A Study on
“THE IMPACT OF HR OUTSOURCING ON VARIOUS HR FUNCTIONS
WITH REFERENCE TO IT INDUSTRY”
Submitted In Partial Fulfillment of the Academic Requirements
For the Award of the Degree
Of
MASTER OF BUSINESS ADMINISTRATION
BANGALORE UNIVERSITY
Submitted By
NIRVAN
REG NO: 09SKCMA044
Under the Guidance of
Dr. KAVITHA DESAI
ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES
1st. Cross, 1st. Stage, Peenya Industrial Area,
Bangalore-560058
2009 – 2011
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DECLARATION
I, NIRVAN, hereby declare that this dissertation titled, “THE IMPACT OF HR
OUTSOURCING ON VARIOUS HR FUNCTIONS WITH REFERENCE TO
IT INDUSTRY”, is based on original project study conducted by me under the
guidance of Dr. KAVITHA DESAI.
This has not been submitted earlier for the award of any other Degree / Diploma by
Bangalore University or any other University.
Place: Bangalore (NIRVAN)
Date: 4th May 2011 REG NO: 09SKCMA044
2
ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES
1st. Cross, 1st. Stage, Peenya Industrial Area,
Bangalore-560058
CERTIFICATE FROM THE GUIDE
Certified that this dissertation titled “THE IMPACT OF HR OUTSOURCING
ON VARIOUS HR FUNCTIONS WITH REFERENCE TO IT INDUSTRY”
is based on an original project study conducted by NIRVAN, of 4th Semester MBA
under my guidance.
This dissertation has not formed the basis for the award of any other
Degree/Diploma by Bangalore University or any other University.
Place: Bangalore
Date: 4th May 2011 (Dr. KAVITHA DESAI)
3
ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES
1st. Cross, 1st. Stage, Peenya Industrial Area,
Bangalore-560058
CERTIFICATE FROM THE COLLEGE
Certified that this dissertation titled “THE IMPACT OF HR OUTSOURCING
ON VARIOUS HR FUNCTIONS WITH REFERENCE TO IT INDUSTRY”
is based on the study conducted by NIRVAN of 4th Semester MBA under the
guidance of Dr. KAVITHA DESAI.
This dissertation is based on the original project study undergone and has not
formed the basis for the award of any other degree/diploma by Bangalore
University or any other University.
Dr. Kavitha Desai Dr.Kerron G. Reddy
PROFESSOR MBA, RESIGTRAR AIMS PRINCIPAL, AIMS
Place: Bangalore Place: Bangalore
Date: 4th May 2011 Date: 4th May 2011
4
CERTIFICATE OF APPROVAL
This dissertation report of NIRVAN titled “THE IMPACT OF HR
OUTSOURCING ON VARIOUS HR FUNCTIONS WITH REFERENCE TO
IT INDUSTRY” is approved in quality and form and has been found to be fit for
the Partial Fulfilment of the Requirements of Bangalore University for the Award
of Degree of Master of Business Administration.
INTERNAL GUIDE EXTERNAL EXAMINERS
Name: Dr. KAVITHA DESAI 1.Name:
Signature: Signature:
Date: 4th May 2011 Date:
2. Name:
Signature:
Date:
5
ACKNOWLEDGEMENT
First of all, I bow my head with full devotion, dedication, faith & gratitude to the omnipotent,
omnipresent, omniscient and Almighty God for showering his unconditional blessings upon me
as a result of which I am able to complete this project well in time.
I would like to convey my deep and profound sense of gratitude, thankfulness and obligation to
my learned and self-esteemed guide Dr.Kavitha Desai, Prof. MBA Dept. and Registrar,
AIMS, for her untiring help, constant encouragement and learned suggestions. Vocabulary fails
to express my feelings, emotions and thoughts towards her greatness & kindness which she
expressed towards me. Instead of her extremely busy and exhaustive schedule, she always spared
her valuable time and guided me accordingly. She stood like a beacon’s light to sail in the
uncharted sea of my dissertation project.
I would like to express my sincere thanks & gratefulness to all my respondents who helped me
with their learned, experienced and valuable feedback by answering the questionnaire of my
research topic which worked as the foundation stone to build this project.
I am extremely thankful to Honourable Prof.Kerron G. Reddy, Principal & CEO AIMS, who
has provided me with all the required facilities to carry out the present research work according
to the norms of Bangalore University and by nurturing my skills to execute the requirements.
I express my sincere regards, respect and thankfulness to Prof. Ranganathan Krishna Rao,
Program Director, MBA Department, who always supported me with his fatherly love &
affection. I pay my sincere regards and thankfulness to all the respected teachers of MBA Dept.
& all the faculty members of AIMS particularly to Prof.Nagarajan & Dr.Bhartha K.A for their
valuable suggestions and blessings. I express my special thanks to our COO, Mr.Priyanandan
Reddy for his effective support, sympathy, love and affection throughout the course of studies at
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AIMS. I would also like to thank our Librarian Ma’am & all the library staff for their co-
operation while collecting the relevant literature on the subject.
I bow my head in the lotus feet of my respected father Prof. (Dr.) Dharm Raj Singh (Gold
Medallist), Ex-H.O.D, P.G. Dept. of Kayachikitsa, Lucknow University, Lucknow and my
respected & loving mother Dr.Sangeeta Singh (Gold Medallist) Ex-Associate Professor, P.G.
Dept. of Kayachikitsa, Lucknow University, Lucknow who always stood with me in my difficult
times and always taught me the lesson from a famous quotation, “Arise , Awake and stop not
till the goal is achieved!” by Swami Vivekananda who had been a great saint and visionary.
Lastly I bow my head down to earth with full faith, honour & devotion in the lotus feet of my
honourable Gurudev H.H Swami Subodhananda Saraswati for his continuous spiritual
enlightment and divine blessings.
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TABLE OF CONTENTS
Sr. No. TITLE Page No.
1 INTRODUCTION 1 – 14
1.1 INTRODUCTION TO THE RESEARCH TOPIC 1 – 2
1.2 THE THEORETICAL ASPECTS OF THE RESEARCH TOPIC 3 – 6
1.3 THE SUBJECT BACKGROUND OF THE RESEARCH TOPIC 6 – 11
1.4 OUTSOURCING 12
1.4 BE SPECIFIC ABOUT HR OUTSOURCING 12 – 14
2 RESEARCH METHODOLOGY 15 – 20
2.1 INTRODUCTION 15
2.2 STATEMENT OF THE PROBLEM 15
2.3 REVIEW OF LITERATURE 15 – 17
2.4 OBJECTIVES OF THE STUDY 18
2.5 SCOPE OF THE STUDY 18
2.6 RESEARCH DESIGN 18
2.7 SAMPLING PLAN 19
2.8 TOOLS FOR DATA COLLECTION 19
2.9 TOOLS FOR DATA ANALYSIS 19
2.10 LIMITATIONS OF THE STUDY 20
2.11 LAYOUT OF CHAPTERS 20
3 INDUSTRY PROFILE 21 – 30
3.1 HR OUTSOURCING INDUSTRY 21 – 23
3.2 THE BPO INDUSTRY 24 – 26
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3.3 INDUSTRY PROFILE OF SOFTWARE & IT INDUSTRY 26 – 30
4 DATA ANALYSIS & INTERPRETATION 31 – 58
4.1 Department and Designation Profile of the respondents 31 – 32
4.2 Years of Work Experience of the respondents 33 – 34
4.3 Approximate HR strength in the organization 35
4.4 Response of the organizations towards HR outsourcing 36
4.5 Approximate no. of people outsourced by various organizations 37 – 38
4.6 Major HR functions outsourced by various organizations 38 – 41
4.7 Important reasons for outsourcing HR functions by various organizations 41 –43
4.8 Important factors for choosing a third party supplier for HR outsourcing 44 – 45
4.9 Opinions on different aspects of HR outsourcing in relation to various HR
functions.
46 – 47
4.10 Type of the legal service agreement standard included in HR Outsourcing
Contract
47 – 48
4.11 HR Functions Which Are Not Outsourced Or Being Outsourced Either Partially
or Completely
49 – 52
4.12 Opinion about the impact of HR Outsourcing on various HR attributes 52 – 53
4.13 Opinion about Outsourcing Options with Reference To organizational HR
Policies, Practices & Talent Needs of IT Industry
54 – 55
4.14 Opinion of HR Managers on whether HR Outsourcing may help to reduce the
Rate of Attrition in IT Organizations
56
4.15 Opinion of HR Managers on how well have your HR outsourced functions
fulfilled their objectives
57 – 58
5 SUMMARY OF FINDINGS 59 – 62
5.1 Findings about different aspects of HR outsourcing 59
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5.2 Findings about important reasons for HR Outsourcing 60
5.3
Findings about important factors responsible towards choosing a third party
supplier for HR Outsourcing. 60
5.4
Findings about major HR functions being outsourced in the Indian industry
either completely or partially 61
5.5
Findings about the impact of HR outsourcing on various HR functions & on the
effectiveness of the HR department. 61
5.6 Findings about the co-relation between HR Outsourcing & IT industry 62
5.7 Findings about the effectiveness of HR function that is being outsourced. 62
6 SUGGESTIONS AND CONCLUSIONS 63 – 66
BIBLIOGRAPHY10
ANNEXURE 10 – 10
10
LIST OF TABLES
TABLE
NO.TITLE OF TABLES
PAGE
NO.
4.1 Department and Designation Profile of the respondents 31
4.2 Years of Work Experience of the respondents 33
4.3 Approximate HR strength in the organization 35
4.4 Response of the organizations towards HR outsourcing 36
4.5 Approximate no. of people outsourced by various organizations 37
4.6 Major HR functions outsourced by various organizations 38
4.7 Important reasons for outsourcing HR functions by various organizations 41
4.8 Important factors for choosing a third party supplier for HR outsourcing 44
4.9 Opinions on different aspects of HR outsourcing in relation to various HR
functions.
46
4.10 Type of the legal service agreement standard included in HR Outsourcing
Contract
47
4.11 HR Functions Which Are Not Outsourced Or Being Outsourced Either Partially
or Completely
49
4.12 Opinion about the impact of HR Outsourcing on various HR attributes 52
4.13 Opinion about Outsourcing Options with Reference To organizational HR
Policies, Practices & Talent Needs of IT Industry
54
4.14 Opinion of HR Managers on whether HR Outsourcing may help to reduce the
Rate of Attrition in IT Organizations
55
4.15 Opinion of HR Managers on how well have your HR outsourced functions
fulfilled their objectives
57
11
LIST OF GRAPHS
GRAPH
NO.TITLE OF GRAPH
PAGE
NO.
4.1 Department and Designation Profile of the respondents 32
4.2 Years of Work Experience of the respondents 33
4.3 Approximate HR strength in the organization 35
4.4 Response of the organizations towards HR outsourcing 36
4.5 Approximate no. of people outsourced by various organizations 37
4.6 Major HR functions outsourced by various organizations 39
4.7 Important reasons for outsourcing HR functions by various organizations 42
4.8 Important factors for choosing a third party supplier for HR outsourcing 44
4.9 Opinions on different aspects of HR outsourcing in relation to various HR
functions.
46
4.10 Type of the legal service agreement standard included in HR Outsourcing
Contract
48
4.11 HR Functions Which Are Not Outsourced Or Being Outsourced Either Partially
or Completely
50
4.12 Opinion about the impact of HR Outsourcing on various HR attributes 52
4.13 Opinion about Outsourcing Options with Reference To organizational HR
Policies, Practices & Talent Needs of IT Industry
54
4.14 Opinion of HR Managers on whether HR Outsourcing may help to reduce the
Rate of Attrition in IT Organizations
56
4.15 Opinion of HR Managers on how well have your HR outsourced functions
fulfilled their objectives
57
12
EXECUTIVE SUMMARY
This Dissertation titled “THE IMPACT OF HR OUTSOURCING ON VARIOUS HR
FUNCTIONS WITH REFERENCE TO IT INDUSTRY” is based on an original study
conducted by me (Nirvan) of 4th semester MBA, student of Acharya Institute of Management &
Sciences under the guidance of Dr.Kavitha Desai, Acharya Institute of Management &
Sciences Bangalore, Dept. of MBA.
HR outsourcing is an accepted managerial tool for re-structuring and re-focusing the way an
organization does business. It is proved to be the catalyst for organizations to drive
standardization of HR policies and practices. HR outsourcing is a boon for enhancing various
organizational capacities and for overall improvement of different HR Functions of different
organizations according to their various needs & requirements. It is an excellent tool for
completing the different tasks, objectives and needs for which it has been assigned.
HR Outsourcing & IT industries are inter-related and both are benefitted by mutual co-ordination
& co-operation. The problem of “Attrition” is very well managed with the help of HR
outsourcing in IT industry. Mid-market, or medium-sized, organizations find HRO very
attractive because of the economic, strategic, operational, technology and risk management
benefits.
HRO is a comprehensive solution that impacts process, technology and people. Therefore, HRO
requires more thoughtful approaches to managing change, as well as an experienced partner.
Navigating through the uncertainty leaves most HR leaders reaching out to providers for help
because, in their words, "we don't know what we don't know." Experienced providers are well-
positioned to share their proven expertise and the best practices that will ensure success.
HRO has the ability to impact the entire organization - far beyond the HR department - with a
reach that is often underestimated. From key stakeholders, such as an executive who can benefit
from better information about the workforce, to the hourly worker who will interact with HR in a
whole new way, HR's management of the HRO transition process will determine how each of its
constituencies responds to a new world of work.
Making the decision to outsource human resource processes is a major step for many
organizations. Once a company has decided to outsource one or more human resource processes
and has selected a vendor, the next major task is to implement an effective outsourcing
arrangement. Thus my study helped me to get a clear picture of HR Outsourcing in the Indian
Context along with its future and feasibility.
