CHAPTER 9

HR Outsourcing

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“The important thing about outsourcing or global sourcing is that it becomes a very powerful tool to leverage talent, improve productivity and reduce work cycles.”

Azim Premji

CHAPTER OUTLINE
  • Outsourcing
  • Out-tasking
  • Sub contracting
  • Business Process Outsourcing (BPO)
  • Recruiting Process Outsourcing (RPO)
  • Legal Process Outsourcing (LPO)
  • Professional Employer Organisation (PEO)
  • Application Service Provider (ASP)
LEARNING OUTCOMES
  • Meaning of outsourcing
  • Strategy of outsourcing
  • Types of outsourcing
  • HR outsourcing
  • Pros and cons

OPENING CASE

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In the year 2012, Unilever, a consumer goods company outsourced its human resource (HR) functions to the leading BPO firm, Accenture. Accenture would manage recruitment, reward and core HR administration, and learning services covering content sourcing and development, programme planning and delivery, learning system hosting, payroll administration, and management and administrative services. Workforce planning for Unilever is on cards and to make it more effective, Accenture would initiate proactive recruiting approach. Talent pipeline would be prepared to develop leaders for future. Unilever’s HR efficiency is continuously improving. Why does Unilever need Accenture’s role in its HR functions? How has it improved the efficiency?

INTRODUCTION

Increasing competition, ever-scarce resources and ever-advancing technologies are compelling executives of companies to assess the strengths and weaknesses of their organisations and answer a set of fundamental questions. Today, the name of the game is focus. What business elements separate an enterprise from its competition? What core competencies distinguish a company in the marketplace? How can an organisation focus more resources on functions central to the corporate mission? How can it manage critical but noncore processes more efficiently and cost-effectively? HRs are the most critical assets of any organisation. But in order to ensure that its employees remain satisfied, the company has to have a specialized HRs department that most of the times proves to be a costly affair.

The role of the HR function is evolving, with the change in the internal and external organisational environment (Brewster and Harris 1999; Zhu and Warner 2004). The contemporary approach to human resource management (HRM) is to align business strategy and HRM. Moreover, organisations are required to examine the way in which HRM can be used strategically to achieve organisational goals (Thompson, Strickland and Gamble 2005). This change in focus requires the HR function to become more strategic (Francis and Keegan 2006).

The organisations are often armed with capable leaders and a well-educated workforce but most organisation slack the HR expertise to address a broad range of emerging issues, for instance, how to recruit skilled staff for national or international assignments in emerging markets or rationalize the workforce after a merger or acquisition and rapidly integrate them into a single ERP platform.

Since HR is typically viewed as a corporate back-office function that does not directly contribute to operating performance, another particularly intense challenge raises the level of difficulty: the constant, unrelenting pressure to reduce costs. So, the new role of HR is all about helping companies achieve more with less. The function is tasked with finding new and better solutions for handling basic transactions in staffing, recruiting, compensation, and benefits activities. To move off the transactional treadmill, HR organisations must emphasize value-added HRM over administration and focus on the development of human capital. This enables them to have a greater impact on corporate business strategy and deliver specific results-driven outcomes for operational managers.

 

To move off the transactional treadmill, HR organisations must emphasize value-added HRM over administration and focus on the development of human capital.

OUTSOURCING: MEANING

The concept started with Ross Perot when he founded Electronic Data Systems (EDS)in 1962. EDS would tell a prospective client, “You are familiar with designing, manufacturing and selling furniture, but we’re familiar with managing information technology. We can sell you the information technology you need, and you pay us monthly for the service with a minimum commitment of two to ten years.”

 

Concept of outsourcing was initiated by Ross Perot at EDS.

Outsourcing firms have expertise in the area, where the client organisation is not efficient to manage and hence the client outsources the function to the outsourcing firm.

Out-tasking usually involves continued direct or indirect management and decision-making by the client of the out-tasking business.

 

Outsourcing and out tasking are related terms, however, out-tasking involves continued direct or indirect management and decision-making by the client of the out-tasking business, whereas when the function is outsourced the client has little or no involvement in managing the outsourced function.

 

Outsourcing is the delegation of tasks or jobs, which are noncore, from internal production to an external entity (such as a subcontractor). It became a popular buzzword in business and management in the 1990s.

Generally, outsourcing can be defined as an organisation entering into a contract with another organisation to operate and manage one or more of its business processes.

KPMG talks about BPO as the “delegation of one or more business processes to an external provider, who then owns, manages and administers the selected process (es) based on defined and measurable performance metrics” (1996, p. 1).

Gilley and Rasheed (2000) typology:

  1. Substitution: Substituting external purchases for internal activities. The use of an internal supplier is discontinued in favor of procurement from an outside supplier and may be viewed as vertical disintegration.
  2. Abstention: Outsourcing need not be limited to activities shifted to external suppliers, but may also arise when a firm purchases goods or services not provided in-house previously. Abstention-based outsourcing differs from basic procurement because provision of the good or service outsourced is within the acquiring firm’s managerial capacity.
TYPES OF OUTSOURCING

 

Table 9.1: Thompson’s Categorisation.

