Before exploring three examples of leveraging Outsourced HR to drive employee (likely your largest single cost driver) performance toward the stars, while driving the costs of execution and waste down, it’s critical to first establish a common bassline answering the question — “What does Outsourcing the Human Resource function (Outsourced HR) look like?”

Agile, Dynamic Outsourced HR is Much More Than Reactive Policy Making

Proper Human Resource (HR) outsourcing fills the “Director of Human Resource” seat on your team and brings turnkey HR business processes and technology to bear, faster. Whether it’s annual organization strategy and planning, employee performance optimization methods, benefits administration or state and federal compliance, companies are no longer forced to reinvent the wheel in-house.

The proper Outsourced HR partner shows up to work on day one, ready to tailor best-in-class business process to meet the specific needs of your business. This translates to a faster start, reduced errors, greater impacts and HR return on investment.

Over the long haul that agile start must be supported by the capacity to be dynamic. When you say, “jump” a great Outsourced HR partner, responds “how high?” This means there should be no “one size fits all” pre-defined solution or standalone web portals. Great HR outsourcing aligns with client size, objectives, values, and targeted growth.

How Does HR Add Value? – Employee Performance Up and Cost Down

If you have ever been a part of the “big business” experience, thinking about Operating Profit and its two components (top line/revenue & operating costs) are likely nothing new for you, when you hear — “how does HR add value.” You also likely have a strong handle on the top five pareto bars of costs in each of the business units you have cognizance of, and a strong grasp on employee performance and its contributions to both revenue and costs.

With that kind of lens from which to view your business, the return on employee investment and correlation between employee alignment, performance & profit are also likely easy to see.

To the contrary, sometimes running smaller organizations can be laden with an overwhelming breath of places to focus making answering “how does HR add value” much more challenging. Paretos are hard to come by and large cost drivers may go initially un-noticed, making ROI of any investment that much more abstract. Add the “misunderstood” nature of classic HR into the mix and no wonder you’ve chosen to ignore the “cost of bad people” so long.

“How does HR add value?” The Harvard Business Review has answered this very question in their own organization — The primary role of HR is to build organizational capability to support the execution of business strategy.

“…To get there, our HR Teams are applying the same principles of business process redesign, organizational redesign, job redesign and competency model development to our own function. We have mapped competencies to each job and started to understand the gaps between where we are today and where we want to be in the future… This is the real role of HR, and even though some people remain skeptical of its bottom-line importance, in fact its relevance cannot be underestimated.”

Sure, building an organizational capability to support business strategy sounds great, and admittedly, is sometimes overwhelmingly complex to measure. However, when we look at it simply – generating profit is what keeps the doors open in every business – whether you are earning by maximizing revenue, or saving by limiting expenses. A strong Outsourced HR team addresses both sides of this equation across what is likely your biggest budget line item: your employees.

With this in mind, it does not take too long to see how Outsourced HR teams drive employee performance up and costs down.

Here are three short examples, cherry picked from the total employee lifecycle, illustrating how Outsourced HR teams drive employee performance up and costs down.

1. Building or Changing The Organization – You May Not Be Doing It Right

As a founder, president or managing director you have been, or will eventually be, faced with growing your team while trying to preserve the great team, great fun and great business you and your small group of trusted partners have created. Or, perhaps you have already grown from the founding few to, say 40 employees, and now you’re faced with healthy, or unhealthy turnover, under or marginally performing teams or even incremental growth.

How do you as a founder preserve what is important to you while ensuring the next group of employees is aligned with your vision and values, and is going to perform at the level the founding few are accustomed to?

How do you ensure that these new employees will drive profits as quickly as possible and with a minimum of missed steps?

Often the answer is hiring an executive search firm or a headhunter. Admittedly, executive search is valuable, but it’s only a small part of the solution and many emerging business leaders fail to ask, “Do we really need to bear the cost of a head hunter?” If the answer is still yes — “What should we do prior to retaining that headhunter to help ensure the search is off to the right start? And what do we do after the headhunter has put candidates forward?”

Building great teams is just like anything else, from building great houses to building world cup skiers, there’s technically correct processes that ensure the desired outcomes. Here’s a three piece sample, from the seven total technically correct processes used to drive employee performance up and costs down when building or changing your organization:

Although there is absolutely a place for Executive Search Firms in the identification of specialty candidates, there is a greater number of more ‘standard’ roles in today’s businesses that can be filled by an Outsourced HR team, and their deployment and skilled management of enabling technologies like Human Resource Information Systems (HRIS) and an integrated Applicant Tracking System (ATS).  All at a savings to the business from 20%-30% of each new employee’s first year salary. Outsourced HR teams also typically bring experience and established relationships with colleges and universities for intern and co-op students as well as entry-level job placement or veterans organizations to identify candidates, from skilled trades to top leadership.