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CHAPTER-1
Introduction
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Chapter-1
INTRODUCTION
1.1 INTRODUCTION TO THE RESEARCH TOPIC
1.1.1 Overview of 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 provides located in offshore destinations like India, China, Philippines,
etc. In this sense the HR outsourcing service providing firms or HR outsourcing company can be
divided into four categories depending on the services they offer as, PEOs (professional
employer organization), BPOs (business process organization), ASPs (application service
providers), or e-services. In these categories the PEOs are the ones that assume full responsibility
of a company's HR functions where as others such a BPOs, ASPs and e services provide web
based HR solutions like database maintenance, HR data warehousing, maintaining records,
developing and maintaining HR software's etc.1
HR outsourcing is a viable choice for small to mid-sized businesses looking to limit staffing
burdens while maintaining high-quality human resources functions. HR is a complex and
specialized field that performs necessary services for businesses with employees, but the cost of
hiring qualified HR personnel may not always make financial sense. Outsourcing HR functions
can provide the services and highly trained professionals that businesses need, often with
significant cost savings over hiring full-time HR staff.
1.1.2 Function
The primary function of human resources is to manage and provide everyday personnel services.
From employee benefits management, payroll and administration, recruiting and hiring, training
and organizational development, employment law and regulatory compliance, human resources
is a full-time job that requires specialized training and on-going education. HR outsourcing firms
provide a full range of vital services to businesses that can't afford a dedicated human resources
staff or choose not to maintain HR functions in house.
1.1.3 Benefits
1 Ref.1. “Society OF HR Management- Outsourcing Survey Report about HR Outsourcing” By Alexey Klementive
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For business owners and managers attempting to fulfil HR roles, performing human resources
functions can take away from running the business. The allure of outsourcing non-core business
functions such as HR is that it allows the company to concentrate on its main business goals,
leaving other tasks to the specialists. HR outsourcing firms are experienced in implementing the
most efficient and cost-effective methods and practices and may be able to provide benefits,
payroll and other services at a lower cost than a company would on its own.
1.1.4 Service Levels
HR outsourcing companies generally offer different service levels--including a la carte, bundled
or all-inclusive services--depending on your particular needs and budget. You can contract
human resources outsourcing firms for a specified period of time, use then on an as-needed basis
or contract them for specific one-time or occasional projects. Authoring employee handbooks
and creating administrative systems and compensation programs are a few examples of project-
based HR outsourcing services.
1.1.5 Cost and Value
Aside from staffing, there are costs associated with the setup of an HR department. Software,
filing and information-gathering and storage systems, policy and procedure creation, and
implementing the HR program itself cost time and money. When you factor in all variables of
setting up and maintaining an in-house HR department, there is no guarantee that the department
will run effectively. When a business outsources HR services, all the systems, processes and
personnel are in place, providing a value-added element to the equation.
1.1.6 Professional Employer Organizations
Another outsourcing option that involves handing over the HR duties along with the employees
is called a PEO (professional employer organization). In a PEO, the outsourcing firm becomes
the legal employer, handling payroll, benefits, insurance and other employee relations; it leases
the employees back to the company. Employees generally enjoy better benefits because of group
rates, and the scenario allows business owners to concentrate solely on company goals rather
than personnel issues. Some companies may also enjoy tax benefits and will save on worker's
compensation and unemployment insurance because employees are the responsibility of the
PEO.
1.2 THE THEORETICAL ASPECTS OF THE RESEARCH TOPIC
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1.2.1 Human Resource Outsourcing
The increasing focus on HR's contribution to the performance of the wider business has led to
more emphasis on cost reduction. HRO has grown out of this debate - from re-engineering and
cost reduction on the one hand to a potential transformational capacity on the other. HRO is an
evolving industry and can be defined as the purchasing by an organization of on-going HR
services from a third-party provider that it would otherwise normally provide for itself. HRO is a
strategic tool aimed primarily at chief executives. Though organisations may have different
strategies and performance models, all will relate in some way to HRO. These can involve the
following:
Capability: for any organization where there is a need to either improve or acquire HR
capability
Scale: providing for large organisations with 50,000 or more employees well-delivered
HR administration and services - and to justify the return on investment.
Technology: for most organisations where technology can be acquired and leveraged
through shared services or outsourcing2.
1.2.2 HRO providers
While HRO providers may seem to offer little that is different between them, differences do
occur in their size, culture, HRO methodology and track record. However, they offer their
services in three distinct ways.
Single-service or transactional solutions for a particular HR activity
Multiple HR services as part of a large-scale deal
Transformational deals which radically change the purpose and role of HR
Three different types of providers are active in the HRO market - pure HRO specialists, Business
/ HR transformation firms and HR process technology suppliers.
2 Ref.2. “Outsourcing the HR Function- Possibilities & Pitfalls” a report by Anthoy Hesketh on behalf of Strategic Dimensions Associate, Corporate Research Forum (CRF)
17
1.2.3 Selling points of HRO
HRO providers use these main selling points.
Increased efficiency of HR with estimated cost savings of up to 50%.
Increased effectiveness of HR through operational improvements.
Improved strategic focus from HR on business goals.
The role of HRO in transforming the performance of HR and the business.
While many HRO users can point to improvements in the first two points, evidence is lacking for
the impacts on strategic focus and business performance. This is a major problem for the HRO
industry.
1.2.4 Strategic debates around HRO
These debates are on-going in HR outsourcing among user - or prospective buyer -
organizations, providers, HRO advisers and academics.
The future purpose and contribution of HR because of the possibilities of functions being
transformed, or part-outsourced, through HRO deals.
The strategic and management complexities of HRO deals, especially so-called ‘mega-
deals’.
Deciding what is ‘core’ and ‘non-core’ in HR – the critical competencies to be retained
versus peripheral activities that might be outsourced.
The difficulty that HR has in assuming more strategic or value adding roles after
implementing HRO.
The position of offshoring as it affects HRO decisions and raises emotive issues such as
job losses and redeployment.
The challenges of trying to manage HR process delivery on a global scale and across
different cultures.
The HRO debate ultimately turns on the perceived quality of, and returns from, investments in
the HR function. Those organizations under pressure to reduce costs are more likely to consider
outsourcing at least part, if not all, of their HR administration.
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1.2.5 The future of HR
HR itself is also locked in a debate over its future. Though some organizations have evidence
that the function is an integral part of its capability to deliver business success, many view HR as
Over-resourced
Inefficient
Vulnerable to the cost reduction possibilities of HRO.
HR outsourcing raises questions over HR’s future skills, capabilities and career paths. Its
developments are creating pressures for practitioners to shift from being reactive and
administrative problem-solvers to more proactive, value-driven ‘business partners’.
1.2.6 Shared services
Research revealed much discussion about the definitions and position of shared services. For our
purposes, it is defined as the transfer or insourcing of HR services and their resources to a
separate unit within the business - and often with a separate P&L system. Shared services is
often adopted by organizations who are against outsourcing as a matter of principle - but still
seek some of the transformational and streamlining advantages connected with outsourcing.
Alternatively, some organizations use shared services as a halfway house to prepare the specific
lines of HR they intend to outsource.
1.2.7 The HRO logic
No amount of preparation, however extensive, can safeguard outsourcing deals completely.
Leaders need to clarify what their core logic is for creating value by demonstrating the
following.
How HRO can enable the organization to meet the requirements of its stakeholders - be
they internal (employees) or external (customers).
How outsourcing will transform the way the HR function works in a radical and
sustainable way.
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Crucially, how transforming the HR function will influence the planning, operations and
performance required by the business model.
1.2.8 Managing the transition
In some organizations, HRO is akin to changing the engine while the plane is still in the air
which is a potentially catastrophic exercise. The consequences of HRO must be thought through
- before agreeing a contract. Handing over single, multiple or all HR service processes represents
for many organizations their first experience of complex projects - project management is a
critical HR capability for HRO to work well. A successful transition minimizes employee angst -
but botched handovers could have longstanding repercussions on relationships with providers,
employees, other stakeholders and corporate image.
1.2.9 Governance of HRO performance
Managing and measuring performance after HR outsourcing is pivotal to the relationship
between HRO client and provider. Performance measurement in HRO traditionally concerns the
following.
Efficiency: mainly through cost reductions.
Effectiveness: through improved service outcomes against criteria in service level
agreements (SLAs).
Transformation: indicators of deeper change at the level of the organization, its
employees, systems - and at intangible levels.
Strategic governance: evaluating the management of performance - including the
decision rights, rules and agreed management processes defined with and before
providers are engaged.
1.3 THE SUBJECT BACKGROUND OF THE RESEARCH TOPIC
1.3.1 Impact of HR Outsourcing on Business Performance
Human resources outsourcing evolved from hiring payroll processing companies in the 1990s to
delegating tasks previously performed by human resources assistants and specialists, such as
recruiting, coordinating benefits and handling unemployment claims. Some small businesses
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outsource entire human resources departmental functions; however, many companies outsource
singular processes.
1.3.2 Outsourcing HR Processes
Small businesses to large corporations decide for one reason or another that outsourcing human
resources functions is a way to improve efficiency and minimize staffing costs. Large
organizations that employ thousands of people may find it's simpler to outsource a process, such
as payroll, rather than employ two to three payroll clerks and purchase sophisticated technology
than engage the services of a company that focuses entirely on processing payroll. Small
companies might decide that outsourcing human resources processes is more cost-effective and
efficient than creating a human resources department while the business is focused on other
projects associated with starting a new business. "Inc." magazine contributor Priya Ganapati says
data from Everest Research Institute in Dallas suggests a significant percentage of small
businesses are finding human resources outsourcing is the answer to avoiding labor costs and
expensive technology. "HR outsourcing among small businesses has gone up considerably: Of
the 65 HR outsourcing deals between 1998 and mid-2004, that the report analyzed, 37 involved
small businesses," Ganapati writes. The growth rate of HR outsourcing is likely to increase as
more small businesses focus on their product and service offerings instead of staffing an in-
house human resources department.3
1.3.3 HRO Effect on Business Performance
Business performance is an important consideration when small business owners weigh the pros
and cons of HRO. One school of thought is that a small business can focus its energy and
expenditures on developing the product it sells. This enables a small company to allocate its
resources to areas that include engineering and research and development, instead of recruiting
staff, maintaining personnel files and other human resources tasks. The other school of thought
has more to do with human capital and talent--a small business owner may find herself without
the talent she needs to build an efficient human resources department. In this case, HRO resolves
the dilemma small business owners face during the search for an in-house human resources
3 Ref.3. “A Handbook of HR management practices, 8th edition 2002, by M. Armstrong.
21
expert. In the first scenario, a small business directing its focus on product design and sales may
determine the expense of HRO can be easily justified by more attention given to product sales. A
small business that doesn't have the requisite talent to lead a human resources department can
justify the expense of HRO by the confidence in the level of competency HRO companies offer.
1.3.4 Continued Impact on Business Performance
When small businesses initially utilize HRO services for transactional processes, the selection of
a strategic human resources leader can become a priority. The search for human resources
administrative practitioners without expertise in HR strategic management can then take a
backseat for now. An HR strategic partner should be the first hired for development of a human
resources department. OutsourcingInformationTechnology.com editor Beth Rosenthal observes,
"Small-to-medium businesses may have a hard time recruiting highly skilled staffers without the
benefits they expect. Outsourcing allows SMBs to offer benefits typically available only at
bigger companies." Upon making the decision to outsource HR functions while you build a
successful, profitable company, you can resume your search for an HR executive. Once your
company carves a position in the market with your product offering, your executive leadership
team--including your human resources executive--can then begin to work collaboratively to form
a full-service human resources department and bring in-house those previously outsourced
functions. Still, you may discover that outsourcing some human resources functions is in the best
interest of the company. As your business grows, resources committed to HRO may turn into a
wise, long-term decision that improves the services your human resources department can
provide to its internal customers, your employees.
1.3.5 Choosing HR Outsourcing Services
There are numerous HR outsourcing services that you can consider and it is sometimes very
difficult to properly know what to choose. You need to properly understand everything involved
and in order to do this it is your responsibility to be informed at all times. We basically have two
main types of HR Outsourcing Services: Core Human Resources and Talent Administration.
1.3.6 Core HR Outsourcing Services
We are using the term “Core human resources” because in this case we are talking about those
services that are crucial for most companies out there. We are dealing with 4 core HR
outsourcing services:
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Payroll Administration – This includes everything related to payrolls from filing taxes to
managing the payroll of special projects.
Benefits Administration – This is a little more difficult to understand for some owners as
most believe there is no need for such a department. Such HR outsourcing services
include pensions, share plans and even welfare. Signing a contract is not always enough
to handle employee benefits in time
Workforce Administration – These HR outsourcing services are the foundation of a good
human resources management plan. We are talking about employee data management,
relations, disciplinary services, unemployment administration and a lot more. This is the
one core HR service that most people outsource.
Leave Administration – Your employees will take leaves of absence as they are entitled
to do so in some cases. On the other hand, there might also be leaves that are not good for
the company. A good management of leaves is needed in order to keep a close grasp on
human resources and employee satisfaction.
1.3.7 Talent Administration HR Outsourcing Services
When it comes to the talent you have on board, you want all people to feel good and always
know that they will get compensation for what they do. In this case we have 4 main talent
administration HR outsourcing services that you can choose from:
1. Relocation and Handling Assignments – HR outsourcing services can manage everything
involved from travel assistance to the entire program development.
2. Performance Management and Training – Your employees need to be monitored so that
you know their performance levels at all times. Also, you do want to know when training
is needed and want someone to do it properly. HR outsourcing services can deliver.
