HUMAN RESOURCE Outsourcing the Strategy of the Future4

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HUMAN RESOURCE outsourcing the strategy of the future.

Preface

It gives me an enormous joy with the completion of my dissertation which remains

incomplete without thanking “invincible spirit” of my late Father, who gave me strength and

blessed me with good health throughout the study process in UK. I can‟t miss the opportunity

to thank my Mother who have always been to motivate and encourage me throughout this

course and otherwise also.

I would like to thank Prof. Neil Robinson for his immense help and guidance during this

dissertation phase. I had a great learning experience with him as he really supported me and

encouraged me each and every time. It is with his support I found this learning phase going

very smooth. I have never seen any professor calling his student desperately to help him as

Mr Robinson and this created strength to complete my Dissertation.

I would like to convey my great thanks to the Employees of IBM for giving me useful

information, which served as a Secondary data for my research. The Secondary data helped

me acquire more understanding about the company‟s Human Resource. Apart from that I

would like to sincerely thank the University for allowing me access into the library to borrow

books of my interest to complete this paper up to this stage.

The only limitation the author had was the Interview, which the author couldn‟t conduct face

to face as due to the geographical distance however author successfully finished it through

telephonic Interview and used the Electronic-Mail to send the interview questions to the IBM

managers

The author chose this topic because he was part of IBM India Private Limited for 8 months

and worked as Technical advisor in ITD-GD process, later he had Data warehouse training

and moved as a Data warehouse analyst. As he had to continue his higher education, he left

the work and came to United Kingdom to do his Masters.



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INDEX



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1. Abstract

1.1 Purpose: The Topic of Outsourcing Recruitment is of major interest in the management

literature as presently recruitment is mainly tied with Human Resource and always been a

hard issue in the organisations, especially in IT Industry. Recruiting quality employees for the

Industry has been important for the growth of the company. The purpose of this paper is to

contribute towards the development of management framework to recruit employees through

outsourcing in IT industry in India.

1.2 Methodology: This paper utilizes Interview Questions to identify the success factor to

outsource recruitment of employees. It also illustrates different view- point of manager‟s

when they want to shift the organization towards outsourcing. The most important

characteristics to be considered by any organization depends on the basic requirements,

reasons for outsourcing and the demands an organization will expect from the third party

organization to which the HR functions are to be outsourced. First literature review is

performed on the topic of HR outsourcing and then based on the interview results, the results

are analyzed in relation with the relevant literature resulting from literature review.

1.3 Findings: As an outcome of the analysis, it has been analysed that IT organisations are

having too many problems while recruitment and Outsourcing has been a solution for betterrecruitment. However there are some obstacles while outsourcing i.e. lack of communication

and relationship between the two firms can lead to disaster. Hence it is advised that the

Human Resource managers have to keep better relation and communication to obtain a better

result. It can also be noticed that instead of outsourcing all the HR functions, part of

outsourcing HR functions is more beneficial. Hence, managers have to consider all the

constraints in-terms of cost, time and the effect on efficiency of outsourcing while opting for

outsourcing. It is also preferable to design some basic requirements to be met by the third

party organization for which the particular organization wants to outsource the HR functions.

1.4 Research Limitations:

Though the Research was successfully accomplished, but there were many limitations in this

research like this research included interview techniques that have to be conducted in India as

the company located there, however due to geographical distance could not conduct face-to-

face interview and had to conduct telephonic interview. In the telephonic interview due to

bad signals had to face lot of obstacles and it‟s been dif ficult to ask the managers to repeat



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what they are saying and apologised each and every time. Some appointments got cancelled

due to the busy schedule of the managers. The research was time consuming and took plenty

time, and also due to the busy schedule of the managers, only some of the managers answered

to all the questions properly. Preparing an analysis report from the gathered research

information was quite difficult and took some extra time to generate the analysis report.

1.5 Structure of research:

Figure 1: structure of research

The structure of the research is followed in steps as illustrated in the above figure. The initial

step is giving an introduction to the topic of what actually HR means. The application of HR

functions is wide in which type of industry. The reason why organizations are shifting

towards outsourcing the HR functions rather than maintaining the HR functions in-house.The main aim for performing this research is stated and the objectives the research is

intended to meet are also mentioned. A literature review is performed to know the work

various authors have been contributed for the field of HR outsourcing. The benefits, pitfalls,

drawbacks identified by different authors are discussed in detail. Some of the suggestions

provided by them which are found to be important along with the empirical evidence of their

findings are considered and an empirical evidence for the idea of outsourcing whether

beneficial or not for the organization is determined. These results are analyzed and some of

Introduction about HR outsourcing

Identification of aims and objectives

Performing literature review

Performing interview based on research

questions

Analyzing the results



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the pre-requisites for the manager‟s moving towards outsourcing are proposed such that the

analysis would be better based on the suggestions.

In this chapter the author describes the main idea of the research, the purpose of carrying

out the research, the research methodology intended to follow. Using the research

methodology, how the topic is analyzed and what a gist of findings and discussion about the

topic HR outsourcing.

2. Introduction

Outsourcing refers to transferring the functionalities of a particular organization to a third

party vendor. Outsourcing helps the organization to reduce the effort involved in the in-house

and also some more benefits are resulted based on the context in which the organization opts

for outsourcing.