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Subcontracting differs from outsourcing in that subcontracting is intended to temporarily supplement resources, while outsourcing involves the restructuring of business activities on a more permanent basis.

Outsourcing is thus the use of outside resources to perform activities traditionally handled by internal staff and resources.

Companies have long used contractors for very specific types of work or to level out spikes in their workload. However, subcontracting differs from outsourcing in that subcontracting is intended to temporarily supplement resources, while outsourcing involves the restructuring of business activities on a more permanent basis.

Outsourcing and out-tasking involve transferring a significant amount of management control to the supplier. Buying products from another entity is not outsourcing or out-tasking, but merely a vendor relationship. Likewise, buying services from a provider is not necessarily outsourcing or out-tasking. Outsourcing always involves a considerable degree of two-way information exchange, co-ordination, and trust.

THE RISE OF OUTSOURCING

The outsourcing has become a global phenomenon, which is evident from the increased outsourcing operations in India, especially in the fields of E-commerce, software engineering, network systems, network security systems, as well as digital and animation creation. In fact, data reveal that 82  percent of the U.S. organisations, including major players like IBM and Accenture, are relying on IT outsource services from India because they provide a high quality service (Muncaster 2007). However, IT outsourcing is not the only outsourcing services provided by India and other parts of the world. In fact, the HR outsourcing market in India alone has been growing rapidly in the past few years, with the market potential of HR activities in India increasing to $32 billion (Sriwongwanna 2009).

Industrial Insight 1: HR OUTSOURCING IS THE NEXT BIG OPPORTUNITY: EXPERTS

Chennai: After customer care services and medical transcription, outsourcing of HR services or HR BPO was emerging as the next big opportunity for Indian BPOs with the global market in this segment estimated at $40–60 billion per annum, experts said on Monday.

“HR BPO comes to about 33% of the outsourcing pie. India has immense potential as more than 80% of fortune 1,000 companies will discuss offshore BPO as a way to cut costs and increase productivity,” said V Chandrasekaran, co-founder of Secovae Services Ltd, the first Indian HR BPO.

Sensing the potential, global BPO players including Fidelity, Exult and Hewitt have begun setting up operations in India. However, most HR BPO players had not leveraged the offshore advantage as yet, he told PTI.

Research firm Gartner has forecast HR BPO to reach $51 billion and represent 39 percent of all BPO revenue by the end of 2004.

“HR opportunity is absolutely new. It is a sunrise opportunity with huge potential,” Mr. Chandrasekaran,who formed Secovae Services to tap this potential, said. “Our initial focus will be only on HR administration, benefits and payroll, in the mid-market which accounts for $13.2 billion.”

In HR BPO, revenues depend on the number of employees the clients have. This is in sharp contrast to a typical customer care center, where bills are charged on the workers servicing a client in the BPOs. Despite huge potential, not many companies have leveraged the offshore strategy. “The main reasons for not leveraging the offshore benefit have been companies being undercapitalised or not knowing enough about the offshore business,” said Mr. Chandrasekaran.

HR Outsourcing

HR outsourcing is a process in which a company uses the services of a third party to take care of its HR functions. A company may outsource a few or all of its HR-related activities to a single or combination of service providers located in offshore destinations like India, China, Philippines, and so on.

“Human Resource Outsourcing (HRO) is the process of transferring elements of a company’s HRM functions or activities to a provider outside of the company itself” (Reed, 2001, p. 119). HRO is not new. For example, organisations typically engage law firms for advice regarding HR legislation.

 

HRO is the process of transferring elements of a company’s HRM functions or activities to a provider outside of the company itself.

 

HR outsourcing services generally fall into four categories: PEOs, BPOs, ASPs, or e-services.

 

HR outsourcing services generally fall into four categories: PEOs, BPOs, ASPs, or e-services.

 

A PEO assumes full responsibility of your company’s HR administration. It becomes a co-employer of your company’s workers by taking full legal responsibility of your employees, including having the final say in hiring, firing, and the amount of money employees make. The PEO and business owner become partners, essentially, with the PEO handling all the HR aspects and the business handling all other aspects of the company.

By proper definition, a service is only a PEO when it takes legal responsibility of employees. But take note—some HR outsourcing services like to use the recognized term “PEO” when they handle the primary aspects of HR like payroll and benefits, yet they do not take this legal partnership.

BPO is outsourcing in all or any business processes. It provides services to improve the existing processes or implement new systems.

Specifically in HR, a BPO would make sure a company’s HR system is supported by the latest technologies, such as self-access and HR data warehousing.

ASPs provide the softwares on rent to the users. Such softwares can be the packaged application (People Soft) or the customised software (ERP). These software programmes can manage functions like payroll, benefits, performance appraisal, training need, and more.

 E-services are those HR services that are web based. Both BPOs and ASPs are often referred to as e-services.

