Functions of HR Outsourcing

Most commonly outsourced HR functions are:

(i) Recruitment:

Innovative strategies have to be put in operation to place the right person on the job.

(ii) Training and Development:

Training must foster newer, interactive and customized training packages.  Training is no longer ‘employee-driven’, instead, it has become business or customer driven.

(iii) Industrial Relations:

As the businesses are marching towards downsizing, right-sizing and launching better productive measures, there is a need for close collaboration between the managements and the unions, if need for close collaboration between the managements and the unions, if need be by constituting joint task forces to tackle issues as and when they emerge.

 HR Outsourcing Factors

As mentioned earlier, outsourcing has become one of the basic requirement of an business organization.  While outsource the HR function every organization have to keep certain components in to serious consideration so that appropriate functioning of the organization can continue.  Every organization have to take the view from pros and cons of the outsourcing.  The some of the positive and negative factors influencing the HR outsourcing activities in the organization has been discussed below.

Reasons To Outsource

(i)Organizationally Driven reasons

 

Ø  Enhance effectiveness by focusing on what you do best

Ø  Increase flexibility to meet changing business conditions, demand for products and services and technologies

Ø  Transform the organization

Ø  Increase product and service value, customer satisfaction, and share-holder value

 

(ii)Improvement-driven reasons

 

Ø  Improve operating performance

Ø  Obtain expertise, skills, and technologies that would not otherwise be available

Ø  Improve management and control

Ø  Improve risk management

Ø  Acquire innovative ideas

Ø  Improve credibility and image by associating with superior providers

 

(iii)Financially Driven Reasons

 

Ø  Reduce investments in assets and fee up these resources for other purposes

Ø  Generate cash by transferring assets to the provider

 

(iv)Revenue-driven reasons

 

Ø  Gain market access and business opportunities through the provider’s network

Ø  Accelerate expansion by tapping into the provider’s developed capacity, processes, and systems

Ø  Expand sales and production capacity during periods when such expansion could not be financed

Ø  Commercially exploit the existing skills

 

(v)Cost-Driven reasons

 

Ø  Reduce costs through superior provider performance and the provider’s lower cost structure

Ø  Turn fixed costs into variable costs

 

(vi)Employee-driven reasons

 

Ø  Give employees a stronger career path

Ø  Increase commitment and energy in non core areas

 

Don’t For Hr Outsourcing

 

Ø  Don’t outsource strategic, customer, or financial management

Ø  Don’t let the goal of cost savings dominate everything else

Ø  Don’t think that outsourcing is the answer to every problem

 

Excuses Not To Outsource

 

(i)Uncertainty

 

Ø  Significant uncertainties exist

Ø  Existing costs are not well understood

Ø  Anticipated savings will never materialize

Ø  Providers’ excellent reputations are undeserved

Ø  Superior providers to the existing internal unit do not exist

 

(ii)Loss of control

 

Ø  Will lose control over provider

Ø  Will become dependent on providers

Ø  Will lose cross-functional skills, informal networks, and corporate learning

 

(iii)Conflict

 

Ø  Will lose core competencies

Ø  Will lose confidentiality

Ø  The conflicting interests between the parties will never work

Ø  Providers could expand into our business

 

(iv)Employee unhappiness

 

Ø  Will fail to fulfill corporate responsibility to preserve jobs

Ø  May undermine employee loyalty (what kind of message will this send to the rest of the employees?)

Ø  Will lessen commitment to our community

Ø  Will damage morale of all employees, not just those outsourced

 

 

 

Factors hampering HR Outsourcing are:

Ø  The fear of losing jobs

Ø  Loss of sensitive and important information to public/competition

Ø  Ethics and quality of outsourcing vendors

Ø  Possibility of security breaches at both ends

Ø  Cost-benefit equation is still not clear

Ø  Lack of psychological acceptance

Pre-requisites of HR Outsourcing:

Pre-outsourcing Preparations:

These involve evaluation of experiences of the other procurers with same vendor, assessing the culture of the vendor company, critically reviewing vendor proposals, evaluation of a potential strategic partnership, and anticipating staff management problems.

Screen the Prospect's Antecedents: 
The outsourcing firm must perform with due diligence to ensure that the outsourcing firm is visible, reputed, dependable and reliable.

Making Outsourcing Really do its Job: 
Managing the negotiation for contract and managing the contract with by embedding with certainty and flexibility.

Insure the Likely Risks: 
This includes assessing the risk of outsourcing by including liability management in the contract and ensuring proper insurance against the same, proper communication with the employees regarding the unexpected costs and possibility of low quality services and the contingency plan against counter party risk.

Sensitize Employees on Returns to Outsourcing: 
Communicating the plan of outsourcing to all those who are likely to be affected, directly or indirectly, by the proposed outsourcing along with benefits thereof, and its impact on pay and career mobility, preferably through employee forums to minimize it well.

Managers to Become 'Alchemists': Alchemists are people who create something out of nothing, who make their dreams come true. They are passionate about what they do, believing it to be important for the world. To manage and work with people who lack long-term vision, the manager needs to build into organizations a culture of trust and control via 'outcomes' rather than by checks on the process. The manager needs to give more space to employees to make a difference, rather than follow the custom. Managers need maturity and grit to manage outsourcing activities.

 

Need Of Outsourcing

The need of Outsourcing can be defined with the following way:

(i) Cost Reduction:

Cost Reduction has been the predominant motive for outsourcing, a make-or-buy decision that is largely addressed through accounting information. The expectation that outsourcing will cut costs is consistent with the strategic management view of competitive resource allocation. Outsourcing decisions commonly target a minimum of 15% cost saving, sometimes it is in the range of 20-25%.

(ii) Need for Specialized Expertise:

In principle, outsourcing can provide “best-in-the-world” quality for specific activities or components.