Human Resources in outsourcing are increasing its importance in the current market. As there

will be a lot of effort involved in HR management, organizations are shifting towards HR

outsourcing. The number of companies outsourcing Human Resource activities continues to

rise, and the scope of outsourced Human Resource activities continues to expand. HumanResource outsourcing can occur or cause a change in Human Resource functions like

employee benefits (like Health, Life insurance, Cafeteria, Medical, etc), payroll

administration (like producing checks, dealing with sick-time, handling taxes and vacations),

risk management, Human Resource management (like background interviews, wage reviews,

hiring and firing, and exit interviews), etc. Outsourcing may involve some or all parts of HR

functions. Outsourcing has become a common response to manage people and technology

resources strategically, enhance services, and manage costs more effectively. Outsourcing

decisions also have a considerable impact on the strategic planning of the organization in

terms of current needs of the market.



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Figure 2: Different HR functions in IT industry

Outsourcing non-core activities allows Human Resource professionals to move away from

routine administration to a more strategic role. The organization mainly focuses on greater

value-added activities, where as outsourcing provider mainly concentrates on the day-to-day

administration. Value-added activities would be defined as the basic requirements for the

organization to outsource HR functions to a third-party organization. Critical internal

resources, such as technology and talent, can be devoted to company's core business. If these

resources are also outsourced, there is a chance of grater damages for the organization.

Hence, technology and talent are not outsourced by any kind of organization. Outsourcing

reduces the need for large capital expenditures in non-core functions, though some capital is

initially involved for making an agreement with the third-party organization for providing

services. Thus, outsourcing becomes a strategy for reducing the capital intensity of the

business. This strategy has gained popularity as companies aim to become more nimble and

gain the speed and flexibility necessary to compete in today's business environment. In

addition to the benefits gained in terms of capital, outsourcing HR functions will reduce the

effort of the organization to a considerable extent. An increasing number of executives

understand the benefits; the outsourcing strategy can obtain in terms both cost savings and

heightened strategic focus. Most of the people recognize outsourcing relationships to be long-

term partnerships created for the strategic goals of the organization. The partnership benefits

whether short-term or long-term mainly depends on the type of the industry and the type of

HR functions outsourced. If the manager doesn‟t take into account all these considerations



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during the agreement, there is a greater scope occurrence of negative effects for the

organization outsourcing its HR functions.

Organizations outsource their Human Resource functions to the companies to posses the

knowledge and resources. The knowledge and resources are used to perform a part or the

entire client‟s Human Resource function with some kind of expertness involved in them. As a

result the client is allowed to concentrate on generating profits for the core business and

streamline the internal process of that particular company. The client organization should be a

good company (high trust-worthy), as they are allowed to access the internal process of a

particular organization. There is a greater chance of misuse of the internal process

information in such a context.

The intend of this research paper is to critically examine and evaluate the viability and the

impact of the firms outsourcing their human resourcing (HR) functions in IBM India Private

Limited at Hyderabad.

The strategy of the firms to outsource the Human Resource operations and functions to a

third party is critical decision for any company. It is very important to understand why the

companies are increasingly outsourcing their Human Resource operations and whether this

strategy would become the standard practice for most of the organisations in the future, or isit just a current trend arising out of competition. Hence this research is not only important

from an academic point of view, but also from commercial outlook. To make the research

proceed to a commercial view-point, interviews are being conducted in reputed organization

like IBM. The results are thus analyzed to draw conclusions and test the concepts stated by

different authors, collected in literature review.

In this chapter, the author focuses on providing an introduction of what actually HR

outsourcing refers to, what are the various HR functions present in an IT industry. A brief

description of all HR functions and the main reason or motto based on which the

organizations are shifting towards HR outsourcing.

3. AIM:

The central aim or the main focus of the research is to:

A. To investigate the risks and benefits of outsourcing recruitment systems at IBM India

(Hyderabad).



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4. OBJECTIVES:

To facilitate the better understanding and the methodological evaluation of the research

objectives, the research paper would analyse the following topics.

To critically review the literature associated with Human Resource management, with

specific reference to recruitment.

To carry out primary research associated with outsourcing recruitment within, a

large multinational IT company.

To draw a conclusion and make recommendations in relation to the outsourcing of

recruitment systems as employed at IBM India (Hyderabad).

The analysis of the topics is mainly based on the research questions employed in

interview, to meet the above stated objectives.

4.1 Purpose of Study:

The purpose of study is to understand the outsourcing of Human Resource and to analyse the

benefits and the risk of Human Resource outsourcing and to know if outsourcing can be the

strategy of the future. This research includes a primary interview with the employees of IBM

PRIVATE LIMITED. The interview in this study is about to know what factors thatoutsource the Human Resource in their company.

This topic would evaluate the theoretical concept of the Human Resource outsourcing. It

would also examine the reasons why the company(IBM) decide to outsource some of the

Human Resource functions like payroll, legal and pensions also to understand the advantages

of Human Resource outsourcing to a third party which is cost reduction, increased efficiency,

external expertise, access to improved IT system. This would also evaluate the disadvantages

like exposure of sensitive information, loss of complete control, fragmentation of services.

Hence in order to accomplish this aim, the study focuses on Understanding the research

factors - HUMAN RESOURCE OUTSOURCING: STRATEGY OF THE FUTURE?

This chapter discussed about the Human Resource outsourcing, its work profile and also

clearly explained about the Human Resource Outsourcing, in which the research was

conducted. The aims and objectives of the research were given step by step which would be

dealt in the following chapters.