The research in the area identifies following activities in HRO:

TYPES OF HRS ACTIVITIES OUTSOURCED

Industrial Insight 2: INDIAN EXPERIENCES

Bharti cellular services-north central

  • Employee loans, medical insurance, health checkups, selection based on competencies, 360 feedbacks have been outsourced.
  • VP-HR says that time must be invested in building trust and confidence level with vendor. Employee’s opinion is must. Core functions will be internally driven. Number of people in HR will reduce but their value will go up considerably.

Spectramind

  • Benefits management, PF, superannuation, gratuity, entry level recruitment, training, welfare, transportation, cafeteria, housekeeping, security, nursing assistance, basic health services have been outsourced.
  • VP-HR says that outsourcing initiative is training for pre-hiring skills. Success rate of selection defines the success rate of trainer and his fees.

Glaxo Smithkline Consumer Healthcare

  • Director-HR and administration says that mechanization of HR is better choice. What works in one organisation does not work in another. Outsourcing is not the panacea for all the troubles, only routine administrative function should be outsourced. Core OD interventions must be managed internally.
  1. Recruitment and selection (RPO)
  2. Training and development (learning and development outsourcing [LDO])
  3. Benefits design and administration
  4. Compensation and salary surveys
  5. Performance management
  6. Coaching
  7. Employee assistance programmes
  8. Corporate relocation
  9. Employee communication
  10. Organisational design and development
  11. Human resource information system (HRIS)
  12. Payroll
  13. PEOs are companies that hire employees and lease them toother organisations.

Recruiting Process Outsourcing

Recruitment and selection activities include a long and tedious procedure. It starts with employment advertisement and is followed by different screening levels. The demand for these services can be highly variableand unpredictable making subcontracting or outsourcing a necessity during periodsofrapid growth. A global shortage ofskilled professionals (Cohen and Zaidi 2004) is driving the demand for RPO. RPO providers offer expertise on demand by having retained teams of professional and seasoned recruiters combined with a solid track record of sourcing a multitude of professional positions, and advances in recruitment process engineering (Gerard 2007).

 

RPO providers offer expertise on demand by having retained teams of professional and seasoned recruiters combined with a solid track record of sourcing a multitude of professional positions, and advances in recruitment process engineering.

Learning and Development Outsourcing

Learning and development has become key business strategy for many organisations. Although delivery of training has been outsourced by organisations since long but the level of outsourcing is increasing rapidly, with the increasing importance of training.

 

LDO is involved in providing learning infrastructure and technology, administration, learning content design, development of training, training delivery, and strategic operations.

 

Learning management systems (LMS) helps in automating registration and tracking of employee training and training needs. Generally, LDO is involved in providing learning infrastructure and technology, administration, learning content design, development of training, training delivery, and strategic operations.

Benefits Administration and Design

Health care and welfare benefits administration can be time consuming can be a tedious process so outsourcing this function can reduce costs and also improve employee benefits experience. Benefits administration is a very intricate process still it is very important to attract retain and motivate the employees.

Compensation and Salary Surveys

Executive compensation survey is often done by consultants like the Hay Group, Recruit India, Deloitte, Hewitt Associates, Towers Perrin, and Watson Wyatt. This helps in setting the competitive job prices. As it is difficult to collect the data from the competitor, the third party arrangement for salary surveys generally helps.

Performance Management

Performance management is often handled directly by line managers with support from HR. The organisations like Mphasis and Accenture provides services in this area.

The internet enabled vendors offer packages that handles the administration and development of performance management systems with web-based tools and also link this with 360 degree feedback and MBO.

Coaching

There are lot of independent consultants offering their services to executives and mid-level managers for coaching them.

Employee Assistance Programmes

The employee requires assistance for social and personal issues. But they want this to be secretive as would not like to divulge their problem to the peer group or also to the seniors. Hence, employee assistance programmes are outsourced, so that employee can seek the assistance from the outside consultant and the anonymity is maintained too.

Corporate Relocation

In case of new hires or transfer of existing employee to new place, the relocation package is given to the employee. For example, Movers and packers services is outsourced to a company providing such services and whenever the company hires new employee, the mover and packers vendor has to help the employee relocate geographically.

Employee Communication

Corporate intranets, metric dashboards and online employee surveys are certain services, which are outsourced to the vendors. For example, the job satisfaction survey or the attitude survey of the employees is outsourced to the vendor.

Organisational Design and Development

In case of the problem, diagnosis by an outsider is often helpful and the implementation of the interventions as the cure of the problem is fair and apathetic. The services of the consultants is rendered to asses and monitor the organisational set up at different levels CEO , VP, director, manager, and key professionals.

Human Resource Information System

HRIS is a software package that offers a complete system for HR activities, for example, the enterprise resource programme providers like Accenture link the HR practices to information systems through SAP, Oracle, and People soft.

Payroll

Payroll processing is the transactional activity and hence it is the most outsourced HR activity. This reduces the chances of violating legal compliances in payroll.

