RESEARCH REPORT

ON

IMPACT OF OUTSOURCING HR ACTIVITIES ON PRODUCTIVITY OF AN ORGANISATION

UNDER THE GUIDANCE OF

Prof.Vivek Chaudhari

FACULTY GUIDE NAME:

SUBMITED IN PARTIAL FULFILLMENT FOR THE AWARD OF MASTERS DEGREE IN BUSINESS ADMINISTRATION FROM U.P.TECHNICAL UNIVERSITY BY

Arti Chauhan
M.B.A [0812470019]

Institute of Co-operative and Corporate Management, Research &Training, Lucknow www.iccmrt.ac.in

Acknowledgement
I take this opportunity to offer my indebtedness to all those whose sincere cooperation and valuable guidance was there during my work in assigned area and preparation of this report. My sincere gratitude is also to Prof. R.K.Sharma of ICCMRT, Lucknow for his support, guidance and resources without which this task was not easy to accomplish in research report.

Last but not the least I express my sincere thanks to my parents for their constant support and suggestions to accomplish my goals. I thank God for his love and grace that enabled me to complete the project.

(Arti Chauhan)

CONTENTS
PREFACE . 4 5-11 EXECUTIVE SUMMARY About the topic Objective of research Impact on company Introduction ... 12-17

What is outsourcing Activities to outsourced Why outsource? Overview Payroll Training Risk Definitions .. 27-29 33-39 46-53 54-61 62-82 83 84-85 86 87-88 18-24

Outsourcing success story .. Strategic outsourcing Research Methodology Research Analysis Findings Recommendation Bibliography Questionnaire .. ... ...... ....... . .

PREFACE
The project prepared gave me an opportunity of learning at Mahindra & Mahindra Lucknow . I learned and discussed important points that are related to my report. I learned and study on different activities of P&A like payroll, training and development, recruitment and selection. The purpose of this report is to provide an accessible account of the key issues currently confirming the industries. The report looks at a couple of the basic function of personnel department and the perception of worker and management regarding outsourcing of HR activities. This report contains the pros and cons of outsourcing HR activities on an enterprise.

At last ,I hope this Project Report will be very helpful to those reader who are interested in the topic of outsourcing of HR activities.

Executive Summary

About the topic

Outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company. The decision to outsource is often made in the interest of lowering firm or making better use of time and energy costs, redirecting or conserving energy directed at the competencies of a particular business, or to make more efficient use of land, labor, capital, (information) technology and resources

Types of Outsourcing
Business Process Outsourcing Information Technology - 28% Human Resources 16% Sales & Marketing 15% Finance 11% Administrative 9%

Least Commonly Outsourced Functions

Performance Management 3% Strategic Business Planning 4% Policy Development/Implementation 4% Employee Communication Plans 10%

The objectives of study are:

To realize economies of scale and achieve standardization of services.

To define the concept of outsourcing. To describe the various procedure followed by Mahindra & Mahindra.
To assess the views of the worker and management in context of these

scheme.

Why Outsource?
Allow HR to focus on core competencies Creates strategic opportunities for HR professionals Improve quality, efficiency, and effectiveness Relief from administrative burdens Reduce operating costs

Impact on Companies
Employee reactions HR executives taking part in operational and strategic decisions Elimination of bureaucracy Customer service improvements

Growth of self-service platform Slimming down staff Cost savings

Findings
1. Cost-benefit advantage - lower cost of outsourcing viz-a-viz outsourced content/processes 2. Confidentiality of processes - away from in-house leaks 3. Greater objectivity/credibility gain amongst employees 4. Confidence of top management on external professionalism and proven expertise

Recommendations

Clients must be clear about what it is sensible to outsource or not, to meet their business needs. This responsibility should not be shared with HRO providers, although consultants' advice may be useful where clients are unsure what to do. Outsourcing deals are typically constructed to last many yearsthe client must think through the implications in the event of significant changes in strategy, structure and operating environment. Clients must achieve real understanding of where and how HRO will improve business performance, and when these performance gains may occur over the lifetime of a contract.

INTRODUCTION

INTRODUCTION
What is Outsourcing?
The performance by outside parties, on a recurring basis, of tasks that would otherwise be performed in-house. Outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company. The decision to outsource is often made in the interest of lowering firm or making better use of time and energy costs, redirecting or conserving energy directed at the competencies of a particular business, or to make more efficient use of land, labor, capital, (information) technology and resources Human Resource Outsourcing 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,

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 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. 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 protection law designed to quell growing privacy concerns from their offshore clients. However, the future seems to be very promising. It's set to become a $ 51 billion market worldwide in 2005, representing 39 per cent of the total business process outsourcing revenue. Estimates show that the latent size of HR outsourcing in India is about $ 2 billion with a current market of $ 27 million and it is growing at an alarming rate of about 50 per cent. India has immense potential as more than 80% of fortune 1,000 companies are discussing HR outsourcing as a way to cut costs and increase productivity. 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. Nasscom numbers are a million software jobs by 2005; HRO would be about a 25 per cent of that. Experts believe that in present times HR outsourcing is undergoing a transition phase, it would still be sometime before we see increased levels of HR activities

being outsourced to India as lack of domain knowledge and quality are some of the critical issues.

