Executive Brief
A spotlight on payroll
and HR outsourcing
IN PARTNERSHIP WITH
Outsourcing is one way for organizations to build implementing quick fixes, such as reducing stock and
agility into their operations by providing the flexibility making substantial reductions in head count. However,
needed to navigate changing business climates, be some reactionary responses may inhibit the ability to
it entering an upturn, downturn, or times of stability. recover from the recession and expose companies to
When an organization is able to focus its attention on greater risk.
its core business, and away from tasks that could be The bleak economic backdrop gives new urgency to
better outsourced to specialist providers, McKinsey & the perennial search for business efficiency, according
Company among others, argue that outsourcing has to Jesper Lillelund, co-founder of CorporateLeaders,
the potential to deliver up to 50 percent improvement the independent network for business executives.
in business processes. While theres not much scope for growth in the
So the question is, if an organization is not already current business environment, organizations can
outsourcing some of its business processes, then why survive and even increase their profitability by
not and why not now? The arguments for outsourcing cutting costs, improving efficiency, and streamlining
are strong. Success rests on the maximization of three business processes, he says. Outsourcing can
key focus areas: Resources, People, and Processes. enable companies to do those things, which is why
they should be considering this now, given the state of
the global economy.
The business response to a
global economic slowdown
Leveraging outsourcing to meet
The global economic crisis that began in the U.S. executive needs
sub-prime mortgage market in 2007 still shows no
signs of ending. Even the economies of Brazil, Russia, Organizations opt to outsource HR activities for a
India and, above all, China which in recent years whole host of reasons. Context is king and the size,
have accounted for the bulk of world GDP growth, are sector, strategic objectives, and available skills of
now slowing down. As a result, banks are still risk the organization will all influence the outsourcing
adverse. Access to credit is more difficult, customers decision. That said, companies typically outsource, in
are spending less, and inflation is pushing up prices the first place, because of the need to reduce costs.
all of which are having a drastic impact on cash An uninformed reaction is to simply reduce head
flow and profitability. Many companies have been count (as it was done in the U.S. circa 2008-2009),
responding to this uncertain business environment by which can be catastrophic for businesses, leading
2 |
|3
27%
Yet, many people continue to spend their working
lives on tasks that could easily be automated and of organizations
handed over to external providers. Regardless of are more likely
the employment rates, companies are becoming to report higher
increasingly aware that they need to focus on retaining profitability
their top talent because not doing so is costly and has
a negative impact on employee productivity.
A study commissioned by ADP, HR Outsourcing
Redefined: Options for Workforce Management,
found that HR teams of midsized companies spent
nearly half their time (45%) on a combination of
50%
payroll-related activities (18%), HR administration of organizations
(14%), and benefits administration (13%). HR teams are more likely
that devote so much time to administrative tasks are
to have lower
clearly not going to play a strategic role in leading
staff turnover
their organization forward focusing on activities
that help the organization achieve its core business
objectives.
In the early days, outsourcing was perceived to have a
potential negative impact on employee engagement.
Now that outsourcing is much more understood, there
is actually a positive impact. When people are freed
from the administrative burden of their roles, they
38%
are then able to apply their skills and experiences to of organizations
the more knowledge-intensive parts of their job. They are more likely to
become more engaged, more productive, and are have above-average
more likely to remain with the organization. Gallup, productivity
the research-based, performance-management
consulting company, has run extensive studies to
show how employee engagement relates to business
results. They found the most engaged workplaces
were 27% more likely to report higher profitability,
50% more likely to have lower staff turnover, and
38% more likely to have above-average productivity. Source: Gallup
On average, a company loses $1 million for every
10 professional employees who leave, according Companies that seize these opportunities and become
to PwC Saratoga, publishers of HCM intelligence. leaner and more focused on core business activities
Disengaged employees will leave the organization or, are likely not only to ride out the storm, but also
even worse, sit and radiate negativity until everyone have a more productive and engaged workforce, and
around them is also disengaged. take advantage of the recovery quicker than their
competitors.
4 |
|5
Summary
Businesses need to make the best decisions today to position themselves for the
company they want to be, once the economy recovers. Therefore it is essential
for companies to be ready for change and be able to adapt quickly, depending on
market conditions. Companies cannot save their way into prosperity by cutting
costs and reducing head count as this removes vital knowledge and expertise from
their businesses. When the market enters an upturn, these companies will have
to go through the costly exercise of rehiring people, limiting their ability to take
advantage of the recovery, while still having the same issues.Good costs are spent
to grow the business and bad costs, such as inefficient processes, areexpunged.
Outsourcing enables companies to be flexible while The demand for outsourcing is growing fast among
ensuring that they continue to provide essential multinationals and small-to-midsized businesses
internal services necessary to run their business. alike, increasingly attracted by the advances in
Outsourcing allows companies to maximize three areas outsourcing technology and decreased prices.
that are essential to success. Resources, People, and According to Gartner research, the payroll BPO
Processes: 1) Outsourcing enables organizations service market alone grew 5.2% in 2011. With the
to improve Resources such as increasing gross World Bank recently advising countries to prepare for
margins, freeing up cash flow for mission-critical a long period of volatility in the global economy, many
objectives, reducing costs, and providing scalability; companies have been actively planning to increase the
2) The outsourcing of routine, administrative tasks scope of their outsourcing contracts. Doing things the
allows People to take up more strategic work, wrong way, however, can do more damage than not
increases productivity, and engages the workforce; outsourcing inefficient processes in the first place.
3) Outsourcing providers can deliver Processes more
quickly, efficiently, and more cost-effectively than
internal functions.
6 |
Build in flexibility
With outsourcing partnerships likely to last many years, the contract also needs to set out dates for
reviewing the arrangement. This will allow you to adjust the relationship as needs change in either your
own organization or in the wider business environment.
|7
Automatic Data Processing, Inc. (NASDAQ: ADP), CorporateLeaders is an exclusive independent network
with about $10 billion in revenues and approximately that inspires business and leadership by providing a
570,000 clients, is one of the worlds largest providers trusted forum for executives to network, exchange
of business outsourcing solutions. Leveraging over 60 ideas, share lessons learned, and drive business
years of experience, ADP offers a wide range of human forward in an ever-changing environment. We focus
resource, payroll, tax and benefits administration on providing exclusive membership services, intimate
solutions from a single source. ADPs easy-to-use and content-rich networking events, research, thought
solutions for employers provide superior value to leadership and advice on business transformation with
companies of all types and sizes. ADP is also a leading the executive needs and experiences at its core.
provider of integrated computing solutions to auto,
truck, motorcycle, marine and recreational vehicle, corporate-leaders.com
and heavy equipment dealers throughout the world.
adp.com
The ADP logo and ADP are registered trademarks of ADP, Inc.
In the business of your success is a service mark of ADP, Inc.
All other trademarks and service marks are the property of their respective owners.