Interview Structure and Method Choices May Reveal Huge Hidden Costs

If your operation does not work on liquidated time or billable hours, it can easy to overlook the propensity to “interview everyone” and “chose the best of the bunch.” The “interview everyone” crutch, for no objective interview criteria, training or poor interview practice becomes a hidden costs driver. Many organizations interview as many as 12 candidates for one role (total company investment ~8 hours per candidate = 96 hours) and in hindsight still make “bad hires.”

Conversely, great Outsourced HR will lead the business in the development of proper, objective interview criteria for each role, pre-screen accordingly and only put best fit candidates forward (typically less than 3 candidates) for interview with the interview teams (at under 6-hours per candidate). As soon as any candidate satisfies the objective criteria, an offer may be extended and the waste/cost of undue interviewing and distracting the business from revenue generating activities mitigated.

The corresponding interview formatting, techniques and structured debrief and scoring a strong  Outsourced HR team will make available to your business have proven to qualitatively satisfy the founder, leaders and interview team, while limiting “bad hires” to less than 1%.

Assimilation & Competence Modeling Returns on Employee Investment Faster

It all begins with a solid new employee onboarding process — Assimilation & Competence Modeling (A&CM) is the new onboarding.

Sure onboarding has more than a handful of sometimes confusing transactional steps from readying a new employee’s workstation to state and federal employment compliance, and it must all be done quickly without error. That’s an easy ask for an Outsourced HR team. But the real value of Outsourced HR brings is an A&CM that gets the new employee producing and returning on employee investment fast. For that, old school simple onboarding is passé.

The A&CM is an interrelated system (think detailed project plan) of everything from simple tasks to more complex initiatives required of a new, or new-to-roll, employee. The A&CM becomes the critical, formal introduction to the idiosyncratic language, processes, tools and, most importantly, expectations of success in role. Managers/leaders quickly see the value of the A&CM and sing it’s praises.

“The A&CM reduced the time sink on existing staff for new employee onboarding while producing far better results, more quickly”

“The leader is relieved of the feeling — are we doing enough to educate this new hire or is he/she getting it quickly enough.”

“The A&CM helped aligned leader and new associate expectations and at the same time is a much easier way to track progress.”

The Outsourced HR team prepares the A&CM with the support of each respective functional manager in the business. The A&CM is most often communicated to new employees by the HR team as a critical part of the comprehensive “Zero Error Onboarding” (not to be confused with old school simple Onboarding) process in the days between executing the offer letter and the employee’s first day in role. The new employee then owns the successful completion of their A&CM beginning day one on the job. Properly executed, and you may expect to hear your employees hired prior to the deployment of the A&CM asking for one and those brought onboard with an A&CM confident in their new trajectory to performing autonomously.

“Yes, the assimilation plan is such a great idea. I’ve never worked for a company that had something like this, and it creates a foundation of knowledge that can be measured by John (manager) and myself.”

“This was huge, because trial-and-error method can create inefficiencies, erase goodwill, or form bad habits when mistakes are made.”

“The most significant impacts in my opinion are the ability to immediately start working independently because you have your expectations set out”

So, when it’s time to build, grow or change your organization, how does the Outsourced HR team drive employee performance up and cost down? Driving down the costs to identify, interview, hire, onboard and train the right employees maximizes Operating Profit. It’s a great step toward building organizational capability to support the execution of business strategy. The sooner employees work autonomously to execute the business strategy, the faster those employees are also driving the time to new employee ROI down and top line revenues up!

2. Do Your Company Values Drive Employee Performance and Profits?

If you’ve been paying attention to Forbes, the Harvard Business Review or any publication in-between it’s unlikely you’ve missed the growing buzz around company culture and company values, or their more contemporary big sister purpose driven. That said, when we polled a random sample of professionals none of them could explain to us how these three buzzwords have benefited their employee experience or furthered the businesses they work within.

To the contrary, we have all read about a handful of “purpose driven” companies who are actually benefitting from a stellar implementation and use of company values to drive company culture (Patagonia, Whole Foods, Zappos, …) and the resultant benefits felt by employees and the business alike.

“Talk is Cheap” – The difference is often concept or talk vs. deployment, and an Outsourced HR team will guide your organization across the gap from cheap talk to profit driving deployment!