ACTIVITIES TO BE OUTSOURCED
Payroll Benefits Recruiting, Staffing, & Search Training HRIS & Web-based services

: How many of you outsource all of your HR function? : What led to the decision to consider outsourcing?

Why Outsource?
: Allow HR to focus on core competencies : Creates strategic opportunities for HR professionals : Improve quality, efficiency, and effectiveness : Relief from administrative burdens : Reduce operating costs

Other Benefits to HRO

: Access to outside HR expertise : Greater diversity of HR services : Leverage vendor investments in technology rarely available to HR organization : Limit fiduciary, audit, and litigation risks and liabilities

: Upgrade level of customer service : Ease time pressure demands :Better, faster, cheaper

OVERVIEW

Payroll
The term 'payroll' encompasses every employee of a company who receives a regular wage or other compensation. Some employees may be paid a steady salary while others are paid for hours worked or the number of items produced. A payroll specialist calculates all of these different payment methods and the appropriate paychecks are issued. Companies often use objective measuring tools such as timecards or timesheets completed by supervisors to determine the total amount of payroll due each pay period. Setting up an effective payroll system is not especially difficult for trained accountants, but it can be very time consuming. Some smaller businesses rely on user-friendly computer software to set up a simple payroll system complete with check printers and file storage. Larger companies may assign trained accountants to handle payroll issues as part of their overall duties. But many businesses without the means to maintain their own payroll systems choose to farm out this task to outside specialists.

HR Consultation services

Personnel Policies Records Retention Consultation Compensation/Benefits Analysis and Planning Employee Training and Orientations Succession Planning Strategic Planning Wage and Hour consultation FMLA/OFLA Consultation Employee Relations Consultation Team Building and Issue Resolution Facilitation

TRAINING
FEATURES

Increases knowledge and skills for doing a job. Bridges the gap between job neegs and employee skills / knowledge and behavior. Job-oriented process, vocational in nature. Short-term activity, desinged essentially for operative.

IMPORTANCE OF EMPLOYEE TRAINING

REDUCTION IN COST OF PRODUCTI ON: Efficient workers do their works

in the best possible manner. they make the maximum utilization of materials and machines. thus, the cost of production is reduced.

MAXIMUM UTILIZATION OF MATERIALS AND MACHINES: Training

teaches the employees of the enterprise the method of doing their job in the best possible manner.

MINIMUM POSSIBILITY OF ACCIDENT: Trained worker know the methods

of doing their jobs in the required manner. the know-how to use the machines in the best possible manner. it reduces the possibility of accidents to the minimum.

STABILITY IN ORGANIZATION: Training brings stability in organization,

because it reduces the rate of absenteeism and labor turnover. it enables the worker to do their works in the absence of any supervision.

HIGH MORALE: As the trained workers are capable in doing their jobs in

most suitable manner and can understand the procedures and methods easily, it increases their morale. it gives them satisfaction in their work.

IMPROVEMENT IN THE QUALITY AND QUANTITY OF PRODUCTION:

Training increase the efficiency of employee which increases the quantity of production and improves its quality.

MINIMUM NEED OF SUPERVISION: A trained worker can do his work

himself efficiently. thus, the training reduces the need of supervision to minimum.

HELPFUL TO MANAGERS: As there is minimum need of supervision, it

helps the managers of the enterprise to concentrate upon the important problems of enterprise. they have not to waste their valuable time on supervising the workes.

Risks
: Over promise and under deliver

: Nonperformance of key function : Cost : Loss of institutional knowledge : Difficulty managing vendor relationship : Change in providers business or financial stability : Lack of fit with company culture : Organizational resistance or unreadiness

Considerations
: Core Competency? : Best in Class?

1. What is your vision for your HRM business? 2. What metrics will measure progress toward vision? 3. What business outcomes are needed from the HRM aspects of the business?