Professional Employer Organisations:

A PEO takes responsibility of HR administration of the client organisation. It acts as a co-employer and takes all legal responsibilities of the employees. PEO handles all HR aspects of the client organisation.

 

PEO takes responsibility of HR administration of the client organisation. It acts as a co-employer and takes all legal responsibilities of the employees. PEO handles all HR aspects of the client organisation.

RATIONALE FOR OUTSOURCING

 

Rationale for outsourcing: Operational and strategic

Operational Rationales For Outsourcing

Need for Expertise

Due to the growth in the complexity of HR tasks and small HR departments, the demand for expertise is growing. As companies require more specialists for HR expertise, the best alternative is to hire external HR vendors to perform activities that were formerly performed in-house.

HR Information Technology

HR information technology is developing many fold and many outside vendors are installing integrated or enterprise software with HRIS components. These systems provide the capability for HR executives to make informed business decisions on both operational and strategic issues.

Time Pressures

HR outsourcing enables HR executives to cope with time sensitive and competing demands. For example, recruitment and training.

Cost Effectiveness

The importance of human capital is increasing in the organisation and as they are considered the competitive advantage, it becomes crucial to manage the workforce to their satisfaction and hence the elaborated HR department is required to handle them. But in today’s business environment, it is difficult to hire the experts as it has a high cost to company, so it is recommended to outsource the HR function to avail the expert services at affordable cost. The conventional wisdom is that economies of scale allow specialized vendors to provide services at lower costs.

 

Organisations must do the cost-benefit analysis and hence should weigh the cost of staffing and administering an in house function against the cost of outsourcing.

Vendor Efficiencies and Service

For specialized vendors, the services that they are providing, are their core business and comprise their strategic focus. As a result, they report high service and customer satisfaction.

Reduction of Liability or Risk

Specialists are required to meet different requirements of the organisation, for example, retirement benefits and polygraph. It is not always possible to employ the specialists but on the other hand in order to have legal compliance, their services are crucial. So to mitigate the risk, the services are outsourced.

STRATEGIC RATIONALES FOR OUTSOURCING

Strategic HR

The role of HR department is moving toward more strategic responsibilities. Hence, if the transactional and routine HR functions are outsourced, HR personnel’s administrative role is reduced and they get time to align the HR functions with the strategy of the organisation.

 

HR departments often lack a clear strategic focus because they are preoccupied with operational activities. Hence, it is advisable to outsource nonstrategic activities. Outsourcing permits HR departments to move away from these routine administrative elements toward a more strategic role.

 

HR departments often lack a clear strategic focus because they are preoccupied with operational activities. Hence, it is advisable to outsource nonstrategic activities. Outsourcing permits HR departments to move away from these routine administrative elements toward a more strategic role.

Reduction of Bureaucracy and Culture Change

HR departments are often criticized for their bureaucratic processes and the constraints they impose on operational flexibility. Thus, reduction in bureaucracy might also help in cultural change.

Focus on Core Competencies

When the organisations decide to outsource noncore and routine tasks, this allows in-house staff to concentrate on core competencies.

Strategy: Outsourcing Decisions

Reliance on outsourcing by organisations to provide HR functions is increasing. HR outsourcing can reduce costs by providing services less expensively due to cost economies from specialization developed by the outsource provider. This can be especially true of payroll and benefits administration. Outsourcing can increase a firm’s access to specialized expertise that would not otherwise be available. Yet, in some other cases, outsourcing acts to limit the development of organisational competencies or it can create inefficiencies due to the outsourcer’s lack of knowledge of the organisation.

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Figure 9.1: Reasons of Outsourcing.

Outsourcing is a matter of choosing between hiring and training internal staff or relying on external experts or services or to take a decision of- “Make or Buy.” organisations must do the cost-benefit analysis and hence should weigh the cost of staffing and administering an in house function against the cost of outsourcing. They must determine if it is possible to create and rely on an outsourced service or relationship and receive the results the firm needs. Most importantly, they must decide if the expertise relative to a given HR function should be developed within the organisation. Or should the organisation allow the expertise to be imported by an outsourcer thereby not developing expertise within its staff.

 

HRO that includes HR recruiting outsourcing helps cut costs, helps concentrate on core business and most importantly helps in ensuring employee satisfaction.

 

The activities which can be outsourced and activities which should be retained in the organisation for competitive advantage:

 

Table 9.2: Outsourcing Decisions.

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ADVANTAGES OF HR OUTSOURCING

Outsourcing the HR functions allows the HR professionals to focus on their core competencies and relieves them from administrative tasks, so that they can focus on developing strategies for HRs. According to Frank J. Casale, chairman and CEO of The Outsourcing Institute in Jericho, NY, outsourcing “is the great equalizer for small to medium-sized firms. Growth-oriented entrepreneurs… can benefit tremendously. Not only do employees frequently gain access to better benefits, the owner gains freedom to focus.”(Chandramohan 2008)

  • To keep track of legal and governing regulations and escape from being a defaulter.
  • To increase efficiency by leveraging the outsourcing firms economies of scale.
  • To reduce the cost of infrastructure by outsourcing the HR function.
  • Sharpening your business focus by eliminating interruptions caused by employer obligations, risks, and liability.
  • Improving employee retention and morale by providing timely answers to payroll and benefits questions.
  • Expanding scope and level of service.
  • Implementing organisational initiatives that link to your overall business plan: HR becomes strategic, not tactical.