3. Recruiting Administration – It is usually quite hard to hire new staff. You lose a lot of time
going through CVs and handling interviews. This is the one talent administration HR
outsourcing service that can really offer benefits. These firms can handle all your hiring
needs and you will not lose a second. You can make sure that the best people are always
hired and this is something that you really want to have incorporated. Even if you do not
use HR outsourcing services for full talent administration, we recommend that you at
least consider recruiting administration.
4. Compensation Administration – This includes a lot of math. It is needless to say that a lot
of time is wasted in monitoring the compensations you would need to pay someone. A
23
good HR outsourcing service will use various methods to keep control of everything from
taking surveys to executive administration.
HR outsourcing services can bring in a lot of benefits especially when we consider management.
It is crucial that human resources are properly handled in every single company out there. A
failure to do this can lead to loss of time and money. To make it even worse, an improper
management can cause your employees to not work at their full potential. This is exactly why
you should use HR outsourcing services if you cannot properly handle this operation.
1.3.8 Benefits of HR Outsourcing
HR outsourcing has really become a worldwide phenomenon. We see more companies doing it
daily and this can only bring in benefits. The problem is that few people really know what HR
outsourcing means. We have seen a lot of company owners that thought that only talking to a
company to look for some staff for them was human resources outsourcing. Even this process is
not really HR outsourcing in some circumstances. Before you think about the benefits of HR
outsourcing you really need to understand what this concept means. Only after that can we
properly understand the benefits offered. Through the outsourcing of some or all core human
resources functions a company is almost immediately able to cut costs and minimize the time
that is needed for them to perform properly. In the last few years we saw that the common HR
tasks that are outsourced are payroll administration, attendance tracking, time tracking, tax filing
and tax payments. The tricky subject stands in the fact that human resources are now viewed at a
much larger scale than they were in the past. Internal human resources departments are bigger
and have a more important role in a company. This immediately translates in an increase of costs
in maintaining and even implementing HR functions internally. The good news stands in the fact
that companies are now available to outsource a part of their HR tasks or even all of them to a
specialized HR outsourcing provider. This practice does save both time and costs.
We can also say that besides the two benefits of HR outsourcing mentioned above, a company
will also have others that they should consider. Through HR outsourcing they can focus their
efforts on more business oriented tasks and they can get rid of a lot of activities that are difficult
to manage and consume a lot of time. Through HR outsourcing you can be sure that your
employees are always receiving the best possible in class human resources services. This
includes retirement plans, rewards programs, recognition programs and health benefits. All this
is obtained at lower costs than ever before. To make everything even better, HR outsourcing
providers also bring in a lot of support and experience when dealing with complex issues that
might appear. If a company cannot have its own HR in-house department it should definitely opt
for HR outsourcing.
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1.3.9 The HR Outsourcing Process
Any organization making a significant commitment to HRO is making a decision with far-
reaching implications-not just for HR, but for the entire organization. For this reason, it is crucial
that all stakeholders involved in the HRO process be involved from the outset and that there is
clarity in relation to the goals and objectives that the organization expects to achieve. As a
starting point, a multi-departmental steering team, consisting of representatives of all potential
users of the service provider, should be formed and convened. Ideally, HR will either lead the
decision-making process or be crucial to it. Other key members of the steering team should
include high-level managers and executives with a vested interest in all aspects of human capital
asset management and its return on investment, including operations, information systems
technology, finance, accounting and logistics. The goals and expectations of the outsourcing
process should be developed and defined in a detailed project plan.
1.3.10 Types of HR Outsourcing
In the past, HR outsourcing was thought of as hiring a vendor to provide a service. With the new
focus on outsourcing, there is more of an opportunity to partner with the vendor to provide the
service on a longer term basis rather than just a one-time vendor contract. HR outsourcing can
include:
Discrete services: In this instance, one element of a business process or a single set of high-
volume repetitive functions is outsourced to a third-party administrator. Examples of discrete
services could include the annual open enrollment process, flexible spending accounts or
employee background checks.
Multi-process services: The complete outsourcing of one or more functional human resource
processes would be an example of multi-process outsourcing (also called blended services). As
such, the outsourcing of either health and welfare benefits administration or defined retirement
plan to a third-party administrator would be an example of multi-process or blended services
outsourcing.
Total HR outsourcing: Total HR outsourcing represents the transfer of the majority of HR
services to a third party, to include recruitment, payroll, HRIS, benefits, compensation and
communications, as well as the transition of HR management and staff. However, HR executive
management would normally remain in place within the organization, along with strategic
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planning related to people management and other key HR functions at the discretion of
management.
1.4 OUTSOURCING
The performance by outside parties, on a recurring basis, of tasks that would otherwise be
performed in-house.
1.4.1 Other Definitions
1.4.2 In sourcing – This refers to when companies look at their pool of employees to find those
who may be tapped to do certain needed jobs. They may offer these employees extra training or
they may merely find the employees that already possess the skills to take on specialty work.
1.4.3 Off shoring - Off shoring simply means having the outsourced business functions done in
another country. Frequently, work is off shored in order to reduce labor expenses. Other times,
the reasons for off shoring are strategic -- to enter new markets, to tap talent currently
unavailable domestically or to overcome regulations that prevent specific activities domestically.
1.4.4 Co sourcing – Co sourcing is where a business function is performed by both internal staff
and external resources, such as consultants or outsourcing vendors, with specialized knowledge
of the business function.
1.4.5 Out placement - Outplacement is a term used to describe the efforts made by a downsizing
company to help its redundant employees through the redundancy transition and help them re-
orientate to the job market. A consultancy firm usually provides the outplacement services.
1.5 BE SPECIFIC ABOUT HR OUTSOURCING
Outsourcing contract negotiations require very specific task and service-level descriptions, and
defining the why, what, who, where, when and what if can clarify things significantly:
1.5.1 Need for Outsourcing
The decision to outsource is based on two business factors: value proposition and market-based
outsourcing. The most common value proposition is reducing cost savings. Other value
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propositions include increasing operational efficiency, improving customer service, improving
employee satisfaction, growing revenue or reducing capital expenditures. Market-based
outsourcing is a comparison between internal skills and abilities and the capabilities of providers
in the marketplace. The decision to outsource is based on whether an external provider can do
the job better, cheaper or faster.
1.5.2 Outsourced Functions
Customers can determine what to outsource by having a clear idea of the most common
performance management functions. Performance management functions can be segmented into
user-centric processes and management-centric processes. User-centric processes include
individual performance objective management, individual performance evaluation, competency
mapping, self-paced e-learning and decision support, and career planning. Management-centric
processes include organizational performance management, compensation management,
assessment management, learning management and training administration, and succession
planning. In general, all of the user-centric performance management processes lend themselves
to automation and outsourcing. Management-centric performance management functions also
can be outsourced. Learning management and assessment management, in particular, lend
themselves to outsourcing. Since vendors specialize in one or more of these functions, customers
can map the functions they intend to outsource to the capabilities of the vendor. This makes the
vendor selection process relatively straightforward.4
1.5.3 Types of Outsourcing Partners
According to a 2004 study by the Gartner Group, there are three types of outsourcing partners:
application service providers (ASPs), traditional external service providers and business process
outsourcing (BPO) companies. It is common for companies to have all three types of
relationships and several outsourcing partners. An ASP hosts the technology and the services
appear to employees like an internal function. A traditional external service provider brands the
service as its own, but the customer still controls deliverables. A BPO “owns” the entire business
process and has near-complete control, often called “end-to-end outsourcing.” It also has to be
decided that who will manage the outsourcers from the inside.
1.5.4 Work place of the Outsourcer
4 Ref.4. “Theory to design successful outsourcing relationships” by M.S. Logan (2000)
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Outsourcers are not always physically located outside your company’s facilities. Occasionally
companies prefer a representative of the outsourcing firm to be present on-site. But it is far more
likely that outsourcers will work outside the buyer’s physical facility. Many governments have
passed or are drafting laws governing the offshoring of business, so it is prudent to check
existing regulations prior to engaging an offshore outsourcer. Defining where the outsourced
personnel will work is an important legal aspect of the outsourcing agreement.
1.5.5 Duration of the Outsourced Project
Specifically defining service milestones is crucial to both the customer and the outsourcer.
Business-process cycles are always time-bound, and customers and outsourcers alike are always
constrained by time. Defining these time-bound constraints in terms of deliverables and
milestones is a strong point of outsourcing firms since milestones map directly to payment
cycles. Customers should be willing to ask themselves, “What is driving the date?” Dates are
sometimes set by internal priorities (hard dates), but often dates can be flexible. Being flexible
about time constraints allows teams to proactively deal with unanticipated challenges.
1.5.6 Precautions for Possible Future Problems
“Expect the unexpected” is a good motto to have on an outsourcing project. Experienced
outsourcers will probably want to put a change management clause in the contract. This is
because they know from experience that business needs change and it happens all the time.
Answering questions to such problems will result in development of specific goals that can be
used to develop measurable performance expectations and contractual obligations.
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CHAPTER-2
Research
Methodology
29
Chapter-2
RESEARCH METHODOLOGY
2.1 INTRODUCTION
Outsourcing is an accepted management tool for restructuring and refocusing the way an
organization does business. It challenges management to build a more flexible organization
centred on the core competencies of the business. In making the determination that a business
has more to gain by having certain "non-core" aspects of the business outsourced to a third-
party service provider, the organization transfers responsibility for one or more activities or
functions that would normally be performed in-house to a qualified vendor, for a specified
period of time and at a negotiated fee, in accordance with terms stipulated in a service level
agreement (SLA). In essence, the organization is making a decision to send certain parts of
the business out to a provider whose "core competency" is that part of the business.
2.2 STATEMENT OF THE PROBLEM
To study the impact of Human Resource Outsourcing on the effectiveness of the HR
functions in Indian industry. Transitioning to an outsourcing arrangement can pose a unique
set of risks that must be proactively managed, given the complexities associated with
transferring significant operational processes to a vendor while maintaining on-going service
to internal customers.
2.3 REVIEW OF LITERATURE
“Realizing the vision of HRO” by Nahapiet, J. and Ghoshal, S. (1998). Social capital,
intellectual capital, and the organizational advantage, Academy of Management
Abstract
"What is our vision for the company five years after HRO implementation, and how do we get
there?" The real opportunity exists for those companies that ask themselves these important
questions at the outset. Of course, each adopter's vision for the company five years from initial
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transition will differ. When HR partners with a provider that has deep HR expertise, it is better
able to move to transform and focus on strategic, high-return initiatives such as succession plan,
organization design, team effectiveness, leadership development, talent management,
performance management and development planning. The most successful change management
programs enable the HRO adopter to achieve the goals that they set out to achieve - without
running the risk of allowing fate to take over.
“HRO change management: Systematic execution of a strategic decision” by Willcocks,
L.P., and Kern T. (1997). IT Outsourcing as Strategic Partnering
Abstract
If leveraged effectively, HRO can prove to be the catalyst for organizations to Drive
standardization of HR policies and practices. It Gives HR leaders more capacity to focus on
organizational development, change management and executive coaching as underpinnings of
how HR and business leaders work together. Increase HR's value to the organization by
supporting its focus on strategic opportunities. Ideally, change management begins as early as
the presale relationship, when a vendor conducts analysis and due diligence to understand an
organization's unique requirements. An experienced vendor will help HR leaders make internal
communications around HRO exploration purposeful, productive and tailored to the employer's
culture.
“HR BPO drivers and inhibitors” by Bondarouk, T.V., Ruel, H.J.M, The International
Journal of Human Resource Management (2009).
Abstract
The belief that outsourcing can cut costs attracts enterprises to HR BPO like moths to a flame.
Like the moths, these enterprises can become enlightened, but they can also get burnt.
Enlightenment comes when the enterprise seeking to cut costs discovers other beneficial
outcomes that outsourcing can provide, such as the ability to focus on the core business and
improve service levels. Companies turn to process outsourcing for a variety of reasons. They
include high cost of transactions, too much time spent on daily operations, high cost of
upgrading applications, disintegrated processes, difficulty in hiring or retaining process staff and
lack of timely or accurate reports. Begin with the end in mind. Determine the capabilities that the
enterprise needs to align the workforce with business strategy. Then, build the portfolio of
applications to meet this vision. Keep in mind the strategy and direction of the enterprise’s core
integrated HRMS provider when making the niche solution vs. integrated solution decision.
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Trust, openness, autonomy, strategic collaboration, pro-activity, benchmarking and career
development are some other buzzwords prevalent in the field of HR. The main issue according to
me is building self-regard. Of late, driving the new economy organizations in frenzy is the
growing malaise of the ‘rate of employee turnover,’ which I felt can be correlated to low self-
esteem. It is thus worthwhile to take a deep look into this concept and its implications in both
individual and corporate contexts.
“HRO Change Management: Embrace Systematic Approaches to Transforming HR in the
Mid-Market” by McFarlan, F.W. and Nolan, R.L. (1995). How to manage an IT
outsourcing alliance.
Abstract
The adoption of end-to-end human resource outsourcing (HRO) is a strategic decision that offers
tremendous opportunity for medium-sized organizations. However, it's critical that the
organization use systematic approaches to build support for the new direction - approaches that
use communication to build momentum and excitement among employees and HR staff, and
training to ensure that the solution delivers the desired results. While many HRO adopters say
that they view this level of attention to change management as an important option, without the
right focus or dedicated resources, change management often falls by the wayside.
Thoughtful, disciplined approaches to introducing HRO into the company's existing environment
are not something that's just "nice to do." They help focus on the people-related issues of an
outsourcing decision and enable employers and their provider partners to build a stronger
relationship that helps ensure a successful rollout. As part of an on-going process, they also
enable HR to better manage its relationships and interactions with internal customers and
stakeholders, and successfully realize the organization's longer-term vision of transformation
through HRO.