Outsourcing Myths
: Outsourcing is just a fad : Outsourcing can be kept secret from employees : Outsourcing is only for the largest companies : Messes must be fixed before outsourcing : Outsourcing is for everyone

Trends in HR Outsourcing Market

: Specialization : Globalization : Standardization : Regionalization : Consortia Buying : Mid-market Mania

: Utility Model Evolution : Consolidation and Partnering

The Future of HRO

1. Growth-Maturation of HRO market 2. Increasing weight of non-cost drivers 3. Commodization of HR functions 4. New roles for internal HR departments 5. New career opportunities for HR professionals 6. Expansion of small/mid-sized HRO markets 7. Demographic changes 8. Improved HRO metrics 9. Reshaping of industry

Impact on Companies

: Employee reactions : HR executives taking part in operational and strategic decisions

: Elimination of bureaucracy : Customer service improvements : Growth of self-service platform : Slimming down staff : Cost savings : Model will serve to guide other organizational functions (IT, accounting)

Impact on HR Profession

: Internal HR at significant disadvantage in cost per transaction : Loss of control of key processes : Enhanced credibility : Strategic focus : Decentralized structure : Internal politics HR as business partner : Move to customer service culture : Management and Organizational Development big picture view : New roles consultant and HR strategist : Develop competencies to remain valuable : HR is exposed and more visible as organizational function

: HR is far more measurable : Align HR strategy with corporate goals

Definitions
OUTSOURCING The transfer of the provision of services previously performed by in-house personnel to an external organization, usually under a contract with agreed standards, costs, and conditions. Areas traditionally outsourced include legal services, transport, catering, and security. An increasing variety of activities, including IT services, training, and public relations are now being outsourced. Outsourcing, or contracting out, is often introduced with the goal of increasing efficiency and reducing costs, or to enable the organization to develop greater flexibility or to concentrate on core business activities. The term subcontracting is sometimes used to refer to outsourcing.

PRODUCTIVITY
Maintaining a high productivity is the life of a successful business all around the world. No matter how much money you invest in your business without

productivity implementation strategies your business would not progress and would eventually collapse. Productivity in an industrial context is output of an aspect of production per unit of input. It is a method used to measure the quantity of output of worker, machine, or an entire national economy in the making of good, services, or commodities to produce income. When referring to productivity there are several concepts that we need to know: 1. Economics productivity The amount of output created to produce per unit input used. 2. Linguistics productivity It is the degree to which a grammatical process can be completed to new cases. 3. Corporate finance productivity This is refers to the current year's sales to expense

BENEFITS OF PRODUCTIVITY In improving the productivity of a company, the business will gain many benefits. These can include: 1. Increase in income/profitability. 2. Lowering running costs/operational costs. 3. Maximizing the use of all of the companys resources such as land, equipments/machineries, factory, workers, and etc. 4. Gaining a greater share of the market. More cash flows mean more opportunity for the company to expand and grow.

Other Definitions
In-sourcing Off-shoring Co-sourcing Geo-sourcing Outplacement

WHY THE OUTSOURCING RUSH?

What are the reasons for the growth in HR outsourcing? How do companies gain by outsourcing their HR activities? HR outsourcing is considered a viable option, if a company lacks internal expertise and confidentiality and requires unbiased opinion on human resources. Outsourcing is also gaining importance as most companies do not have the time or the expertise to deal with situations. Outsourcing has become popular because companies are finding that external vendors-through technology and economies of scale-can provide more efficient and cost-effective HR services than in-house departments. The best example of a firm that has reaped early benefits from outsourcing is BP. In 1999, it outsourced its activities to Exult in the USA and UK for services like payroll, recruiting, expatriation, records management, vendor management and relocation services for 63, 000 employees.

The only function that remained in-house was BPs learning and development program in the United States. Over the last two years, the company has reaped many benefits from this arrangement. Payroll processing became more timely and accurate. Employees got their benefits

questions answered sooner. HR processes have been standardized across the company. And for the first time, BP has measurable data on which HR activities are effective. As a result, its core HR staff has been slashed by 65 percent-from 100 to 35 people. Such success stories have propelled companies like Sony, AT&T and American Express to outsource HR activities. One of the main reasons for HR outsourcing that most companies quote is that such outsourcing helps them to get rid of routine transactional HR work. Some of the companies which have gone ahead with even manpower hiring outsourcing practices are Cisco, GE, Honeywell, Sun.

BENEFITS OF OUTSOURCING

When a number of companies are outsourcing their HR activities, there must be certain benefits associated with it. The major advantage is the cost and the time factor. According to India Life Hewitt, Vice-President, Leo Fernandes, For large organizations to service their mammoth payroll by themselves is a huge drain on their resources. Outsourcing this one activity alone is huge direct cost saving for large legacy companies which could be in the range of 20 to 40 per cent." The major benefits of HR outsourcing are as follows: Fosters Innovation Increased speed to market Improved quality Focus on core competence Cost reduction Reduced administrative costs Improved customer service Insufficient staff Conserve Capital

HR Outsourcing Success -tips to avoid the pitfalls

Outsourcing is a hot topic on many HR Director's 'To Do' lists, but it has been slower to take off than Finance or IT Outsourcing. So what are the key differentiators that drive outsourcing as a preferred option for HR and warrant extra attention during the outsourcing process?

