Whether or not to outsource all or part of the HR function continues to be a subject of debate at many companies (and not just large corporations). Other than payroll, which has been successfully given over to third-party providers since the 1950s, the HR world was a relatively late arrival to the outsourcing party.

Now, however, after years heading outward, the wind seems to be shifting the other way, with many corporate heavyweights moving to bring key corporate tasks back in-house.

Though perhaps not at the center of the discussion, the concept of “HR insourcing” may be to the early-21st century what outsourcing was in the 1990s.

Baby With the Bathwater

The case for outsourcing “non-core” corporate functions has long centered around efforts to cut costs, control certain labor operations, and improve efficiency, so that organizations could focus more of their resources on their primary operations. An experienced HR professional with KPMG, Robin Rasmussen, makes a case in a recent blog post that some companies went too far in entrusting HR competencies to third-party providers, sacrificing many knowledgeable in-house professionals in the process.

Now, among her clients that have expressed a desire to bring HR back in-house, she detects a common lament that they “…lack controls, processes, and efficiency; they simply do not have the expertise or the readiness to undertake HR insourcing.” 

But why the trend away from outsourcing when it seemed to be all the rage in the HR world for a time? As Ms. Rasmussen sees it, too much effort went into devising “transformational processes and methodologies” for the HR function, which ultimately left it “outsourced, but not transformed.”

To make matters worse, even the attempts at slashing the bottom line through outsourcing ended up disappointing many bean-counters, as HR costs have continued to rise at many global firms.

Last Out, First In?

Further, in a slightly earlier blog post, Ms. Rasmussen points to explosive growth in technology and the advent of the Cloud as having changed the HR outsourcing (HRO) landscape in the space of just 10 years’ time. As evidence, she cites the fact that a number of former big-league HRO providers, such as HP, IBM and Accenture, have either dropped off the radar screen or significantly changed their HRO game plans.

Even payroll outsourcing – once considered a “no-brainer” for companies on a national basis – has seen demonstrated difficulty in coming up with a single HRO provider for a global corporation. But perhaps even more to the point, Rasmussen implies that outsourcing HR may have given many companies pause because the HR function touches virtually every member of an organization directly. It’s easy to see why, in that context, corporations may have hesitated to entrust HR to third parties and why they may be leaning towards bringing the HR function back in-house.

Also, in Rasmussen’s reasoning, the HRO model was a different animal than other outsourced functions (e.g., not lending itself to the “one-to-many” platform that other areas adapted to well), and many HRO providers simply weren’t up to the task of innovating a successful HRO program.

If IT Can Be Insourced, HR Can Be Too

Maybe or maybe not. An recent blog from The Wall Street Journal discusses the pharmaceutical giant AstraZeneca being the latest in a string of corporate powerhouses that have been bringing their IT functions back in-house after literally decades of outsourcing them.

They all (including General Motors, Tesla and Family Dollar Stores) see bringing information-technology management and software development back home as necessary to staying competitive. In an ironic reversal of an outsourcing trend that once virtually guaranteed infrastructure cost-cutting, AstraZeneca (which recently fought off a fierce take-over bid by rival Pfizer) has found that it is better able to manage technology costs internally and thus focus more on developing new products. Though it never considered itself an IT company, in the words of its CIO, “…the reality is we are a technology company.” In other words, why continue to outsource a function we can do perfectly well in-house while retaining more control over it?

 Still, whether key corporate functions have been outsourced for decades, or, in the case of HR, not quite as long, bringing them back in-house is going to cause disruption. Knowledgeable professionals will have to be hired, or rehired; vendor relationships have to be renegotiated or terminated; and technology has effectively changed every aspect of HR from payroll to benefits management to recruiting and staffing. It’s not likely to be a smooth ride.

Of course, there’s a third alternative to outsourcing or insourcing that’s starting to gain traction: co-sourcing, which may serve as a hybrid approach to bridging the two trends.