Outsourcing HR: it's an emerging strategy for small and midsized firms.

More than 87 percent of the funds that midsize companies budget for Finance and Human Resource processes go toward administrative transactions rather than strategic reporting and analysis, which will move a business forward. In response, firms have begun to shift from outsourcing single, discreet functions to more comprehensive, integrated HR solutions, enabling them to leverage data elements that are common in payroll, taxes, benefit administration and other HR processes.

Driving change -- Today's HR professional must focus more time and attention toward the strategic development of a company's human capital to support the achievement of company goals. Outsourcing has created an affordable infrastructure using integrated technology and HR support services to more efficiently manage personnel information and transactional activities.

The value proposition -- The value proposition is that HR outsourcing is seen as a tool that empowers organizations with the ability to focus on core business competencies and drive strategic results within their culture. A recent study conducted by Fidelity Investments supports that most executives view the outsourcing of human resource and benefit administration as a good investment based upon the expertise and expanded capabilities it provides compared to the cost of replicating similar capacities internally.

Trends in the mid-market -- According to a study by International Data Corp., an Information Technology and Business Process Outsourcing research and advisory firm, the next big wave of HR outsourcing will occur in mid-tier firms, those with 100 to 1,000 employees. Other trends worth noting:

* By 2005, 85 percent of U.S. companies will outsource at least one component of their HR functions.

* The demand for aggregated HR outsourcing services (payroll, benefit and HR records management under one vendor contract) will continue to accelerate.

HR outsourcing, seen initially as an organizational response to downsizing and restructuring pressure, has evolved to reflect both operational and strategic rationales for driving change in an organization. Lower technology costs, affordable access to HR expertise and the emergence of stable, sizable outsourcing specialty firms have made HR outsourcing a viable, cost-saving strategy for mid-market companies.

Why companies outsource

Reduce operating costs    36%
Focus on business         32%
Variable cost structure   13%
Increase speed to market   5%
Improve quality            5%
Conserve capital           5%
Foster innovation          2%
Grow revenue               2%

Source: Palmer & Cay

Note: Table made from pie chart.

RELATED ARTICLE: Selecting a provider

If you're exploring the impact of outsourcing for your company, ask these questions:

* How long has the provider been in business?

* Does outsourcing support the strategic goals of the company?

* What is the breadth and depth of services offered by the provider?

* What are the tenure, designations and experience of the service staff?

* What is the delineation of responsibilities within the service contract?

* What are the costs: per month, implementation, connection fees, etc.?

* What is the return on investment (ROI) and is it measurable?

* Does the technology have the ability to interface with other vendors?

* What is the security and disaster recovery measures of the provider?

And take these steps:

* Consider at least one site visit to meet the service staff.

* Contact at least three referrals.

* Insist on a demonstration of technology to determine capabilities and limitations.

Randy Koch is national practice leader for Palmer & Cay Outsourcing Solutions Group. The Detroit office of Palmer & Cay of Michigan LLC is a Silver-level member of the Detroit Regional Chamber.