“Some Measures to Raise the Motivation Levels of Employees” by Kern, T. and Blois, K.
(2002). Norm development in outsourcing relationship.
Abstract
Recognizing the contributions of outstanding achievers will induce others to try hard. Criteria for
selecting outstanding achievers should be transparent. Effective HR measures in the areas of
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training, career development etc. equip the workforce better and also increase their self-esteem
and morale. The need of the hour is not only to enable the employees to grow in the ‘learning
organizations’, the concept of which is fast attaining celebrity status in this age of knowledge
economy, but also to take care that the employee has substantial self-esteem. Without this all the
retention policies of the organizations will meet a sorry fate.
2.4 OBJECTIVES OF THE STUDY
To study the different aspects of HR outsourcing
To study the important reasons for HR Outsourcing
To study the important factors responsible towards choosing a third party supplier for
HR Outsourcing
To study the major HR functions being outsourced in the Indian industry either
completely or partially
To study the impact of HR outsourcing on various HR functions & on the
effectiveness of the HR department
To study the co-relation between HR Outsourcing & IT industry
To study the effectiveness of HR function that is being outsourced
2.5 SCOPE OF THE STUDY
The scope of study includes the following points:
To explore the different possibilities about HR outsourcing and its various aspects
To explore the impact of HR outsourcing on various HR functions
To explore the possibilities of co-relation between HR Outsourcing & IT
To explore the future possibilities of HR Outsourcing
2.6 RESEARCH DESIGN
Research design is a detailed blue print used to guide the research study towards its
objectives. Descriptive research has been used for this study. The major purpose of
descriptive research is description of the state of affairs, as it exists as present. This means
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asking questions to people who are believed to possess the desired information. It measures
the magnitude of people’s knowledge, attitudes and opinion towards the present research
study.
Research design simply means a search for facts & answers to questions and solutions to the
problems. It is a prospective investigation. Research is a systematic and logical study of an
issue or problem through scientific method.
2.7 SAMPLING PLAN
Sampling Method
Simple random sampling is used which is the simplest method of sampling for social
researches. It is used in simple experiments that require a single sample to be taken from a
given population or a representative sample frame. The people in the sample frame must all
be accessible and available. It is used when the target group is sufficiently large.
Sample universe
The sample universe is comprised of the HR managers and employees working in IT
companies in both services and manufacturing sector in India.
Sample size
The sample size is restricted to 100 respondents due to time constraint.
2.8 TOOLS FOR DATA COLLECTION
Sources Of data collection
Primary data is collected through questionnaires and secondary data is collected through
enterprise portals and websites related HR outsourcing and also through various journals,
magazines and related books.
2.9 TOOLS FOR DATA ANALYSIS
Data Analysis has been done with the use of statistical tools and results are presented through
tables, charts and graphs. Simple percentage method is used to analyze and interpret the data.
The analyzed & interpreted data is presented in the form of tables, charts & graphs.
Tables: - Presentation of data in vertical column & horizontal rows.
Graphs: - Graph is a pictorial representation of the data.
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2.10 LIMITATIONS OF THE STUDY
The sample which we took does not represent the whole population as the numbers of
respondents were very less
The limited experience was another constraint on the quality of the research
Respondents were from specific areas and did not cover the whole of India
Sample size is small because of time constraint
The primary data is based on the questionnaires which can be influenced by personal
bias and subjective for individuals
2.11 LAYOUT OF CHAPTERS
Chapter 1- INTRODUCTION
This chapter includes the theoretical aspect of the study and introduction
to the research topic. It also discusses about the subject background of the
research which has been carried out.
Chapter 2- RESEARCH METHODOLOGY
This chapter includes the brief introduction, statement of the problem,
review of literature, objectives of the study, scope of the study, research
design, sampling plan, Tools for data collection, tools for data analysis,
limitations of the study and layout of chapters.
Chapter 3- INDUSTRY PROFILE
This includes brief introduction about the outsourcing practices and their
results in HR sector.
Chapter 4- DATA ANALYSIS AND INTERPRETATION
It includes Analysis and interpretation of data. Analysis is carried on by
preparation of Tables, Graphs and Charts.
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Chapter 5- FINDINGS AND SUGGESTION
It contains the Summary of findings and Suggestion. This chapter gives
summary of findings of the study along with the suggestion.
Chapter 6- CONCLUSION
This chapter gives conclusion of the study.
CHAPTER-3
Industry Profile
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CHAPTER-3
INDUSTRY PROFILE
3.1 HR OUTSOURCING INDUSTRY
3.1.1 REASONS FOR STRONG OUTSOURCING INDUSTRY
Nowadays HR outsourcing is really something that is needed for most small to medium sized
companies. This is mainly because everybody is doing it and the benefits that are gained from
doing this cannot be achieved if it is handled internally. HR outsourcing is really strong at the
moment and there is no sign that this will change in the immediate future. The sheer benefits that
can be obtained cannot be taken lightly.
The main reason for which HR outsourcing is needed at the moment is the fact that most
companies cannot do it properly alone. It is very hard to stay up to date with all the regulations
that have to be considered and the possible employee benefits that should implemented. Through
HR outsourcing we can easily avoid any problem and we can maximize the time we have to
dedicate to those business functions that are actually generating us profit.
The HR outsourcing industry is useful because it can help to keep the HR functions in control at
all the times. If a good HR provider is hired it can basically solve all the problems related to HR.
Also, if some problems still appear it is the responsibility of the provider to deal with them. Thus
we can basically shift responsibilities to gaining time and money. So there is no reason why the
HR outsourcing industry would not continue to be strong in the years to come as long as such
benefits exist.
3.1.2SOME FACTS ABOUT HR OUTSOURCING INDUSTRY
58% of companies outsource some HR function
91% of companies with $1 billion+ annual revenues are now considering HRO
HRO grew 28% from second half of 2004 to first half of 2005
Note: SHRM Human Resource Outsourcing Survey Report:
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Almost 6 out of 10 organizations practice HR Outsourcing but 1/3 of organizations did not
outsource any function ½ of organizations partially outsource an HR function (organization
co-manages function with vendor)
HRO Market
In next 5 years, global spending on HRO will double – from $40 billion to $80 billion
From 2002 to 2004, 14% increase in large firms that would consider HRO
Consulting and Training
3.1.3 FACTORS HAMPERING HRO INDUSTRY
Cost factor & Confidentiality
The fear of losing jobs
Loss of sensitive information to public/competition
Ethics and quality of outsourcing vendors
Possibility of security breaches
Cost-benefit equation not clear
Lack of psychological acceptance
3.1.4 DOMINANT TRENDS IN MAIN HR OUTSOURCING INDUSTRY SEGMENTS:
Consultants
Administrative – service providers
Technology enablers
Customizing imported software products remains an issue: supply oriented rather than
demand based customization
3.1.5 HR OUTSOURCING COMPANY SERVICE TYPES
An HR outsourcing company can be divided basically into four categories as PEOs, BPOs,
ASPs, or e-services based on the type of service it offers.
3.1.6 PEO (PROFESSIONAL EMPLOYER ORGANIZATIONS)
A PEO or A Professional Employer Organization is the one that takes full responsibility of your
company's human resources management. Another outsourcing option that involves handing
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over the HR duties along with the employees is called a PEO (professional employer
organization). In a PEO, the outsourcing firm becomes the legal employer, handling payroll,
benefits, insurance and other employee relations; it leases the employees back to the company.
Employees generally enjoy better benefits because of group rates, and the scenario allows
business owners to concentrate solely on company goals rather than personnel issues. Some
companies may also enjoy tax benefits and will save on worker's compensation and
unemployment insurance because employees are the responsibility of the PEO.
3.1.7 BPO (BUSINESS PROCESS OUTSOURCING)
The new buzz word 'BPO' seems to be everywhere now a day! Ever wondered what is BPO? Let
us explain: BPO has expanded sounds as Business Process Outsourcing and can be aptly defined
as the act of utilizing the services of a third party by a company in order to perform its back
office operations that might be payroll administration, customer help desks/ call centres, tele-
marketing, accounting, billing; the list is endless.
To put it in simple words a BPO (business process outsourcing) is a process in which a company
delegates some of its business processes mainly back office operations to a third party by giving
the third party total control over that process. Business process outsourcing otherwise known as
BPO is the process of leveraging technology vendors in various third worlds or developing
nations for doing a job which was once the responsibility of the enterprise. Or simply put, it is
the process of shifting an internal job process to an outside/external company which might have
a completely different geographical location.
Generally the processes being outsourcing as part of BPO are backend jobs like call/help
centres, call centre outsourcing services, medical transcription, billing, payroll processing, data
entry and the like. Most of these jobs are outsourcing by first world nations like USA and UK to
third world nations like India, Philippines, China, Malaysia and some eastern European
countries. These nations have a good pool of English speaking youth who receive accent and job
related training before they are inducted at a salary which is much lesser than what their
counterparts in first world nations would demand. This allows first world organizations to get
higher profits and provide better services by lowering the prices and by recruiting more labour
than they could possibly do otherwise. In addition to benefiting the first world nations, business
process outsourcing has also benefited third world nations by generating much needed jobs.
A BPO or business process outsourcing company is different from a PEO in the sense that it
provides various facilities including HR. A BPO can help improve the HR process, provide HR
data warehousing and self-access.
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3.2 THE BPO INDUSTRY
The BPO industry has flourished at a frantic pace in the last few years and companies have
ended up with huge savings by being a part of the industry. By outsourcing their back office
business processes to cheaper nations like China, India, Philippines, Mexico, South Africa etc.
companies can cut costs, better concentrate on their core businesses and strengths, ensure better
customer satisfaction and in a way get an edge over their competitors. A report suggests that US
firms have saved nearly $8 billion through outsourcing to third world nations like India.
3.2.1 SELECTING THE BPO COMPANIES
Selecting on the right BPO vendor is probably the next most important task other than fixing up
on a BPO destination. Although there are lots of organizations and agencies dedicated to helping
buyers in making the right decision, there are some precautions that the buyer has to maintain.
3.2.2 SELECTING THE BPO VENDORS
The key factor before finalizing on a BPO vendor is to scrutinize and analyses his strength and
expertise in terms of providing similar services to clients. One good way to find this out would
be to follow up with the firm's existing clients regarding the services. The BPO vendor must
have proper quality certifications and should be in possession of skilled manpower or must be in
a position to offer training facilities. Apart from this the BPO Company should have a strong
financial background and should be willing to share risk in the outsourcing contract. It is always
good to know the kind of services that the vendor offers and his relationship with other
outsourcing suppliers.
Most companies decide to outsource their business processes to multiple BPO companies rather
than a single one. This by all means is a good practice as the vendors will compete among
themselves to provide better service and the company will always be in a position to change
vendors in case one doesn't live up to the mark.
3.2.3 BPO COMPANIES IN INDIA
As the BPO boom grows relatively unheard offshore outsourcing destinations like Pune and
Kolkata in subcontinent India are rising to fame with the state governments starting to spend
money in developing the infrastructures and formulating friendlier taxes and other legal norms.
Most BPO companies in the Indian Subcontinent are quality certified from leading quality firms
like ISO 9000, CMM etc. and have access to high tech technologies and infrastructure.
Sure enough companies like IBM, Microsoft, Oracle, Cisco, Prudential, Hewlett Packard, ATT
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Wireless, Dell and many more consider India to be their first choice as an offshore contact centre
outsourcing destination.
3.2.4 GETTING STARTED
If you are planning to take a plunge into the BPO wave, you got to formulate an effective plan by
understanding your vision along with your long term goals. Deciding on the right BPO
destination and more importantly the right BPO vendor can go a long way in ensuring smooth
operations with good returns. As of now, India with its easily available English speaking,
computer literate, low cost manpower, better infrastructure and quality certified software and
BPO venders seems to be a great destination for outsourcing. So take your pick!
3.2.5 BPO INDIA - PRESENT AND FUTURE
The BPO boom has helped developing countries like India in a major way by creating quality job
opportunities in turn benefiting the Indian economy. So what is it that makes BPO India stand
out in the crowd?
3.2.6 THE INDIAN EDGE
India in the recent years has shown huge developments in the areas of communication, power
and software developments. India exports software to 95 different countries and stands second in
the world as far as software exports are concerned. In addition India has ISO 9000, CMM quality
certified software firms that have a reputation of providing quality services. India stands out of
the rest in terms of better IT and technological infrastructure, low cost, skilled manpower that is
readily available, friendly taxation and other laws, a stable government, a fast paced economy
and quality certified software firms.
3.2.7 HRO IN INDIA
IT city Bangalore seems to be a hot destination for BPOs swiftly followed by similar
technologically advanced cities like Chennai, Hyderabad, Mumbai, Delhi, Kolkata and Pune. All
these cities in India are technologically advanced and have a good infrastructure with almost 278
quality certified BPO vendors.
3.2.8 HR BUSINESS PROCESS OUTSOURCING
HR business process outsourcing is picking up pace as more and more companies feel that back
offer HR operations take up lots of their resources. As for IT, India seems to be a major hub for
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HR outsourcing too. Cities having a good infrastructure like Bangalore, Delhi, Pune, Bombay
and Chennai are being seen as a major offshore outsourcing destinations as of now. The Bombay
offshore outsourcing industry seems to be picking up really well at present as compared to
Chennai and Bangalore, who seem to be calling the shots right now.
