Outsourcing is a really old idea. We've heard about lots of business processes getting outsourced. Most important being customer service. Typically companies outsource their non-core functions or functions which are easier to accomplish.
HR as a process hasn't been outsourced much and there is a reason behind it. People are the most complex resource of a company and outsourcing processes related to them is more difficult than outsourcing things.
But there are more compelling reasons for going ahead with it rather than having an in-house HR department which carries out all HR functions.
With changing business outlook, each function of a company is being looked at as a separate business entity. Be it HR or manufacturing, these functions are being analyzed for its ROI. It becomes difficult to justify their presence as there is no direct monetary benefit and the balance sheet gets skewed because of the manpower in HR departments and the salary paid to them. Not to say HR is unnecessary, in fact a company cannot survive long term in absence of proper HR processes.
Outsourcing HR ensures all the processes are in place, without paying high price for it. HR Outsourcing service providers have the best HR brains on board who help implement the best HR practices in the company. And as these resources are shared between many customers, the investment is very low because of economies of scale.
Apart from making work cost effective, outsourcing ensures that new and better practices are introduced periodically. In an in-house HR department innovation takes a back seat because of less focus on supporting functions and more on core function, which is also fair. But in the process the HR functions do not change with changing times.
This problem gets addressed by hiring an HR partner whose core function is HR. This partner ensures introduction and running of new and best HR practices in the parent company. It also has best HR brains to ensure better roll out and trouble shooting.
HR outsourcing is a win-win-win for all three stakeholders, the parent company, the employees and of course the HR business partner.