RP Richa Misra

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RESEARCH REPORT ON HR OUTSOURCING

A report submitted to Delhi Business School, New Delhi as a part fulfillment MBA and PGP

in entrepreneurship and business.

Punjab Technical University

( Session 2008-2010 )

SUBMITTED TO: SUBMITTED BY:

Mr. Senior Ramesh chandra Name : Richa Mishra

Roll no : DBS/08-10/S-16

Specialization : HR/MKT

B-11/58 M.C.I.E., Mathura Road, New Delhi

Website:www.dbs.edu.in


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DECLARATION

This is to certify that the Research Report entitled Human Resource

Outsourcing being submitted by fulfillment of the requirement MBA

course (2008-2010), I hereby declare that whatever information given by me in

this report is true to my knowledge.

NAME: RICHA MISHRA

ROLL NO: DBS/08-10/S-160

MBA 4th

SEM


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ACKNOWLEDGEMENT

Concentration, dedication, hard work and application are essential but not the

factors to achieve the desired goal. These must be supplemented by proper

guidance, assistance and co-operation of people to make it a success.

I express my heartiest gratitude to Mr. SeniorRamesh Chandra for his valuable

guidance and support at time by which research report has been successfully

completed at time.

Also extend my heartfelt thanks to many people who helped and supported me

during the writing of this Project.


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TABLE OF CONTENT

Chapter Title

I Introduction

II Objective of the Research

III Present scenario in India

IV Outsourcing In India- Emerging Trends, And Challenges

V Advantages & Disadvantages Of HR Outsourcing

VI Research Methodology

VII Data Interpretation

VIII Conclusion and Suggestions

Appendix

(i) Questionnaire

Bibliography


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CHAPTER I

INTRODUCTION

What Is Outsourcing?

In a nutshell, 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 centered on the core competencies of the

business. 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.

HR outsourcing (HRO) is the application of different business models and

techniques to new forms of activities - or processes and radically redesigning

them to create outputs of value for end users such as customer.

The outsourcing of HR processes emerged in the late 1990s, pioneered by firms

specializing primarily in IT outsourcing in the US such as ACS, EDS and

Accenture. Many transactional HR processes are outsourced and are increasingly

associated with electronic delivery - or 'e-HR'. Much day-to-day HR administration

can now be transferred to third party providers. Payroll and benefits is widely

outsourced with organizations benefiting from economies of scale and powerful


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Enterprise Resource Planning (ERP) solutions. Competition among HRO providers

has dramatically reduced prices.

Other advantages for clients include:

Cost Reductions

Service Improvements

Upgrading Technology

Being better able to respond to business change.

What is HR Outsourcing?

Human resources are the most critical assets of any

organization as the organization's success lies in

their hands. But in order to ensure that its

employees remain satisfied, company has to have a

specialized human resources department that most

of times proves to be a costly affair. That is why

most companies today; decide to outsource their

human resources management functions to offshore

destinations.


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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.

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.


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Examples of discrete services could include the annual open enrolment 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 and 401(k) plan administration

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 planning related to

people management and other key HR functions at the discretion of management.

Whatever the company's human resources requirements, there's an HR outsourcing

firm out there to meet those needs. Some HR outsourcing firms are generalists,

offering a wide variety of services, while others are specialists, focusing on

specific areas such as payroll or recruiting. Depending on the size of your business


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and how much control you want tomaintain over HR functions, you can either

outsource all your HR tasks or contract for services.

The basic services offered by HR outsourcing firms may include:

Overseeing organizational str9ucture and staffing requirements

Recruiting, training, and development

Tracking department objectives, goals, and strategies

Employee and manager training

Benefits administration

Employee orientation programs

Businesses that outsource HR are typically small-to-

midsize firms with between 25 and 1,500 employees.

These businesses view HR outsourcing as a strategic tool

that relieves them of HR responsibilities and enables

them to focus on what they do best. In addition to

allowing you to concentrate on your core business activities, outsourcing provides

some key benefits, including:

Providing you with skilled professionals who are focused specifically on

HR


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human resource functions without having to resort to employing personnel for an

in-house HR staff.

There are a lot of benefits that businesses can gain from outsourcing HR tasks. One

of the most appealing benefits is the ability of a company to focus on their core

business activities while still having effective HR policies.

Is HR Outsourcing For Everybody

Given that HR outsourcing is beneficial, unfortunately it is not for everybody.

There are pros and cons in outsourcing and it all depends on the situation of a

company. To better assess whether HR outsourcing is right here is a guide:

1) Do you feel comfortable letting other people (outside of the company) take care

of the HR functions?

There are people who just cant trust outsiders to

handle any of the companys functions most often

because of trust issues. This kind of thinking however

is very much acceptable since it is possible that there

are firms that take advantage of their position.

2) Does the company have enough resources to take care of HR functions?
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If a company has the ability to handle their own HR functions, then there is no

need to outsource. This is most especially true in big companies. But if you lack

the resources and HR representatives to do the job effectively, then you may opt to

go for HR outsourcing.

3) Which is more costly?

It should be evaluated whether outsourcing is more cost-effective than having

your own staff for the HR functions. It is true that HR outsourcing usually costs

less but there are some situations wherein this is not the case.

How To Choose An HR Firm

When choosing an HR firm, you may want to consider these following criteria:

We need to know the firms offered services.

We need to know the level of expertise it has in terms of your line

of business.