3.2.9 ASP (APPLICATION SERVICE PROVIDER)
An ASP or application service provider company will host the HR service on the web and rent it
to users. EG: PeopleSoft
3.2.10 E-SERVICES (ELECTRONIC SERVICES)
E services are those human resource service companies that are web based. Both BPO and ASP's
can be referred as e-service companies. A company which has decided to outsource its human
resources has to decide as to which type of vendor to go for and which offshore destination to
choose for outsourcing its human resource functions. The major destination for outsourcing
human resources is seen as India. India has many companies that offer HR services and best of
all; most of these companies are quality certified. This makes outsourcing to them a relatively
safer option. Apart from this India also have good communications infrastructure, cheaper labour
and a stable government. In addition to India some other good sales force outsourcing, research it
outsourcing and HR outsourcing services destinations are China and Philippines. In addition the
Romania outsourcing industry is also on the bloom and is a good option for UK firms who want
to play it safe outsourcing HR function.
3.3.1 INDUSTRY PROFILE OF SOFTWARE & IT INDUSTRY
3.3.2 IT SERVICES OUTSOURCING
The IT services outsourcing sector is the fastest growing sector in the outsourcing market and
has been growing at a frantic pace with more and more companies planning to take the plunge.
According to various estimates the IT services outsourcing market will reach US $ 200 billion by
2004 and will grow even further. As for the IT service outsourcing destinations are concerned,
India stands out way ahead of the rest. This is because India has many quality certified software
firms, computer savvy workforce and relatively cheaper rates of operation. India also exports
software to 19 different countries and has a great infrastructure in terms of communication.
3.3.3 IT OUTSOURCING TO INDIA
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When it comes to singling out the most popular destination for IT outsourcing, one name very
well stands out of the rest India! In all its glory India in the past three years has become the most
popular destination for IT outsourcing with more than 230 fortune 1000 companies using its
outsourcing services. You can do IT outsourcing and work at home directory from home. So
what is it that gives India its popularity? Let's look at some major factors.
In India, the software boom started somewhere in the late 1990s. Most of the Indian software
companies at that moment offered only limited software services such as the banking and the
engineering software. The business software boom started with the emergence of Y2K problem,
when a large number of skilled personnel were required to fulfill the mammoth database-
correction demand in order to cope up with the advent of the new millennium.
The profile of the Indian IT Services has been undergoing a change in the last few years, partly
as it moves up the value chain and partly as a response to the market dynamics. Ten years ago,
most US companies would not even consider outsourcing some of their IT projects to outside
vendors. Now, ten years later, a vast majority of US companies use the professional services of
Indian Software engineers in some manner, through large, medium or small companies or
through individuals recruited directly.
The market competition is forcing organizations to cut down on costs of products. The
professional IT services on the other hand are becoming increasingly expensive. The offshore
software development model is today where onsite professional services were ten years ago.
There is a high chance (almost a mathematical certainty), that in less than ten years, the vast
majority of IT services (software development being just one of them) from developed countries,
will be, one, outsourced and two, outsourced to an offshore vendor.
Despite the global economic slowdown, the Indian IT software and services industry is
maintaining a steady pace of growth. Software development activity is not confined to a few
cities in India. Software development centers, such as Bangalore, Hyderabad, Mumbai, Pune,
Chennai, Calcutta, Delhi-Noida-Gurgaon, Vadodara, Bhubaneswar, Ahmedabad, Goa,
Chandigarh, and Trivandrum are all developing quickly. All of these places have state-of-the-art
software facilities and the presence of a large number of overseas vendors. India’s most prized
resource is its readily available technical work force. India has the second largest English-
speaking scientific professionals in the world, second only to the U.S. It is estimated that India
has over 4 million technical workers, over 1,832 educational institutions and polytechnics, which
train more than 67,785 computer software professionals every year. The enormous base of
43
skilled manpower is a major draw for global customers. India provides IT services at one-tenth
the price. No wonder more and more companies are basing their operations in India.
The industry is in an expansion mode right now, with dozens of new offshore IT services vendors
emerging everyday, the industry has a high probability of being subjected to the 80:20 rule in not
too distant a future. In perhaps another ten years, 80 percent of all outsourced offshore
development work will be done by 20 percent of all vendors, a small number of high qualities,
trusted vendors. Only a few selected countries and only the most professional companies in those
countries will emerge as winners. India is the country of choice for offshore software
development. It has the potential to become and remain the country of choice for all software
developments and IT enabled services, second only to the USA. The third choice could be far
distant.
India is among the three countries that have built supercomputers on their own. The other two
are USA and Japan. India is among six countries that launch satellites and do so even for
Germany and Belgium. India's INSAT is among the world's largest domestic satellite
communication systems. India has the third largest telecommunications network among the
emerging economies, and it is among the top ten networks of the world .To become a global
leader in the IT industry and retain that position, India needs to constantly keep moving up the
value chain, focusing on finished products and solutions, rather than purely on skill sets and
resumes. It also needs to be able to package its services as products, rather than offering them as
raw material. It needs to be able to recognize and build up on its strengths and work on
weaknesses. Another extension of the IT industry is the ITES (Information Technology Enabled
Services) which is a sector dependent on IT sector.
Information technology consulting (IT consulting or business and technology services) is a field
that focuses on advising businesses on how best to use information technology to meet their
business objectives. In addition to providing advice, IT consultancies often implement, deploy,
and administer IT systems on businesses' behalf.
3.3.4 DELL OUTSOURCING - LATEST NEWS
Dell outsourced its computer support operations to India and had set up major call center
operations in cities like Bangalore and Chennai. But the company has received many complaints
in terms of bad customer service along with rude comments and bad accents.
44
This has lead the Dell outsourcing unit to rethink its strategies regarding utility outsourcing call
center. According to a report in the local newspaper Austin-American Statesman, Dell has
decided to move back its technical support jobs from India to US. But Dell outsourcing in terms
of support for home users is still being outsourced to India in large numbers. Dell outsourcing is
a live example of how things can go wrong in an outsourcing contract if things are not planned
out properly. Though outsourcing can be beneficial to organizations there are many myths
offshore outsourcing IT that needs to be cleared? Firstly outsourcing is in no way the ultimate
answer. Many business white papers outsourcing IT have clearly stated that outsourcing can only
be beneficial to those who do so analyzing the short as well as long term goals of an
organization. Therefore first and foremost organizations should research outsourcing what is it
and in which way will it be beneficial to them. IT outsourcing advantages are many, but same is
the case with operations failing and organizations backing up.
3.3.5 IBM OUTSOURCING - LATEST DEVELOPMENTS
IBM outsourcing jobs to offshore destinations like India and China has met up with large scale
opposition by its own employees. IBM in the recent times has outsourced nearly 1000 low end as
well as high end jobs to offshore destinations resulting in huge layoffs and has plans to move
another 4000 jobs to India, China and other nations. Pools of IBM employees in the USA have
formed a union to fight the IBM outsourcing of jobs.
The labour union represents a small portion of IBM employees who have plans to take action
against the company in case of any more jobs outsourced. They have even decided not to train
any replacement workers from third world countries. Through business process outsourcing IBM
on the other hand has promised the generation of more and better paying jobs in US as compared
to 2003 is a comment seen with much speculation by the IBM employees. IN the recent times
many companies are facing similar situations like outsourcing it IBM. The organization’s come
into two fold pressure in such situations. They have to decide between growth and social
implications of their actions.
3.3.6 ATTRITION IN ITS SECTOR & HRO
The Word “A” (Attrition) Is Back In Outsourcing Companies With uncertainty easing attrition,
the biggest nightmare for HR managers in IT services and outsourcing companies, is on the
horizon while for some firms, it is already here. So just how are the big 3 IT services firms faring
on the attrition and hiring front? Consider the following attrition rates.
3.3.7 INFOSYS
45
Attrition at Infosys rose from 10.9% the last quarter to 11.6%. However, a March Wall Street
Journal article quoted a CLSA Asia-Pacific report as saying that there are unconfirmed rumors
that 4,000-4,200 employees have resigned at Infosys for the month of February alone – well
beyond the 1,200 employees who should be resigning each month (as of December 31, Infosys
had about 109,882 employees). Nevertheless, it was also noted that Infosys had the largest bench
strength in the industry at almost 20,000 free resources.
3.3.8 TATA CONSULTANCY SERVICES (TCS)
Attrition at TCS has been stable at around 11.5% – although company officials expect this rate to
rise. However, the Wall Street Journal noted in February that TCS will go on a hiring spree and
hire up to 30,000 new employees after the next fiscal year begins on April 1. This is on top of the
11,500 planned hires for the first quarter of 2010. It was also noted that 70% of new hires for the
new fiscal year will be fresh graduates and more than 2,000 employees will be recruited from
outside India.
3.3.9 WIPRO
Wipro had an attrition rate of about 13.4% – up from an average of 8.9% over the past three
quarters. Hence, the Hindu Business Line noted that they were planning a salary hike for
February along with promotions to help prevent attrition from rising further while recruitment
initiatives would happen on a demand basis and include a mix of campus hires and science
graduates along with experienced talent. Meanwhile, the Hindu Business Line quoted Girish
Paranjpe, the Joint-CEO of Wipro’s IT Services group, as saying that the company’s bench
strength was around 7,500 to 8,000 on an employee base of about 103,000 while the industry
bench strength standard is usually twice that.
However, another Hindu Business Line article noted that the brunt of any rise in attrition rates
will likely be borne by mid-size software outsourcers who could see attrition rates reach the 15%
level. Moreover and since the big players have mostly not been hiring for some time, employees
with midsize firms are more likely to consider jumping to larger companies if they are offered
the right opportunity.
Meanwhile, utilization rates (that is, the number of employees billed per hundred verses those
who are on the bench) are also increasing at the big 3 IT services firms. According to the Hindu
Business Line, utilization rates rose from 67.3% to 68.8% at Infosys, 73.6% to 77.2% at Tata
Consultancy Services (TCS) and 70.8% to 73.2% at Wipro.
46
Nevertheless, as utilization and attrition rates rise, it’s time for companies to once again think
about long-term strategies for retaining employees. As Raman Roy, the chairman and managing
director of BPO firm Quattro, noted in the Financial Express, meddling with salary and benefits
is a short-term strategy (he chooses to focus on in-house training to create an efficient group of
high achievers) while attrition is merely a symptom and not a disease. In other words, it’s the
symptom of an increasingly healthier job market and economy for outsourcing.
CHAPTER-4
Data Analysis
And
Interpretation47
CHAPTER-4
DATA ANALYSIS & INTERPRETATION
DATA COLLECTION INSTRUMENT
Based on the data collected through a well-structured questionnaire, the opinion of the
respondents is analysed. The questionnaire method of data collection is quite popular, so the
questions related to the objectives of the study were asked from the respondents. The
questionnaire was formulated on the basis of ideas related to the subject after a detailed
discussion with the guide.
ANALYSIS OF DATA & ITS INTERPRETATION
RESPONDENT PROFILE and ORGANIZATION DETAILS
Table 4.1 Department and Designation Profile of the respondents
Sr. No DesignationNo. of
RespondentsPercentage
1 Executive 15 15%
2 Manager 26 26%
48
3 Practioner 34 34%
4 Assistant Manager 25 25%
5 TOTAL 100 100%
Graph 4.1 Department and Designation Profile of the respondents
Analysis:
It is evident from table and graph no.4.1 that out of 100 respondents, 15 were HR Executives,26
were HR Managers While 34 were working as HR Practioner and other 25% respondents were
working on the post of Assistant Managers.
Interpretation:
Thus it is clear that respondents from various categories took active participation to answer the
questionnaire but the maximum no. of participants belonged to the HR Practioner Group who
49
was the youngest among all which is a point of significance as the majority of youngsters were
interested in answering the questionnaire. As far as the department is concerned, all the
respondents were from the HR Department of different organizations.
Table 4.2 Years of Work Experience of the respondents
Sr. NoYears Of Work
Experience
No. of
RespondentsPercentage
1 3 – 5 years 45 45%
2 6 – 10 years 22 22%
3 11 – 15 years 18 18%
4 16 and above years 15 15%
5 TOTAL 100 100%
Graph 4.2 Years of Work Experience of the respondents
Analysis:
From table and graph no.4.2, it is evident that the maximum no. of respondents were having 3-5
years of work experience (45%) and minimum no. of respondents (15%) were having work
50
experience of 16 years and above. (22%) respondents were having work-experience of 6 to 10
years and the rest (18) % of respondents were having a work experience of 11 - 15 years.
Interpretation:
Thus it is clear that the respondents belong to almost all the managerial levels but young
managers took a keen interest in responding the questionnaire.
NAME OF ORGANIZATION / COMPANY
The present study titled “THE IMPACT OF HR OUTSOURCING ON VARIOUS HR
FUNCTIONS WITH REFERENCE TO IT INDUSTRY” was planned for purely academic
research purpose and the data collected for this study is being analysed and interpreted. For this
purpose, a questionnaire was evolved on the basis of which different information was collected
from various organizations and companies.
The companies which participated in this research project are as follows:
1. IBM India Pvt. Ltd
2. DELL India Pvt. Ltd
3. NOKIA India
4. NOKIA SIEMENS NETWORKS
5. NVIDIA India Pvt. Ltd
6. MICROSOFT India Pvt. Ltd
7. WIPRO India Pvt. Ltd
8. ADVANCED MICRO DEVICES India
9. HEWLETT-PACKARD India Pvt. Ltd
10. INFOSYS India Pvt. Ltd
51
From the above list, it is evident that most of the MNCs now-a-days practice HRO for various
HR functions and concentrate more on the core competencies.
Table 4.3 Approximate HR strength in the organization
Sr.
