Apparently, Madden is reading from the same tea leaves. “Our internal analysis indicates 300 potential clients for end-to-end HR outsourcing, each with an average of 60,000 workers and an average spend of $1,600 per employee,” he says. “Add it up and that’s a $29 billion market just for these 300 companies.”
When will the end-to-end flurry begin? It already has. Large-cap companies like BASF, AT&T, and American Express have recently announced deals to outsource huge chunks of their HR functions. Says Madden: “I wouldn’t be surprised if we see 100 end-to-end deals in the next five to ten years.”
Why one company chose to outsource its employment verification function.
Admittedly, large, end-to-end HR outsourcing deals get a lot of media attention — mostly because of the jaw-dropping size of the contracts. But according to industry watchers, the outsourcing of discrete HR functions isn’t going to disappear anytime soon.
Under such a setup, a corporation farms out its various administrative HR tasks to a host of outsourcing service providers (vendors like EDS, Exult, Convergys, and Adecco Group). The idea: Let the outsourcers wrestle with payroll, employee benefits, recruitment, and travel-expense reimbursement — labor-intensive tasks that can bury whole HR departments.
Roy Krause knows all about it. Krause, executive vice president and CFO at Spherion, a Fort Lauderdale-based temporary staffing company, says the company gets flooded with more than 500,000 W-2s a year. The cause of the paper jam? The growing corporate reliance on temporary workers, which in turn, has led to an increase in the number of temps tramping in and out of Spherion’s offices.
In fact, according to the Conference Board, 90 percent of U.S. companies used temp workers last year. “You can imagine all the phone calls we get from employees about lost W-2s,” says Krause.
That’s nothing compared to the thousands of phone calls Spherion’s HR department used to make to verify employment information. “We had dozens of people here whose only job was to do employment verification work,” Krause laments. He says it was not uncommon for the company to do 30,000 verifications in a single year. “Needless to say, the idea of finding out if ‘Joe’ worked for us for two months in 1997 is not our core competency.”
So Krause decided to transfer the burden to TALX, a St. Louis-based business process outsource provider. “We provide employment and income verification services, meaning we’ll answer any request for that type of information on behalf of our customers,” says Mike Smith, TALX vice president of market development. “If someone needs a W-2 reissued, we help them get it via our 24-hour automated call center or automated voice response phone system.”
TALX also handles unemployment claims for Spherion, no small feat when you consider that temps work…well…temporarily. “They weed out exaggerated claims and help us defend claims that are speculative,” the CFO says, estimating this service alone last year saved Spherion $2 million. “It’s a major administrative issue for companies in this business,” he explains.
With the TALX deal, most administrative nuisances no longer burden Spherion’s HR staff. “I want my HR people working on employee succession problems, compensation issues and looking for top executive talent,” says Krause, “Not processing transactions.”
What Does HR Actually Do?
Judging by this list, a whole lot.
Human resources is the archetypal back-office department. Typically, corporate HR departments are responsible for administrating some 22 separate functions in five separate categories. They are:
Compensation, Benefits, and Rewards
- T&E reimbursement
Organizational and People Development
- Organizational development
- Performance management
- Employee development
- Succession planning
Employee Data Management
- Employee data and records management
- Employee and manager self-service
- Workforce analytics
Workforce Planning and Deployment
- Recruiting, staffing, and resourcing
- Expatriate administration
- Domestic relocation
- Workforce deployment
Human Capital Services
- HR strategy
- Labor relations and employee relations
- Vendor sourcing and management
- Employee communications
- Policy and legal compliance