We should assess the firms general HR experience.

There is a need to know there available resources

And last but not the least; we need to be informed how flexible the

contracts are.
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An HR firm whether outsourced or in-house is considered as an extension of the

company so you need to have one that fits your image. An HR firm specializing in

law firms and financial institutions may not match the new business. It is possible

that it will not be able to know and understand your needs.
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CHAPTER II

Objective of the research

The objective of this research is to formulate a picture of

current trends in outsourcing in HR services prevalent in

Indian firms. The research aims to discern common

factors.

promoting or inhibiting the growth of HR outsourcing industry in India.

Also, the data collected will help in finding parameters which are most common in

terms of HR outsourcing.

The study will throw light on the various aspects like the trends, challenges,

benefits and other issues like process and vendor selection criteria used related to

HR outsourcing in the context of the Indian industry.

Some other objectives are:

To have a clear vision of what outsourcing should achieve.

To understand the scope of the services to be outsourced.


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To determine the problems/issues faced by the organization and its

employees while implementing HR outsourcing.

To study the reasons why employees feel insecure with the concept of

outsourcing.

To identify the problem that why organizations are still not achieving the

full economies of scale that HRO is capable of delivering.

To analyze the current state of HR Outsourcing in Industries.

To study the trends of HR outsourcing prevailing in the Indian industry.

To find out the various benefits being derived out of HR outsourcing by the

Indian companies.

To study the impact of HR outsourcing on the internal customers in the

Indian companies.

To study the criterion used by the Indian companies in selecting the vendor

for outsourcing their HR processes.

To study the criterion used by the Indian companies in selection of the HR

process to be outsourced.


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CHAPTER III

Present scenario in India

With more and more companies looking to rationalise employees on their payroll,

manpower outsourcing is slowly becoming the new buzz in India too. And the

trend seems to have hit not just big multinational companies but the public sector

and government undertakings as well, though on a very low key yet in the latter.

Experts, however, say though foreign companies are outsourcing jobs to India,

putting the country in the middle of outsourcing boom, the Indian companies do

not seem to be enamored by the opportunity till now and are not adopting HR

outsourcing practices in a big way.

"HR outsourcing in India has not seen the required momentum and is limited to a

trickle effect, with companies outsourcing a few selected low-end HR processes,"

says Anil Mahajan, executive director, Talent Hunt Pvt Ltd, a leading HR firm in

New Delhi.

A recent survey 'Outsourcing in the Asia-Pacific', conducted by Hewitt Associates,

a global HR outsourcing and consulting firm, confirms the situation. The survey

showed that many companies in the region are either unfamiliar with the process


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and procedures of HR outsourcing, or are unaware of the players operating in the

area.

"Even though across the globe companies are realising that headcount is directly

related to the revenue and are outsourcing most of their transaction and

administration related work, the general opinion among the Indian companies is

that it is still economical to manage all their HR process internally. Here people are

also not very clear about what exactly is manpower outsourcing all about

The Head Hunter, a recruiting firm in Bangalore, says, "It is a process of

outsourcing involving particular tasks like recruitment, making payroll, training

and development to a third party who have expertise in these respective fields. HR

outsourcing can happen in areas such as payroll, employee benefits administration,

fixed assets administration, network, receivable and logistics management,

hardware maintenance, telemarketing, call centres and database management. In

India, the most common processes outsourced are related to training payroll

processing, surveys, benchmark studies and statutory compliance.

One very important trend in the recent times has been the growth of human

resource outsourcing. HR outsourcing is the outsourcing of peripheral but

necessary administrative tasks such as payroll, benefits, education/training,


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recruiting personnel, administration, to realize economies of scale and achieve

standardization of services.

Rapidly changing market dynamics and global competitive pressures have caused

organizations to spend more time focusing on their core business. Organizations

are fast realizing that they can't be all things to all people. So companies now, be it

a software company, a service provider or a manufacturing firm, decide what they

are good at and outsource everything else, i.e., focus on their core competency, and

let someone else do the rest in a more efficient and cost-effective manner.

As a result, human resources outsourcing is becoming increasingly prevalent. The

number of companies outsourcing HR activities continues to rise, and the scope of

outsourced HR activities continues to expand. HR outsourcing can happen in HR

functions, like payroll administration (producing checks, handling taxes, dealing

with sick-time and vacations), employee benefits (Health, Medical, Life insurance,

Cafeteria, etc), human resource management (hiring and firing, background

interviews, exit interviews and wage reviews), risk management, etc. Outsourcing

has become a common response to manage people and technology resources

strategically, enhance services, and manage costs more effectively.

Outsourcing noncore activities allows HR professionals to move away from

routine administration to a more strategic role. The organization can focus on


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higher value-added activities while the outsourcing provider takes care of the day-

to-day administration. Critical internal resources, such as technology and talent,

can be devoted to company's core business.

Outsourcing reduces the need for large capital expenditures in noncore functions.

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

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

nimble and gain the speed and flexibility necessary to compete in today's business

environment. A growing number of executives understand the benefits it can bring

in terms of not only cost savings, but also heightened strategic focus. Many

recognize outsourcing relationships as long-term partnerships created to further the

strategic goals of the organization.

The HR outsourcing business opportunity is large and India is likely to garner a

larger and larger piece of this pie in the future. India, with its intrinsic advantages

such as low cost, ready pool of English speaking manpower and geographic

positioning, is emerging as a viable destination for HR outsourcing companies to

set up their businesses.

