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Outsourcing: The human choice
People are the greatest asset any business has. With autonomy comes responsibility, and when converting to an academy, the decision to outsource the Human Resource function needs careful consideration.
The past decade has seen a considerable growth in organisational restructuring in both the public and private sectors. Outsourcing involves shifting business activity to an external company, traditionally focusing on back office functions such as IT, HR, finance and estates. In the private sector, outsourcing is used to increase commercial profit; it enables non-core activities to be delivered externally at scale. The potential to save money is complemented by its potential to enhance user experience, since outsourced providers tend to be specialists in what they do.
The new OFSTED framework places an increasing focus on the effective management of HR matters in schools and academies, with particular emphasis on performance management and safeguarding and the deployment of resources. When a school converts from a local authority (LA) maintained school to a new academy, staff are entitled to transfer under the same employment terms and conditions. Once open, the academy may consult with staff and their union representatives on changes to these terms and conditions, for example to enable the academy to operate over different term times or change the length of the school day. This provides an opportunity for bespoke policies to be drafted which suit both the school and the staff. Through the academy conversion process, your organisation will need to decide whether it wishes to continue using the service provided by the Local Authority, or consider other providers through a competitive procurement process.
The autonomous nature of Academies means they can buy their HR from whoever they please. They could choose to keep it with the Local Authority (which may also outsource the function), appoint an in-house HR team or buy the services they require, such as payroll, recruitment etc, from a third party. An illustrative list of HR services includes: Recruitment (finding, short listing and interviewing candidates fairly); appointing staff (making an offer and agreeing contracts); performance management (getting the best out of staff); pay and employment terms (meeting legal obligations and acting fairly); change management (coping with shifting priorities or a changing structure); grievances and disputes (handling this delicate area correctly); CRB checks (clearing staff through Criminal Records Bureau); payroll processing, and; occupational health (ensuring staff members stay healthy and happy).
Following best practice in HR can increase staff happiness and motivation. It is also vital to stay on the right side of complex and changing legislation with specialist advice.
Sound advice from the CIPD on outsourcing HR
The process of identifying scope, providing a request for proposal and evaluating tenders is similar to that of other large-scale procurements. Some specific activities which could increase the likelihood of finding a good HR outsourcing partner follow.
Include, as part of the selection process, activities for evaluating other options (eg shared services, investment in existing HR capability) to ensure that outsourcing is indeed the best option.
Identify a shortlist of potential suppliers – by networking with colleagues, desk research, attending exhibitions and asking specialists – before inviting a small number to produce proposals, to avoid being overwhelmed by inappropriate responses.
Before selecting a supplier, visit other organisations that have already outsourced, in order to understand more about how the supplier works. Gather information from decision-makers and end-users about how the relationship is working, and what the benefits and challenges have been.
Gather data about your existing HR provision, which you can use as a baseline against which to evaluate other providers. This may also highlight any existing under-utilised HR capabilities.
Include ‘cultural fit’ as part of your decision-making criteria. The HR outsource provider will need to understand, and be sensitive towards, your organisation’s culture and situation.
Consider desired length of contract. Because outsourcing relationships (particularly in larger deals) are often long term eg 5–10 years, it is crucial to be sure that the provider will remain in business for the proposed period.
Individual specialist, or
For larger outsourcing projects, the organisation will need to make a choice between selecting a full-service provider for all aspects of the outsourced HR delivery, or choosing a range of specialist providers and managing each one in partnership. This decision will always depend on a range of organisational factors including the level of service required and the resources and expertise in-house to manage relationships.
One further option is to consider a master vendor arrangement. This allows for a single organisation to manage a range of outsourced suppliers on behalf of its client, providing a single point of contact and taking advantage of the expertise of each ‘best-of-breed’ provider.
In practice, many of the ‘full-service’ providers will now also take on components of HR processing, and can be compared with the more specialist component providers, which blurs the distinction of the separate approaches somewhat.
Negotiating the deal
Organisations who have agreed successful arrangements with outsourcer providers tell us that time spent discussing and agreeing the scope and finances of the deal saves significant effort and complexities later in the outsourcing relationship. In particular, they recommend:
Do involve procurement experts in your discussions. Outsourcing contracts are often complex business arrangements which will need expert legal and financial input.
Be clear about the assumptions that you make about your own organisation when deciding what services to purchase. The outsource provider will often develop a quotation, and build an infrastructure, based on your assumptions about volume of HR delivery (size of headcount, rate of turnover etc). If these assumptions are unclear or inaccurate, both parties may lose out. The contract should specify what happens if Headcount or other assumptions prove to be lower or higher in reality.
Be clear about the level of service you need, and what you are actually buying. Do you need a basic HR administration function, or do you expect provision of expertise, consultancy and knowledge-transfer as well? Be careful about expecting one and paying for the other.
Do agree the metrics that would be used to evaluate successful performance and how the provider will be rewarded or penalised for exceptional or poor performance. What remedies can be imposed, including contract termination? In large organisations, procurement or legal departments can help with contract definition and the potential provider may well have standard contracts to form a basis for discussion.
Build flexibility into the contract wherever possible. It is very difficult to predict what services you will need over the lifetime of the arrangement, so a contract which allows an organisation to scale up or down in terms of volume or service level is useful. Do be prepared to re-negotiate a deal if experience shows that the relationship is not working as expected.
The relationship needs to be based on a win–win scenario for both parties. If this does not happen, it is possible that outsourcing will not be so successful. The long-term nature of outsourcing relationships is better served by being clear about how the provider will be profitable, survive and grow during the life of the relationship, and how cost savings will be re-invested in service improvements.
SSAT (The Schools Network) is organising a one-day seminar for staff in sponsored academies with responsibility for, and interest in, human resources. The day will include practical examples, reference to current and past cases in academies which help to put the HR function into context in an academy setting, and opportunities to share strategies and solutions in your academies.
The seminar will be presented by Helen Cooper, who originally qualified and worked as a teacher before becoming the HR director of a Local Authority Children’s Services department. Since setting up her own successful HR consultancy business, Helen has worked extensively with schools, academies and local authorities across the UK.
The session will cover performance management for teachers and support staff, dealing with disciplinary and capability issues, staff restructuring and managing ill health and takes place at the Manchester Enterprise Academy on November 14.
For further information visit tinyurl.com/o8t95g9
The Chartered Institute of Personnel and development produces many resources on HR issues, including guides, books, practical tools, surveys and research reports. For further information visit www.cipd.co.uk
BESA – The British Educational Suppliers Association
BESA is a trade association which works on behalf of its members to support UK-based companies that supply goods and services to the education sector. Visit www.besa.org.uk