Outsourcing human resources: The case of BAE systems

This is the first chapter where we explore deeply the outsourcing of one particular back office function, namely, human resources. For the first fifty years, HR outsourcing was limited to targeted HR activities such as payroll administration. The market for large-scale, transformational human resource outsourcing (HRO) accelerated in 1999 with the creation of two pioneering firms, Xchanging and Exult (now Hewitt). These HRO suppliers had the idea that the bulk of a large client’s decentralized HR transactional services could be outsourced in order to radically reduce costs and improve services. The client’s HR is transformed through the supplier’s transformation levers: creation of shared services from clients’ disparate HR departments, headcount reduction for redundant and low performing employees, retraining and empowerment for retained employees, process redesign and standardization, and significant technology enablement. These suppliers took over a myriad of their client’s HR activities, including HR information systems, benefits administration, compensation (salary administration and job descriptions), recruitment, training, career development, and regulatory compliance. Clients kept HR strategy (budgets, policies, workforce planning, organizational design), employee performance (assessment, counseling, career paths), and liaison roles in-house.