What Are The Benefits of Outsourcing Payroll

Benefits of Outsourcing Payroll – sharper, faster, cheaper

Accumulated expertise and technological development is shifting the outsourcing industry into a new phase that could allow customers to realise the benefits of outsourcing payroll more cheaply and in shorter timeframes. Scott Beagrie reports on the era of business platforms

Benefits Payroll Outsourcing

HR and payroll outsourcing providers have had years servicing the needs of organisations and fine-tuning the business processes they offer. Technological developments have always played an important part in their evolution, allowing providers to offer customers better services and delivery options. The emergence of cloud computing and Software-as-a-Service (SaaS) are also helping them to further refine their offerings.

Outsourcing Payroll Benefits: True Fusion

According to outsourcing, BPO and services analyst firm HfS Research, business platforms are the future of business process outsourcing (BPO) and it reckons they represent the “true fusion” of the benefits provided by standardised business processes, cloud computing and SaaS in a singular managed service delivery model. “Business platforms enable buyers to rapidly transition to a desired future state for a specific business process, or set of processes,” says Robert McNeill, research vice president of cloud services and IT outsourcing at HfS.

Business platforms, he explains, have four key characteristics: they deliver standardised business processes; the business platform service provider manages the business processes associated via the platform and provides the complete solution, including the people who operate them, the underlying software platform and the infrastructure; they focus on business outputs or outcomes, such as improved working capital and higher customer loyalty, not inputs such as labour and physical assets; and, finally, business platforms service more than one client. “Well-executed business platforms provide customers with compelling technology-enabled business process services that help drive innovation via process re-engineering, greater ­business agility and productivity improvements,” explains McNeill. “They are flexible and scalable in the face of global demand fluctuations and provide high-quality process workflows.”

Benefits of Outsourcing Payroll – Scalability, Speed & Agility

In short, business platforms are a sharper, extremely cost-conscious and scaleable version of traditional outsourcing built on a far more agile technology platform.

Business platforms

HfS Research recently published a report entitled: What are business platforms and why do they present the future of outsourcing? which points out that the days of organisations being willing to make multimillion-pound capital investments in complex outsourcing arrangements in order to transform business processes are “fast-diminishing”.

Instead, subscribing to business platforms and invoicing it as an operating expense is a more attractive option. In summary, the report states: “[It’s] cheaper to get started and with output or outcome-based fees, business platforms align with the current budgeting trends evident in the market.”

A survey conducted for the report found that motivating factors for outsourcing extend way beyond cost savings benefits of outsourcing payroll (see chart). Perhaps surprisingly, four-fifths of respondents cited better access to standardised business processes, with the HfS Research underscoring that buyers are unconcerned if a competitor, for example, uses the same expense management or claims adjudication process. Where there is no competitive advantage to be gained by undertaking a task in a unique way, organisations want to adopt “quality process flows” they can deploy effectively and efficiently.

This is good news for outsourcing providers that want to push a single solution out to multiple clients and is likely to be a major driver of business platforms over the coming years. Other motivating factors for outsourcing included greater flexibility to scale global operations and better access to technology support services.

“While early in development, we expect this marketplace to flourish and become the place where innovation in the outsourcing industry will happen,” says McNeill. “Services providers will have to provide new governance and management services to help organisations assess, implement and manage a portfolio of business platforms. Providers will be expected to offer more off-the-shelf process support and innovation as part of the deal. The provider that can offer real domain knowledge, improved security, robust access management, innovative ideas and a collaborative attitude as part of the deal will mean more to clients than simply undercutting rivals by a few pence in the transaction,” he adds.

Payroll and HR functions have been relatively well-served by platform-based BPO offerings, though some of these are still based on older, on-premise technology solutions, as well as hosted arrangements under which technology might be accessed via the web but aren’t an SaaS model in the true sense of the term. It is likely the sector will see many more move to the cloud to join the ranks of ADP’s SaaS-based Vantage, NorthgateArinso’s euHReka and Workday’s HRM financial and payroll solutions. Expanding customer choice will be the likes of the major Indian outsourcing companies such as InfoSys, TCS and Wipro. “The leading HR BPO providers have or are developing service offerings that are underpinned by business platforms to support transactional, high-volume, standardised processes with very little variation in outputs,” says Keith Strodtman, research fellow of HR strategies at HfS. “We reviewed four offerings from AON Hewitt and entries from InfoSys, Genpact, Mahindra Satyam and TCS.

“Single-function HR services are prime candidates to be optimised by business platform delivery, epitomised by ADP, the biggest HRO BPO provider that supports a large number of business platforms across the HR, payroll and benefits space.”

Outsourcing Benefits for Complex Customers

As Strodtman points out, ADP arguably was first to offer a platform-based outsourcing service as long ago as the late 1950s. Further surveying today’s market, Strodtman continues: “Oracle and SAP’s stranglehold is set to continue for a few years as no traditional services provider in our most recent comprehensive survey built a business platform on top of a new SaaS company such as Success Factors, Cornerstone OnDemand, Taleo, or Workday, even though buyers are rapidly moving to these new sets of providers.” However, he adds: “One fast-growing outsourcer has – OneSourceVirtual that provides outsourcing services on top of the Workday platform to companies with less than 1,000 employees.”

The next phase of evolution for these platforms in the HR and payroll space, according to Strodtman, will be to scale to larger and more complex customers and offer greater levels of configurability, without the need to customise the core solutions.

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