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5. Research Methodology:

5.1 Research philosophy and approach:

Since the research involves working with observable reality of the effectiveness of the

Human Resource outsourcing, the research paper is influenced by the positivism philosophy

(Mark Saunders). Positivist approach would be used to evaluate the extent in which the

findings of this research can be generalised for other companies. However insight into finer

complexities is lost in creating law like generalisation, hence interpretive approach would

also be used to understand the social factors which cannot be quantified.

„Deductive theory represents the commonest view of the nature of the relationship between

theory and research‟(Alan Bryman 2007), hence deductive theory would be used. However,

the deductive approach has a rigid structure; hence to overcome this problem theory forming

approach i.e., inductive approach would be used along with deductive approach.

5.2 Research Method and Strategies:

The research involves the gathering and analysis of qualitative data in a enhanced manner,

This model approach would be suitable for this type of research because it uses qualitative

data. This approach also helps in triangulation of data which gives a more balanced and

exhaustive picture of the scenario (Altrichter 2006).

5.3 Data collection methods

5.3.1. Secondary data:

Secondary data will be sourced from newspapers, articles, and trade journals. Online

academic database like e-library (Salford University) will help in data mining. The

professional Human Resource specific magazines like Human Resource magazines from

Society for Human Resource management will aid in the research. The secondary research is

the technique of gathering information from the secondary sources like the literature reviews

and articles. The secondary research contains the views and opinions of different authors

about the Human Resource. Secondary research exists when there is need of summing up the

gathered information. It is something different from the primary research in which the

information is directly collected from the recipients, whereas, in the secondary research, the

sources are already in existence. These sources include the reports of the already done

researches, and also information from the newspapers, magazines and trade journals. Hence,

the secondary research is useful in the level of research



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5.3.2. Interviews:

Purposive sampling method will be used to conduct direct interview with 4 Human Resource

managers of IBM and pilot study will be done with the IBM employees before sending the

questions to the IBM managers as they are from highly professional background. . The

questions are being sent to the individual employees in the organisation via emails five day

before for the pilot study and one day before for IBM managers. The questions given to the

managers are regarding the employees work environment and reasons for outsourcing Human

Resource, Potential benefits to Employees, customers and the providers, their growth

opportunities, training, managers, what way the Outsourcing gets motivated in the company

and can withstand in the company for a long period Presently Author is in United Kingdom

so couldn‟t conduct the face to face Interview, however got an opportunity for telephonic

interviews from the IBM Managers.

5.4 Validity & Reliability:

The questionnaire collected and the interviews taken were genuine. There was no misuse of

data in this research. The author provided the relevant data provided by the employees and

had made this research more precise and accurate. Through questionnaires and interviews

from many employees represents

5.5 Benefits through the research:

It provides assistance in understanding the use of various resources and other information

resources. It allows in evaluating the literature critically, helps in the development of

extraordinary abilities and interests. It is used to develop a kind of consciousness regarding

the explicit requirements of the research procedure which is essential for the research.

Table 1: Research methods with motivation

Research method Motivation

Literature review To bridge a gap between the existing literatures regarding HR

outsourcing with the current research carried-out.



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Interviews To answer the research questions relating to the advantages,

pitfalls and pre-requisites if there exists any.

Data analysis To draw a conclusion based on the results obtained from

interviews by linking them with the available literature.

This chapter clearly explained about the design of the research, the types of questions used

and how much time was given to the employees of the organisation. The author got generous

answers from the employees and the author wrote the validity and reliability of the research.

6. Literature review:

The literature review for this research paper would be developed completely out of secondary

data. To undertake the literature review the main research question has been divided into

following sub topics

6.1. What is Human Resource outsourcing?

According to Cook (1999) Human Resource outsourcing refers to “Having third party serviceproviders or vendors furnish, on an ongoing basis, the administration of an Human Resource

activity that would be normally performed in-house”. Human Resource outsourcing do not

implies that the firm outsources the Human Resource operations to a third party, but the firm

can decide to do a selective outsourcing and outsource the functions like payroll

management, legal activities and pension functions and recruitment system.

Human Resource outsourcing is the application of different business models and techniques

to new forms of activities - or processes – and radically redesigning them to create outputs of

value for end users such as customers or employees. Business process outsourcing (BPO) is

based on the principles of re-engineering, but also combines them with the ownership and

management of processes on behalf of management by an outside vendor.

Business Process Outsourcing (BPO) has been applied to many transactional processes that

can be easily defined or 'scaled' and transferred to third party ownership with deeper expertise

than them. Until recent times, the management of IT systems has been the major element of

the outsourcing market. The current debate in business area has the main focus on business



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processes which are considered as „core‟ to the organizations, in terms of core competencies

that result or drive towards competitive advantage. Any non-core or peripheral activities are

outsourced such as the operations in the IBM Integrated Technology Delivery-Global

Delivery (ITD-GD) sector. Typically,

• Services are improved

• Overheads are reduced

• Many processes are automated - thus reducing people

6.2. The trend in Human Resource outsourcing practices

The companies tend to outsource only the administrative functions to the service providers,

whilst retaining the important functions like training, staffing and employee management.

According to Rothwell (2008) pay roll management, pensions and legal management are

some of the functions which the companies that prefer to outsource. The reason for

outsourcing is to reduce costs through suppliers volume purchasing, lower cost structure and

enhanced expertise. SLA (Service Level Agreements) provides measurable cost/benefit

analysis against pre defined productivity levels. Improves the cash flow as credit obtainedthrough costs being invoiced by provider also by which admin costs and head count can be

reduced. The main reason of this practice is that companies can focus on and exploit core

skills.

