Outsourcing Human Resources in a Turnaround

(TMA International Headquarters)

Many turnaround professionals believe that human resources activities are adequately handled by a finance staff or business leaders or, alternatively, that these issues concern compliance and that it is best to rely on the employment and benefits attorneys to handle such matters.

Moreover, when faced with the necessity to reduce costs, human resources expenditures often are viewed as discretionary. However, such thinking helps to perpetuate some of the people problems that the turnaround process is designed to resolve.

One alternative to handling human resources issues during a turnaround is to outsource those functions to professionals who can contribute strategically while also overseeing communications, administrative, and compliance issues for the organization.

In many organizations on the verge of insolvency, the existing human resources function has contributed little to resolving some of the company’s most pressing problems. For example, as an outside firm was being brought into one organization to consider alternative employment relationships for employees and a transition of the benefits plan, the internal human resources staff was meeting with benefits brokers to conduct a renewal process for the company’s existing health plan. It hardly seems appropriate for an organization in such dire straights to be paying staff members to engage in activities that do nothing to assist in the necessary transition toward solvency.

In another instance, an organization involved in a turnaround realized that its senior human resources officer was part of a significant leadership problem. It chose to terminate this person and placed responsibility for the function into the hands of a junior staff member who had a good rapport with employees. However, the individual lacked the experience to contribute substantively and strategically to the resolution of the organization’s problems. This is a costly endeavor for any organization.

Such stories abound in the turnaround industry. Often, responsibilities are placed in the hands of junior-level employees who cannot make the strategic and technical contributions necessary to change the organization and its people. Not only does an organization overpay for what amounts to a largely administrative staff, but it also misses the opportunity to capitalize on engaging its people and its human resources practices in the resolution of its problems.

A Fresh Look

Outsourcing the human resources activities of an organization in transition may provide a cost-effective option for resolving personnel issues. It can help ensure that the expenditures in this area are correlated with the appropriate contributions and that the advice of other experts, such as pension actuaries and employment counsel, are implemented and administered efficiently and in a way that employees will understand.

A human resources firm with experience in turnaround, bankruptcy, or other strategic events should be able to recognize and help solve problems facing an organization. Traditional staff or even outsourced providers who lack such experience may be less equipped to hit the ground running.

Qualified outsourced providers should recognize staffing, compensation, and benefits planning issues and management concerns, and be able to identify areas for potential cost savings. For a company undergoing a turnaround, the human resources infrastructure must be redesigned for the emerging organization. An experienced human resources professional should provide the necessary leadership to help steer people in the right direction.

Internal employees are often caught up in the emotional struggles of a failing company. The human resources staff is subject to the same cutbacks, separations, and emotional turmoil as other employees of an organization in transition. An outsider is more likely to make recommendations dispassionately. In addition, having walked the line before, an outsider should be able to communicate in an empathetic and caring way.

Using an outsider promotes fair and objective decision making. Nothing is more demoralizing to employees than to observe a downsizing process and see favoritism prevail over objective staffing needs assessments. A senior manager who feels bad laying off a long-term employee and avoids it is not likely to be challenged by internal staff. An outsider can help the senior manager make the right decision.

After an organization successfully transitions to solvency, it is often advisable to replace some of those who contributed to making and carrying out difficult decisions. This is particularly true in human resources, where staff members are often viewed as advocates for employees. The human resources professional tagged with being “the terminator” may have a difficult time engaging and refocusing remaining employees in a reorganized company.

An outsider should bring an objective perspective to promoting the most effective use of the organization’s people resources. This includes engaging employees in achieving organizational objectives, promoting effective communication programs, handling job redesign, and serving as a knowledgeable resource for managers and employees as the organization transitions.

While accountants, lawyers, and actuaries provide necessary and valuable advice, someone must implement their recommendations. When the complexities of laws relating to benefits and employment law are laid out for a struggling organization, it is not uncommon for there to be conflicting advice. Unnecessary fees may be spent resolving the conflict or educating management in these highly technical areas. A human resources consultant should be well-versed in these issues and should be able to move quickly to clear up confusion when conflicting recommendations arise. Equally important, the consultant should be able to design and implement practical and tactical steps necessary to follow the recommendations.

Selection Criteria

In evaluating outside human resource professionals, a troubled company should consider a prospect’s experience in turnaround situations. A firm should demonstrate an understanding of the bankruptcy process and the nature of a variety of strategic events relating to the transition of the organization. It also should be able to show how it has demonstrated leadership in times of crisis in the past.

Experience in designing human resources systems is another important consideration. The ability to scale up, scale down, and put into place a comprehensive structure with available resources to provide appropriate levels of support to the organization should be evaluated carefully. Eliminating waste associated with allocating too many resources and reducing the potential for liability resulting from allocating to few resources are important goals for a troubled organization.

Human resources professionals must be able to speak the language of business and those of benefits and employment attorneys and pension consultants as well. A balance of understanding complex technical requirements and the ability to design implementation processes is key.

Organizations in a turnaround are faced with many challenges and opportunities. These organizations have many choices. Outsourcing human resources functions during a transition allows a company to call on the skills of professionals experienced in this unique area when it needs it most.

By doing so, an organization can control costs and ensure that its human capital resources are deployed effectively, that the best employees are engaged and encouraged to stay with the company, and that difficult and technical compliance and benefits matters are resolved adequately and fairly.