Firstly HR processes tend to have fuzzy boundaries. Ask 10 HR Directors to define what tasks fall into payroll and which into the HR admin department and you will get 10 different answers.

There is a tendency for customised offerings, designed to meet a client's specific policies, procedures and priorities for HR. There is no 'one size fits all' where HR is concerned.

Thirdly HR has multiple inputs and outputs. Data passes between HR and authorities, employees, managers, the finance department, the production department, trade unions, debtors, former employers and many other parties. Finally HR is subject to frequent and stringent legal changes. Noncompliance can result in considerable fines and can also lead to onerous audits elsewhere in the company.

So HR outsourcing is not so straightforward.but these simple tips can help to ensure success when outsourcing HR services. 1. Clarify the unspoken truths Some HRO providers have a strong 'can-do' attitude, but given the fragmented nature of HR, their experience may be lacking in substance. A supplier may deliver vaguely similar services to those you wish to transition. They may deliver the same services but on a much smaller scale. You don't want to become their guinea pig. They may offer 'comprehensive services', but this may not mean that everything is included. Be sure to understand the supplier's background and experience. Is their experience mostly in systems implementation, process improvement or actual service delivery? Ask whether the supplier has actually transitioned certain services or simply 'bought them in'. Visit the service which will actually deliver your services. In reality these may consist of 20 people who have never transitioned or delivered HR services like yours, and may be different from the 'showcase centre'. Finally understand the supplier's approach to automation. A sad fact of HR processes is that not all can be automated, but suppliers may charge extra for manual processes. Build a detailed list of scenarios and ask how each would be handled, and most importantly charged for.

2.

Don't change all of your processes and systems at once

It is very tempting to implement a single system for your entire HR department and outsource everything at once. Because HR systems are extremely interdependent, project slippage in one system can lead to manual work, additional programming and training in interim systems. Outsourcing brings disruption and risk in the early days, adding multiple processes and projects increases this risk considerably. Consider instead outsourcing some processes as-is, or having a staggered implementation. This will require additional work to establish new interfaces and hand-offs, but this investigation is valuable in ensuring the systems and processes are fully understood, and will increase the quality of your outsourcing in the long term.
3. HR people don't like project plans - build a diverse project tea m

Stereotypical? Yes. Realistic? Indeed! It is no secret that HR people are less comfortable with rules, structure and excel sheets than their Finance and IT counterparts. An outsourcing project involves multiple workstreams covering technical, process and change management areas. It needs a lot of structure and rigour, as well as strong empathy and a sense of humour.

Choosing team members for there preference for order and structure, or their interpersonal skills, as well as their experience, can help the whole team to function better, consider a broader range of issues and progress at the right pace. A strong project kick-off programme will help team members to understand, respect and leverage each other's views, skills and preferences.
5. A little outsourcing experience is a dangerous thing - build a diverse

project team

A team member with a little outsourcing experience may use this as a reference point for a much bigger European deal. This 'blinkered' view risks the team missing key points specific to European outsourcing such as the extent of diversity in HR law and practice between countries, the complexity of legal changes and statutory reporting in certain countries and the role of Works Councils.

The answer is to build a team including people with broad experience of outsourcing, and also those with no experience, but with the skill to question the decisions the team is making.

6. Be aligned on what 'partnership' means

HR Outsourcing deals tend to last for at least 5 years, so it is critical to have a strong relationship with your outsourcing provider. 'Partnership' is a commonly used term, but should not mean 'best friends with'. A strong, long term relationship should be built around a strong contract which meets the needs of both parties. It can be very tempting to always defer to the wishes of the supplier in the desire to build a 'partnership', but this is detrimental in the long term.

Be sure the project team are clear on the rules of engagement with the supplier. Explain that partnership means building a mutually beneficial business relationship. That it is ok to give in on some things but be sure not to give in on others. Build a list of what you are prepared to give way on and what not. And be sure to track your starting position - what you ask for when first selecting a supplier and any negotiated points throughout selection and contracting. This will help you to have an unbiased view of how balanced your partnership is.

6. Negotiation - give your team strength

Negotiating is tough at the best of times and HRO contracts are complex and specific. Your team may have been brought together for its HR experience, not its negotiating skills. This makes for a stressful time. One HR manager recently agreed many things in the supplier's interest, simply because they lacked basic negotiating skills and had formed a 'kinship' with the supplier.

Ensure all members of the negotiating team have negotiating training. Ensure that the team has strong roles and responsibilities - who can make agreements and concessions, who can take detailed notes, who can call timeout on a discussion. Set clear ground rules - no side discussions or offline discussions, a democratic process for making decisions, a defined process for changing an agreement once made. 7. Knowledge transfer - HRO takes time!