But still here people are not very clear about what exactly is manpower

outsourcing all about, and issues like quality and trust needs to be addressed

properly.


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Organizations are still not achieving the full economies of scale that HRO is

capable of delivering. The promise of outsourcing has always been the ability to

spread processing costs, as well as the cost of service and HR technology

improvements, across multiple clients. But the inability (or unwillingness) of

companies to agree upon common standards has kept vendors from achieving

service improvements and cost savings to the detriment of their clients and

themselves.

Companies can experience disappointment with system capabilities and

performance after HRO deals is implemented- Dissatisfaction with vendor

performance usually results from vendors overpromising what they can deliver or

stretching their resources across competing projects. Before committing to an

outsourcing agreement, an organization should assess a vendor's capabilities

against its own business objectives. Vendors, too, need to be more realistic about

what they can deliver. If both sides aren't realistic about what can be achieved,

outsourcing providers will continually struggle to meet their clients' needs and

organizations will be continually frustrated with outcomes

. Experts say the basic reasons hampering the growth of HR outsourcing in India

are confidentiality and cost factors. Moreover, the fear of losing jobs, losing

control over confidential data, ethics and quality of outsourcing vendors, security


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breaches and overall confidence in the vendors deters many organizations. Quality

at times forms another roadblock.

The biggest problem - and this is why the HR outsourcing industry in India is on

the back foot - is the government and the industry's failure to tackle issues like data

security and data privacy. This is where Indian HR outsourcing companies face a

major handicap. The Indian government is still grappling with drafting a data

protection law designed to quell growing privacy concerns from their offshore

clients.

Right now, India is barely skimming the surface of the HR outsourcing market

potential. Indian life Hewitt (ILH), FIDELITY, EXULT and MAFOI are some of

the prominent HR outsourcing services providers in India and the clients include

giants of manufacturing, software and service industries like GE Capital, Ford

Motors, Hyundai Motors, Satyam Group, Infosys, Enron, Haldia Petrochemicals

and HSBC, to name a few, but many more needs to be added to that list. HR

outsourcing has a huge potential for employment also.

One very important trend in the recent times has been the growth of human

resource outsourcing. HR outsourcing is the outsourcing of peripheral but

necessary administrative tasks such as payroll, benefits, education/training,


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recruiting personnel, administration, to realize economies of scale and achieve

standardization of services.

Rapidly changing market dynamics and global competitive pressures have caused

organizations to spend more time focusing on their core business. Organizations

are fast realizing that they can't be all things to all people. So companies now, be it

a software company, a service provider or a manufacturing firm, decide what they

are good at and outsource everything else, i.e., focus on their core competency, and

let someone else do the rest in a more efficient and cost-effective manner.

As a result, human resources outsourcing is becoming increasingly prevalent. The

number of companies outsourcing HR activities continues to rise, and the scope of

outsourced HR activities continues to expand. HR outsourcing can happen in HR

functions, like payroll administration (producing checks, handling taxes, dealing

with sick-time and vacations), employee benefits (Health, Medical, Life insurance,

Cafeteria, etc), human resource management (hiring and firing, background

interviews, exit interviews and wage reviews), risk management, etc. Outsourcing

has become a common response to manage people and technology resources

strategically, enhance services, and manage costs more effectively.

Outsourcing noncore activities allows HR professionals to move away from

routine administration to a more strategic role. The organization can focus on


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higher value-added activities while the outsourcing provider takes care of the day-

to-day administration. Critical internal resources, such as technology and talent,

can be devoted to company's core business. Outsourcing reduces the need for large

capital expenditures in noncore functions.

The HR outsourcing business opportunity is large and India is likely to garner a

larger and larger piece of this pie in the future. India, with its intrinsic advantages

such as low cost, ready pool of English speaking manpower and geographic

positioning, is emerging as a viable destination for HR outsourcing companies to

set up their businesses.

But still here people are not very clear about what exactly is manpower

outsourcing all about, and issues like quality and trust needs to be addressed

properly. Experts say the basic reasons hampering the growth of HR outsourcing in

India are confidentiality and cost factors. Moreover, the fear of losing jobs, losing

control over confidential data, ethics and quality of outsourcing vendors, security

breaches and overall confidence in the vendors deters many organizations. The

biggest problem - and this is why the HR outsourcing industry in India is on the

back foot - is the government and the industry's failure to tackle issues like data

security and data privacy. This is where Indian HR outsourcing companies face a

major handicap. The Indian government is still grappling with drafting a data


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protection law designed to quell growing privacy concerns from their offshore

clients.


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CHAPTER IV

Outsourcing In India- Emerging Trends, And Challenges

Outsourcing is nothing, but purchasing service from an outside vendor rather

than using internal resources. The beginning of new millennium is witnessing

info-tech revolution called IT enabled services. They are business process and

services delivered over networks or the Internet to a wide range of business areas

and verticals. The technology is used as a tool to provide these services, of which

most of the functions are human intensive. Due to the human intensive nature these

processes and services are outsourced in order to derive cost and advantage

without sacrificing quality and efficiency.

