You cannot manage what you cannot measure,” says Dr Anthony Hesketh, co-director of the Centre for Performance-Led HR at Lancaster University Management School. “And you must be clear about the costs before you do anything about outsourcing.”

The easiest, but not necessarily the best, way to do this, he says, is to create an in-sourced shared-services system — the sharing of services within an organisation; services are standardised, centralised and streamlined — or a separate in-house profit and loss organisation. The cost savings can be significant. “Our research shows that when you move to a shared-services system you can cut the cost from £610 per employee to £380,” Hesketh says.

But, he says, it costs a lot to set up a profit and loss system, while “outsourcing gives firms real transparency of cost, and experience to benchmark their own costs against the delivery of other organisations.” Mark Withers, director of Mightywaters Consulting, says: “While the administrative stuff can be closely scoped, as you can estimate how many transactions you are going to perform in a year, when it comes to case management, it is difficult to cost.”

Even harder is ascertaining the value of HR to an organisation. “I am not convinced that there is an absolute calculator to do this. Most companies looking at HR have a variety of objectives and the weight of each will vary,” says Paul Knowles, engagement director and HRO specialist with sourcing advisers Everest Group.

According to Hesketh, these questions need to be asked: what does good performance look like? At what levels of service and for which stakeholders? Are current HRO metrics adequate measures of providers’ actual contribution and perfomance? Which metrics drive business performance through HRO?

QC Data

If you are considering outsourcing, Ian Wainwright, UK and Ireland managing director of data company QC Data, says: “You do need a good sense of humour — it can be quite frustrating initially.”

In 2001, QC’s company payroll was run through a system designed for just 40 people. With the firm employing 160 people, it was struggling. Rather than invest in a new payroll system, QC decided to outsource all its HR operations — apart from recruitment — to RebusHR Group, later bought by Northgate HR.

“Our view was that if we could outsource it and get a better quality for the right price, then that was the better option,” says Wainwright, left. “The migration of the payroll was a bit of a pain but that’s because it was on its knees anyway.”

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