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Outsourcing: Should You Single- Or Multi-Source?

CoAdvantage – Outsourcing human resources can be a powerful way for businesses to reclaim their time and contain costs while strengthening their ability to recruit and enhance a high-performing workforce. That’s because HR vendors can offer a combination of subject-matter expertise and economy-of-scale pricing that many businesses – especially smaller to midsize operations with small or no dedicated HR functions – just can’t match.

But once you’ve made the decision to outsource, you have another question to face: should you outsource to a single vendor or supplier, or to multiple?

The Multi-Source Approach

One path to outsourcing starts with using an outside vendor to handle a single service, often payroll. If the business has a good experience, they might start outsourcing other functions on a piecemeal basis, like benefits administration and health insurance, risk management, etc. The number of vendors can quickly proliferate. This means the business will also be managing multiple relationships that may be delivering varying levels of quality.

-Multiple vendors will give you more flexibility to make rapid changes.

-This can also be a cost-effective approach, up to a point, if you’re growing your HR capacity over time.

-However, it’s much more complex to manage multiple vendor relationships simultaneously.

-You may lose some “the whole is greater than the sum of the parts” efficiencies when different HR functions become segregated from each other.

-Also, this approach means that no one has end-to-end responsibility for HR.

The Single-Source Approach

Another approach is to outsource all or some HR functions to a single vendor who can handle all aspects of HR. This is basically the business model of a Professional Employer Organization: we take over as many aspects of the “administrative employer” side of your business as the business owner wants, so the owner and other leaders can focus exclusively on growth and revenue generation. Here, there’s only a single relationship to manage, with total consistency in quality and service delivery.

-An ongoing relationship that handles more HR activities can mean lower costs while developing a meaningful relationship that offers one-stop shopping customized to your needs.

-It’s a single invoice that lets you reap the rewards of the economics of scale.

-When this relationship works well, it’s the simplest, easiest, and most convenient way to get an expert to handle your HR.

-However, you’re dependent on a single vendor. If this relationship falters, it can have a disproportionate impact on your business and workforce, so it must be actively managed.

-You may also have less flexibility to cancel or renegotiate services or the terms of the relationship if the vendor uses long-term contracts.

Ultimately, which approach is “right” for you will depend on your organization’s unique situation. Generally, single-sourcing means convenience and ease, and multi-sourcing means flexibility. The most important determinant may be the relationship with the vendor: what a third-party service can do is not as important as how well they do it. Piecing together a high-functioning HR function is often mostly a matter of finding the right partner.

CoAdvantage, one of the nation’s largest Professional Employer Organizations (PEOs), helps small to mid-sized companies with HR administration, benefits, payroll, and compliance. To learn more about our ability to create a strategic HR function in your business that drives business growth potential, contact us today.