HR processes are typically dependent on a number of different inputs and factors. Processes and procedures vary considerably from one company to the next. It is much harder to write 'rules' and build a knowledge base for HR transactions than for other functions. HRO providers with a systems

background may underestimate the importance of detailed knowledge capture, stating 'we'll do the processes our way; we don't need to understand how you do them'. This increases the risk that important steps are missed, which can impact not only the success of the outsourcing, but also employee morale and even the reputation of your company.

Be sure to allow sufficient time for Knowledge Transfer and ask your supplier detailed questions about their Knowledge Transfer process. Your contract terms should ensure that failure to adequately capture and transfer knowledge will have financial implications for the supplier. Most importantly, work together, so that your employees understand and support the knowledge transfer process. 8. Implementation - establish clear ownership of the local organisation

Each country should be responsible and accountable for the successful implementation of the outsourcing project. Local HR organisations understand better the intricacies of their countries, and can better mitigate the specific local risks. If local leadership do not feel ownership for the project there will be much more resistance at grass roots level.

This means involving key country leaders in the project in the early stages, including the supplier selection. Establish clear lines of responsibility between the central and local teams. The central team may own the contract negotiations, while the local team may own the success of the knowledge transfer process. HR Outsourcing is a key enabler for HR departments to fulfil their vision and meet their commitments to the broader company. Ask lots of questions of your potential suppliers around their experience, skills, and knowledge transfer methodologies. Beware of crossing the line between successful partnership and 'best friends'. Be realistic about the scope to be outsourced, and place high importance on a strong knowledge transfer process. Finally, build a diverse and balanced project team, with clear operating principles and be sure to involve the local organisation early on in the project. It isn't simple, but with good planning and a strong implementation team HR Outsourcing can bring enormous benefits.

THE INDIAN SCENARIO

Indian companies are also not lagging behind in outsourcing their HR activities. LG Soft India has outsourced its PF management, Escosoft has outsourced payroll processing, execution of training programmes and survey conduction. Depending on their need, outsourcing can be transactional or HR Consulting. In India transactional outsourcing is more prevalent . In the value chain, it falls at the lower-end compared to HR consultancy, although it happens to be an essential function. According to Harish Chopra, whose firm Harish Chopra & Associates has garnered a large chunk of financial sector HRO over the years: An investment bank would prefer to recruit investment bankers rather than HR specialists. And given their minimum salaries and establishment costs, HR administration would cost them twice as much 4. The HR outsourcing fever has not only spread to large companies but many small and medium sized companies are also welcoming this trend. Salary and Benefits Processing, Benefits Administration, and Compensation Benchmarking & Design are the most frequently outsourced HR activities in India. According to a study conducted by the Institute of Management Accountants (IMA) in mid 1990s, mid-sized companies spent more on the

routine transactional work in finance and accounting services than large companies and maintain 79 percent more headcount. This kind of cost is felt even more in the routing HR work. According to the survey more that 87 percent of the funds mid-sized companies budget for finance and HR go towards routine processing transactions, rather than policy making strategies and analysis that could move their business forward. This is clearly counterproductive for organizations set on high productive model

INDIA AS AN HR OUTSOURCING DESTINATION

India is emerging as a major player in HR outsourcing. Though there are hardly five to six names in this market, they are trying to make a mark for themselves and tap the potential of providing HR outsourcing services. Companies like Mahindra and mahindra are expanding their horizons by extending their services to the indian region. However, overseas HR servicing companies are beginning to view the Indian market as a viable investment destination, where they can set up their operations and cater to the rest of the international market. The $450-million Exult Inc. started a 70people outfit in Mumbai. From the tactical and straightforward handling of

payroll and benefits, HR services providers are moving into the strategic world of BPO. HR-enablers are helping HR managers free themselves from the routine jobs and work towards taking employee services to a higher level.

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. The HR outsourcing business opportunity is large and India is likely to emerge as a major player in this market. Patni Computer Systems is looking to leverage its work done on 401K pension plans to get into HR. Daksh has started payroll processing. The $5-billion payroll processor, Automatic Data Processing is also planning to start operations in Hyderabad The various HR processes that companies are venturing into include data entry, payroll processing, employee staffing, training, resume pension management, plans, leave

compensation,

communications,

administration and HR data analytics. The popular delivery models for HR services outsourcing are self service, call center back up or shared services involving high caliber HR professionals Who play a consultative role to line managers.

When compared to other regions, India holds an advantage in HR outsourcing because of cost factor and education of the workers.

IS THE MARKET STILL UNEXPLOITED IN INDIA?