6.3. The challenges in outsourcing the Human Resource functions

The Human Resource outsourcing decision has various different challenges which should be

considered before its implementation. Outsourcing the non-required functions is a key

challenge, the service providers have to be reimbursed for the services provided, and hence

the companies must be careful. The contract lengths are of higher period, the contracts must

be signed after evaluating the requirements of the company.

6.4.Impetus for Outsourcing

There are 3 major elements that have provided an impetus for outsourcing Human Resource,



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Cost

Competence

Capacity

i) Cost: As discussed earlier in the research, cost is one of the reasons for outsourcing the

Human Resource. There is a perception that financial saving are likely to be made because

vendors, who supply a training program to different customers could offer benefits due to

economies of scale(Walker and Weber, 1984). The technology is growing and getting

advance, some businesses are choosing to move their entire learning function to large

service-centre facilities, which influence high costs among many clients(Harris, 2003;

Beausang, 2004). IBM is one of the provider of Business Process Outsourcing(BPO)

service for firms. Gainey and Klaas (2002) suggests that saving money should only be

considered an secondary outcome of outsourcing in the training area, rather than as its

primary purpose.

ii) Competence: Organization‟s access will increase to a diverse range of specialists and experts with

the help of outsourcing (Csoko, 1995; Woodall et al., 2002). Majority of the organizations fail to

keep track of the rapid technological changes, legal changes and other changes due to lack of

internal resources (Hoskisson and Hitt, 1995). Use of trainers from other areas with less currencyrates ensures profits to the organization and can be considered as a good employment practise

(Buyens et al., 2001; Gainey and Klaas, 2002). This practise is very crucial for small and medium

sized enterprises (Tyler, 2004), as they are more likely to offer best practise solutions through

external training. The main driving force for which a particular organization chooses or opts for

outsourcing is the concentration of the organization on core competencies. Firms can focus only

on scarce resources during product development (Tyler, 2004; Woodall et al., 2002). The most

likely business areas are support functions, which are outsourced, necessary for operational

purposes, but may be of very little interest in terms of customer view-point (Hale, 2006)

iii) Capacity: More business case for outsourcing Human Resource is mainly seen in response

to a threat evaluation of demand uncertainty. If a company leans on an internal Human

Resource function, it will bear the cost related with upsizing or downsizing as demand

fluctuates (Tyler, 2004; Woodall et al., 2002). Outsourcing enables organisations to

respond more rapidly to changing market forces.



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6.5. Barriers in Outsourcing:

There are some key factors which act as a barrier for outsourcing Human Resource

operations, according to the Hewitt Associates survey (2009) the main barrier to outsourcing

is lack of funds, the service provider enter into a lengthy and expensive contract due to the

nature of the service which many organisations cannot afford. The company tends to lose a

degree of control over the Human Resource function outsourced, hence they are unwilling.

The employee‟s reaction to a third party handing the Human Resource functions is also a key

barrier.

In spite of the large amounts of benefits the organization may obtain with the process, there exist

certain shortcomings if not handled correctly.

i) Culture: Some of the organizations may be best suitable or comparatively better suitable for

outsourcing. The main factor that affects organization‟s culture for outsourcing is the culture

between the organization and the learner‟s. Industry-generic programmes are more suitable

compared to non-generic programmes, as they help the supplier‟s to understand the culture of the

organization easily as the learner‟s will adapt to similar culture (Klaas et al., 2001). Barney (1991)

suggests that the knowledge and experience of organization‟s members must be articulated so thatthey can be used effectively by other members entering the organization through outsourcing. Hence,

external training is less effective than retaining the HRD function in-house.

ii) Trust: Outsourcing agreement may create an opportunistic environment with external suppliers.

Gainey and Klaas (2002), warns that leaving suppliers on their own may create an unhealthy

environment of power and control within them. Ulrich (1996) identifies that outsourcing may limit

the firm endangered in the underdeveloped state of experience and knowledge. Instead of the over-

reliance of organizations over off-the-shelf training (Kaeter, 1995), courses should be tailored to

fulfil the learner‟s and the corresponding organization (Gainey and Klaas, 2005). Walton (1999),

states that the external developer will encounter problems without the help of internal support from

the organization. Hence, the thought of moving an organization entirely into Human Resource

functions could be hazardous.

6.6. Managing Outsourcing:

i) Prioritize: The strengths and weaknesses of the internal training department should first be

recognized to set up which parts of the function would gain from moving to a outside



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company, however in general leadership of the function should never be outsourced rather, as

Nilson (2003) suggested that an analysis of employee needs, and effective methods for

transferring their knowledge for the benefit of the company, should be undertaken in the first

instance.

ii) Select: Deterring which aspects of the Human Resource function has to be outsourced, the

organisation like IBM has to carefully select its providers. One of the best method is to utilize

a path of broker, who can introduce the outsourcing company to potential vendors however

there are some risk of this approach i.e. many training providers have dual role as broker and

provider, vested and conflicting interests could result. A formal Request for proposal(RFP)

document sent to potential vendors will may assist at this stage(Nilson, 2003). The benefit of

this move is to require greater quality concerning the needs of the host organisation. Hale

(2006) suggested that it is important to manage expectations and clearly outline aspects of the

working relationship from the beginning. A Service Level Agreement (SLA) should confirm

useful in this regards.

iii) Reliance: Once the vendor has been selected, it is necessary that the organisation manages

the bond in a manner that facilitates a close, trusting partnership. In a survey by Gainey and

Klaas(2002), respondents who indicated a high level of trust between themselves and their

training provides also reported high levels of performance and high level of overall fulfilment

in there bond. Gainey and Klaas(2005) also suggested that in the absence of the trusting

relationship the supplies might be more liable to engage in opportunistic behaviour that might

prove damage to the host organisation including disclosing private details to other clients.