(iii) Increased Flexibility to Manage the Business:

Outsourcing presents organizations with the opportunity to avoid the constraints of their own productive capacity in meeting changes in the volume of sales. Outsourcing HR also enables executives to cope with time-sensitive issues and competing demands.

(iv) Lowering of Rigidity and Cultural Change:

Another rationale is to develop less bureaucratic departments, which are often criticized for the constraints they impose on operational flexibility. Because of their size and focus, outsourcing firms are often more agile, and can deliver services more quickly than in-house HR staff.

(v) Technological Changes:

For a business to develop and sustain competitive advantage, it requires access to appropriate technologies, and often the ability to benefit from them. The development of technologies can be expensive.

HISTORY OF HR

Background:

The Human Resource (HR) is a critical aspect of employees’ well-being in any business. If a company fails to give due importance to this function, it s bound to face employee dissatisfaction, which will in turn affect the company adversely. With the increasing complexities in modern business, Business Process Outsourcing (BPO) is the norm of the day. Essentially, outsourcing is a management strategy that allows a company to concentrate on the core business activity, rather than spend time on the non-essential and routine functions.

Management guru Peter Ducker says that “The productive capacity of all business depends on three factors: The capital resource, the physical resource and the human resource. “ Thus, it makes immense business sense to outsource non-core activities. Of all the three resources, only the human resource possesses a productive capacity for which the upper limits are not defined. Therefore, the ingenuity with which a company uses its employees’ skills will define the limits of employee potential.

Evolution of HR outsourcing:

The concept of Outsourcing can be explained with the help of following examples:
(i) During Mahabharata Lord Krishna was outsourced by Pandava.
(ii) During Kurukshetra war Salya was outsourced by Kaurava.
(iii) During Ramayana Rishi Vishwamitra outsourced Lord Rama and Laxmana to complete his worship in the forest.
(iv) When Mata Sits was kidnapped by Ravana, Lord Rama outsourced Shrighive and his army to attack Ravana’s Lanka

In a dynamic global environment, competition in terms of knowledge-intensive services has taken the front seat. That is how the need for human creativity has suddenly been recognized by corporates. But human talent is reported to be falling short of demand. Although capital is freely available for investment, matching technical and managerial talent to manage such investments is found wanting. This phenomenon is driving companies to invent newer ways of overcoming the hurdles.

Conceptual framework of outsourcing:

Outsourcing HR can be defined as the act of utilizing an HR expert for the prime purpose of providing a company with expertise that can well execute HR functions such as payroll and benefit administration, recruitment etc., without adding fixed overhead. In generic terms, core business is the process, which is central to a company’s operations that create value for its stakeholders. These are the processes, which have been identified by the businesses’ strategic thinking as critical to excel, to meet or beat the competition. Being driven by this philosophy, companies during the early 1990s paid greater attention to business process re-engineering, and in the process, figured out that they were spending a lot of time and money in maintaining support and management processes. These process could as well have been availed from companies, from which it was the core business, at a much lesser cost. This realization led to the genesis of outsourcing.

It is nothing but transferring select functions or services and delegating their day-to-day management to a third party called the ‘supplier’ or ‘vendor’. It is merely way of getting something done by third party. Outsourcing is a long term commitment on behalf of the company delivering the service to the outsourcing company. Greater trust is therefore essential to succeed in an outsourcing engagement; else the customer is likely to suffer losses owing to vendor’s failure.

The fastest growing areas for outsourcing are:
Ø HR management
Ø Media management
Ø IT
Ø Customer service
Ø Marketing

The on going globalization process, and the resulting downsizing, re-engineering etc., has paved the way for the breakdown of ‘employer-employee relationship’. In a dynamic market, the so-called competitive advantage, recognized in one period, is fast becoming irrelevant. Similarly, the hitherto acquired knowledge and skills are rapidly becoming outdated. Simultaneously, firms are apprehensive that building up of such new skills, that too at short notices, will be difficult besides being pretty expensive. The net result is ‘outsourcing’ of talent.

HR OUTSOURCING – A REVOLUTION

HR OUTSOURCING – A REVOLUTION
Abstract

Human Resource Management has played an important role in the development of people. The scenario of Human Resource Management is changing day-by-day and human needs within the organization as individuals and in groups is also changing in significantly. Their roles, requirements and responsibilities continue to translate into new forms. In these circumstances, the human resource function plays a very important and strategic role as they have staff authority over the line managers in an organization. A changing business environment can influence the outcome of current operations, stakeholders and corporate strategy as a whole. The function of viewing and integrating business opportunities, stimulating employees, developing employee strengths and creating functional teams help the company’s vision and translates this concern into profit. HR strategy is no longer a distinct process from the business strategy and its processes.

Outsourcing is a management strategy that allows a company to concentrate on the core business activity, rather than spend time on the non-essential and routine functions. Outsourcing creates several HR challenges for firms. Although it often helps companies slash costs, employees may face layoffs when their jobs are framed out to the lowest bidder. The productive capacity of all business depends on three factors: The capital resource, the physical resource and the human resource. Obviously, it makes immense business sense to outsource non-core activities. Of all the three resources, only the human resource possesses a productive capacity for which the upper limits are not defined. Therefore, the ingenuity with which a company uses its employees’ skills will define the limits of employee potential.

In a dynamic global environment, competition in terms of knowledge-intensive services has taken the front seat. That is how the need for human creativity has suddenly been recognized by corporates. But human talent is reported to be falling short of demand. Although capital is freely available for investment, matching technical and managerial talent to manage such investments is found wanting. This phenomenon is driving companies to invent newer ways of overcoming the hurdles. This paper has been prepared for detail presentation and discussion in the seminar on