Despite all these figures and numbers mentioned above, HR outsourcing is still considered to be unexploited. There are a number of deterrents that are keeping companies from moving to HR outsourcing.

The basic reasons hampering the growth of HR outsourcing in India are confidentiality and cost factors. Many companies outsource only a bit of their requirements because of the above two factors.

Besides, the fear of losing jobs, losing control over confidential data, ethics and quality of outsourcing vendors, security breaches and overall confidence in the vendor deter many organizations. According to V. Kartikeyan, the director-human resources of Texas Instruments India,

Some companies can also be reluctant because they may not have an adequate grip over the cost-benefit equation of outsourcing. Companies need

to be convinced before they can outsource select HR activities. 6 The basic cultural mindset and the acceptance at the psychological level add to the deterrents. An in-house HR person handles certain situations that an outsourcing agency cannot handle well (things like building employee incentive programmes, taking care of recognition for employees).

At times, many employees would want someone in-house to resolve their work-related problems or disputes. All this is only possible if there is an inhouse HR team, which interacts with the employees on a daily basis. Quality at times forms another roadblock. The issues of pricing also play an important role as there is no standards benchmark for pricing and it varies from vendor to vendor. Doing reference check helps a lot in this case.

THE FUTURE AHEAD

The future of HR outsourcing in India is poised to be very effective because of 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. While currently there are only a few major players the trend seems to be catching up as companies

are showing marked interest to improve on services such as pay roll benefits as well as complete HR delivery. Companies are looking to outsourcing the complete range of HR delivery and designing products on policies, compensation, structure, and recruitment. Indian companies are not only providing services for the clients abroad but are also catering to the local market. Moreover these players are moving up the value chain.
Mafoi has emerged as a major HR outsourcing center (Refer exhibit on HR outsourcing at Mafoi consultants). It is estimated that currently the organized sector of HR is catering to only two percent of the whole market . This is the right time for the players to tap this emerging market.

Strategic Sourcing
Research conducted by the International Data Corporation (IDC) indicates that the role Human Resources plays is becoming increasingly complex, and is thus sparking a need for HR outsourcing. New technologies, globalisation strategies and lack of a skilled employee pool are some of the factors complicating HR's roles, IDC says, and many companies are outsourcing some of their HR functions to help deal with these challenges.

Further research on the benefits of outsourcing abounds and has been conducted by companies like the Gartner Group, the Bureau of National Affairs and Accenture. In the recent Accenture survey of more than 800 executives in the US and Europe, 86% said outsourcing gives them more control over business results in a variety of critical areas, the most important being the ability to plan. According to a leading Accenture partner, Industry leaders are beginning to view outsourcing as a prescription for change versus an antidote to rising costs. According to Gartner Research conducted in 2003, the out in outsourcing is to be replaced by strategic as the nature of business evolves to meet an ever-faster changing pace. We have positioned ourselves as strategic HR partners since inception, focusing on a strategic sourcing service that provides a flexible option for clients.

Benefits
Benefits of strategic sourcing through The People Business Group include:

Enhanced Performance by staying ahead by using the proven expertise in the key areas that are the business focus of the external partner.

Released Potential whereby key players have more time to focus on their performance, as extra and time-consuming tasks are removed and the outsourced partner is responsible for the full management of the staff on site.

Immediate productivity, as the experienced consultants on site at your organisation is able to assimilate immediately into the workplace and become productive and effective.

Lower Overheads because of the elimination of the cost of providing services in house, or support services, training costs, fringe benefits, use of company resources, management time, transport, staff welfare and other associated costs with permanent employees (e.g leave pay, recruitment costs).

Objectivity and extreme confidentiality in dealing with the HR and payroll issues a company faces on a daily basis, as the external consultants are able to remain outside of the situation and provide the service more efficiently.

Continual coverage and availability of experienced resources. In the event that a consultant goes on leave or is off sick, another resource is

immediately assigned to the company to ensure continuity, unlike in the case of a permanent employee.

Contract-To-Hire And Recruiting Agencies

You may be wondering how staffing companies recruit applicants. They can recruit in a number of ways. They may advertise in newspapers, through job fairs,virtualcommunities, and online job boards You may have seen ads in newspapers for contract-to-hire positions. A majority of these ads are placed by staffing companies to recruit applicants or contractors. They normally dont reveal the name of the hiring company until they set you up with an interview. Job fairs are a second method used to find potential applicants. If youre interested in attending a job fair, you normally find them advertised in newspapers. You may even do a search on the Internet for job fairs in your area.

Online job forums are an effective recruiting method. The service is generally free and does not take very much time to post. The recruiter normally posts the job description, requirements, and the contact

information. Applicants generally are asked to send a copy of their resume and a cover letter explaining why they think they are a good fit.

