As the economy starts to show signs of growth, companies can begin to shift operating modes. With suitably cautious steps, they can move from the belt-tightening and frugality of the past 18 months towards a phase of renewed ambitions, expected expansion and a revival of hiring.
These developments will put the role of human resources (HR) departments very much in the spotlight in the year ahead. They will be at the forefront of recruitment campaigns, involved in policy decisions on headcount and training, benchmarking rewards, and providing all the support services generally required of an HR function.
But in doing all this, they will have to remain very aware of one crucial factor. The recession has changed the outlook and approach to business for virtually every company. Forced to slash budgets, freeze headcount, squeeze credit and count every cent for at least the past year, businesses know they must continue to run a very tight ship, even as the general mood picks up and revenues start to improve.
There will be no speedy return to "as you were" in 2007. Tough experience has taught companies what really qualifies as essential and what does not. Therefore, to benefit from the effects of the recovery, well-run businesses will continue to insist on "value for money" from every department. In many instances, the basic target will be to maintain the degree of cost control, while achieving tangible gains from better operational efficiency in handling rising sales.
Given this backdrop, the challenge for HR directors and managers is to find ways of offering "more bang for the buck". To meet increased demand, they will need to gear up hiring activity and everything that goes with it, but without the assistance of significantly higher budgets.
Some of the more alert HR teams are taking a fresh look at their anticipated workload, actual functions and the best role they can occupy in future. They are looking at the options to outsource non-core or purely administrative functions and scrutinising comparative costs, in the knowledge that if they don't do that, someone else in the corporate hierarchy will.
HR managers have, to some extent, got into the habit of saying that companies need to include them in all strategic decisions. No one would necessarily dispute that. However, the priority must surely be not to lobby for attention but to let action speak louder than words by demonstrating cost-effectiveness and presenting scaleable solutions.
To do this, it is essential to understand which HR functions are of strategic value or particularly sensitive. These, presumably, should be retained in-house. Others, though, such as the oversight of health benefits, can be more procedural in nature, meaning it may turn out to be just as efficient to outsource them.
When conducting such an exercise, it is important to take a critical view of past practice and a realistic look at future requirements. The process should examine how the company handles everything from the administration of compensation reviews, retirement and training to recruitment and payroll.
There should be due consideration of factors such as the use of information technology systems, constraints on internal resources, individual responsibilities, the security of personal data and regulatory requirements.
It goes without saying that another key factor is cost. If businesses are to bounce back and, ultimately, move up the value chain, HR departments must offer a competitive advantage and be equipped to handle work which has a strategic significance.
To provide more value and maximise their core competencies, HR managers should always focus on the needs of the overall business. Their priorities should be to:
- find new operational efficiencies without having to request additional investment in technology, market data and specialised skills
- create a cost structure and HR services that have the capacity to meet changing needs
- concentrate internal resources on areas of the most strategic importance for the organisation
- ensure consistency of approach when dealing with different line managers and be able to offer broad-based expertise
- take an objective view of opportunities to outsource specific functions, remembering that parameters and expectations have changed since the onset of the recession
In Asia, many companies still prefer to keep most or all of their HR functions in-house. Nevertheless, what we see is that the parallel demands for cost containment and value creation are shaking things up. Because of that, we expect many more organisations to start actively considering the pros and cons of outsourcing.
If unsure about how far or how fast to proceed, they may first opt for a variety of co-sourcing arrangements. By doing this, companies can work in close collaboration with appointed partners or vendors, sharing responsibility for certain tasks for a while and, thereby, testing the process and gauging its general effectiveness.
It can also be a good way for an HR department to enhance skill sets within its own team. External service providers are likely to see issues in a new light and, as a result, to put forward alternative perspectives. Teaming up with a partner may also give access to cutting-edge technology specially designed to improve HR processes. Typically, this might show how to manage operational workflow better over the course of a year, without the need to take on additional headcount or commit upfront capital expenditure.
When first lining up a potential co-sourcing partner, there are three key areas for consideration. These are:
- the precise scope of services required in order to get best value
- the division of responsibilities and the lines of reporting when decisions need to be referred
- the working procedures in terms of day-to-day organisation and access to data
Logically, companies should also conduct the appropriate due diligence checks in advance to ensure they are working with reliable and reputable co-sourcing or outsourcing partners. These checks should extend to knowing that comprehensive measures are in place to guarantee the integrity and security of employees' personal data. In this respect, there should be secured database architecture, password protection, monitoring of access, and interface protocols. Any contractual agreement should also spell out expectations on maintaining confidentiality and performing annual audits.
In recent months, we have seen such initiatives bringing clear gains for various companies operating in Asia. For instance, a fast-moving consumer goods multinational, with its regional headquarters in Hong Kong, is now using a co-sourcing model to manage its compensation functions in the Asia-Pacific region.
Instead of hiring a manager and support staff to administer compensation at each location, the company relies on its chosen vendor's technology to store selected employee information. The vendor is in a position to provide advice and services ranging from compensation analysis to recommending various options or comparative practices which can subsequently form part of the multinational's decision-making process.
This arrangement frees members of the in-house HR team from performing administrative tasks, allowing them more time to focus on the strategic aspects and act more as a "business partner" for senior management.
The outsourcing option would see a more complete transfer of "ownership" of certain HR processes to a third-party vendor or service provider. The principle, of course, is that this will give a substantial and consistent cost saving compared to handling the same work in-house.
As an example, we know of a car manufacturer with more than 1,000 employees in four subsidiaries across the mainland, which has now completely outsourced its employee benefits programme. After a detailed feasibility study, the company realised that the price of managing and maintaining an in-house administration function was cost ineffective, given the annual volume of transactions expected.
By outsourcing, it was possible to enjoy several benefits. These included deploying the programme without needing any extra HR staff to support it, and having greater certainty on costs and data management.
Written by Lucietta Leung, associate director for Mercer's human capital business in Hong Kong, and Gary Tok, Greater China business leader for Mercer's outsourcing business. Mercer is a global provider of consulting, outsourcing and investment services.
