Acme Fencing & Landscaping, Inc: To Outsource HRM - Or Not?

The case study:
Since his graduation from college twenty-five years ago, William ("Bill") Small had been employed as the lone architect at Acme Fencing & Landscaping, (AFL) Inc., an industrial and residential landscaping and fencing construction company. An exceptionally bright, dedicated, talented, and industrious individual, Bill had rapidly gained the confidence of AFL's President and CEO, Richard Acme. As Mr. Acme's interests gradually turned away from day-to-day company matters to such higher-level issues as public image and marketing, the company grew rapidly as a fairly large employer operating in the three states. Presently, the company had 125 employees. Given that AFL's growth was without question attributable primarily to Bill Small's talents and leadership, Bill was promoted to President and CEO when Mr. Acme retired last year. In the most recent meeting of the company's board of directors, Bill had been asked to initiate the annual strategic planning and budgeting processes one month sooner than usual. Additionally, the board voted - as a key part of the strategic planning and budgeting processes - to study whether the organization should outsource HRM.

As Bill Small listened to one of the key board members discuss the merits of HRM outsourcing, he found himself becoming increasingly uncomfortable with the attention that the board was now giving the company's HRM. "I'm an architect!" he thought to himself. "And while I understand the operations of the company exceptionally well, HRM happens to be the one area in which I don't have experience - or any real understanding. Is this company's HRM strong - or is it weak? I just don't know! And I certainly don't know anything about medical benefits, ADA compliance, or even workers' compensation." Momentarily, Bill Small felt his apprehension growing by the second, as he recognized that - all his business savvy and business experience notwithstanding - he had seemingly forgotten all about HRM. All Bill knew is that HR was a very small centralized department consisting of four employees, and that these four persons handled all of the human resources-related issues in the company. The company itself had three smaller regional offices - one located in each of the three states in which the company presently operated. There were no HR personnel located in the regional offices, however; all of AFL's human resources employees worked centrally - out of the corporate office. The HRM Department was staffed as follows:

The HRM Director reported to the company's Chief Operating Officer (COO) - and not to Bill directly (the COO reported to Bill). The HRM Director had been with the company for less than three years; Bill did not know her well, and he recognized that he could not define her departmental activities and responsibilities very well at all. Bill knew that the COO was not all that interested (nor engaged in) HRM, and thus, human resources challenges were handled by the HRM Director and her staff. Bill Small did know that the HRM Director was well-liked by his upper management staff, but as he considered her general role within the company, he could only say that she appeared to be extremely busy and constantly overwhelmed. Bill was moderately taken aback when (for the first time) he recognized that he could not recall the HRM Director's participation in a higher-level management staff meeting, and that his COO rarely - if ever - spoke of HRM (her absence notably included the annual strategic planning and budgeting processes). Bill wondered whether HRM issues of strategic import (or that presented as legal risks) were communicated to the COO, or whether they were handled in their entirety by the HRM Director and her staff. He could not answer basic questions that he was asking himself: "Who communicates with the management of other departments when a new employee is hired?" he wondered. "Who ensures that XYZ's contracted law firm is aware of circumstances related to employee firings?" Bill recognized that he could not clearly define the functions handled by his HRM Department - all he could say for certain was that HRM was extremely busy. He became increasingly anxious as he pondered the question of whether the HRM Director was able to handle critical HRM tasks. Bill was aware that annual performance reviews were not current, that employees often complained of inaccuracies in their pay. The company's contract with a local law firm would expire within the next two months. Bill was aware that the law firm had recently handled what seemed to be a growing number of legal matters (e.g., ADA compliance, workers compensation, and unemployment compensation); recently, the COO had quipped that the HRM Director consulted too frequently with the law firm: "I'm tellin' ya, Bill! She calls those guys for the most routine stuff - you know, it's become all too customary. She has 'em on the phone about things that any competent HRM person should never have to ask about. Seems like every morning she brings me a new bill. The only good thing about all of it is that the bills are itemized - I can see that we're paying for some pretty darned routine conversations").

The HRM Manager coordinated the company's annual performance review process, handled the employee grievance process, managed routine hiring, and was - at least formally (i.e., as per her job description) - responsible for legal compliance.

The Payroll Specialist was an exempt administrative (timekeeping) employee who was accountable for the determination of employee hours worked (for exempt and non-exempt employees), and for reconciliation of hours worked by department to total biweekly payroll. The Payroll Specialist worked closely with the Finance Specialist relative to the logistics associated with the funding of the company's pension plan.
Finally, the Benefits Specialist was also an exempt employee who coordinated with the company's health, dental, vision, and pharmaceutical benefits vendors. She met annually with employees concerning changes in the various plans. Bill wondered whether anyone in the HRM Department had a clear awareness relative to employee benefits vis-à-vis cost effectiveness.

Bill Small was tremendously relieved when the board meeting was adjourned - and yet he was also very worried. Because he has known you for a number of years, and you are renowned as an expert in HRM, Bill calls you on your cell phone at 9:15 p.m. (Bill is on his way home from the board meeting). Bill sounds uncharacteristically anxious, asking you to meet with him early the next morning to discuss whether you might be willing to consult on behalf of AFL as it relates to evaluating the merits of HRM outsourcing. Bill tells you that outsourcing might bring not only be operational efficiencies but fairly extensive cost savings as well: "The savings in the legal fees we're paying could themselves cover the cost of a new outsourcing contract. And then, there's the issue of employee benefits - I have no idea where we stand on the matter of benefits. The bottom line is that we need to get a better handle on everything - our performance reviews, payroll, and benefits management. Everything is on the table. We need to look at everything." The next morning, you sign a consulting agreement with AFL. In the ensuing engagement, you have agreed to prepare a formal report assessing the strategic, performance, ethical, and social responsibility challenges associated with HR outsourcing. However, before it is decided whether any HRM responsibilities should be outsourced (if any), Bill needs to understand the extent to which HRM outsourcing has merit for the Acme Fence & Landscaping, Inc.