Saving HR from being outsourced

While browsing through Gautam’s blog today, (full disclosure; I do this regularly and enjoy it too!) I came upon this post from his friend Sanjay Lakhotia on how HR folks can save their jobs from being outsourced. Some of it was good advice, some not so good however. Before I explain, I will request you to be patient and read through the full post.

My understanding based on the years that I have spent in the HR function, whatever little reading that I have done, and what I observe in the US where I am now based is as follows:

The HR department (like any other) has two functions, strategic and transactional. It is the transactional function that is being and generally will be outsourced by companies.Currently most companies have in-house HR functions and they are only slowly outsourcing the function.You can buy a Watson Wyatt report or read an excerpt here.

The transactional role does not add much value to the company in terms of helping it attain a competitive advantage through differentiation. Hence the focus here is usually on reducing cost, thus the desire to outsource. These are the areas of HR which are seen as the routine, repetitive tasks e.g. filling in HR forms like PF, ESI, etc., ensuring statutory filings, running the cafeteria, payroll processing, the time keeping function, transport for employees etc. .

In the strategic HR areas, companies will (or at least should) not outsource and will continue to keep these functions in-house. These functions help the company achieve competitive advantage usually by allowing it to differentiate itself from the competitors. These functions like predicting manpower requirements in the future, defining the organizational structure, devising the compensation plan,etc. will by definition tie in closely with the ‘business strategy” of the organization and will contribute to not only supporting the strategy, but help in formulating it. These functions will gain in importance in the company. (if they have already not done so.)

What does it mean for the traditional HR person who has come up learning the administration, IR function as the bread and butter issues of the department/function, and training/organization design/ compensation strategy etc as the peripheral? Is she doomed to be outsourced? (Not that it is a bad thing especially if it is to one of these firms like Genpact or Evaluserve in India where you are paid above the market and your skills are strategic and become business functions)Or can she stay relevant to the organization?

Using Porters Generic Value Chain as a model to clarify/elucidate how to stay relevant as a function.

We can see that the HR function is what Porter calls a support activity, something not really integral to the company. We therefore need to make sure that the function becomes integrated in a stronger way into the company value chain. If we identify the relevant firm-specific activities in the HR function, map how the process flows, and then isolate the activities that add value to our company, we will see that a large number of these activities (the transactional ones mentioned above) do not add value.
However if we link these transactional activities in a web, such that performance or cost of these activities affect that of other strategic activities that add value, we can ensure that the transactional activities add value . Competitive advantage, either a cost advantage or a differentiation advantage may be obtained by optimizing and coordinating linked activities.

What do I mean by this mumbo-jumbo? An example should clarify. Take our hypothetical company run by a traditional HR department, which has called our good friend “Mr. Consultant” for advice. He comes in, does a study, takes feedback from the employees (or clients of HR, or the internal customer whatever, maps the processes etc.) He then analyzes the stuff and comes up with his recommendations, we need to get out of the routine administrative stuff. Let’s outsource the cafeteria, it is a transactional activity, not strategic to the company and not one of the “core competencies” of the company, (unless you are in the business of running cafeterias.) The end result, consultant’s advice is followed. By the way it usually is. After all so much money has been paid to him, he has a degree from an MBA school, uses all the latest jargon, has made a fancy multi-media presentation, works in a big name consultancy (which has a Knowledge Center in the capital of your country) etc. etc. So what chance do you, a provincial Personnel Manager, with an undergraduate degree have against this juggernaut?

You could ensure that this cafeteria becomes a source of pride, a way for you to distinguish yourself from the competition, something that adds to your ability to hire top level employees. Not possible you say, then read here and here.
In this way you have taken a transactional activity (running an employee cafetaria)and by linking it to a strategic activity (recruitment and retention of top flight talent, positive coverage in the media, health of the employees, building client relationships etc. etc.) transformed it into a strategic activity. “Non-value adding activities” can therefore become competitive weapons. Voila!