Overall, companies tend to outsource to alleviate administrative burdens and focus on strategic areas.

The Figure 9.2 shows how an enterprise can be transformed and how the management focus shifts from administrative to strategic functions after outsourcing of the routine activities. By outsourcing their HR functions, companies can save huge amounts of money and be free of complications that are otherwise involved in maintaining an internal HR department. By doing so, companies can concentrate on their core competencies saving their valuable time and resources. To sum it up, HRO that includes HR recruiting outsourcing helps cut costs, helps concentrate on core business and most importantly helps in ensuring employee satisfaction.

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Figure 9.2: Transformation of HR role.

FEARS OF OUTSOURCING

When the activities are outsourced, there are few concerns. As the data are shared with the vendor which is a third party, there are concerns of confidentiality and security of the data. In fact, at times due to difference in the organisational culture, the outsourcing activity doesn’t yield satisfactory results. To summarize the following are the fears of outsourcing:

  • Confidentiality and cost factors
  • Fear of losing job
  • Losing control over confidential data
  • Ethics and quality of outsourcing vendors
  • Security breaches
  • Cultural mindset and psychological mindset, wherein internal HR person is preferred
  • Buyers are not sure about the end results from the vendors
  • Old-time HR managers are wary of giving up control
CONCLUSION

The HR outsourcing has paved new path for the HR professionals and they are now expected to take up new role of strategist. HR has to add values in area like competency building, leadership development, measuring performance in areas like customer satisfaction, and generally enable employees to develop personally and professionally in alignment with operational goals.

 

The HR outsourcing has paved new path for the HR professionals and they are now expected to take up new role of strategist.

Industrial Insight 3: COVER STORY INTERVIEW: PANKAJBANSAL

The market is ripe for consolidation—PankajBansal, CEO & Co-Founder, PeopleStrong

What is your estimate of the HR services industry in India currently?

The HR consulting market is about Rs. 250 to 300 crores. The recruiting industry is $1 billion (about Rs. 4,500 crores). The HR technology and the process outsourcing market have still not been defined.

Where do you see the industry growing?

I segregate the industry into four parts—The consulting industry (high value, project-based work)—it is seeing some consolidation like ECS got acquired by PwC and Grow Talent got acquired by right management. I do not see any firm in this sector going public. Then there’s the HR technology market (high value, continuous work) which is dominated by large global players and now emerging SaaS-based Indian product firms. Then there’s the HR outsourcing market (large amount of standardized, continuous work). In this space, there are two kind of players. One is the staffing/temping kind of firms whose metrics are how soon they can replace people. The other kind of firm is focused on metrics like service level agreements. The fourth part of the market is pretty mixed, it includes small players in recruiting and training who span all kinds of from high end to front end work. There are also new emerging firms which specialize in specific areas like back ground verification and employee mobility and relocation assistance.

What is driving the growth of the HR services industry?

There are a couple of salient factors. One is that CEOs do not want their HR to do administrative jobs, and instead focus on value adding aspects like strategy, communication, and programme management. Second, the talent market is tight in India and new models have to be adopted by business as they realize that it can’t continue the way it has been in the past. The talent processes are directly proportional to the maturity of the market anywhere. India’s market is maturing and therefore talent processes are also maturing.

Which are the verticals that are actively interested in HR Outsourcing?

IT and ITES industries are very bullish on RPO. Another group of verticals are interested in what we call “pin code recruiting” outsourcing—focusing on hiring local talent around a locality/town/city. These verticals are Telecom, Pharma, Insurance, Banking, and Auto.

What is the future of HR services industry?

There is potential for billion dollar firms to grow in sectors like skilling, training and recruiting. The HRO market will grow at 30% CAGR. Currently, there are 28,000 players in recruitment and something like 100 payroll firms—the market is ripe for consolidation. The largest players would be a combination of RPO and BPO services delivered over a technology platform to really add value

How will HR leaders and careers in HR change?

Earlier when we used to talk to HR leaders, their focus was on the number of HR people they hired. Now their focus is on the decisions they make for their businesses. HR has taken enough mindshare of the CEOs and are building their business savvy. organisations’ business models will also encourage the adoption of new age HR. HR professionals would need to build skills like programme management skills and internal change management. There are new careers emerging in the HR Outsourcing industry—as HR people move from transitions to sales and solutions people.