The fourth recruiting method is online job boards. These are similar to newspaper ads, but are placed online at employment sites. You can expect the ads to read much like a newspaper ad.

Contract-To-Hire: Why Use A Staffing Agency?

There are many benefits to using the services of a staffing company. Staffing companies have staffing and recruiting teams. Their job is to recruit, prescreen, and test individuals. By the time an applicant is sent on an interview, that person has already been tested thoroughly and his skills have been assessed. Staffing companies are interested in keeping their clients; therefore, they work hard at matching an individual with the company or position that best suits him. Everyone wins in this case. The staffing company keeps the client happy; the applicant thrives on his job because hes capable of performing the duties well, and the hiring company gets a capable, productive potential employee. Another benefit to using a staffing companys services is that they are responsible for conducting credit and background checks. Especially if your

business deals with sensitive, confidential information, you can feel confident that contractors sent to you have already gone through all the screening checks. Still another benefit, if for whatever reason you decide that things are not working out, you simply terminate the contract. There is no legal obligation to keep the contractor any longer than you need or wish to keep him. If you are the contractor, using a staffing company benefits you, because if you decide that you dont want to continue with a certain company, you too can terminate the contract without any legal obligations.

Contract-To-Hire Employment
This type of position is becoming more popular and easy to find. If you prefer to seek employment on your own rather than through a staffing company, you can still succeed. You would proceed the same way as with a direct hire position. Look in newspapers. Make sure that the contact information is for the hiring company and not for a staffing agency. Go to online employment sites and enter a search for the term contract-to-hire in your area. Larger companies

sometimes have job fairs. You can do a search for job fairs in your area as well, and make sure you attend. Having your resume ready, your work history, and references along with a cover letter increases your chances of finding a position. Resumes and cover letters take time to put together. If you have these items ready, you can forward them as soon as you see an ad. All you will need to do is update the position on the resume. The cover letter may require a few more updates such as the position, contact person, and maybe their address. Make sure you have the correct date.

RESEARCH METHODOLOGY

RESEARCH METHODOLOGY

RESEARCH PROBLEM
I have selected that IS PRODUCTIVITY INCREASE THROUGH HR Outsourcing as research problem for my research report. As a research problem is the situation that causes the researcher to feel apprehensive, confused and ill at ease. It is the demarcation of a problem area within a certain context involving the WHO or WHAT, the WHERE, the WHEN and the WHY of the problem situation.

RESEARCH OBJECTIVE
How productivity relates with performance appraisal. In addition, the major factors of performance appraisal, which have taken a part in increasing productivity of the organization.

RESEARCH DESIGN USED

As research design is simply the framework or plan for a study i.e. used as a guide in collecting and analyzing the data. Research design can be grouped into three categories-exploratory research, descriptive research and casual research. I have used exploratory research design in my project.

EXPLORATORY RESEARCH
Exploratory research studies are also termed as formulating studies. The main purpose of such studies that of formulating of the problem for more precise investigation or of developing the working hypotheses from an operational point of view. An Exploratory Research focuses on the discovery of ideas and is generally based on secondary data. It consists;

 Search of secondary data and literature Survey Case study

SEARCH OF SECONDARY DATA AND LITERATURE:The quickest and most economical way is to find possible hypotheses from the available literature. The past researcher may be suitable sources of information to develop new hypotheses. The researcher can search them for his research purposes. SURVEY:Survey means the survey of people who have had practical experience with the problem to be study. These individual can be top executives, sales manager, wholesaler and retailer processing valuable knowledge and information about the problem environment. CASE STUDY: -

The case study method is a technique by which individual factor weather it be an institution or just an episode in the life of an individual or a group in its relationship to any other in the group.

RESEARCH INSTRUMENT USED

I have used the following research instruments in my project: QUESTIONNAIRE: The term questionnaire usually refers to a self-administered process where by the respondent himself read the question and records without the assistance of an interviewer.

OBSERVATION METHOD: The observation method is useful to know the reaction of handicapped information. INTERVIEW: The interview method of collection data involves presentation of oralverbal stimuli and reply in terms of oral- verbal response.

SAMPLING TECHNIQUE USED

When field studies are under taken in practical life, consideration of time cost and some other factors almost invariably lead to a selection of respondents. The selected respondents constitute a sample and the selection process is called sampling technique.

A sample design is definite plan determined before any data are actually collected for obtaining a sample from a given population. Samples can be either probability sample or non-probability sample. I have selected simple random sampling in my project,

SIMPLE RANDOM SAMPLING

This type of sampling is also known as chance sampling or probability sampling where each item in the population has an equal chance of being selected in the sample.

SAMPLE SIZE
When a survey is undertaken and when it is not possible to cover the entire population the researcher has to answer the basic question how large should be sample be? The sample size decision is related directly to research cost.