No
Approximate No. Of
Employees
Percentage of
employees
1 100 to 500 5%
2 501 to 1000 9%
3 1001 to 5000 12%
4 5001 to 10000 14%
5 10001 and Above 60%
6 TOTAL 100%
Graph 4.3 Approximate HR strength in the organization
52
Analysis:
From the table and graph no.4.3 it is evident that 60% of the organizations have more than 10000
employees whereas 14% organizations have an employee range of 5001 to 10000. The 3 rd
common ranges of employees are in between 1001 to 5000(12%). The next 2 categories fall
within the range of 501 to 1000(9%) and 100 to 500(5%) respectively.
Interpretation:
Thus it is clear that most of the respondents belong to large organizations but small and medium
sized enterprises (SMEs) also have a significant representation.
Table 4.4 Response of the organizations towards HR outsourcing
Sr. No. Response Regarding HR Outsourcing Percentage
1 Yes 74%
2 No 26%
3 TOTAL 100%
Graph 4.4 Response of the organizations towards HR outsourcing
53
Analysis:
From the table and graph no.4.4 it is evident that 76% organizations practices HRO on a
regular basis while the rest 26% do not outsource HR functions.
Interpretation:
Thus it is clear that majority of HR managers feel that HR functions should be outsourced for
various important reasons; e.g. to reduce cost, to focus and improve the core competencies of the
business, still there is a significant no. of HR managers who don’t agree with HR outsourcing
because it weakens the in-house HR department.
Table 4.5 Approximate no. of people outsourced by various organizations
Sr. No.Approximate No. Of People Outsourced By Different
OrganizationsPercentage
1 100 to 500 14%
2 501 to 1000 16%
3 1001 to 5000 40%
4 5001 and Above 30%
5 TOTAL 100%
Graph 4.5 Approximate no. of people outsourced by various organizations
54
Analysis:
From the table and graph no4.5 it is evident that the maximum no. of people outsourced by
different organizations fall between the range of 1001 to 5000, i.e. 40%. The next common
range of human resource outsourced by different organizations is 5001 and above (30%).
However some organizations outsource smaller no. of people which come under the range of
501 to 1001. The minimum no. of people outsourced by various organizations range from
100 to 500 (14%).
Interpretation:
Thus is clear that major MNCs are now practicing heavy HR outsourcing and are focusing
more on their core businesses. Most of the organizations are outsourcing a significant no. of
manpower which is up to 5000 (40%) and more than 5000 (30%). Thus it is clear that 70%
organizations are outsourcing their HR requirements. Even many small and medium size
enterprises (SMEs) are also outsourcing a considerable amount of human resource which
comes under the range of 100 to 1000 (30%).
Table 4.6 Major HR functions outsourced by various organizations
Sr. No.HR Functions
Outsourced
Essentially
Outsourced
%
Frequently
Outsourced %
Sometimes
Outsourced
%
Rarely
Outsourced
%
Never
Outsource
d%
TOTAL
1Payroll
processing65% 25% 10% 0% 0% 100%
2Training and
Development57% 23% 20% 0% 0% 100%
3 Recruitment 67% 20% 13% 0% 0% 100%
4Manpower
planning50% 30% 15% 5% 0% 100%
5Employment Law
and Regulatory
Compliance
51% 20% 19% 10% 0% 100%
6 Tax Management 62% 17% 18% 3% 0% 100%
7 Performance 51% 26% 19% 4% 0% 100%
55
Management
8Conducting
Employee Survey45% 33% 15% 7% 0% 100%
9Maintenance of
Personal Records52% 24% 18% 6% 0% 100%
10Outsourcing
Entire HR
Functions
15% 15% 20% 20% 30% 100%
56
57
Analysis:
From the table and graph no.4.6 it is evident that most of the organizations outsource various HR
functions on a regular basis. The most important HR functions outsourced by them are Payroll
processing, Training and Development, Recruitment, Manpower planning, Employment Law and
Regulatory Compliance, Tax Management, Performance Management, Conducting Employee Survey,
Maintenance of Personal Records, etc. The maximum percentage of Essentially Outsourced HR
Functions was Recruitment (67%), Payroll Processing (65%) and Tax Management (62%). The
minimum incidence of essentially outsourced HR functions was outsourcing entire HR functions (15%)
and conducting employee survey (45%). However the other HR functions which were essentially
outsourced are Maintenance of Personal Records (52%), Performance Management (51%), Employment
Law and Regulatory Compliance (51%) and Manpower Planning (50%) respectively. As far as the
percentage of Frequently Outsourced HR Functions is considered, the maximum incidence was of
conducting employee survey (33%), Manpower planning (30%), Performance Management (26%),
Payroll processing (25%), Maintenance of Personal Records (24%) and training and Development (23%)
respectively. However the minimum percentages of HR functions outsourced in this category were of
outsourcing entire HR functions (15%), Tax Management (17%), Recruitment (20%) and Employment
Law and Regulatory Compliance (20%) respectively.
As far as the percentage of Sometimes Outsourced HR functions is concerned, the maximum no. of
incidences were of training and development, Outsourcing Entire HR functions (20% each), followed by
performance management and Employment Law and Regulatory Compliance (19% each) along with Tax
Management and Maintenance of Personal Records (18% each) followed by Manpower Planning and
Conducting Employee Survey (15% each) respectively. However the minimum percentage of HR
Functions outsourced in this category were of Payroll Processing (10%) and Recruitment (13%). As far as
the percentage of Rarely Outsourced HR functions is concerned, the maximum no. of incidences were
of outsourcing entire HR functions (20%), Employment Law and Regulatory Compliance (10%) followed
by conducting employee survey (7%) and Maintenance of Personal Records (6%) respectively. However
the minimum percentage of HR Functions outsourced in this category were of Tax Management (3%),
Performance Management (4%) and Manpower Planning (5%) respectively. As far as the percentage of
Never Outsourced HR functions is concerned, the maximum no. of incidence was of Outsourcing Entire
HR functions (30%) and the rest of the outsourced HR functions were nil (0%).
Interpretation:
Thus it is clear that the most commonly outsourced HR functions by most of the organizations &
companies are Recruitment (67%), Payroll Processing (65%) and Tax Management (62%). The
next most common category of outsourced HR functions is Training & Development (57%),
58
Maintenance of Personal Records (52%) and Performance Management (51%), Employment
Law & Regulatory Compliance (51each%). Thus it is clear that most of the HR functions are
outsourced regularly. Thus it is evident that HR Outsourcing is an evolving industry and HRO
functions as a strategic tool aimed primarily to assist organisations on their core businesses.
Table 4.7 Important reasons for outsourcing HR functions by various organizations
Sr.
No.
Important reasons for
outsourcing HR functions
Most
Important
Reason
Much
Important
Reason
Important
Reason
Less
Important
Reason
Least
Important
Reason
TOTAL
1 To Save Cost 77 13 10 0 0 100%
2 To Save Time 75 17 8 0 0 100%
3To Increase The Capacity
of The Organization57 31 19 3 0 100%
4 To Gain Tax Benefit 60 14 26 0 0 100%
5To Improve Levels Of
Quality & Performance45 35 15 5 0 100%
6 To Improve Efficiency 38 42 18 2 0 100%
7 To Increase Productivity 64 14 11 9 2 100%
8To Improve Quality of
Service54 27 13 6 0 100%
9 To Achieve Better ROI 58 19 11 12 0 100%
10To Gain Expertise
Support56 24 12 8 0 100%
59
60
Analysis:
From the table and graph no.4.7 it is evident that various organizations are outsourcing different
HR functions on a regular basis on account of different reasons out of which the most
important reasons are to "save cost" or to reduce costs (77%), to “save time” (75%), to gain
tax benefit (60%), to increase the capacity of organization (57%), to achieve better ROI (Return
On Investment) (58%), to increase productivity (64%), to gain expert support (56%), to
improve quality of service (54%), to improve level of quality & performance (45%) and to
improve efficiency (38%). Thus it is clear that the most important causes of HRO are:
To save cost (77%)
To save time (75%)
To increase productivity (64%)
The least important cause is to increase efficiency (38%). However among much important
reasons of HRO, “to improve efficiency” is on the top (42%) followed by “to improve level of
quality & performance (35%), “to improve Quality of service” (27%), to increase the capacity of
organization (31%) and to gain expertise support (24%) respectively whereas the least important
cause in this group is to save cost (13%), followed by tax benefit & increase in
productivity(14%each) followed by “to save time (17%) and to achieve better ROI (19%). In the
important reasons category, the maximum incident is of “to gain tax benefit (26%) and
minimum is of “to save time (8%). In less important reasons group, the maximum incident co-
relates “to achieve better ROI (12%) and the minimum incidence co-relates to “improve
efficiency (2%)”. However in least important category, only one factor is identified which co-
relates with improved productivity. Thus it is clear that increase productivity is a consistent
reason for HRO in all the categories.
Interpretation:
Thus it is clear that:
A) The most important reasons for HRO are: (B) the other important reasons for HRO are:
To save cost -77% *To achieve better ROI -58%
To save time -75% *To increase capacity of organization-57%
To increase productivity-64% *To gain expertise support-56%
To gain tax benefit-60% *To improve the quality of service-54%
61
Table 4.8 Important factors for choosing a third party supplier for HR outsourcing
Sr.
No
Important Factors For Choosing
A Third Party Supplier For HR
Outsourcing
Most
Important
Factors
Much
Important
Factors
Important
Factors
Less
Important
Factors
TOTAL
1 Lowest Cost 65 25 14 6 100%
2 Service Quality 75 19 5 1 100%
3 Existing Relationship 66 24 17 3 100%
4 Strong HR Process Expertise 65 19 15 11 100%
5 Strength In Customized Solution 32 27 33 8 100%
Analysis:
From the table and graph no.4.8, it is evident that the most important factors for choosing a
vendor or third party supplier for HRO are service quality (75%), existing relationship (66%)
& strong HR process expertise (65%). The next common causes in this category are lowest cost
(65%) and strength in customized solutions (32%).
In the category of much important factors for choosing a vendor to provide HRO services, the
reasons which have been identified are customized solutions (27%), lowest cost (25%) &
62
existing relationship (24%). However the service quality & strong HR process expertise are also
expressed as important reasons.
In important factor group strength in customized solutions is on the top (33%) & service
quality is at the bottom level (5%). The other factors in this category are existing relationship
(17%), strong HR Process Expertise (15%) & lowest cost (14%).
As far as the less important & least important reasons are concerned, the maximum incidences
are of strong HR process expertise (11%) and strength in customized solutions (8%) followed by
lowest cost (6%) & service quality (1%). In least important group, no factor was identified.
Interpretation:
Thus it is clear that in the opinion of most of the HR managers, the most important reasons to
select a vendor or third party supplier are:
Service Quality (75%)
Existing Relationship (66%)
Lowest Cost (65%)
Strong HR Process Expertise (65%)
However strength in customized solutions (32%) is also seen as an important factor to select the
vendor for different services which are being outsourced by the various organizations. In this
context, it is very relevant to explain that the factor of lowest cost is not so significant as the
quality of service & existing relationship between the two parties. So it is conclude that though
the lowest cost is an important factor in choosing the vendor or third party supplier for
Outsourcing different HR Functions but the quality of service & existing relationship with the
vendor are of great significance.
Table 4.9 Opinions on different aspects of HR outsourcing in relation to various HR functions.
Sr.
NoDifferent aspects of HR outsourcing Opinion
Completely
agree
Mostly
agreeAgree
Partially
agreeDisagree TOTAL
63
1.Is HR outsourcing is the answer to avoiding
high labour cost & expensive technology?80 16 4 0 0 100%
2.
Is HR outsourcing is a viable choice for small
to mid-sized businesses to limit staffing
burdens while maintaining high quality HR
functions?
60 23 10 7 0 100%
3.
Is HR outsourcing can provide services &
highly trained professionals that businesses
need often with significant cost savings over
hiring full time HR staff?
45 27 23 5 0 100%
Graph 4.9 Opinions on different aspects of HR outsourcing in relation to various HR
functions
Analysis:
From the table and graph no.4.9, it is evident that 80% of the HR Managers have completely
agreed with the fact that HR Outsourcing is an answer to avoid high labor cost & expensive
technology. 16% HR Managers Mostly agreed with the above fact; however 4% did agree that
the above fact is true in relation with HR Outsourcing.
64
As far as the statement “Is HR outsourcing is a viable choice for small to mid-sized businesses to
limit staffing burdens while maintaining high quality HR functions?” is concerned, 60% of the HR
Managers completely agreed, 23% mostly agreed, 10% just agreed & 7% partially agreed but none of
them was against the above fact.
As far as the statement “Is HR outsourcing can provide services & highly trained professionals that
businesses need often with significant cost savings over hiring full time HR staff?” is concerned, 45%
of the HR Managers completely agreed, 27% mostly agreed, 23% just agreed & 5% partially agreed but
none of them was against the above fact.
Interpretation:
Thus it is clear that all the three facts about HR outsourcing are very relevant & are of great
significance because 80%, 60% and 45% HR managers support the above opinions related to HR
Outsourcing. Thus it is evident that:
HR Outsourcing is the answer to avoid high labour cost
HR outsourcing is a viable choice for small to mid-sized businesses
HR outsourcing can provide better services & highly trained professionals at
comparatively lower cost
Table 4.10 Type of the legal service agreement standard included in HR Outsourcing Contract
Sr. No. Legal Service Agreement Standard Included In HRO
Contract
Percentage
1 Employee Satisfaction 30%
2 Issue Resolution 36%
3 Delivery of Data 22%
4 System Availability 12%
5 TOTAL 100%
65
Graph 4.10 Type of the legal service agreement standard included in HR Outsourcing Contract
Analysis:
From the table and graph no.4.10, it is evident that issue resolution (36%), had been the most
important legal service agreement standard of HRO contract, while system availability (12%),
was least important reason for this fact. However employee satisfaction (30%) & delivery of data
(32%) had also been the important factors of this issue of HR outsourcing.