Industrial Insight 2: AS TALENT TURNS CRITICAL, SMALL FIRMS OUTSOURCE HR

MUMBAI/BANGALORE: The attraction and retention of talent have become such a business critical operation that even small and medium firms (SMEs) and family-run enterprises are today outsourcing their HR functions to third party providers so that they can focus on their core businesses.

Rituparna Chakraborty, vice president of the Indian Staffing Federation, says the trend is catching on in a big way. The small firms, which are experts in their core businesses, often find themselves struggling around HRM. “With rising competition and the need for professionalism, many family-run businesses are understanding the significance of hiring the right people, managing them better, making them more productive and becoming compliant to their requirements. So they seek professional intervention from HR outsourcing organisations to bring in experience, systems, processes and technology,” she says.

Mumbai-based Gemini Power Hydraulics is a family-run SME that has outsourced its HR. “Attracting quality talent is a huge challenge for family-run businesses,” says Rajiv Sethi, chairman of the company. Most professionals, he says, do not want to work with such companies because they are often known for poor HR practices, be it lack of proper structure, role definition or career progression plans. “Outsourcing HR functions to professionals helps in this context,” he says.

HR outsourcing provider HR Anexi today has dozens of consultants working out of SME client premises. “HR outsourcing was seen largely from the payroll perspective but now it is about performance management,” says AshishArora, MD of HR Anexi.

What makes managing HR even more complicated for small organisations today is that the HR function today is no longer a uniform one, but comprises of specialty areas such as talent acquisition, talent engagement, performance management and compensation.

“The size of our organisation does not financially justify employing a whole host of HR executives with individual specializations. So we outsourced our HR and that has enabled us to improve the efficiency of our in-house HR team,” says MakrandAppalwar, MD of Emmbi Polyarns, a woven sack manufacturer that has grown in size rapidly. The fast growth necessitated a more structured and managed organisation. “By outsourcing HR, we could get immense help, support and hands-on experience from senior HR executives,” Appalwar says.

E. Balaji, CEO of staffing firm Randstad India, says that in traditional small and family-run businesses, the owner dons the role of a CEO and manages most functions, including HR. “Today their businesses are highly volatile, hence they have started looking at outsourcing business support functions. In HR, this is particularly true of recruitment. They also seek help in areas like performance management, compensation & rewards and HR policies,” he says.

Navin Kumar, CEO of Bangalore-based skills development firm iPrimed Education Solutions, says HR outsourcing can help provide seasoned resources (sometimes in a shared mode) to smaller companies especially in the areas of HR operations management, recruitment, nonsensitive areas of performance management, mobility and visa solutions.

Summary

  • To move off the transactional treadmill, HR organisations must emphasize value-added HRM over administration and focus on the development of human capital.
  • Concept of outsourcing was initiated by Ross Perot at EDS.
  • Outsourcing and out-tasking are related terms, however, out-tasking involves continued direct or indirect management and decision-making by the client of the out-tasking business, whereas when the function is outsourced the client has little or no involvement in managing the outsourced function.
  • Subcontracting and outsourcing: subcontracting differs from outsourcing in that subcontracting is intended to temporarily supplement resources, while outsourcing involves the restructuring of business activities on a more permanent basis.
  • HRO is the process of transferring elements of a company’s HRM functions or activities to a provider outside of the company itself.
  • HR outsourcing services generally fall into four categories: PEOs, BPOs, ASPs, or e-services.
  • RPO providers offer expertise on demand by having retained teams of professional and seasoned recruiters combined with a solid track record of sourcing a multitude of professional positions, and advances in recruitment process engineering
  • LDO is involved in providing learning infrastructure and technology, administration, learning content design, development of training, training delivery, and strategic operations.
  • PEO takes responsibility of HR administration of the client organisation. It acts as a co-employer and takes all legal responsibilities of the employees. PEO handles all HR aspects of the client organisation
  • Rationale for outsourcing: Operational and strategic
  • HR departments often lack a clear strategic focus because they are preoccupied with operational activities. Hence, it is advisable to outsource nonstrategic activities. Outsourcing permits HR departments to move away from these routine administrative elements toward a more strategic role.
  • Organisations must do the cost-benefit analysis and hence should weigh the cost of staffing and administering an in house function against the cost of outsourcing.
  • HRO that includes HR recruiting outsourcing helps cut costs, helps concentrate on core business and most importantly helps in ensuring employee satisfaction.
  • The HRO has paved new path for the HR professionals and they are now expected to take up new role of strategist.

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Review Questions

  1. Explain the meaning and importance of outsourcing.
  2. Explain different types of outsourcing, giving relevant examples.
  3. What should be the strategic perspective of outsourcing?
  4. What is HR outsourcing? What are the different spheres in HR outsourcing?
  5. There is a huge increase in small and medium scale enterprises. Should they have in-house HR department or outsource HR?
PREPARE A REPORT WITH THE FOLLOWING DETAILS
  1. Visit an outsourcing vendor.
  2. Interview him about the different types of client requirements and their satisfaction level.
  3. How do these vendors strategize the outsourcing.
  4. Visit an outsourcing client.
  5. Interview him about the reasons and pros and cons of HR outsourcing.

