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Outsource to Out-Manage: The Future of Startups & Early Growth Companies

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Outsourcing is no longer the buzzword in the 21st century but has instead become a norm for businesses who have unlocked value and realised the economic benefits of outsourcing their IT and other non-core business processes. As a result, we see businesses of varying sizes including start-ups and early-stage growth companies, outsource essential part of their IT, Finance, Procurement and HR processes – to service providers who specialise in providing outsourcing services.


While it is now common to see business processes, which are transaction centric and/or involve repetitive tasks and/or which can be automated being considered non-core and therefore being outsourced, how about looking at something that is a business core being outsourced and/or being managed in its entirety by a specialised third-party service provider, which provides both the strategy and execution support.


Let’s take one business function, which is a critical core of an organisation – the Human Resources Function and make a business case for outsourcing.


Now if businesses are about people and if they can make or break any business, then naturally the People Function – the HR Services Organisation becomes a critical nerve centre in any organisation. The HR discipline and the organised body of HR knowledge has grown in significance and evolved in the last decade – and therefore the approach to hiring and managing people. The advent of new HR thinking, the growth of HR tech and the demand for a data-centric approach, is now making HR a much more complex function than it was previously – HR is now more a science than an art – which means organisations now need very deep skilled HR resources, supported by new-age HR tech and capabilities to be able to strategize, plan and execute the people agenda.


And this invariably leads to a catch-22 situation for many businesses especially start-ups, early-stage growth companies and Small and medium businesses. Either they don’t want to invest in people’s agenda beyond the basics and/or know the importance of HR but are unable to attract and afford the right HR talent and/or they simply don’t know what within the vast gamut of HR they should really focus on.


Also, it is well known that small and medium business owners or entrepreneurs are mostly people who are focused on solving a business problem or leveraging a market opportunity with their solutions and services and are not necessarily people with HR thinking and HR skills. But they still do need people and once they have people there is always the challenge of attracting, retaining and managing the people – and in this scenario, they try and create an HR function with what they deem fit and then supplement with point solutions and or consulting inputs, which many times are a sub-optimal approach and proves to be ineffective. It also can be costly given the need to have expert help or advisory support supplementing their in-house team. In the long-run this has a detrimental impact because many businesses are not able to survive, compete or grow or realise their true potential – because they didn’t get their HR act right!


This is where businesses need to co-opt specialist organisations to manage their HR function as an extended core to the management team. There are several advantages for the businesses that take the above approach of building the HR function on leveraged capability and capacity model. The benefits are illustrated along the following dimension


  • Core – Competency – This allows the business owners and leaders to focus on their core competencies and frees their band-width
  • Cost – Cost-effective as compared to building own team and having multiple partners and/or advisory services to supplement it. It also enables them to variabilise their people-related costs.
  • Customised. – Customised and bespoke approach to building HR function, which is aligned to the growth aspirations, business context and needs. Also, businesses have the flexibility to start a limited scope engagement and then grow it over time. There is also the benefit of modularity which enables businesses to start with outsourcing only part of the HR function and then go for full function outsourcing. It is also possible for different engagement models including the provision of having a Build Operate and Transfer Model – where after a critical scale is reached the organisation can transition from having an outsourced model to own-in house staffed HR function.
  • Capability – Gives business access to best-in-class contemporary thinking in HR and the ability to tap into the expert capabilities of the outsourcing partner, which brings multi-disciplinary and multi-industry understanding to people problem. The outside-in view enables companies to get access to the latest and best in the world of HR tech and HR thought leadership and this enables them to keep pace with the evolving trends
  • Capacity – Scale as you grow -gives businesses the flexibility to scale their HR functions as per their growth. Also enables them to ramp down and scale back on their HR function, in case business encounters headwinds.
  • Control – The embedded model of HR outsourcing, works well for the businesses as the partner has the skin in the game. As compared to the pure advisory model, here the outsourcing partner takes full ownership and accountability for the function and is involved in shaping the strategy to execute the same and manage the day to day operations. The businesses retain flexibility and full control to set the HR agenda and have the partner deliver on the same -like its own team.
  • Convenience – Such kind of full function outsourcing arrangement makes it convenient for the business owners to have the necessary information and data on the HR operations from a single source as opposed to collating information from multiple service providers. The Single Window Service offering offers convenience, flexibility and ease of doing business.

The above illustrates the business benefits for companies that are seeking to grow faster by focusing on their core strength. Also given that we live in a connected eco-system and the outsourcing and offshoring models are now more mature and robust, such outsourcing can be managed end-to-end from destinations such as India. End-to-End outsourcing can give businesses the much-needed agility, flexibility, that they need to stay competitive and in short – they can actually out-manage their HR scorecard by outsourcing.