Why You Can't Outsource HR

12/05/2012 07:02 pm ET | Updated Feb 04, 2013

Outsourcing has been all the rage for 15 years, at least. There's a name for the industry that sprang up to take over the tasks corporations don't want to pay for in-house: Business Process Outsourcing, or BPO. There are lots of situations where it makes sense to outsource functions.

If you're a marketing firm and you send out scads of HTML newsletters for your clients, you're not likely to want to manage your clients' email lists in-house, or to design a newsletter engine to reach hundreds of thousands of people. You're going to use Constant Contact or some other newsletter engine, like everybody else. You don't do everything yourself, in your business.

You may use a cleaning service to tidy up after hours. That's outsourcing, too. There's nothing inherently evil about outsourcing. There are lots of ways to get our mountains of work done, and not all of them involve W-2 employees.

But you can't outsource HR. That's like running a business in Indianapolis and using contractors in India to water the plants on the desks. HR is local. It's what's happening on the ground, in the culture and among the troops. You can't do that sort of work long-distance.

Good HR people are embedded, with at least one ear to the ground all the time. They may process vacation-time requests as part of their jobs, but their real value is in knowing where the good-and-bad-energy currents are flowing in your organization, and using that knowledge (and other skills, like sensitivity and emotional intelligence) to steer around the landmines that come with the territory whenever you work with people.

Luckily, the gulf between "process-type HR" and "people-intensive HR" duties is becoming more and more obvious every day. Much of what we used to view as standard job-description fodder for a typical HR person is now safely in the "process-type HR" arena. You can outsource that stuff, as long as you have a sharp HR person on staff and on premises to run interference between the troops and your outsourced-HR-process vendors. With that person (or people) in place, an employer can safely outsource at least these six programs:

  • Employee Benefits processing
  • 401(k) administration
  • Employee Assistance Program processes
  • HRIS (HR information systems) data-crunching and reporting
  • Payroll
  • Compensation analysis and reporting

There are other HR sub-functions that are safe (and may be wise) to delegate to vendors and BPO partners outside your company's walls. You can see what our outsourceable functions have in common: they have to do with data, with numbers and cells in spreadsheets.

That data and those reports inform and help you manage the movement of human energy, which is the principal thing that fuels your business. As long as you've got someone on hand and on site who can make a call to your benefits administrator to argue for an employee when a health claim gets denied unfairly, there's no problem outsourcing the left-brain side of the HR assignment.

(If you haven't empowered your local HR person to advocate for your employees with your third-party vendors, you have a problem. If people aren't being paid correctly or their benefits aren't being processed the right way, your HR person will have no juice or credibility to talk with employees about anything else. Maslow rules, after all.)

We could almost stop calling the left-brain, quantitative sub-functions listed above (payroll, benefits, HRIS and so on) HR functions at all. At best, they are HR operations tasks. The real HR work is the part that can't be outsourced, because it happens in the moment and on the ground. Here's a list of 30 situations where an immediate, local, well-informed HR presence is irreplaceable:

1. Your purchasing manager is furious about an incident with a vendor, and wants to fire or discipline the employee who goofed up.
2. A mailroom employee had a crisis at home and isn't sure when he can come back to work.
3. Two managers have a jurisdictional dispute and need some help sorting out where the lines fall.
4. The CEO is concerned that his Marketing VP may not be right for the job.
5. The circulation department manager, who's doing a lot of hiring, seems to hire only white female candidates.
6. There's unrest in accounting, where an unpopular supervisor was recently promoted to assistant manager and is waaaay too comfortable telling staff members how to do their jobs.
7. Two of the directors can't agree on when the facility will be open vs. closed over the holidays.
8. An IT employee announces that she's transitioning from female to male and would like the company's support.
9. The new-hire sales ninja is causing tension on the sales force (a little too ninja-like, maybe).
10. Your most experienced inventory person says he's planning to retire a year from now; you have no one remotely qualified to replace him.
11. Your front-desk receptionist was arrested for DUI over the weekend and is doing 30 days in the county jail.
12. A pregnant mom on your staff asks you, "How come there's no lactation room?"
13. The employees like your new health plan in general, but the much-higher deductible is causing a lot of unhappiness.
14. Through conversation you realize that virtually no one understands the sales compensation plan.
15. An employee's mom is in a coma, and the employee needs help managing through the crisis.
16. The company is growing too fast for internal infrastructure to keep up with sales growth.
17. Your New Employee Orientation program is so dated, you're embarrassed to deliver it.
18. The CEO's wife is driving the CEO's administrative assistant out of her mind.
19. The CEO himself, while a wonderful fellow, is tone-deaf in the employee communications department.
20. Two of your top tech folks are talking about taking their favorite idea and making a startup out of it. They'd like your company's investment; there's a question as to whether their idea is actually your company's idea.
21. There was an incident between two young marketing types at a conference in Las Vegas, and nobody's talking about it back in the office.
22. Somebody on the staff has a drinking problem.
23. There are glaring mismatches between the levels of incentive stock options some employees have received and the contributions they've made vis-a-vis others.
24. Morale is terrible.
25. No one understands the company's strategic plan for 2013.
26. There was a workplace violence incidence in the same office park, and your organization has yet to address that issue.
27. There's a rumor one of your managers is a little too free with the "Hey, your tush looks great in that skirt" comments.
28. An employee has a grave illness.
29. The caliber of candidates applying for your open positions is not exciting.
30. You work among humans.

This list describes 30 of the 10 million ways that people-focused HR makes a difference. Your local, irreplaceable, embedded HR person may know how to move forms around, but his or her real value is in solving problems involving actual people. There's all the difference in the world between designing a sales-comp plan in the abstract and problem-solving in a real organization, with salespeople who care a lot about their quotas and how they get paid.

That's what HR people do -- they dig into a situation to see what's not working, have lots of conversations about it and do lots of listening, and then work with the people around them to craft a solution that straightens out whatever is causing a kink in the energy flow. They take away roadblocks to focus and creativity. They build community. They spread pixie dust around.

You can't outsource that! You're crazy if you try. It would be better (although still foolish) to outsource your finance function to Singapore, and get a fractional CFO in Singapore who can answer questions over the phone from six time zones away. That would be ridiculous, but it would be better than taking away the HR person or people who grease the skids, hear the important conversations, and keep the human energy moving in the right direction in your business.

Lots of companies have viewed HR as mostly an administrative function up to now. The administrative parts of HR are the ones that you can outsource without losing sleep. The person-to-person, Minister of Culture duties are the ones you must keep in-house. If you don't have a person fulfilling that role in your organization, you can use the money you save on outsourcing the processes to hire one. Real HR work is transformational: That's why it's fun, and why it's as strategic as your five-year plan, if not more so.

CEOs who miss the power of an HR consigliere by their side waste more time on petty people issues and miss their business-results bars as a result. They don't see the energy waves, and they don't see the people-related threats on the horizon, because their focus is (appropriately) elsewhere. When I was a corporate HR leader, my CEO would ask, "How do you keep thousands of people happy?" I'd say, "Notice the currents."

Leaders who get the human side of their businesses, and install a wise and community-aware HR leader to jump on the 30 items in our list (and their 10,000 variations) can outsource the clerical tasks away and sleep well at night. Leaders who delude themselves that HR is just a matter of payroll forms and vacation requests may wonder why their jobs are so hard, why their employees are so surly, and why good people are so hard to find.