Critical and Analytical Thinking: Getting in Synch: Transforming HR to Support Business Strategy at Leading Indian Cement Manufacturer ABC Ltd.

ABC is one of India’s largest cement and ready-mix concrete manufacturers, with a network of 14 plants, 20 sales units, and 10,000 employees. Established in 1936, ABC is acknowledged as a pioneer and trendsetter in cement and concrete technology. Among the first companies in India to include environment protection as a corporate commitment, ABC regularly wins accolades for best practices in environment management at its plants and mines, and for demonstrating good corporate citizenship. The quality of its products and customer services make ABC the most preferred brand in the Indian cement industry. ABC Limited is part of the worldwide XYZ Group. 

Vision: To be one of the most respected companies in India; recognized for challenging conventions and delivering on the promises.

Business Challenge

As a case in point, ABC had staked its continued success on a number of strategic imperatives, including aggressively capturing new market share, building and capitalizing on new capacity, and becoming a leader in quality—all while continuing to keeping control of costs. Achieving these goals would require a significant contribution from the company’s people. In fact, the company had identified complementary human capital imperatives it viewed as essential to supporting the company’s growth agenda. These included attracting and retaining the right people, in sufficient number; to run the company’s expanded operations; building a strong performance mindset aligned to the firm’s vision; breaking down organisational silos to create a more responsive and transparent culture; developing aligned and effective leadership (including middle management); and inculcating a “people developer” mindset among line managers. This was a tall order, particularly given the company’s existing HR capabilities. Despite significant investments in technology and people, the current HR function was not well-aligned with the company’s pursuit of growth and high performance. For example, HR was overly hierarchical and had many layers of bureaucracy, which kept it from recruiting, promoting, and re-assigning employees effectively. Such challenges meant that the company’s “engine”—its workforce—was not pulling it in the right direction or at the right pace. In light of Accenture’s deep experience in HR transformations and with the challenges of the manufacturing sector in India, the company approached Accenture, which is a global management consulting, technology services and outsourcing company, for help in creating an HR function that could help the larger enterprise achieve its growth and other strategic goals.

Accenture’s Intervention

Accenture worked with the company to lay the foundation for more powerful HR capabilities that would support the company’s pursuit of growth and sustainable high performance. Accenture and ABC determined key elements of this foundation would include a comprehensive HR strategy aligned with the business strategy, a revised HR service delivery model, and a strengthened HR governance and organisational structure. Together, these advances would help the company to tighten the alignment between HR and the business, as well as make lasting performance improvements among key line managers, their employees, and the business units for which they worked.

