, the Octopus Energy comments did spark a backlash against Jackson and a groundswell of support for the function; with some even finding supposed Octopus Energy LinkedIn accounts suggesting that HR-style roles were employed at the firm – the CEO’s controversial comments are hardly the first time that someone has questioned HR in its current form.

One of the most infamous examples is the 2014 Rav Charan Harvard Business Review Article It’s Time to Split HR whereby the business advisor – he’s worked with firms such as GE, DuPont and Tata Group – proposed, in a self-stated ‘radical’ idea, that HR should split into an administrative arm and leadership-come-business strategy arm. The former would manage things like payroll and benefits whilst the latter would gain “business acumen” and support CEO strategy. It would, as he described, “build their experience in judging and developing people, assessing the company’s inner workings, and linking its social system to its financial performance.”

If Charan’s thinking is taken a step further, it is not difficult to imagine that the administrative arm could be outsourced. And it’s not just Charan proposing this. The ‘split’ concept has been a strong school of thought within a lot of ‘blue sky’ HR thinking. In 2019, LACE Partners published HR on the Offensive which, amongst other suggestions for the HR function, concluded that HR should split into a value-adding strategic HR function, distinct from a operation people services delivery function. One of the paper’s authors, Kevin Green, author, consultant and ex-CEO of The Recruitment and Employment Federation, explains to myGrapevine magazine in a subsequent call that of course this latter part could, in theory, be outsourced. “Of course, you could outsource loads and loads of HR, payroll, resourcing, administration and casework,” he says.

What does a growing investment in HR solutions show?

In 2019, Josh Bersin wrote in a blogpost Are We Really Getting Value From All The HR Software We Buy? that the HR tech market is ‘on fire’. He noted that the billions being invested in the firms in this space is being driven by organisations who are obviously upgrading or replacing HR functions with technology solution. Whether this is a HCM platform or a payroll solution, it seems there was a drive towards letting partners do what might’ve been traditionally held in house.

However, despite the big money involved, many HR leaders are not getting the value they expect from such a big experiment in outsourcing a solution. Many saying expected efficiencies didn’t follow. In fact, as Green tells myGrapevine magazine, perhaps this focus on trying to find a solution outside the firm is wrong, perhaps HR would be better placed investing in it’s own transformation. “We need to think a lot more about how we structure our businesses, how we create strategic agility within our organisations, and how we design ourselves to lead our people,” he says.

[HR] that help design your organisation, articulate the culture and develop leadership capabilities

And many firms do. The large range (and increasingly high market caps) of off-the-shelf solutions and solutions providers – from payroll to self-serve engagement and benefits – suggests that, increasingly organisations are turning to partners to provide rote and operational parts of the traditional HR remit. However, Green argues that if a firm were to outsource all HR activity, then it would lose the value created by having passionate people people within the organisation. “I don’t think that’s easy to outsource,” he explains. “At most organisations over 85% of economic value comes from intangibles – brand relationships, intellectual property etc – which help drive advantage but if you outsource people [HR] that help design your organisation, articulate the culture and develop leadership capabilities...you don’t get that heart and soul.”

Yet Green admits that not all HR firms are at the ‘Charan-stage’ whereby at least one part of the HR function is adding this high value. An admittance that might lead to some to think, for the timebeing, that outsourcing is the answer. Some, however, are on the journey. Zurich, the Swiss insurance giant, believes it is moving away from having a purely administrative HR function – one that could be easily replaced by outsourced parts – to one that is more strategic. David Henderson, Group Chief HR Officer at the firm, tells myGrapevine magazine: “HR is leading the agenda to be a function that promotes the employee as a champion, to drive meaningful organisational change and to be a strategic partner to the business on all aspects of human capital. Looking at it from this perspective, no, I believe it’s not possible to outsource HR. A modern and progressive HR function is every bit as critical as any of the other functions within the business.”

In Henderson’s view, HR at Zurich is now partnered with the business in such an integral manner it could not be outsourced. It is within his function that the ‘intangibles’, those that Green believes drive business, are turned into tangibles through connections that HR makes, whether it be performance management to company structures, career development and connectedness. He believes that as people are as important as other stakeholders in business success, HR couldn’t be outsourced. As the pandemic has proved at so many organisations, it is a function which adds value, drives flexibility (even if this action is a fairly novel discovery for HR and can support rapid change). As Henderson concludes: “An outsourced function could not have its finger on the pulse to put the rigour and discipline behind elevating performance and promoting a purpose-based company in the way in which a business-centred in-house HR team can.”