Interpretation:
Thus it is clear that issue resolution (36%) must be kept in mind and should be essentially
fulfilled in the matter of legal service agreement standard of HR outsourcing, but rest of the
factors, i.e., Employee Satisfaction (30%), Delivery of Data (22%) and System Availability
(12%) can’t be ignored in this respect.
66
Table 4.11 HR Functions Which Are Not Outsourced Or Being Outsourced Either
Partially or Completely.
Sr.
NoMajor HR Functions
Not
Outsourced
%
Partially
Outsourced
%
Completely
Outsourced
%
TOTAL
1 Payroll processing 10% 22% 68% 100%
2 Training & Development 8% 19% 73% 100%
3 Recruitment 11% 12% 77% 100%
4 Manpower planning 20% 45% 35% 100%
5Employment Law & Regulatory
Compliance30% 55% 15% 100%
6 Tax Management 25% 39% 36% 100%
7 Performance Management 17% 52% 31% 100%
8 Conducting Employee Survey 51% 34% 15% 100%
9Maintenance of Personal
Records20% 45% 35% 100%
67
68
Analysis:
From the table and graph no. 4.11, it is evident that the major HR functions which are
completely outsourced by different organizations are recruitment (77%), training &
development (73%), payroll processing (68%).Tax management (36%), Maintenance of
Personnel Records (35%), Manpower Planning (35%) and Performance Management (31%). The
other HR Functions which are completely outsourced are Employment Law & Regulatory
Compliance as well as Conducting Employee Survey (15% each).
The HR Functions which are Partially Outsourced are Employment Law & Regulatory
Compliance (55%), Performance Management (52%), Maintenance of Personal Records (45%),
and Manpower Planning (45%). The other partially outsourced HR Functions are Conducting
Employee Survey (34%), training & development (19%) and Recruitment (12%).
There are some organizations which do not outsource some of their HR Functions like
Conducting Employee Survey (51%), Employment Law & Regulatory Compliance (30%), Tax
Management (25%), Manpower Planning and Maintenance of Personal Records (20% each).
However minimum incidences of HR Functions which are not outsourced by certain
organization are Payroll Processing (10%), Training & Development (8%) and Recruitment
(11%).
Interpretation:
Thus it is clear that the Recruitment is the most important HR function which is completely
outsourced by 77% of organizations, partially outsourced by 12% and not outsourced by 11% of
organizations. Training & Development is the next most important HR Function which is
completely outsourced by 73% of organizations while 19% of organizations outsourced it
partially but 8% organizations handle it in-house. Payroll processing is another important HR
Function which is completely outsourced by 68% organizations, partially outsourced by 22% and
not outsourced by 10% of organizations.
The next important HR functions which are completely outsourced by 36%, 35%, 31% and 15%
of organizations are Tax Management, Maintenance of Personnel records, Performance
Management, Conducting Employee Survey and Employment Law & Regulatory Compliance
respectively. The other important HR Functions which are partially outsourced by 55%, 52%,
45%, 39% and 34% of the organizations are Employment Law & Regulatory Compliance,
Performance Management, Manpower planning , Maintenance of Personnel Records, Tax
Management and Conducting Employee Survey.
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The HR Functions which are not outsourced by 51%, 30%, 25%, 20% and 17% of the
organizations are Conducting Employee Survey, Employment Law & Regulatory Compliance
Tax Management, Manpower planning, Maintenance of Personnel records and Performance
Management respectively.
Table 4.12 Opinion about the impact of HR Outsourcing on various HR attributes.
Sr. No HR Attributes Excellent Very Good Good Average Poor TOTAL
1 Business performance 60 20 13 7 0 100%
2 Employee & Organization Co-
ordination
53 19 24 4 0 100%
3 Employee Job-Fit 49 23 15 13 0 100%
4 Employee Performance 58 16 22 4 0 100%
5 Employee Development 65 15 9 11 0 100%
6 Employee Moral & Motivation 45 24 13 18 0 100%
7 Employee Satisfaction 52 19 16 13 0 100%
8 Effectiveness of training 67 18 12 3 0 100%
Graph 4.12 Opinions about the impact of HR Outsourcing on various HR
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Analysis:
It is evident from the table and graph no.4.12 that HR Outsourcing has an Excellent positive
impact” on various HR attributes and Functions such as Effectiveness of training (67%),
Employee Development (65%), Business Performance (60%), Employee Performance (58%),
Employee & Organization Co-Ordination (53%), Employee Job fit (49%) and Employee Moral
& Motivation (45%).
As far as the “Very Good Positive Impact” of HR outsourcing on different HR Functions &
Attributes is concerned it was found to be 24%, 23%, 20%. 19%, 18%, 16 % & 15% for
Employee Moral & Motivation, Employee Job fit, , Employee Satisfaction, Employee &
Organization Co-Ordination, Employee Performance and Employee Development respectively.
As far as the “Good Positive Impact” of HR outsourcing on different HR Functions &
Attributes is concerned it was found to be 24%, 22%, 16%, 15%, 13%, 12% & 9% for Employee
& Organization Co-Ordination, Employee Performance, Employee Satisfaction, Employee Job
fit, Employee Moral & Motivation, Effectiveness of Training and Employee Development
respectively.
As far as the “Average Positive Impact” of HR outsourcing on different HR Functions &
Attributes is concerned it was found to be 18%, 13%, 11%, 7%, 4% & 3% for Employee Moral
& Motivation, Employee Job fit & Employee Satisfaction, Employee Development, Business
Performance, Employee Performance, Employee & Organization Co-Ordination and
Effectiveness of Training respectively.
Interpretation:
Thus it is clear that HR Outsourcing has an Excellent Positive Impact on Effectiveness of
Training (67%), Employee Development (65%) and Business Performance (60%). HR
Outsourcing has a Very good Positive Impact on Employee Moral & Motivation (24%),
Employee Job fit (23%), Employee Satisfaction (19%), Employee Performance (16%) and
Employee & Organization Co-Ordination (19%).
Thus it clear that HR Outsourcing is a boon for enhancing various organizational capacities and
for overall improvement of different HR functions of different organizations according to their
various needs & requirements.
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Table 4.13 Opinion about Outsourcing Options with Reference To organizational HR
Policies, Practices & Talent Needs of IT Industry
Sr. No. Response Regarding HR Outsourcing Percentage
1 Yes 76%
2 No 15%
3 Can’t Say 9%
4 TOTAL 100%
Graph 4.13 Opinion about Outsourcing Options with Reference To organizational HR
Policies, Practices & Talent Needs of IT Industry
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Analysis
It is evident from the Table and Graph no. 4.13 that most of the HR Managers (76%) are of the
opinion that HR Outsourcing can boost the performance of IT industries; however 15% were of
the opinion that it may impact negatively. However 9% HR Managers were indifferent.
Interpretation:
Thus it is clear majority of HR Managers (76%) are of the opinion that to improve the condition
of the IT industries, HR Outsourcing is essential, but while doing so proper care & precaution
should be applied so as to ensure the proper implementation of organizational policies &
practices.
Table 4.14 Opinion of HR Managers on whether HR Outsourcing may help to reduce the
Rate of Attrition in IT Organizations?
Sr.
No.
Opinion of HR Managers on "whether HR Outsourcing may
help to reduce the Rate of Attrition in IT Organizations?"Percentage
1 Yes 86%
2 No 08%
3 Can’t Say 06%
4 TOTAL 100%
Graph 4.14 Opinion of HR Managers on whether HR Outsourcing may help to reduce the
Rate of Attrition in IT Organizations?
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Analysis
It is evident from the above Table and Graph that HR Outsourcing is very effective in controlling
the rate of attrition in the IT sector. 86% HR managers supported the above view; however 8%
were against it, while 6% were having an indifferent opinion.
Interpretation:
Thus it is clear that HR Outsourcing can effectively control the Problem Attrition in IT Sector.
Attrition is the biggest nightmare for HR Managers in IT services and outsourcing companies.
Thus it is clear that both HR outsourcing & IT Industries may be benefitted by mutual co-
operation & co-ordination because they are inter-dependent and inter-related as 86% HR
Managers agreed with the above fact.
Table 4.15 Opinion of HR Managers on how well have your HR outsourced functions fulfilled their
objectives?
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Sr.
No.
Opinion of HR Managers on “How well have your HR
outsourced functions fulfilled their objectives
Percentage
1 Excellent 78%
2 Very Good 11%
3 Good 7%
4 Average 4%
5 Deteriorated 0%
6 TOTAL 100%
Table 4.15 Opinion of HR Managers on how well have your HR outsourced functions
fulfilled their objectives?
Analysis
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From the table and graph no. 4.15 it is clear that outsourced HR Functions were “excellent” in
fulfilling the different objectives and needs of the organizations for which they were undertaken.
78% of HR Managers agreed with this fact. However 11%, 7and 4% were of the opinion that the
outsourced HR functions were “very good, good & average” in fulfilling the given objectives.
Interpretation
Thus it is clear that the concept of HR Outsourcing has proved to be a boon in completing the
different tasks, objectives and needs for which they have been assigned. 78% HR Managers have
rated its efficiency as Excellent, 11% have rated it as Very Good, 7% have rated it to be good
and the rest 4% have rated it as Average in performance. In no case Deterioration was observed.
Thus it has been proved that HR outsourcing can provide services & highly trained professionals
that businesses need often with significant cost savings over hiring full time employees.
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CHAPTER-5
SUMMARY
OF
FINDINGS
77
CHAPTER-5
SUMMARY OF FINDINGS
The present study titled “THE IMPACT OF HR OUTSOURCING ON VARIOUS HR
FUNCTIONS WITH REFERENCE TO IT INDUSTRY” is an attempt to understand the pros
and cons of HR Outsourcing on various HR functions. Based on the data collected an in-depth
analysis has been made and the results are interpreted. The following findings are given based on
the analysis of the data obtained through survey.
5.1 To study the different aspects of HR outsourcing
To study the different aspects of HR Outsourcing, the questions 1 to 3 & 7 to 8; from the
questionnaire have been used to collect the required data and information on the basis of
which the following facts have been observed about the different aspects of HR Outsourcing.
Most of the respondents belong to large organizations but small & medium enterprises
(SMEs) also have a significant representation and the majority of HR Managers feel that HR
Functions should be outsourced.
Most of the organizations are outsourcing a significant no. of manpower which is up to 5000
and even more than 5000. Small and medium size enterprises (SMEs) are also outsourcing a
considerable amount of HR, which comes under the range of 100 to 1000.
HR Outsourcing is an answer to avoid high labour cost & expensive technology.
HR outsourcing is a viable choice for small to mid-sized businesses to limit staffing burdens
while maintaining high quality HR functions.
HR outsourcing can provide services & highly trained professionals that businesses need
often with significant cost savings over hiring full time HR staff.
As far as the legal service agreement standard included in HR Outsourcing contract is
concerned, the Issue resolution, had been the most important legal service agreement
standard of HRO contract. However employee satisfaction & delivery of data had also been
the important factors of this issue of HR outsourcing.
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5.2 To study the important reasons for HR Outsourcing
To know the important reasons for HR Outsourcing, the question no.5 from the questionnaire
has been used to collect the required data and information on the basis of which the
following facts have been observed about the important reasons for HR Outsourcing in the
order of rating, merit and significance.
A) The most important reasons for HRO are: (B) the other important reasons for HRO
are:
To save cost *To achieve better ROI
To save time *To increase capacity of organization
To increase productivity *To gain expertise support
To gain tax benefit *To improve the quality of service
To improve levels of performance * To improve efficiency
5.3 To study the important factors responsible towards choosing a third party supplier for
HR Outsourcing.
For this purpose question no.6 has been used from the questionnaire to collect the required data
and information on the basis of which the following facts have been observed in relation to the
important reasons for choosing a third party supplier for HR Outsourcing in the order of rating,
merit and significance.
Service Quality
Existing Relationship
Lowest Cost
Strong HR Process Expertise
Strength In Customized Solution
In this reference, a relevant factor was noted that though the lowest cost was considered as an
important factor in choosing the vendor or third party supplier for outsourcing different HR
Functions but most of the managers gave top priority to the quality of service and their existing
relationship with the vendor.
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5.4 To study the major HR functions being outsourced in the Indian industry either
completely or partially
For this purpose questions 4 & 9 from the questionnaire have been used to collect the required
data and information on the basis of which the following facts have been observed in relation to
the major HR functions being outsourced in the Indian industry either completely or partially in
the order of rating, merit and significance.
The most commonly outsourced HR functions by most of the organizations & companies were
Recruitment, Payroll Processing and Tax Management. The next most common category of
outsourced HR functions was Training & Development, Maintenance of Personal Records,
Performance Management and Employment Law & Regulatory Compliance.
The major HR functions which are completely outsourced by different organizations are
recruitment, training & development, payroll processing &Tax management
The HR Functions which are Partially Outsourced are Employment Law & Regulatory
Compliance, Performance Management, Maintenance of Personal Records, and Manpower
Planning and Conducting Employee Survey.
5.5 To study the impact of HR outsourcing on various HR functions & on the effectiveness
of the HR department.
For this purpose question 10 from the questionnaire have been used to collect the required data
and information on the basis of which the following facts have been observed in relation to the
impact of HR outsourcing on the various HR functions & on the effectiveness of the HR
department in the order of rating, merit and significance.