In recent years, businesses have outsourced their data centers, application

management activities and, finally, non-core, transactional processes to reduce

costs and improve their ability to focus on more strategic issues. Today, companies

are recognizing that they need to take advantage of low cost sourcing options

wherever they may be in the world. Many are flocking to foreign shores for high-

quality, cost-effective outsourcing services. While India is the reigning offshore

capital for technology capabilities, any country with the right conditions, including


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but not limited to a large population of skilled workers with the requisite language

skills, is a potential sourcing option.

Now, thanks in part to the economic benefits of offshore sourcing options, the field

of business process outsourcing (BPO) has emerged, allowing a company to

outsource an entire process or business functionsuch as Human Resources,

Training, Call Centers and Finance & Accountingto a third-party service

provider. Utilizing global sourcing, companies can outsource many business

processes for a fraction of the cost of running the same functions in their home

countries. In addition to cost savings, companies can benefit from efficient, high-

quality and repeatable processes that generate business performance

improvements.

India is a country, of which, the BPO is making waves in the Industrial landscape.

It is one of the most upcoming sectors after the IT boom. Now the country

gradually turned itself into a hub center of IT and ITES. However each and every

country desires to outsource from India. The BPO sector contributed in the overall

growth of export, employment generation, transport, catering, training, which in

turn are generating substantial tax revenue.


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OUTSOURCING - RECENT TRENDS AND OPPORTUNITIES

Outsourcing is the delegation of tasks or jobs from internal production to external

entity (such as a subcontractor). Most recently, it has come to mean to avoid of

native staff to staff overseas, where expenses are markedly lower. This is despite

the fact that the majority of outsourcing that occurs today still occurs within

country boundaries, especially in North America. It has become a popular

buzzword in business and management in the 1990s.

Where functions previously performed by an organization are supplied under

contract from a third party.

The concept of taking internal company functions and paying an outside

firm to handle them. Outsourcing is done to save money, improve quality, or

free company resources for other activities. Outsourcing was first done in

the data- processing industry and has spread to areas, including tele

messaging and call centers.

A Long term, results-oriented relationship with an external service provider

for activities traditionally performed within the company. Outsourcing

usually applies to a complete business process. It implies a degree of

management control and risk on the part of the provider.


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Why are companies outsourcing?

One of the big advantages to outsourcing is flexibility- it can be a lot easier to cut

back on a vendor than an employee. (Think

of how you would feel if you had to sell an

employee who is dependent on their job that

you only need them half- time now).

Another advantage is that you dont have to

become an expert in every particular area.

You can depend on the outsourced company

to be the expert.

Perhaps the most positive thing about outsourcing is its ability to save money. This

will, of course, depend on the size of your company and what specific tasks you

outsource, but in general, in terms of money saving.

For example: A company outsource the IT services (help desk, computer support

and maintenance), and it pay significantly less than it pay for a full time IT person

to give the same level of support. It also outsource bookkeeping and office

administration, with similar savings. As it grow, itll continue to reevaluate these


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decisions- it may be that the business case for the IT outsourcing remained good as

it grow but that it might eventually hire someone to offload other work from the

current people and since we would be paying them anyway, it could get them to

the bookkeeping as well.

There are some definite advantages to outsourcing. Contract work is often cheaper-

especially if you opt for offshore development. You hire people only for specific

tasks. You can keep adjusting the size of your team to fit your current needs and

budget.

Outsourcing creates shareholder value by reducing commitments to fixed and

working capital. Secondly, outsourcing helps a company focuses on its core

business, creating a competitive advantage within its industry. Other advantages

include gaining access to best-of-class capital accelerating the benefits of re-

engineering.

When to outsource?

When you are too busy handling operations and are losing focus on your

core business.

When you are facing a time, money and human resource crunch.

When you have a mission-critical project that needs all your time and

energy, plus specialized skills, which arent readily available.


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When you have got to the first into the market to gain the edge.

As part of the outsourcing, many companies are debating when to outsource their

management support tools as well. This is a complex question the must consider

the competitive advantage which a tool may provide. The company must also

account for how ready the market is to support such a tool in an outsourcing

model. The final direction should not solely be question of cost saving, but must

consider the benefits and the strategic position of the company in the marketplace.

When you need to smooth peaks, troughs and staff shortages. (Outsourcing

peak demand allows right sizing of information centers).

When you need to have access to specialist skills and knowledge. (Local

international knowledge or specific industries saves information center time

and makes them more efficient).

When you need to have access to specialize content. (Access to specialist

databases and content through specialist information consultancies).

When you need to reduce content cost. (Some information consultancies

have economies of scale and buying power for content therefore access

content at lower cost).

When you need to reduce research cost. (Some information consultancies

have lower resources costs due to use of students, overseas researchers, and

telecom staff or staff in low cost offices).


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When you need to reduce overheads. (By outsourcing staff count can be

reduced and expensive office space is released).

When you need to undertake confidential research. (The use of an

information consultancy can provide anonymity).

Who is outsourcing?

Customer care: includes database marketing, customer analytics,

telesales/telemarketing, inbound call centers, web sales and marketing

and administration.

Finance: includes billing services, accounting transactions, tax

consulting and compliance, risk management, financial reporting,

financial analysis etc.

Human resources: includes benefits administration, education and

training, recruiting and staffing, pay roll services, hiring administration

and transaction processing.

Payment services: credits/debit card services, cheque processing and

transaction processing.

Administration: including tax processing, claim processing, asset

management, document management, transcription and translation.


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Content development: including engineering, design, network

consultancy and animation, biotech research.

