Half of global HR talent is outsourced: Here’s how HR pros can hold on to their power

HR functions have been outsourced for years. As recession fears mount, experts say more companies may lean into the strategy.
article cover

Anastasiia_new/Getty Images

· 5 min read

In the wake of the Covid-19 pandemic and the summer of racial reckoning, executives heralded HR professionals as essential, strategic changemakers—well, perhaps some more than others.

Indispensable people professionals create employee experience processes, including onboarding and performance management, that reflect and communicate company culture, experts told HR Brew. When HR knocks this out of the park, Brian Kropp, VP of Gartner’s HR research practice, said, HR can be a “differentiator on the labor market” and help attract top talent. Outside consultants might assist in developing people experiences, but Kropp and Art Mazor, global human capital practice leader at Deloitte, agreed that third parties can rarely fully replace internal expertise.

Indeed, as corporations recognize the utility of a successful people program in attracting and retaining talent, demand for HR wisdom is growing. The HR specialist role is projected to grow at a faster-than-average rate of 10-to-15% between 2020 and 2030, according to O*NET, a Department of Labor-sponsored website that tracks US job growth. But not all HR functions demand the same level of company customization and innovation.

Payroll administration, high-volume recruiting, compensation and benefits management, and other tasks that lend themselves to “high degrees of consistency and scale” are “no-brainers” to outsource, Mazor said. And many companies are choosing to do just that: 49% of full-time HR pros are employed by outsourcing firms or work at shared service centers that may rely on outsourcing, according to Deloitte’s 2021 Global Shared Services and Outsourcing Survey Report. Payroll was the most outsourced HR function in the US as of 2020, reported SHRM, and payroll specialist positions in particular are predicted to decline very slightly between 2020 and 2030, per O*NET.

As the economy teeters toward a possible recession, experts suspect outsourcing such HR functions may be attractive to cost-conscious executives. But people professionals who don’t lead employee experience programs aren’t doomed. In a blended HR team, in-house professionals can maintain power and influence by reframing their roles.

Inside the decision to outsource. The global HR outsourcing market is forecast to grow from a $32 billion-dollar industry in 2020 to one worth $45.8 billion by 2027, driven in part by the increased digitization of recruitment processes. Advances in HR tech, Mazor explained, make recruitment processes more repetitive and scalable than ever—music to the ears of C-suite execs making outsourcing decisions.

“If you have a task that’s highly repetitive, and at least can be partially automated, then… outsource it, you’re going to lower your people costs, and you’re going to lower your spend to deliver that service to your employees,” said John Morgan, president of career mobility and learning and development at Lee Hecht Harrison, a global business unit of staffing firm Adecco Group.

Quick-to-read HR news & insights

From recruiting and retention to company culture and the latest in HR tech, HR Brew delivers up-to-date industry news and tips to help HR pros stay nimble in today’s fast-changing business environment.

The headcount flexibility associated with outsourcing, Mazor said, is particularly desirable for CEOs and CHROs, since recruitment demand can change significantly based on market forces and business needs. Morgan thinks it will be even more attractive in light of recession concerns.

Stay strategic. Outsourcing people functions may not only reduce the size of an HR team. As Morgan acknowledged, it may also affect the jobs of those who remain. On blended teams, in-house HR professionals may project-manage outsourced talent. Kropp said that it’s essential that HR leaders don’t fall asleep at the wheel or else they’ll risk finding themselves in a power imbalance and, as a result, agree to bad deals.

“[Providers] have every desire to maintain [their] contract and maintain that relationship and make as much money as they possibly can,” Kropp said. “[If you] are not really paying attention to and monitoring the performance of your benefits provider, you don’t know if you’re getting a good deal on that or not.”

Outsourced labor, he explained, is often highly specialized. They may be, for example, deeply embedded in the compensation and benefits industry and use their knowledge of the market dynamics and options to win contracts. To correct this power asymmetry and win back influence, Kropp suggested that HR leaders think of themselves as the heads of a supply chain: They need to manage the relationship with their vendor and be equally up-to-date on the ecosystem in which they’re outsourcing.

Kropp recommended talking with HR leads at other companies about how they’ve structured contracts with vendors and their preferred plans. He also suggested independently auditing outsourcing firms to gauge success, identify ways to improve processes, and suggest pivots.

Writing on the wall. The surest sign outsourcing may be in an HR department’s future is a changing of the guard at a cost-conscious company, Kropp said. A new CHRO who outsourced functions at their previous employer, he said, may be a sign of things to come.

Just remember, Morgan reiterated: “the hardest thing to outsource are the HR roles that are related to culture.”—SV

Do you work in HR or have information about your HR department we should know? Email [email protected] or DM @SusannaVogel1 on Twitter. For completely confidential conversations, ask Susanna for her number on Signal.

Quick-to-read HR news & insights

From recruiting and retention to company culture and the latest in HR tech, HR Brew delivers up-to-date industry news and tips to help HR pros stay nimble in today’s fast-changing business environment.