Reliance can be build by frequent communication between the organisation results in a clear

understanding of each other needs and capabilities as well as a greater sense of loyalty and

this will lead to a strong trust between the two firms.

iv) Monitor: In terms of evaluation, corning sought critical reports on the outsourced Human

Resource outsourcing function from a number of departments in the company (Heraty and

Morley 2000). It uses various critical measures to check that the outsourcing Human

Resource function was performing successfully. These includes flat budget, development of

new courses; a low rate of course cancellations from beginning to end and on time course

evaluations (Wang and Spitzer, 2005). A better procedure must be implemented to enable

management to monitor and to evaluate obedience to the outsourcing contract, which reduces

the error in the future.



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v) Quality Level of service: Develop a clear understanding and quantification of the type and

the level of service being given with the current provider, then come to a clear understanding

of the type and the level of service that will be acceptable in the future.

vi) Quantify the outsourcing goals: It is important to define goals explicitly. Without

measurable goals, it will be impossible to quantify current results, or to define the level of

service required in the future.

vii) Look at long and short terms: Costs and other factors vary in importance, depending on

the time period involved. Start-up costs, flexibility, reversibility and termination fees will

vary greatly, according to the terms of the contract.

6.7. Future of the Human Resource outsourcing practice:

Kostova and Roth (2002), study shows that at present only the bigger firms and multinational

corporations have adopted the practice of outsourcing their Human Resource functions, it is

yet to gain acceptance from the medium and smaller sized firms. However according to the

Survey conducted by Hewitt Associates (2009), at present about 58 percent of the

organisations believe that reducing the Human Resource operating costs is the top most

priority for the company and 44 percent believe that reducing the costs would be the 2nd

most

important function of the Human Resource in future. Outsourcing the Human Resource

functions is the only effective way to reduce the Human Resource operating costs; hence the

outsourcing practice would be employed by more companies in future.

6.8. Intangible costs

A number of large and medium-sized organizations have started outsourcing the HR routines

over the past decade. Organizations found HR outsourcing as a way of releasing in-house HR

to function more strategically, and reduction in amount of capital involved for HR.

In HR outsourcing, only few HR functions are outsourced, while the others remain in-house.

There may be dangers involved in this kind of situation as the management of all the HR

functions will become complicated because of the irregular distribution of the HR functions.

Some of them are listed below:



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1. Organizational change

2. Good recruitment practice

3. Transactional aspects

1.Organizational change: The main problem involved with outsourcing is organizational

change. The HR functions are outsourced to another organization, where the organizational

policies and the structure of work may vary. If a part of HR function is outsourced, it would

be difficult to achieve organizational change, as the HR function must fit into the

organization within a small portion, where the HR function is being carried out. HR‟s

relationship with workforce is mainly based on the trust gained through constant

communication and interaction. In outsourcing, most of the trust building activities such as

recruitment and selection, training and development, pays and benefits are involved which

are considered to be transactional tasks within the organization. When the connections are

lost, it would be difficult to make the workforce accept the major organizational change.

Moreover, there is a chance that the contracted people involved in HR outsourcing may

standardize all or some parts of its services to achieve a considerable profit over the scale of

clients linked with the company. If this occurs, there is a chance that the client‟s unique

organizational characteristics may not exist as such. Hence, the organizational change related

to a particular organizational may be in danger if the organization wants to implement HR

outsourcing.

2.Good recruitment practice: A good recruitment practice involves the intended employees to

know about both the positive and negative aspects about the job in advance. When the

recruitment is outsourced, there is a chance that the persons involved in this recruitment

process may be an outsider, not an employee of the client company for which the recruitment

is being made. The person‟s responsible for conducting recruitment need to educate the

intended employees about the nature of the job. If the outsiders conducting recruitment are

unaware of the details about the client company, they may provide the intended employees

with inaccurate information. If the employees join the organization with the information

based on inaccurate information, there is more chance for them leave the organization as their

needs are not met. In such situation, it becomes expensive for the client organization to

undergo a second round of recruitment. Hence, good recruitment practice is one of the major

factors affecting the process of HR outsourcing.



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3.Transactional aspects: Outsourcing the transactional aspects of HR emits the opportunity

for the HR personnel to get trained in the area of outsourcing. This results in a case where the

HR professionals lack sufficient knowledge to handle the entire HR management of the

organization. When the HR staff progresses to managerial level with this insufficient

knowledge, they will not have appropriate familiarity with the HR functions being outsourced

by the organization and the track of the records. Hence, the person at the managerial level

needs to take personal interest to know about the HR functions outsourced, and the way they

are handled in the outsourcing company, to manage them appropriately.