There is a difference among outsourcing, off shoring, and near-shore outsourcing.

No commonly accepted definition of off shoring exists, and the term has been used

to include various international trade and foreign investment activities. Services

that U.S.A. based organizations purchase from abroad are considered imports.

They may also be linked to US firms investments overseas.

In recent years, services off shoring has been affiliated by factors, such as the

Internet, infrastructure growth in developing countries, and decreasing data

transmission costs. Organizations decisions to offshore services are influenced by

Potential benefits such as the availability of cheaper skilled labor and

access to foreign markets and

By risks, such as geographical issues and infrastructure instability in

countries that supply the services.

Offshoring of services generally refers to an organizations purchase from other

countries of services that it previously produced or purchased domestically; such as

software programming or telephone call centers.


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Near shore outsourcing, a form of offshoring is the term used to refer to the

practice of getting work done or services performed by people in neighboring

countries (e.g. Canada, Mexico) rather than in your own country

Person-to-person outsourcing:

PPO means person-to-person outsourcing. PPO services follow two business

models:

The direct interaction model where the individual client signs a

contract directly with a vendor in a low-wage country, whose

employees (tutors, admin etc) work on a full-time or a part-time

basis, or as sub-contractors.

The online marketplace model where the vendors providing PPO

services enroll in an online marketplace by paying a monthly

subscription fee plus a fixed percentage of the revenue if they win

the project through this marketplace. So, when an individual client

posts requirements for a new project to be conducted on the online

marketplace, the marketplace communicates these opportunities to

the selected vendors and freelancers and requests proposals to be

delivered to the client.


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Outsourcing- an HR perspective:

There is an increasing trend for outsourcing HR functions and this trend will

continue. Many software companies are tending to outsource HR activities in large

numbers to expert external consultants. The prime focus of HR outsourcing

includes:

Sourcing the right people from the best talent pool quickly and cost-

effectively.

Picking a right mix of the competencies, experiences and behaviors

from this talented pool.

Converting potential applicants to competent employees swiftly,

competitively, and equitably.

Outsourcing anything to everything is therefore, in HR is possible and that would

depend on the outsourcing needs.

ASSESSING OUTSOURCING NEEDS:

Organizations that do outsource must make a proper assessment as to what HR

functions or activities to outsource and why? Organization has to systematically

carry out outsourcing needs assessment (ONA), in order to get effective results

from HR outsourcing activities.


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Organization can assess outsourcing needs by answering some important

questions such as:

What are the organizational objectives, goals, and strategies to

become a leader?

What HR functions are routine and voluminous in nature, for which

internal HR personnel are rather expensive?

What problems are encountered in smoothly carrying out HR

activities internally?

What are the costs and benefits of outsourcing an activity vis--vis

carrying it out internally?

What are organizations internal deficiencies in carrying out some or

more HR functions to manage people effectively?

Through this assessment, it is evaluated that which HR systems and processes are

required, whether these systems and processes are available, and if yes, do they

possess adequate capabilities, and what will it cost, if hired. Therefore, it must be

thoroughly studied before outsourcing the activities.

HOW OUTSOURCING WORKS: The process of outsourcing HR activities

involves the following consecutive stages and each stage has its unique function to

start, run and finish the same to jump the next stage.


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Project Initiation: At the first stage the need for outsourcing HR

activities has been identified, specific area of HR activity that need to

outsourced, and proper plan and time duration of its completion has

been set.

Strategic consideration: After the successful completion of the first

stage, second stage is started where cost-benefit analysis is done to

assess the risk associate with each HR activity, which is considered

for outsourcing.

Vendor evaluation: At this stage, external service providers

proposal is analyzed to identify the gap between the HR requirement

and the vendor service responses.

Corporate communication: Here, right message is delivered to the

right audience, at the right time across the entire organization and

through sharing expectations employees fear is reduced.

Contract management: at the last stage, a contract on business

principles of flexibility and cooperative decision making is made that

makes way for realistic expectations of achieving cost service

benefits. Another plan is


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also made in order to review the relationship of on-going outsourcing

plans.

THE CHALLENGES BEING FACED:

India is making progress by leap and bound on one hand, and on the other hand,

there are several important challenges are being faced by the industry. These

challenges are:

Managing the high attrition rate of 30-to40%: - Sometimes the

prospect of earning could trigger the young employees to switch over

to a rival firm.

Offering high incomes: - To retain employees is a problem since this

is a low margin industry with billing rates varying between $6 per

hour to $20 per hour based on the nature of work.

Mushrooming of small players: - Attractive growth rate of the BPO-

ITES industry has resulted in many reckless starts-ups. Several

companies from unrelated sectors without the required expertise

entered the industry lured by the healthy potential of the industry.

These small companies are now finding difficult to survive in this

capital-intensive industry.

Language problems: - Insufficient proficiency in English language is

a major hurdle for the country.


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Shortage of training programme: - Though educated youngsters are

available in plenty, training a large number of them in the needed

skills for quick ramp up of numbers is difficult due shortage of

trainers.

Night shifts:Because of night shifts the employees become impatient

and even angry; they also suffer from high stress level, fatigue and ill

health.