HR Outsourcing is a boon for enhancing various organizational capacities and for overall
improvement of different HR functions of different organizations according to their various
needs & requirements
HR Outsourcing has an Excellent Positive Impact on:
Effectiveness of Training
Employee Development
Business Performance
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HR Outsourcing has a Very good Positive Impact on:
Employee Moral & Motivation
Employee Job fit
Employee Satisfaction
Employee Performance
Employee & Organization Co-Ordination
5.6 To study the co-relation between HR Outsourcing & IT industry
For this purpose questions 11 and 12 from the questionnaire have been used to collect the
required data and information on the basis of which the following facts have been observed with
reference to the co-relation between HR Outsourcing & IT industry.
Majority of HR Managers are of the opinion that to improve the condition of the IT
industries, HR Outsourcing is essential.
Majority of HR Managers agreed with the fact that both HR outsourcing & IT Industries
may be benefitted by mutual co-operation & co-ordination because they are inter-
dependent and inter-related.
that HR Outsourcing is very effective in controlling the rate of attrition in the IT sector
5.7 To study the effectiveness of HR function that is being outsourced.
For this purpose question 13 from the questionnaire has been used to collect the required data and
information on the basis of which the following facts have been observed with reference to the
effectiveness of HR function that is being outsourced in the order of rating, merit and
significance.
HR Outsourcing has proved to be a boon in completing the different tasks, objectives and
needs for which they have been assigned. 78% HR Managers have rated its efficiency as
Excellent, 11% have rated it as Very Good, 7% have rated it to be good and the rest 4%
have rated it as Average in performance. In no case Deterioration was observed.
81
CHAPTER-6
SUGGESTIONS
AND
CONCLUSIONS
82
SUGGESTIONS
On the basis of the present study, the following recommendations are suggested for a successful
HR outsourcing:
The outlook of the Indian industry is gradually shifting from anti to pro towards HR
outsourcing, but there is still a long way to go as far as trusting an outside organization
(vendor). The companies need to build a relation of trust and understanding with total
communication as the base. This would help to serve the interest of both the parties better
and to a greater extent.
In terms of effectiveness, it is important for the company to be engaged continuously with
the vendors in order to succeed. Unless one engages with the vendor upfront to explain the
requirements and expectations in detail, it is difficult to get efficient results from outsourced
operations. Accountability is the key success factor.
Fortnightly or monthly meetings should be held with the vendors in order to understand the
level of progress as well as to assess the needs of the vendors. Understanding the business
from the vendor’s point of view is essential for the success of any outsourcing contract.
Compensation of the employees is a major factor which should be kept in mind before
outsourcing. The amount of compensation has a significant impact on the effectiveness of the
HR functions. For example as the avg. Monthly salary increases the effectiveness of the
outsourced recruitment with respect to the level of psychological contract proportionately
increases. So in such cases companies paying higher compensation can outsource their
recruitment function to a vendor for greater effectiveness.
The outsourcer should exercise great care while engaging a vendor. This task will largely
determine the success of the partnership. The task may be entrusted to a consulting company
or be done in-house. In the latter, the outsourcer can form a team to select the vendor
Based on the analysis it is important to device a proper reporting relationship with the vendor
for an on-going and transparent communication process to make HR outsourcing more
effective. For this purpose, first shortlist probable candidates and brief them clearly about the
job expectations. These expectations have to be realistic and achievable. This will in turn
help the service provider to assess whether it can measure up to those expectations.
Provide enough information to the prospective service provider with regard to the scope of
the relationship, the time- frame, and the price that is being offered in return for the services.
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Vague issues should be clarified and prospective vendors should be asked to provide
references of clients whom they have served so as to get in touch with them and seek their
opinion about their services & performance.
For effective HR Outsourcing, the client company should keep in the mind the technical
know- how and expertise available with the vendor. Experience is also a factor that should be
considered. Pricing or the cost factor largely determines the success of outsourcing.
However, a low cost factor alone should not be the criterion for selection because the quality
of service has a great impact on the success of client.
The HR vendor performs specialized operations to keep up its market competitiveness; so the
employees of the vendor may need training to spruce up their skill. It will be in the client
company's interest to ensure and provide training to the outsourced employees. Legal issues,
labor laws and taxation policies all have a major role in determining the success of
outsourcing so the terms and condition of the relationship should be mutually agreed and
written down in order to avoid confusion or vagueness.
It would be better for the client to entrust a small project to the service provider initially. This
will reduce the extent of risk and give a fair idea of how well the service provider is going to
perform.
Cultural differences are likely especially when it comes to offshore outsourcing. The
relationship between the outsourcer and the service provider is best served when these
differences are identified, understood and respected. Programs to bridge the gap should be
held where both sides can come closer.
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CONCLUSION
This research helps to gain an insight to the contemporary developments in the field of HR
outsourcing in the Indian industry. It helps to clarify many myths about HR outsourcing and also
brings up interesting facts about the same. Most of the respondents belong to large organizations
but small and medium sized enterprises (SMEs) also have a significant representation. Most of
the organizations are outsourcing a significant no. of manpower which is up to 5000 and even
more than 5000. Small and medium size enterprises (SMEs) are also outsourcing a considerable
amount of HR, which comes under the range of 100 to 1000.
The most important reasons for HR outsourcing are to "save cost" or to reduce costs, to “save
time”, to gain tax benefit, to increase the capacity of organization, to achieve better ROI (Return
On Investment), to increase productivity, to gain expert support, to improve quality of service, to
improve level of quality & performance and to improve efficiency. The important reasons for
choosing a third party supplier for HR Outsourcing in the order of rating, merit and significance
are Service Quality, Existing Relationship, Lowest Cost, Strong HR Process Expertise and
Strength in Customized Solution.HR Outsourcing is essential to improve the condition of the IT
industries. HR outsourcing & IT Industries both are benefitted by mutual co-operation & co-
ordination because they are inter-dependent and inter-related. It is very effective in controlling
the rate of attrition in the IT sector.
HR Outsourcing is a very effective tool for enhancing various organizational capacities and for
overall improvement of different HR functions of different organizations according to their
various needs and requirements and also in completing the different tasks, objectives and goals
for which they have been assigned. It has an Excellent Positive Impact on Effectiveness of
Training, Employee Development and Business Performance and it also has a very good positive
impact on Employee Moral & Motivation, Employee Job fit, Employee Satisfaction, Employee
Performance and Employee & Organization Co-Ordination.
The present study has been conducted on a smaller sample size due to time constraint and the
respondents were from specific areas and did not cover whole of India and the primary data is
based on the responses to the questions which can be influenced by personal bias and subjective
perception of the individuals and the present study is limited only to IT Industry.
85
SUGGESTIONS FOR FURTHER RESEARCH
Although a lot of work has been done in similar areas before, this research is an effort to look at
the things from a fresh and a different angle. Thus this research work can be used as a source of
secondary data by other researchers as it contains significant amount of analysis in areas which
have not been explored much till now. It can also be used as a tool for comparative analysis of
the past and present HR outsourcing scenario and to understand the changes that have taken
place. It is also suggested that further research studies should be conducted on this topic, on a
larger scale with a bigger sample size, including more industrial sectors which outsource
different HR Functions like ITES, Logistics, Healthcare, financial Services and Manufacturing
Sector in India.
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BIBLIOGRAPHY
87
BIBLIOGRAPHY
Books:
Armstrong, M “A Handbook of HR management practices”, 8th edition 2002
Journals:
Bondarouk, T.V. and Ruel, H.J.M (2009) “Electronic Human Resource Management, the
International Journal of Human Resource Management.”
Kern, T and Blois, K. (2002) “Norm development in outsourcing relationship, Journal of
Information Technology”
Logan, M.S. (2000) “Using Agency Theory to design successful outsourcing relationships,
International Journal of Logistics Management”
Reports & Reviews:
Hesketh, Anthoy, A report on “Outsourcing the HR Function- Possibilities & Pitfalls”
Klementive, Alexey “Society OF HR Management- Outsourcing Survey Report about HR
Outsourcing”
McFarlan, F.W. and Nolan, R.L (1995) “How to manage an IT outsourcing alliance, Sloan
Management Review”
Nahapiet, J. and Ghoshal, S. (1998) “Social capital, intellectual capital, and the organizational advantage, Academy of Management Review”
Willcocks, L., Hindle, J., Feeny, D., and Lacity, M. (2004). “IT and Business Process Outsourcing: The Knowledge Potential, Information Systems Management”
Willcocks, L.P., and Kern T. (1997). A report on “IT Outsourcing as Strategic Partnering.”
Websites:
www.google.com
www.hrmgt.com
www.shm.org (Society for Human Resource Management)
www.younghrmanager.com
www.hr.com
www.hrmgt.com
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ANNEXURE
89
ANNEXURE
Questionnaire
On
THE IMPACT OF HR OUTSOURCING ON VARIOUS HR FUNCTIONS WITH REFERENCE TO IT INDUSTRY
(This Questionnaire is being prepared purely for academic research purpose by Mr.Nirvan; a MBA
Final Semester Student of Acharya Institute of Management And Sciences (AIMS), Peenya
Bangalore. This research work is done to complete my dissertation titled “THE IMPACT OF HR
OUTSOURCING ON VARIOUS HR FUNCTIONS WITH REFERENCE TO IT INDUSTRY” for
the degree of MBA from Bangalore University. Respected Sir/ Ma’am I need your valuable time &
support to complete my project, so please answer the following questions by your experienced &
learned responses. The Data collected through this questionnaire will be kept completely
confidential.)
Designation- Department-No. of years of experience-Name of organization/company-
1) What is the total manpower strength in your organization?*Please mention the approximate No.-
2) Has your organization outsourced manpower? Yes No
3) Please specify the approximate no. of people outsourced by your organization?100-500 501-1000 1001-5000 5001 & AboveOthers, please specify-
4) What are the major HR functions outsourced in your organization?(Please tick in the given boxes & also rate the outsourced HR functions from 1 to 5) 5-essentially outsourced, 4-frequently outsourced, 3-sometimes outsourced, 2-rarely outsourced,1-never outsourced
Payroll processing 1 2 3 4 5Training & Development 1 2 3 4 5Recruitment 1 2 3 4 5
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Manpower planning 1 2 3 4 5Employment Law & Regulatory Compliance 1 2 3 4 5Tax Management 1 2 3 4 5Performance Management 1 2 3 4 5Conducting Employee Survey 1 2 3 4 5Maintenance of Personal Records 1 2 3 4 5Outsourcing Entire HR Functions 1 2 3 4 5
5) Please rate the following reasons for outsourcing HR functions by your organization from
1 to 5?
5-most important, 4-much important, 3- important, 2-less important, 1- least important
To save cost 1 2 3 4 5
To save time 1 2 3 4 5
To increase the capacity of the organization 1 2 3 4 5
To gain tax benefit 1 2 3 4 5
To improve levels of quality & performance 1 2 3 4 5
To improve efficiency 1 2 3 4 5
To increase productivity 1 2 3 4 5
To improve quality of service 1 2 3 4 5
To achieve better ROI 1 2 3 4 5
To gain expertise support 1 2 3 4 5
6) When choosing a third party supplier for HR outsourcing; what factors are most
important to you?
Please rate them in order of their importance from 1 to 5.
5-most important, 4-much important, 3- important, 2-less important, 1- least important
Lowest Cost 1 2 3 4 5
Service Quality 1 2 3 4 5
Existing Relationship 1 2 3 4 5
Strong HR Process Expertise 1 2 3 4 5
Strength in Customized Solutions 1 2 3 4 5
Other factor if any please specify- 1 2 3 4 5
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7) What is your opinion about different aspects of HR outsourcing in relation to various HR functions?Please rate them from 1 to 5.
Aspects Opinion With Rating 5 – 1a) Is HR outsourcing is the answer to avoiding high labour
cost & expensive technology?1 2 3 4 5
b) Is HR outsourcing is a viable choice for small to mid-sized businesses to limit staffing burdens while maintaining high quality HR functions?
1 2 3 4 5
c) Is HR outsourcing can provide services & highly trained professionals that businesses need often with significant cost savings over hiring full time HR staff?
1 2 3 4 5
5-Completely agree 4- Mostly agree 3- Agree 2-Partially agree 1- Disagree
8) What is the legal service agreement standard included in your HR outsourcing contract?
Employee SatisfactionIssue ResolutionDelivery of DataSystem Availability
9) Please specify the different HR functions which are being completely outsourced or partially outsourced or not outsourced in your organization:
Completely Partially Not Outsourced Payroll processingCompletely Partially Not Outsourced Training & DevelopmentCompletely Partially Not Outsourced RecruitmentCompletely Partially Not Outsourced Manpower planningCompletely Partially Not Outsourced Emp. Law & ComplianceCompletely Partially Not Outsourced Tax ManagementCompletely Partially Not Outsourced Performance ManagementCompletely Partially Not Outsourced Conducting Emp. SurveyCompletely Partially Not Outsourced Maintenance of P-Records
10) What is your opinion about the Impact of HR outsourcing on various HR Attributes?(Please rate them from 1 to 5)
5-Excellent 4- Very Good 3- Good 2-Average 1- Poor
HR Attributes Impact with rating 5 to 1Excellent Very Good Good Average Poor
Business performance 5 4 3 2 1Employee & Organization Co-ordination 5 4 3 2 1Employee Job-Fit 5 4 3 2 1Employee Performance 5 4 3 2 1Employee Development 5 4 3 2 1Employee Moral & Motivation 5 4 3 2 1Employee Satisfaction 5 4 3 2 1
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Effectiveness of training 5 4 3 2 111) Do you agree that HR needs to help IT Organizations to evaluate their outsourcing
options with reference to their HR policies, practices & organizational talent needs?
YesNoCan’t Say
12) Do you think that HR outsourcing can help to reduce the rate of attrition in IT organizations?
YesNoCan’t Say
13) How well have your HR outsourced functions fulfilled their objectives?
ExcellentVery Good GoodAverageDeteriorated
Thank You!
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