One of the first steps in this direction was an assessment to identify specific HR processes that did not support business goals or fell short of global leading practices. This HR process assessment involved workshops attended by stakeholders from both the HR function and from the overall business. It also used the Accenture Human Capital Development Framework, which draws on leading practices and Accenture experience to help organisations to assess their core human capital capabilities, identify the human capital processes that will likely improve them, and prescribe the specific process interventions that will yield great results. Accenture’s assessment revealed that key improvements could be made in learning, training, performance management and leadership development. In particular, Accenture found that changes the company was making in the way work is done, to support its business objectives, were creating challenges for the workforce. For instance, among the management ranks, new employees were having difficulty acclimating to the company while those who had been with the organisation for a few years felt they didn’t have a clear career path. Managers who had been with the company for a longer period of time were having difficulty seeing how recent organisational changes were contributing to “the big picture.” At the skilled labour level, workers struggled with, among other issues, perceived lack of recognition of their effort, insufficient learning and development opportunities, and little communication from management. Together, these assessment findings provided essential guidance to the project team as it formulated a more powerful HR strategy. Accenture also helped the company improve the way it delivered HR services, with the goal of boosting efficiency, effectiveness, and the function’s support of growth. To identify potential areas for improvement, Accenture conducted a time distribution survey, which revealed that HR employees spent the majority of their time—56 percent—on administrative, legal, and security issues, 19 percent on executing transactions, and 21 percent on processes and engagement—leaving only 5 percent to be dedicated to the more strategic activities that would support growth. With the assessment clearly illustrating the company needed more time and resources spent on growth-oriented projects, Accenture identified specific HR processes that could be outsourced to a shared services center and built a detailed business case for this transition. Processes that were not tightly integrated with other processes, that were highly standardized and rules-based, and that were stable and only required low to medium skill levels were deemed ready for the shared services model. In fact, 44 percent of HR activities met this criterion, including organisation change, talent architecture, recruitment, performance management, compensation and benefits, and many others. Due to the large number of processes to be transferred to the shared services center, Accenture designed a multiphase transition that would minimize disruption and risk. The transition also would create substantial value: Accenture estimated that over five years, the shared services center would generate roughly $14 million in savings, plus greater scalability, higher service quality and customer satisfaction, and faster process cycles. To bring about these benefits, Accenture laid out a detailed implementation plan that encompassed the design, building, testing, and deployment of critical technology, organisational structures, and communication and training activities. To determine optimal headcount levels, Accenture considered the number of company employees requiring HR services, the volume of transactions to be processed, and relevant industry benchmarks. A revised organisational structure and governance framework also were key to unlocking the power of the company’s new approach to HR. For example, going forward HR would utilize three levels of review—a joint review board, an advisory team, and a user committee—when making decisions related either to its strategic direction or to the resolution of any issues, thus ensuring long-term alignment with business strategy. The new structure also included HR centers of excellence (COEs) to gather and fortify the company’s deepest HR knowledge, and the identification of HR business allies to monitor tight alignment between HR and the business. Accenture worked closely with the company to establish clear roles and responsibilities for the COEs, business allies, line managers, and the shared services center in the critical areas of recruitment, training, and performance management. In recruitment, for instance, the COEs would determine the screening methodology, while the shared services center handled initial screening, pre-employment checks, offer finalization, and management of the talent pool. Business allies and line managers were responsible for interviewing and selecting candidates. Accenture established clear accountabilities such as these for all aspects of recruitment, from planning and sourcing, through screening and interviewing, to on-boarding and measuring results. Likewise, the project team laid out roles and responsibilities for training—from assessing training needs to measuring its results—and for performance management. Across each of these areas, the HR business allies played a critical part, monitoring close alignment between HR and the business. The COEs contributed powerful experience and ideas, while line managers confirmed effective implementation of HR processes and the shared services centers provided fast, high-quality, cost-effective administrative support. Overall, the governance and organisational structures Accenture put in place helped confirm that all the moving parts comprising the company’s HR function would run like a well oiled machine. With this stronger, better connected HR engine in place, Accenture and the company set their sights on using it to improve the skills and engagement levels of key line managers, and thus enhance the performance of critical business units. Indeed, Accenture’s analyses revealed that engagement levels among line managers and their employees were alarmingly low—a condition that would not foster strong, sustainable growth. Furthermore, Accenture found that line managers were not taking responsibility for nominating their reports for training and learning programmes that would help the company achieve its growth goals, or for identifying promising talent and nurturing its development. Neither were line managers using the company’s performance management system to its fullest extent. In short, to derive a better return on its HR investments, the company would have to transform the ways in which these managers did their jobs, particularly with regard to human capital. Accenture began with two of the company’s two lowest-performing units, a sales unit and a cement plant. To understand why these units had such low engagement levels, Accenture surveyed their line managers along three dimensions: their comprehension of people development, their ability to identify and develop talent, and their capacity to mentor their reports and foster better performance. This survey revealed that the largest problem was comprehension: Line managers lacked a clear idea of what people development involved, or what it required from them. Thus, Accenture embarked on a multi-step journey to boost comprehension, working with these managers to improve communication with their employees and bolster their knowledge of what motivated their reports and could improve performance levels. Accenture facilitated a simple, structured dialogue between managers and employees, thus opening up channels of communication and improving engagement levels in both business units. Accenture subsequently helped the company identify the specific competencies and capability levels required for higher performance levels in key roles, including sales, marketing, production, and maintenance. With this knowledge in hand, managers and employees worked with Accenture to establish improvement targets customized to specific jobs and career paths, and aligned with the company’s pursuit of aggressive growth. Accenture also help the company identify employees who were performing at exceptionally high competency levels, and creating customized career paths for such employees. In some cases this involved horizontal movement, particularly when an employee possessed exceptional skills in areas not directly related to his current job. The company’s new approach to HR also verified that rising stars would gain the cross functional experience they needed to one day play a leadership role. Conversely, the new transparency into employee competencies also allowed the company to identify underperformers and design customized strategies to optimize their contributions to ongoing growth and business performance. These strategies included a wide range of interventions, including action learning projects, training academies, and coaching programmes. Regardless of the vehicle, the goal was the same: Make sure all employees are pulling in the same direction and are driving the company toward growth and high performance. High performance delivered as the engine of any successful organisation, HRs must run at full power and in proper alignment with business strategy for growth and high performance to be attainable. For ABC, Accenture has helped put in place an HR strategy—as well as HR skills, processes, and capabilities—that can help make this goal a reality. The company’s new approach to HR not only boosts alignment between the function and the business, but also allows line managers to utilize optimized HR processes and make people development a critical aspect of their jobs. This, in turn, allows the company to deploy its best people against its most compelling growth opportunities, and shore up areas in which its performance lags. For example, the sales unit on which the project team had focused during the transformation has since gone from one of the lowest performers in the company to one of the best. With better methods in place to unlock the value of its human capital, the company now is in a much stronger position to pursue growth and market share while maintaining the cost control and quality levels required for long term success. In short, Accenture has helped this company transform HR into a strategic ally to the business and has made the function a key player in the drive toward high performance.

  1. Evaluate the outsourcing decision of ABC Company? What difference has outsourcing made to the HR aspects of the company?
  2. How has Accenture helped ABC?

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