Outsourcing is countered by some other important challenges:

1. Selection of ideal outsourcing partner

Price

Expertise in a particular industry

Integration capabilities

Training and qualifications

Overall customer service strategy

Company information privacy

Knowledge in latest technology

2. Dynamic challenges


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Management challenges

Cultural/language communication risks

Security risks

Legal concerns

Time zone challenges

Knowledge transfer challenges

Legal issues

3. Outsourcing in-house problems

Sign up for projects without enough preparation

Striking big deals for the wrong reasons

Lack of legal and regulatory expertise

Appropriate recruitment

Shortage of technical expertise

Up-front investment

OUTSOURCING TRENDS:

Outsourcing, going to be more and more of a mainstream phenomenon, is now a

business essential. The next wave in globalization is focused on the transplantation

of entire IT departments offshore. Recent trends suggest that the outsourcing


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market will continue to grow. Contracts are awarded incessantly and study

indicates that companies are expanding the range of IT services they outsource.

RECENT TRENDS :

Offshore outsourcing is increasingly being accomplished as global

sourcing or global delivery.

Cannibalization of work: Earlier work was outsourced to a supplier who

stayed at home, but today outsourcing is more prevalent.

The growth of the captives, organizations owned and operated in a

foreign country by a parent firm. Here the offshore workforces are

employees of the parent company, not an outsourcing supplier.

Outsourced e-commerce: Sending e-commerce out of house is an

increasingly popular choice for businesses.

GLOBAL OUTSOURCING :

Creates and expands new markets

Effectively and efficiently promotes global citizenship

Recognizes the benefits of a global economy

Enhances technological creativity and diversity

Makes good social, financial, and economic sense


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TREND SETTING FACTORS :

Conservative companies to experiment with going offshore to withstand

competition.

Broadening of the IT services offered by the experienced vendors.

The launching of captive offshore centers by user companies for business

process outsourcing (BPO).

Onshore IT technology and services vendors setting up shop in locations

like India and China to widen their services. The main three facets;

i. Availability of aptly skilled resources

ii. Lower costs of manpower

iii. Ability to create better quality of work, more efficiently.

DETTERANTS OF HR OUTSOURCING:

There exists a set of basic reasons hampering the growth of HR outsourcing. Many

companies outsource only a bit of their requirements. Various reasons that deter

many organizations are:

Fear of loosing jobs

Loss of sensitive information to public/ competition.

Ethics and quality of outsourcing vendors.


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Possibility of security breaches.

Cost- benefit equation not clear.

Lack of psychological acceptance.

Outsourcing may not be appropriate when:

The task is a core activity critical to strategy or technology.

Task is highly interdependent with core activity due to technology or

work design.

Task requires great deal of firm specific human capital or access to

proprietary information.

Tasks where the employees work in close proximity to regular, core

employees and are similar socially to them.


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CHAPTER V

Advantages & Disadvantages Of Outsourcing

Human resources are the most critical assets of any organization as the

organization's success lies in their hands. But in order to ensure that its

employees remain satisfied, the company has to have a specialized human

resources department that most of times proves to be a costly affair. That is why

most companies today; decide to outsource their human resources management

functions to offshore destinations.

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.

HR outsourcing including personal outsourcing case studies have indicated that

managing human resources involves specialized activities such as training,

payroll administration, employee database management, employee retention,

employee benefits and a lot more that many companies either don't have the

proper resources or time to manage on their own. By outsourcing their HR

functions companies can save huge amounts of money and be free of

complications that are otherwise involved in maintaining an internal HR


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department. By doing so, companies can concentrate on their core competencies

saving their valuable time and resources. By Outsourcing to third world

developing nations such as India, China, Philippines, Mexico, Ireland etc

companies can exploit the cheap labour and infrastructure facilities available in

those lands and in turn cut down on man power costs, reduce operational costs

and capital expenditure.

ADVANTAGES OF HR OUTSOURCING:

Concentrate on Core Business -Back office operations of a company

are highly tedious and need specialized attention. Most of them are

critical for the company's progress. By outsourcing their back office

operations businesses can concentrate on their core competencies while

their back office operations are being managed smoothly by a specialized

third party company.

Skilled manpower at lower rates -Outsourcing gives an organization

the chance to get access to skilled and trained man power at extremely

lower rates that will lead to an increase in productivity and save costs in a

major way.

Advanced technologies at lower rates- There are many technologically

developed offshore destinations that can give the companies access to


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high tech newly developed technologies at very affordable rates. This in

turn can help them progress at a rapid pace.

Tax benefits- By selecting the right BPO destination companies can

save up on taxes in turn cutting their costs.

Increased productivity- By employing skilled manpower in more

numbers at lower costs companies can highly boost up their productivity

in turn resulting into better customer satisfaction and increased

profitability.

Beat Competition- In a fast paced economy a company needs to provide

the best service to its customers in order to retain them and do all this by

keeping the rates low. Outsourcing in this case can help the company

maintain lower rates with better service thereby helping them to stay

abreast of the competition. These outsourcing advantages are well an

indication that the outsourcing market has a great future.

To sum it up, human resources outsourcing that includes hr recruiting outsourcing

helps cut costs, helps concentrate on core business and most importantly helps in

ensuring employee satisfaction.


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Benefits of HR Outsourcing

Focus on core / strategic issues

Release burden administration

Costs

Costs reduction

Transparency

Economies of Scale

Access to Expertise

Improving Efficiency

Improving Quality

Better service

Flexibility

Transform fixed costs to variable costs

Reduction of Liability and Risk

Shift risks and uncertainty to a third party to reduce personal risk by

sourcing troublesome activities.