Implementation of HR outsourcing can cause more rigidity in practice. For example,

when payroll function related to HR is outsourced to a company, payment for the services to

be carried out by the outsourced company may be on a pre-transactional basis. Any special

request or customization may involve extra charge or subjected to extra charges for this extra

service. For example, if an organization needs to have an additional pay cycle for a month,

and did not have the chance of writing it in the contract at the time of outsourcing, as this

would take place once in a year or so and the exact month cannot be pre-determined. It could

be considered as an additional request and the outsourcing company may pose extra charges

for carrying out this task. If the payroll function is not outsourced, it will be an in-house

operation. It would be easier for the organization to handle the task compared to handling thepayroll function when it is outsourced.

Having in-house payroll functions in an organization can suit operational needs. Some

of the organizations reshuffle the employees frequently. This is highly probable in

manufacturing, where the variations in product need to be handled at short notice to meet the

customer demands. Redeployment and rescheduling of shift patterns of the organization at

various locations will have a major impact on the payroll management of that organization. In

such situations, handling the payroll in-house would be beneficial as it would be complicated

for the outsourced company to explain and send a list of all the changes taking place within

the organization. As the management of the organization will keep track of all these changes,

it would be easier for the in-house HR team to handle such type of situation. Moreover, if

there occurs any mistake in keeping track of these changes by the outsourcing company and

wrong payroll is given to the employees, it would become a major problem. For example, if

an employee fails to receive the extra amount for which he is eligible for working extra large

hours, it may lead to problems such as high level of employee dissatisfaction etc. It may also

lead to lower productivity, greater frustration which in-turn affects the work performed by the



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employee; leads to less turn-over and decrease in efficiency for the organization. The

employees may also leave the organization due to dissatisfaction, which results in greater loss

for the organization.

HR can be better delivered with its roles such as policy executor, change agent

guardian of good employee-employer relation, and developer of organizational culture, when

it is integrated completely. Synchronized and integrated HR functions results in getting

maximum from the employees working with that organization. The connections within the

HR functions make everything possible like downsizing or change management. As HR

functions are interdependent (or highly integrated) on each other, failure in any one of the HR

activity leads to reduction in the subsequent HR activities.

Organizations should take more care at the time of decision-making whether to

outsource the entire HR functions or few parts of them, as they will have a major impact on

the organization‟s success. A shared service could be a better option in some cases, as the HR

functions will be in-house and simultaneous cost saving can be achieved by incorporating

transaction-based activities at one place within the organization.

The important driving force for any organization in increasingly competitive world is

the reduction of costs for gaining higher profits. The main reason for the companies to opt forHR outsourcing is cost-saving. The intangible implications of outsourcing some or all HR

functions can be hard to understand and even hard to quantify.

This step in the research is carried out to meet the objective of critically reviewing the

existing literature specific to HR recruitment outsourcing. The main HR function considered,

based on which the research is being carried out is the HR learning and recruiting function.

Although all the HR functions are mentioned in the literature review, because of the time

constraints involved for carrying out the research, it is restricted to only one HR function

from the four HR functions stated.

In this chapter, the author discussed about the different kinds of benefits/loses that an

organisation can face by outsourcing the Human Resource and the reasons outsource

Human Resource in a step by step manner and also about the importance of Human

Resource. Apart from these gave a brief description on major things involved in Human

Resource outsourcing.



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7. Findings and Discussions:

The findings of the research would be based on the primary data obtained though the semi-

structured questionnaires used in the interviews. Secondary data would also be used for the

analysis of the findings; usage of this methods would help in getting unbiased perspective on

the topic, as this program has different statistical functions which aid in inferential and

detailed analysis of the data. To infer the data obtained though focus discussions and

interviews, WEFT QDA would be used as the program allows free range coding and is much

more convenient to use as compared to other programs which follow structured coding.

7.1 Questionnaire:

The following common questionnaire is prepared for the interviews. As a part of it, 4managers are being interviewed; hence the analysis of all the questions are mentioned in the

form of replies for research questions 1,2,3,4,5. The managers are represented by M1, M2,

M3, and M4.

Q1. What are the reasons to outsource Human Resource, learning and recruiting IBM

employees?

When this question was asked all the managers perception were positive on outsourcing

Human resources (HR), M1,M2 suggested that learning and recruiting outsourcing can help

IBM to address HR learning and recruiting challenges, including mounting costs,

overwhelming administrative workloads and increased complexity. M1 and M2 are totally

related to the literature review. M3 and M2 mentioned that outsourcer is integrating

experienced HR recruiting and learning specialists with proven processes and technology for

the organization. Their services are designed to deliver a high-quality employee and manager

experience based on IBM policies in conjunction with their extensive knowledge base.

M4 was totally agreed with the outsourcing of Human Resource, learning and recruiting, M4

said that while outsourcing a part of IBM HR Recruiting and Learning process, Human

Resource team can focus on strategic initiatives while the outsourcer focus on improving

efficiency and productivity to help manage costs, increase accuracy and efficiency and

support IBM need for speed and flexibility.

M1 said that outsourcing to the third party could transform the recruitment outsourcing

services that enable IBM to be focus for acquiring quality talent before IBM competitors can





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Q4. How does IBM maintain the relation with the third party?

This question was asked because relation has an important part in outsourcing and it can

create obstacles between the two firms. When this question was asked to M1 his response

was good relation between the two firms is very important, IBM believes in long term

relations and during that time the attitude, behaviour, communications and expectations of

both the company and the provider will have huge impact on the success of the whole project.

It could be any relations not only Human resource and keep this relation the Human

Resource outsource provider need to show commitment- in time, resource and consistent

effort- to keep it on track and to allow it to flourish. M2 mentioned that relationship between

two firms is by far the most common cause.

