Outsourcing

Introduction 3 Discussion 4 Strategic Focus 4 Cost-Benefit Analysis 5 Recommendations 5 Improved Service 6 Selecting an Outsourcer 6 Advantages and Disadvantages of Outsourcing 7 Conclusion 7 Bibiliography 8 Introduction Many organizations have outsourced several of their responsibilities elsewhere, while others are planning to implement this action in the near future. Outsourcing refers to subcontracting business activities to an external third party organization (Terms & Definitions, 2006). The strategic goal of an organization to outsource its functions, particularly HR functions, is to reduce their costs of certain activities in order to gain profits. Some of the HR functions that can be outsourced are: Payroll, Training, Recruiting, and Health and Safety. In order to meet their goals of improving their service quality and making more financial gains, Texas Instrument (TI) has successfully outsourced several of their functions in past (Harris, 2004). However, there have been instances where the clients are not satisfied with the service received by one of the outsourced companies (Macaulay, 2000). Dawn McWhirter, HR manager at TI Canada had to face a similar scenario when the work for their payroll functions was outsourced. The issue occurred when she faced numerous errors by the external provider. She had to spend more than she had budgeted for in order to resolve the errors made by the outsourcer. These additional expenditures included paying various employees, including her, it was similar to doing the same work twice. Thus, outsourcing is not always effective; many cases have proved that the goal of cost savings in never materialized (Sullivan, 2004). It has drastic effect on the organization as incidences above may lead to the company reducing their labour force, thus increasing the unemployment rate within the community and have adverse economic affects. A main internal risk when outsourcing HR departments is the employee morale: Employees fear losing their jobs or working under a different management (Delmotte, 2008), this leads to unsatisfied staff who will not be motivated to work efficiently. In turn, this may decrease the quality of work being produced by the organization. Dawn prepared some estimation in regards to preparing these payrolls internally and minimizing the errors; the details of these estimations will be explained and evaluated in the cost-benefit analysis. Discussion As a HR manager Dawn has to make a decision whether to stay with current provider or to conduct these activities internally. The main reason for TI Canada to outsource its payroll functions was to allow the HR department to focus on policies, strategic decisions, and advising the organization to move forward successfully. As stated before, outsourcing any organizational activity has both benefits and potential risks (Adler, 2003). The decision to outsource a department should be based on cost saving and improved service. As most organizations believe that costs can be reduced by outsourcing; it is not always possible as the external provider can have complications identifying the needs of the organization, thus providing unpleasant service. This was the case with TI Canada; they outsourced their payroll to a national provider that resulted in many errors which Dawn had to fixe internally at an additional cost. Strategic Focus It is ideal for an organization to outsource its secondary functions of payrolls and other administrative work in order to reduce costs. As payroll is not their main concern they outsourced it to a third party, however this did not resulted in any positive outcome. TI Canada mainly focuses on its capabilities of innovating products and providing an outstanding customer service. Dawn had to get the errors fixed internally, along with which came the monetary compensations for all the internal employees who worked on this project. Thus, while outsourcing their work, it is essential that the organization receives the expected service from the external provider or else they have to get these services finished internally for an unwanted additional cost. Cost-Benefit Analysis TI Canada mainly focuses on its capability of innovating products and providing an outstanding customer service possible. As payroll is not their main concern they outsourced it to a third party, which resulted in costing them more than what they budgeted for. As the external provider was paid $30,000 annually for performing several activities including payroll, car allowances, tax remittances, etc. The number of mistakes was enormous and Dawn had to pay an additional $52,840 annually to fix these errors internally by hiring an administrator, seeking help from the headquarters in Dallas, and working on them herself. She estimated the costs of same services provided by an in-house provider for about $4,000 an administrator would cost about $37,400 and auditing for about $3,400, for a total of $44,840 annually. Recommendations As Dawn Mcwhirter is approaching to make a decision, it is critical that she considers several HR strategies in order to keep the organization focused on its main responsibilities. She can acquire the services internally for a cost of $44,840 which is a saving of about $8,000 annually without including the $30,000 paid to the external provider. She has to find the ideal provider who understands the value proposition of the organization in order to provide the much expected service