Internal Politics


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NEGATIVE EFFECTS OF OUTSOURCING:

Over the past 20 years outsourcing as a phenomena has developed at a very fast

pace. The growth of IT, aiding globalization and thereby generating multinational

societies has given rise to situations where cut throat competition tends to take the

better of us. One face of this competition is the frenzy of research and

development, to cut costs and provide better services, which has manipulated itself

into outsourcing. The situation seems more threatening every added day as more

companies follow suite to the actions of their rivals.

IMPACT OF OFFSHORING JOBS : With outsourcing the jobs are sure to go.

The third world countries do get benefited because of this, but what about the

Makes the new HR function (generalist) more important

Reduction Bureaucracy

Reduce Internal Headcounts

Benefits of an Agent in Negotiations

Vendor is the bad guy

Time pressures

Lack of capacity and resources to be responsive


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people in the first world nations. They do feel unrest and no assurances are going

to keep them from frowning about their precious job that was taken away. Here

again the policies are to blame. Offshore outsourcing backlash on communities

was bound to happen not because the jobs are getting outsourced, but because the

way the jobs are being outsourced offshore today. People are not able to grasp the

implications with a pinch of salt that is way too salty.

OTHER DRAWBACKS OF OUTSOURCING :

Firstly there is a situation today where employees have started fearing

job losses. This gives rise to lower motivation and thereby decline in

services. After all who would like to serve an organization that he

feels is going to sack him for all his services. An employee can give

the company 100% if and only if he feels that he is an integral part of

the organization and not some dummy to be sacked when ever the

company feels like. One more point here is that a sacked employee

could even join hands with competitors and bring to light the

weaknesses of the company.

Outsourcing can also lead to the alterations of well established job

processes that can lead to unnecessary delays and conflicts. Lack of


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coordination between people having different cultural backgrounds

and different time zones can also can lead to time losses.

Looking at all these drawbacks, outsourcing really does not seem to be the

magic answer for cutting costs. On the contrary outsourcing is way more

complicated and can lead to drastic situational developments in the afterward.

The governments of first world nations at this point need to analyze this

situation and help develop a fair playing ground for organizations taking into

consideration the negative effects of outsourcing offshore.

RISKS IN OUTSOURCING :

Although the outsourcing statistics provide us with a positive picture there are

certain problems associated with outsourcing. The major ones can be classified as

follows:-

Geographical problems- Offshore outsourcing can lead to many

problems that are associated with the geographical location of the

offshore destination. Some of these problems can be language

problems, accent problems, political instability, change in laws and

regulations, labour laws, cultural issues and so on.

Infrastructure and operational problems- Infrastructural and

operational problems can be in the form of improper communication


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infrastructure, improper disaster recovery capacity of the country,

power generation capacity, non renewable resources availability and

so on. So before selecting an offshore destination, it becomes

inevitable for anyone to check out on all these statistics for offshore

outsourcing and factors for the success of an outsourcing project.

Risks -Companies have to consider well what the legislative and

procedural ramifications might be before making the decision to

outsource. Some companies outsource because its popular or to get

out of being responsible for many of the regulations and legalities

associated with HR. Other outsourcing decisions are driven by cost

considerations without an eye toward broader strategic issues. The

focus is often short-term because many possibilities are recognized to

cut overhead costs and purchase skills or services. However, costs

often increase because the outsourcing is under-managed and poorly

monitored. Table 2 sums up the risks involved in HR outsourcing.


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Risks of HR Outsourcing

Dependency Risks

Spillover Risks

Loss of Quality

Scope of outsourcing

Undervalued costs

High investments

High costs for custom-tailored services

Loss of Knowledge

Loss of in-house knowledge

Insufficient knowledge of suppliers

Supplier Management

Lock-up in contracts

Ability to monitor suppliers

Loss of cultural insight and linkage to line management


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DRIVERS OF SUCCESSFUL HR OUTSOURCING


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CHAPTER VI

Research Methodology

Two methodologies were adopted while undertaking the research:

Primary data collection: Primary data was collected through the means of a

sample survey. For this purpose, a questionnaire was mailed to some of the HR

managers and executives in various organizations .The data collected through this

survey was then analyzed to determine patterns.

A questionnaire was developed and administered via email to the respondents. The

questionnaire was accompanied by an introductory letter stating the purpose of the

research and promising confidentiality. Responses were then collected and

analyzed to arrive at certain conclusions.

Secondary data collection: large amount of secondary data is available in the

forms of articles, journals, and previously conducted researches on the similar

topics. This data was collected and studied to determine some of the broad trends

prevalent in HR outsourcing across the world and the presence of HR outsourcing

industry in India.


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CHAPTERVII

Data Interpretation

HR outsourcing is at a nascent stage in India.

The study proved that HR outsourcing is still as a nascent stage in India.

Only 44% of the respondents replied that their company has outsourced

some of their HR processes.

HR outsourcing is not widely followed by Indian companies due to

various reasons like lack of quality, security breaches, cost, lack of data

privacy, lack of reliability, lack of understanding of the company culture

by the vendor and immature HR outsourcing market etc.

YES44%

NO56%

HR OUTSOURCING

YES

NO


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HR outsourcing is expected to grow at a rapid pace in the Indian industry.