Conceptually understanding company values and their influence on culture or purpose is a far cry from deploying, or making those values actionable within the organization. After all, values are not visible!
What is visible, and therefore actionable and measurable, are the behaviors employees demonstrate and the behaviors we expect of others while executing daily work. These behaviors are a direct reflection of the values from which they are based.

It’s the responsibility of the Outsourced HR team to lead the business and its leaders in defining the values it holds dear, translating those values into behaviors appropriate for each level of the organization (Executive, Leader, Individual Contributor, …) and most importantly establishing a structure to leverage those values / behaviors toward beneficial results across the entire employee experience.

Leveraging behavioral expectations starts early with organization design, job need identification and eventually interviewing and selection. Behavioral expectations may be quickly revisited in the assimilation and competence building process that speeds new employees to autonomy in their role. Annually, behavioral expectations are used to illustrate what success looks like for each employee in each role, complementary to functional goals. Finally, behavioral expectations can be leveraged in the unfortunate but inevitable dismissal of underperforming employees. As the saying sadly goes — “We all too often hire based on knowledge and fire based on values.”

Are company values a critical piece of employee performance optimization, employee experience and The Organization of the Future? Or simply put, critical to employee and company success? And do we believe the only way to effectively deploy values is through the establishment and communication of behavioral expectations?

Heck yes, we do!

3. Employee Turnover Hits You Right In The Wallet, In a Much Bigger Way Then You May Realize!

If you’re still with us reading how Outsourced HR teams drive employee performance up and costs down in your operation, it’s likely safe to assume you’re already thinking improved employee alignment and performance must reduce the voluntary employee turnover and drive those costs out of the operation too.

You’re right! So let’s take a brief look into just how much cost is driven out of your organization with just a small, single digit, decrease in employee turnover.

Generally, targets for voluntary employee turnover are set near 10%, and no matter if voluntary employee turnover is “average” or “huge” — Employee turnover hits you right in the wallet, in a much bigger way then you may realize.

Many businesses just like yours quickly recognize their organization is nearly 3 times the national average for voluntary employee turnover. Yet the size of an employee turnover “problem” sometimes called poor employee retention, and the broad unfavorable impacts on the business still often go without real perspective.

Roughly, half of the small-to-medium size businesses (SMBs) studied have previously found themselves in the seemingly relentless cycle of employee turnover and backfill. Many of these business owners accept 30% annual voluntary employee turnover as “normal” and continue on the cycle year-over-year with no focus on understanding “why” or the resultant actions to fix the employee retention problem.

Voluntary Employee Turnover Working Example:

Your 40-person organization saw a 15% voluntary employee turnover (many see nearly double) last year, you lost six people. If those six employees on average collected a salary of $55,000/year; approximately $195,000 went toward replacing the departed employees, as opposed to in your wallet, just last year alone!

Note 1: The US Bureau of Labor Statistics, turnover will cost an organization 33% of an employee’s total compensation

Note 2: The Society for Human Resource Management advocates turnover will cost an organization the equivalent of six to nine months of an employee’s salary

Note 3: Forbes outlines the cost of employee turnover on a sliding scale relative to employee responsibility from 30-400% of annual salary

Roughly, half of the small-to-medium size businesses (SMBs) studied have previously found themselves in the seemingly relentless cycle of employee turnover and backfill. Many of these business owners accept 30% annual voluntary employee turnover as “normal” and continue on the cycle year-over-year with no focus on understanding “why” or the resultant actions to fix the employee retention problem.

A 5% decrease in voluntary employee turnover would put (on average) $65,000/year back in your wallet, each year. While also circumventing all the other qualitative, more difficult to measure shortcomings (morale, performance, alignment, etc.) left behind with the organization as byproducts of voluntary employee turnover.

What’s Historically Held Businesses Like Yours Back?

Failure to acknowledge, and act on, the benefit of Outsourced HR in an organization has historically been driven by two simple forces.

1. Comprehensive, agile Outsourced HR is a relatively new offering. Prior to the availability of Outsourced HR, an in-house expert was required and that expert, usually a Director or VP of HR, was seen as a significant expense ($125,000+/year in salary plus benefits). Anything less and organizations find themselves with someone to simply check a box (allowing them to tell employees “yes we have HR”) while bringing few real impacts to employee performance and business profitability.

2. Contrary to their big business brothers and sisters. Classic small business HR thinking failed to acknowledge the benefits of an integrated proactive strategy on employee alignment and performance as well as the critical relationship between Operations and HR.

These two forces leave traditional in-house HR practitioners stuck in the quagmire of simply creating reactive policy and filing documentation instead of helping develop happy, aligned employees, performing where and how needed, driving profit into your business! With the advent of outsourced HR this is a thing of the past.