with minimum, if no, mistakes possible. As a HR manager she needs to have options and consider a wide range of strategies. These strategies are outlined in the following section. Improved Service The quality of service provided by an external organization plays a vital role in making the decision on whether to outsource the service or not. Most organizations who have outsourced their payroll activities expect excellent service. These external organizations have a value proposition of quality as their trademark. For instance, take a look at Professional Employer Organizer (PEO) Canada, their quality objects are to provide excellent service to their clients, reduce costs, and attract the best candidate. Moreover, they are recognized by clients and employees for quality assurance (Ward, 2009). Dawn should have researched her external vendor and should have made the performance standards clear in the contract, as she had the option of choosing the best vendor possible. She should have selected a well know provider who focuses mainly on the HR services as there are many organized companies who provide a quality and satisfactory service such as the PEO and Ceridian. Selecting an Outsourcer Dawn has a decision to make, whether to keep the current provider or to manage the payroll services internally from an in-house provider. She should consider seeking service from a different provider. Things she needs to consider are prior experience of the provider, customer service that is to benefit the customer (Davis, 2009) and the provider should be most efficient making minimal mistakes. Upon selecting the right provider a contract must be prepared that specifies the agreement. The contract should be reviwed thoroughly and than signed by both parties. The agreements within the contract can be things like transaction accuracy, issue resolution, and client satisfaction (Belcourt & McBey, 2010). If failed to deliver these agreements there will be consequences and the external party will be responsible for any additonal costs. The consequences will motivate the external employess to work effectively and efficently. The contract should also be negotiated based on when the price will be increased. Advantages and Disadvantages of Outsourcing Management can increase its efficiencies by outsourcing its non-core activities; other benefits include reduction in business costs, flexibility to focus on core abilities, and gaining the competetive advantage. In order to be more efficint and reduce costs the service must be accurate and absolutely free of errors. On the other hand, TI Canada faced transactioanl errors which slowed down the efficency, as most of the internal employees worked on these errors. Howerver there main concern is that the external party will have acces to all the employee records including there banking and credit information (John, 2010). Conclusion As discussed earlier the issue TI Canada facing is regarding its payroll activities which they outsourced to an external provider and ended up with several transactional errors. Dawn McWhriter is to make a decision as she spent a large amount of money towards fixing those errors. It would have been cheaper if she did not outsource the HR department at all. In order to make the best decision possible she should shop throughout the industry and find a provider whose value preposition matches with TI Canada’s needs. As the agreements are discussed in the signed contract, it’s obligatory for the external party to provide the best service possible. If the services are not up to the standard level there will be consequences and any errors must be resolved for no additional cost. The provider should be selected wisely based on the prior service and customer satisfaction. Bibiliography Terms & Definitions. (2006, December 7th). Retrieved November 13th, 2010, from Venture Source: http://www.ventureoutsource.com/contract-manufacturing/information-center/terms-and-definitions/3/ Adler, P. S. (2003, October 15th). Making the HR Outsourcing Decision. Retrieved November 13th, 2010, from MIT Sloan Management Review: http://sloanreview.mit.edu/the-magazine/articles/2003/fall/45112/making-the-hr-outsourcing-decision/#ref3 Belcourt, M., & McBey, K. (2010). Strategic Human Resources Planning. Toronto: Nelson Education. Davis, J. (2009). Choosing A Payroll Outsourcing Company. Retrieved November 13, 2010, from Article Snatch: http://www.articlesnatch.com/Article/Choosing-A-Payroll-Outsourcing-Company/872311 Delmotte, J. (2008). HR outsourcing: threat or opportunity' Personnel Review, 543-563. Harris, P. (2004). Outsourcing Plays a Vital Role at Texas Instruments. Retrieved November 13th, 2010, from ASTD: http://www.astd.org/LC/2004/0804_TI.htm John. (2010, July 12). Payroll Outsourcing Saves Business Costs. Retrieved November 13, 2010, from Business Process Outsourcing Resources: http://bpocompaniesguide.com/category/payroll-outsourcing/ Macaulay, A. (2000, October 9th). Know the benefits and costs of outsourcing services. Retrieved November 13th, 2010, from Canadian HR Reporter: http://www.hrreporter.com/ArticleView.aspx'l=1&articleid=823 Sullivan, J. (2004, February 9th). The case against outsourcing HR . Retrieved November 13th, 2010, from Canadian HR Reporter: http://www.hrreporter.com/ArticleView.aspx'l=1&articleid=2991 Ward, R. (2009). Quality Service System. Retrieved November 13th, 2010, from Professional Employer Organizer Canada: http://www.peocanada.com/quality.html