6

2

4

2

1

0

1

2

3

4

5

6

7

RECRUIT

MENT

PAYR

OLL

PROCE

SSING

TRA

INING

DEL

IVERY

COMPENS

ATION

SURVE

YS

STATUO

TARY

COMPL

IANCE

HR PROCESSES OUTSOURCED BY COMPANIES

Series2

12

5

7

4

1

9

5

COST

DATA PRIVACY

LACK OF RELIABILITY

COMPANY CULTURE

MARKET NOT MATURE

SECURITY BREACHES

LACK OF QUALITY

REASONS FOR NOT OUTSOURCING

Series1


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Indian companies derive lot of benefits out of HR outsourcing.

Various benefits are derived by Indian companies from HR outsourcing

like more focus on core activities, time saving, cost saving, expertise and

removal of unnecessary manpower. Focus on core activities, time saving

and expertise of the vendor were the major benefits found out the survey

as maximum respondents listed these benefits.

Internal customers of the company are satisfied with the decision of the

company to outsource their HR processes.

Cost is the not the main criteria for vendor selection for HR outsourcing

by Indian companies

0

2

4

6

8

10

12

PASTRECORDS

COST

COMPE

TENCE

EXPER

IENCE

RECOMMEND

ATION

S

CRITERION FOR VENDOR SELECTION

Series1


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The employees of the companies which outsource their HR processes

are usually satisfied by the outsourcing done.


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Chapter VIII

Conclusion & Suggestion

The scope of outsourcing has expanded dramatically in recent years. So, too, have

the benefits of outsourcingfrom simple IT cost reductions to dramatic

improvements in efficiency and productivity.

Many European and US companies have realized that they should focus on their

main business and outsource their Human Resource Department, accounting

department etc.

Companies are increasingly outsourcing business processes due to changing and

challenging business environment and technological and legislative changes. There

is a good opportunity for Indian BPO vendors around the world. BPO vendors will

need to have good domain knowledge, process know-how and competence with

technological solutions to cater to these Manage Care Companies.

As the evolution continues, several trends are emerging and building upon one

another in a way that will fundamentally alter the role of outsourcings

contribution to improving overall business performance.

Common Mistakes in Human Resources Outsourcing (HRO)

HRO is not a decision that can be made quickly or carelessly. Organizations

must take care to thoroughly research the market, the process, and their own


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company culture to maximize their chances of success. Part of the

preparation process is ensuring that stakeholders and employees have a clear

understanding of the goals and objectives for the outsourcing arrangement.

Some companies make the mistake of thinking that once its HR services are

outsourced, they are free of responsibility for those functions. Nothing could

be further from the truth. Invariably, outsourcing requires vigilance on the

part of the purchaser of the services, reports the HR administrator of a mid-

size firm.

To overcome these obstacles, organizations considering outsourcing must

appreciate the complexity of the decision and should commit sufficient resources

to the project from the beginning of the process to ensure its success


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Appendix

Questionnaire

Survey on current trends in HR Outsourcing

Name of Organization:

Location:

1)Which sector your organization belongs to?

a) Manufacturing Sector b) IT Sector

c) ITES / BPO Sector d) Retail Sector

e) FMCG Sector f) Government Organization

g) Any other, Please mention

2) For how long has your organization been in service?

a) < 3 years b) 3 years5 years

c) > 5 years

3)Do you outsource any of your HR services?

a) Yes b) No


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If the answer to above question is No, skip next question

4)Which of these HRM services are outsourced by your organization (Select

all services being outsourced)?

a) Providing Temporary staff b) Recruitment & selection

c) Training & Development d) Managing Payroll systems

e) Managing benefits f) Conducting Employee surveys

g) Complete HR function

h) Any other service being outsourced, please mention ______________

5)Which of these factors are major reasons for outsourcing HR services?

(Please rank them from 1 onwards in order of decreasing importance.)

a) Cost savings b) Increased capacity

c) Lack of internal staff / capabilities

d) Access to better systems and technology

e) Other factors (Please mention)

6)Which of these are major risks associated with outsourcing HR services?

(Please rank them from 1 onwards in order of decreasing importance.)


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a) Mismatch of cultures b) Security of Database

c) Financial stability of chosen vendor

d) Justification of cost-benefit calculations

e) Other factors (Please mention)

7)While outsourcing HR services, which of these parameters are most

important parameters for vendor selection. (Please rank them from 1

onwards in order of decreasing importance.)

a) Cost

b) Brand Name of Service Provider (Proven Track Record)

c) Range of Services being offered Flexible Contract Options

d) Other factors (Please mention)

8)Do you think that outsourcing HR services has achieved its purpose for your

organization? (Organizations which dont outsource HR services skip this

question.)

a) Yes b) No

9)Which metric do you use for measuring the effectiveness of outsourcing HR

services? (Please select all the measures being used.)


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a) None b) Cost saved due to outsourcing

c) Service level improvement d) Increase in employee

satisfaction

d) Other factors (Please mention)

BIBLIOGRAPHY

1. http://www.bizbrim.com/outsourcing/hr-outsourcing.htm

2. http://www.coolavenues.com/know/hr/shraddha_2.php3

3. http://www.wkforce.com/human-resources/human-resource-

outsourcing.html

4. http://74.125.153.132/search?q=cache:_rJUTYHJhTcJ:www.allbusiness.

com/human-resources/workforce-management-hiring/380-

1.html+human+resource+outsourcing+project&cd=6&hl=en&ct=clnk&g

l=in
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