Q5. How does IBM choose their outsourcing third party company?

This question was asked because author is planning to start a logistic company and was keen

to know how the third party is selected and not only for the author but also for any company

this question arises first. M1 answered it beautifully by saying if big and established firm,

they many not give attention to every minute details of business that require and if we choose

a newly startup advisors, they may not have in-depth experience or expertise to offer best

advices for the company benefits and said the good outsourcers are those who do not only

takes your side but also be the guardians of your firm.

Bigger outsourcing firms does not always solve the purpose and there are plenty of

outsourcing firms that can help the business and they are available in all sizes, from a

relatively bigger firms charges a large amount of fee to the independent individuals. M1

suggested that “ when you have a deal with the third party, you should get for what you

pay”.M2 and M4 said that in there observation firms usually get great service from smaller

but not from and popular firms not said not to make decisions from there names. M3 said that

it is not always right that only the firms charging high from you will offer you great services.

M3 also said it is important for you to double check the previous clients of your prospective

sourcing firm who have hired services for negotiated outsourcing deals for some continuous

duration. You can rely on those references to know whether the advisor's service was worth

taking or not. And you can trust what is said by the people whom you have known.

M2 said that you should know that your outsourcing firm should take interest in your affairs

and think about your benefit largely, not theirs and you have to investigate their past



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relationships with vendors to ensure yourself that you are going to receive an independent

service, a service that is fair and trust worthy.

M1 said that to take a closer look at third party methodologies, which means closely observe

the processes and strategies adapted by the advisors. The advisors maintain their record of all

approaches they have made towards enterprises throughout the outsourcing life cycle. The

better the advisor's tools, the better and more expeditious the sourcing process will be.

Important thing to remember, one size doesn't fit all.

When this question was asked, M1 was very impressed by the author and said he will help the

author in the future for any of his business projects.

A brief summary of various characteristics based on which the HR outsourcing decision is

made are summarized in the below table.

Table 2: Characteristics affecting decision making in HR outsourcing

Characteristics Maximum number of common results

from managers M1, M2, M3, M4

reasons To handle HR learning and recruiting

challenges including mounting costs,overwhelming administrative workloads and

increased complexity.

demands Delivery a quality employee, manager and

HR professional experience, whether through

the web, voice, chat or email able to handle

any kind of complex situations faced by the

organization.

Outsourcing for future Positive impact on the organization provided

the third-party organization is selected based

on pre-requisites.

Factors affecting the relationship Attitude, behaviour, communication,

commitment-in-time and effort, resources are

the major factors considered to maintain a



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good relationship between both the firms.

Important factors for choosing third party A lot of conflicting opinions are observed in

this case. It may be based on size and

reputation of the organization or based on the

previous records of the organization

providing outsourcing in similar field.

From the above table, it is clearly evident that it is a difficult task to generalize the factors

based on which the third-party organization is to be selected, instead some of the suggestions

can be made which may be useful for the manager to consider while performing outsourcing.

Some of the factors like reasons, demands and factors affecting the relationship between the

firms can be set as pre-requisites, but it is difficult to know the exact basis on which the

decision is to be made for which third-party organization is to be selected for HR

outsourcing.

The below diagram summarizes the managers opinion in relation with the literature review.

Figure 3: Managers opinion on different questions

7.2 Discussions:

HR learning and recruiting challenges are the main reasons for the organization to opt for HR

outsourcing. From the interview conducted in IBM with various managers as subjects, it is

Managers Opinion found in

Literature review

Managers opinion not found in

Literature Review





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2. Adapting to industrial needs i.e., to a variable model as proposed by the organization.

3. Knowledge of the latest technologies currently used in the market.

4. Usage of advanced analysts to make better business decisions.

In outsourcing, culture is also considered as one of the barriers. The outsourcing organization

must be flexible to adapt the organizational culture of the main organization that is

outsourcing its HR functions. If the organizational culture is not flexible, the outsourcing

organization will not be able to keep track of the changes taking place in the organization and

the process of HR learning will remain incomplete. Hence, while selecting the outsourcing

organization, the manger must consider the demands involved to overcome the culture barrier

of the organization.

The impact of near future of the organization on the basis of moving towards outsourcing is

determined before-hand. If there is a positive impact for the organization on choosing the HR

outsourcing in-terms of cost, effort or efficiency, then the managers will opt for HR

outsourcing. The manager also expects active participation of the experts involved in

outsourcing by the third-party organization in business strategy planning. As experts or

professionals with maximum knowledge in the field are to be involved by the third-party

organization based on the demands of the organization, this would be beneficial for

organization in decreasing the complexity involved, decrease in cost involved and availability

of experts in strategic planning, which will have a greater influence on the success

functioning of the organization.

If outsourcing is prevailing in the organizations and growing at a rapid rate in current market,

there is a possibility of occurrence of both positive and negative effects for the organization

based on the context. If proper care is not taken in the selection of third party organization,

there is a greater chance of occurrence of disaster which may have its impact on entire

organization. The effect may be in-terms of decrease of cost, efficiency, labor etc. If the

selection of third party organization is done in a correct manner, it leads to positive results

and the process of outsourcing will be beneficial for the organization implementing it

(outsourcing).

Another important factor to be considered while selecting the third-party organization for HR

outsourcing is the way in which the organization wants to maintain relationship with the firm

for which HR outsourcing is made. There are some factors or characteristics that may affect

the relationship between both the firms involved in outsourcing i.e., the organization intended



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to perform outsourcing and the client or third-party organization. The factors and a brief

description of each factor are mentioned below.

