Outsourced Vs In-house Hiring / HR in Businesses post Covid-19

May 1, 2020

This decision of make vs buy is a critical management decision and in the HR Context, outsourcing or using hiring or HR vendors vs internal hiring and HR teams has picked up more now as companies come under cost pressures. My take on this is as follows:-

1. Outsourcing gives you access to specialists in a particular area who have economies of scale. For example, if your hiring needs are intermittent or maybe at times like now only relegated to replacement hiring, you still end up paying costs of an In house hiring team and have an additional task of keeping them motivated. To utilize the hiring team gainfully when they are not really needed for hiring, you may try to use them in other areas of HR for which they are either not trained or come at a higher cost.

2. Smaller organizations with less than 100 people need not build a full-fledged HR team but can hire a Virtual CHRO. They can also outsource almost their HR activities easily and get the best in class HR services. The CHRO can give the actual HR advice needed or help in creating HR systems or processes as needed. Such an organization, if they try to hire a full-time HR Head will only attract someone junior as the scale of operations would not attract a senior person with more depth of experience. This junior HR Head hired will also not have much work in a small organization to be fully occupied, but might try to justify his or her salary by cost-cutting in areas that may not be beneficial for the organization in the long run. In fact, our firm “The Recruiters” once handled the entire HR for a company based in the US with branches and employees in 5 other countries. As their virtual CHRO, I had a certain number of dedicated hours each month that their CEO could utilize to take any HR advise in the running of his business operations.

3. We also need to appreciate the difference between a line function and a staff function. A hiring firm or a virtual CHRO is doing a revenue-generating role for his / her organization and will be evaluated on metrics and will be forced to give an optimal performance so that his organization continues to get the business. A staff function person working in an in house hiring team is not directly generating revenue and might get evaluated in terms of costs saved or other hiring metrics. If the performance of this person or team dips a company will find it very difficult to sack the employee as it would have a demotivating effect on all employees. A vendor, on the other hand, can be easily changed or removed for non-performance. The vendor himself or herself would not want his or her performance to dip as they want their contracts renewed.

4. As things move virtual and on-line in the post Covid19 world another argument that used to be given is no longer valid. The argument in favor of having your own permanent employees team was that the in house team was present in the employer premises on all working days. We are getting used to online and video consultations and remote working, so a remote vendor is not only equally effective but is also permanently helping you save on office space.

5. An external vendor is also perceived by most employees as neutral and unbiased, unlike internal teams that build relationships with their colleagues and might have inherent biases because of those bonds. This is very helpful for HR while performing many tasks like appraisals, designing incentive plans, conducting employee satisfaction surveys, doing exit interviews, etc.

6. An external hiring vendor can not only give you benchmarking data of the market but can also pick candidates or headhunt from your competitors. This is a tricky area and considered unethical when done directly by the HR team of the company.

7. Another thing that I have realized having worked as an HR Head in a Corporate and also as an owner of a Recruitment Firm is that when an employee leaves a Recruitment Firm to join a Corporate, they mostly expect that the corporate role will have less pressure vis a vis revenue targets as in the recruitment firm they get evaluated constantly on return on investment or ROI. Also it's only in a Recruitment firm one sharpens their headhunting skills, so if you have worked only in a Corporate you rarely would be great at Sourcing.

In the end, I would recommend firms to keep a balance between both inhouse and external vendors and not tilt completely towards one. Each firm has its own individual needs for HR and Hiring that their business head can understand better, provided they keep the above factors in mind, and use it as a checklist.

Shantanu Saha

Founder & CEO, The Recruiters, Ex-HR Head

mail to : shantanu@therecruiters.net with your views.