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The Pros and Cons of Outsourcing Talent Management Functions

5 min read
outsourced talent management function team discussing engagement

Effective talent management can lead to better productivity and team collaboration and create a workplace where every individual’s talents are nurtured and celebrated.

However, achieving this requires HR to don various roles and skilfully navigate the intricacies of engagement, performance, and development, causing many businesses to hire outsourcing services for talent management functions.

Outsourcing is a standard business practice; according to an SHRM report, 58% of organisations outsource some or all of their HR functions. Among these functions, HRIS exhibit a slightly lower likelihood of being outsourced, with only 4% of firms contemplating complete outsourcing. In comparison, another 11% opt for partial outsourcing of HRIS. The survey also revealed that 32% of organisations have plans to outsource even more HR functions within the next five years.


Involving a third party can alleviate pressure on HR teams and streamline processes. However, there are some downsides worth considering. This article will cover the arguments for and against outsourcing a particular task or business function, empowering you to assess whether doing so is right for your organisation.

The Benefits of Outsourcing

Research into HR outsourcing shows that time and time again, organisations that are hiring freelancers or third-party providers can focus on their core competencies and strategic goals more effectively than companies that manage everything in-house.

Yet, to ensure its efficacy, organisations need to have a systematic process regarding preparation, vendor selection, contract clauses, performance measurement, and data security. Here are a few ways company outsourcing agreements can benefit your organisation.

Cost Savings

When outsourcing HR functions to external experts, client companies can avoid the overhead costs of maintaining an in-house HR infrastructure, such as extra office space or equipment. Even in the case of offshore outsourcing, many businesses will notice reduced business expenses as they’ve minimised recruitment expenses and eliminated the long-term financial commitments of employee benefits and compensation.

Access to Specialised Expertise

An external HR service provider can bring a wealth of expert knowledge and experience. Organisations can tap into their talent acquisition and development expertise, benefiting from their deep understanding of industry trends and best practices. This access to third-party providers enhances the overall effectiveness of talent management strategies.

Increased Efficiency and Focus

When HR functions are outsourced, organisations can redirect their internal resources toward core business functions. Offloading HR responsibilities to dedicated external professionals allows organisations to optimise their time management and improve overall operational efficiency. This heightened focus enables HR teams to devote their energies to strategic initiatives and essential areas of business growth.


Flexibility and Scalability

Outsourcing business processes allows client companies to scale their workforce based on fluctuating business needs. As demands change, businesses can easily adjust the resources allocated to HR activities. This flexibility and scalability provide a competitive advantage in business operations and support the overall business strategy.

The Disadvantages of Outsourcing

That said, it’s not all smooth sailing. Research into the role of outsourcing HR functions in larger companies such as Boeing, Coca-Cola and Dell shows that outsourcing certain HR functions causes them to perform worse than companies with internal processes. Some of these functions include employment verification, documentation services and operations.

Here are some reasons why outsourcing certain HR functions might not be the best solution.

Loss of Control and Internal Knowledge

When entrusting specific responsibilities to an external provider, there is a potential loss of control over HR processes and decision-making. The intimate understanding of the organisation’s culture, values, and unique dynamics, which internal HR teams possess, may be limited or absent in an outsourced arrangement. This can impede the alignment of HR practices with the organisation’s goals and hinder the development of tailored solutions.

Potential for Communication Challenges

An organisation’s and outsourced provider’s goals or objectives must be aligned to avoid inefficiencies and a lack of synergy in achieving desired outcomes. Topping it off, challenges can be particularly apparent when language or cultural barriers come into play. These misinterpretations or misunderstandings due to language or cultural differences can hinder the overall effectiveness of HR operations.

Risk to Data Security and Confidentiality

One crucial aspect of HR talent management is handling sensitive employee information. This presents potential risks to data security and confidentiality. Organisations may need to share this confidential data with a third-party provider when outsourcing HR functions. Companies must ensure appropriate measures and safeguards to protect sensitive employee information. Compliance with data protection regulations becomes even more critical to maintain employees’ and stakeholders’ trust and confidence in an outsourced provider.

Impact on Employee Morale and Engagement

Outsourcing HR functions could cause your team members to feel less of a personal connection and receive less support when an external provider manages their HR needs. This perception can negatively impact employee morale and lead to a sense of disconnect from the organisation. There may also be concerns about trusting external providers with sensitive employee matters, which can further erode employee confidence and engagement with the client company.

how outsourced talent management functions affect employee engagement

Tips for Business Process Outsourcing

To be sure you’re heading in the right direction, consider the following points when outsourcing HR talent management functions.

1) Why are You Outsourcing?

Before outsourcing any talent management functions, define your objectives and set expectations for outsourcing models that make sense. Take the time to articulate your organisation’s short-term and long-term goals and align them with the desired outcomes of the outsourcing arrangement. Once that’s in motion, clearly communicate your expectations to the outsourcing partner, ensuring a shared understanding of the desired results.

2) Who Will be Your Outsourcing Company or Provider?

When selecting an outsourcing provider for talent management functions, closely examine who you’re engaging with. Look beyond surface-level qualifications and investigate their expertise, experience, and track record. Consider factors such as their understanding of your industry, ability to adapt to your organisation’s culture, and commitment to data security and compliance. A comprehensive evaluation will help you choose a partner who aligns with your organisation’s values and goals.

4) How Effective are Your Communication Channels?

Open and effective communication is the lifeblood of successful outsourcing relationships. Establish clear and efficient communication channels with your outsourcing partner, providing regular updates, feedback loops, and a mechanism for promptly addressing concerns or resolving issues. Foster a collaborative environment that allows for transparent discussions, enabling both parties to align their efforts seamlessly.

5) How Safe are Your Data Protection and Confidentiality Measures?

Outsourcing talent management functions involves sharing sensitive employee data with outside companies. It’s always important to prioritise data protection and confidentiality, carefully review the outsourcing partner’s security protocols, data handling practices, and compliance with relevant regulations, or set up a non-disclosure agreement and other appropriate documentation with the company hires sole traders. Establish robust contracts that clearly define the responsibilities and obligations of both parties in safeguarding confidential information.

6) Are You Monitoring Performance?

Regular monitoring and performance evaluation foster a successful outsourcing relationship. It starts by setting the appropriate key performance indicators (KPIs) and metrics that align with your talent management goals and tracking the outsourcing partner’s performance against these benchmarks. Don’t forget to provide constructive feedback, celebrate successes and promptly address any improvement areas. This iterative process provides continuous alignment and improvement throughout the outsourcing journey.

7) Always Collaborate!

While outsourcing talent management functions, collaboration and knowledge sharing between your organisation and the outsourcing partner goes a long way. Encourage joint initiatives, exchange best practices, and facilitate opportunities for cross-training and up-skilling. This nurturing and collaborative mindset can leverage the collective expertise and insights circulating between you and your outsourcing providers, driving innovation and enhancing the overall effectiveness of your talent management processes.

Sergio is a seasoned copy and content writer who has worked directly with company founders, CMOs, brand executives, and marketing directors from multiple industries. He's an HR geek and humble terpsichorean.

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