Attitude: Attitude of both the organizations in recruiting and providing training to the

employees should be almost similar.

Behaviour: The behaviour of both the organizations towards handling a particular

problem should be similar. As this is not practically possible, it is advised to involve

managers of the organization to tackle such situations and maintain a co-ordination

between both the firms.

Communication: There should be both synchronous and asynchronous

communication maintained between both the organizations. Some situations need

face-to-face communication such as handling major problems occurring during the

learning of organizational process. Changes made in organization can be reported to

the third-party through e-mail as it consists of experts or professionals who can easily

understand the changes. In such situations, asynchronous communication is

recommended. Hence, a good communication is to be maintained between both the

firms whether synchronous or asynchronous communication, based on the context.

Commitment-in-time: The third party should deliver its services to the organization in

the time set by the organization. If there will be a lot of misses for the time-lines set

by the organization, it may lead to negative impact on the third-party organization.

Thus, the relationship between both the firms may not last for long.

Commitment-in-effort: There will be a change in the effort involved for handling HR

outsourcing by the third-party organization. Sometimes the effort involved will be less

as there will be no change in the organizational structure. At times, when the

organizational structure changes, there will be extra amount of effort required, as first

the organizational change is to be studied by the experts and then it is to be explained

to the employees involved in HR learning process.

Resources: If the third-party organization is a small-sized industry, there may be a

possibility there will be lack of resources because of which a problem may occur for

both the firms. Hence, all the resources requested by the organization have to be

provided by the third-party organization to maintain a good relationship with the

organization.

The general or overall basis of initial selection of third-party organization for outsourcing is

different for different managers. The size and the number of years from which the third-party

organization is established plays an important role in the selection of organization out-



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Rohit Edara

sourcing, as it can be considered as a factor affecting the trust of the organization. If the

organization is well-established, there is a greater scope for trust factor in this case for the

selection of third-party organization for HR outsourcing.

Another basis could be the amount of services and the efficiency with which the organization

can perform or handle HR learning and recruiting challenges. The manager expects best

results for the amount he is been paying for the third-party organization for outsourcing the

HR function.

Another important factor that can be considered under the category of initial selection of

third-party is based on the success criteria of that particular organization in handling HR

functions. If the organization did not handle any HR outsourcing for other organizations

previously, in such a condition, it is preferable to check the in-house management of HR

functions for the third-party organization. In this particular context, the statistics of the

organization in managing HR functions for its organization are considered. The main factors

for which these statistics are verified are the efficiency, cost, problem handling skills during

organizational changes etc.

It is clearly evident from the findings that the major characteristics based on which the

decision-making is made for the selection of third-party organization are the reasons,

demands, impact in near future, factors effecting the relationship between firms and the basic

factors involved in the selection criteria.

From the literature review and findings from interview, it is evident that outsourcing a part of

HR functions could be more beneficial for the organization rather than outsourcing entire HR

functions. The organizations adapting outsourcing some HR functions are benefitted in terms

of cost, capacity and competence. The organization may pose some demands on the

outsourcing organization to obtain the desired benefits from the outsourcing organization.

Posing certain demands may also help the organizations to overcome barriers such as culture

and trust.

The summary of the discussions is represented in a diagrammatic format for easier analysis

and better understanding of various characteristics that effect the functioning of the

organizations (especially in IT industry). Figure 4 illustrates that HR learning and recruitment

is a sub-category of HR management function which is one type of HR functions existing in

any IT organization.







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to all market size. Competition is a good obsession; it can help to drive down costs while also

offering choices for businesses that will enable all segments of the market to select providers

that meets the company need. Outsourcing is a firm tool that can grow the firm business and

even can loose the business; it‟s a business tool like all tools that must be used properly to get

the best results and to achieve success in outsourcing. There are two main areas that have to

be addressed when outsourcing one is communication during the outsourcing process and the

outcome of outsourcing.

In this chapter Discussions & Findings, the author discusses about the questionnaire and

about the results by showing the percentage of answers on graphs and will comment on each

and every question. This chapter also discusses about Demands of client and suggests the

ways and shows the present situations of the Human Resource Outsourcing by the

Questionnaires and Answers. This chapter provides a brief discussion based on findings in

relation with the literature review based on HR outsourcing. It also summarizes some

important lessons to be considered while performing HR outsourcing by the manger.

9. Future Work:

This chapter gives a brief description on the various directions in which the proposed

research can be continued, some ways in which the research can be performed and some

better ways in which the research can be carried out by other researchers contribution for

the field of HR outsourcing.

In the research mentioned above, all the HR functions benefits, and pitfalls are not discussed.

Only one HR function i.e., HR learning and recruiting is validated in industry. There is a

possibility that all the HR functions can be validated with respect to a single organization or

more organization in-order to draw common conclusions on the effect of HR outsourcing. It

is also possible to validate the results of IT industry, whether applicable to other industries

such as telecom or gaming industry. If the results differ, what are the main constraints that

effect or deviate them from that of IT industry? If dynamic validation i.e., conducting an

interview is not possible, static validation can be provided by conducting surveys to support

your suggestions. Performing case-studies depicting various conditions and constraints to

demonstrate the benefits of HR outsourcing would be preferable and more suitable for

providing the dynamic validation about the described proposals. This will help the managers





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field”, Human Resource Planning, Vol. 25 No. 1, pp. 16-22.

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