The intended sample size is the number of participants planned to be included in the trial, usually determined by using a statistical power calculation. The achieved sample size is the number of participants enrolled, treated, or analyzed in the study. I have taken 50 people in my sample size, as the sample size should be neither so small nor so large.

METHOD USED FOR DATA COLLECTION

The task of data collection begins after a research problem has been defined and research design chalked out. While deciding about the method of data collection to be used for the study the researcher should keep in mind two types of data1. Primary data 2. Secondary data 1. PRIMARY DATAThose data that have been observed and recorded by the researchers for the first time in their knowledge. Sources; Questionnaire Interview method

2. SECONDARY DATAThose data that have been compile by some agency other than user. Sources; Case study

ANALYTICAL TOOLS USED

The term analysis refers to the computation of certain measures along with searching for patterns of relationship that exists among data group. Analysis is essential for a scientific study and for ensuring that we have all relevant data for making contemplated comparisons. Therefore, I have used Tabulation, Graphs & Charts in my project.

RESEARCH ANALYSIS

RESEARCH ANALYSIS
Types of Outsourcing
Business Process Outsourcing Information Technology - 28% Human Resources 16% Sales & Marketing 15% Finance 11% Administrative 9%

All Others 22%

Least Commonly Outsourced Functions

: Performance Management 3% : Strategic Business Planning 4% : Policy Development/Implementation 4% : Employee Communication Plans 10%

Performance Management

Strategic Business Planning Series1 Policy Development/Implementation

Employee Communication Plans 0 2 4 6 8 10

Aware of the objective of outsourcing HR activities

90 80 70 60 50 40 30 20 10 0 Very much Some what Don't know

Very much Some what Don't know

85% 13% 2%

Strategic Outsourcing helps the organization in achieving goal

90 80 70 60 50 40 30 20 10 0 Yes No Don't know

Yes No Don't know

79% 20% 1%

Strategic Outsourcing affect the working efficiency of employees

Yes No

84% 16%

Strategic Outsourcing is able to develop high result orientation approach

100 90 80 70 60 50 40 30 20 10 0 Yes No

Yes No

94% 6%

The system will also contribute in potential appraisal

80 70 60 50 40 30 20 10 0 Yes No Don't know

Yes No Don't know

72% 20% 8%

Outsourcing Decision making in the organization is based on

90 80 70 60 50 40 30 20 10 0 Performance Experience Both

Performance Experience Both

4% 12% 84%

TRAINING ANALYSIS
AWARE ABOUT THE TRAINING PROGRAMME

100 90 80 70 60 50 40 30 20 10 0 YES NO

PERFORMANCE IMPROVES THROUGH TRAINING PROGRAME

90 80 70 60 50 40 30 20 10 0 YES NO

What can be increased through training

QUALITY

PRODUCTIVIT Y PERSONNEL GROWTH MANAGEMENT DEVELOPMEN T

IS THE TRAINING DEVELOPMENT

IMPORTANT FOR THE MANAGEMENT

Agree Neutral Disagree

IS TRAINING MORE SPECIALIZED IN IT ?

EFFECTIVE

BY

THIRD

PARTY

90 80 70 60 50 40 30 20 10 0

YES NO

YES

How Common is HRO?

58% of companies outsource some HR function2 : 91% of companies with $1 billion+ annual revenues are now considering HRO3 : HRO grew 28% from second half of 2004 to first half of 20054

Other Types of HR Outsourcing

: Pension Benefits Administration 55% : Temporary Staffing 54% : Retirement Benefits Administration 47% : Payroll & Software Services 48% : Recruiting, Staffing & Search Non-executives - 30% Executives - 29% : Employee Relocation 29% : Training and Development 21% : Incentives 19% : HRIS & Web-based Services 15% : Reference Checks

: PEOs and ASOs : Sourcing Consultants & Legal Services : Screening & Workplace Security : Process, Project, and Systems Management

Audience Survey
: How many of you outsource part of your HR function?

Payroll Benefits Recruiting, Staffing, & Search Training HRIS & Web-based services : How many of you outsource all of your HR function? : What led to the decision to consider outsourcing?

Why Outsource?
: Allow HR to focus on core competencies

: Creates strategic opportunities for HR professionals : Improve quality, efficiency, and effectiveness : Relief from administrative burdens : Reduce operating cost

Other Benefits to HRO

: Access to outside HR expertise : Greater diversity of HR services : Leverage vendor investments in technology rarely available to HR organization : Limit fiduciary, audit, and litigation risks and liabilities : Upgrade level of customer service : Ease time pressure demands :Better, faster, cheaper

Impact on Your Career

: Transformation from transactional administrator to business partner that sets strategy : Develop competencies to negotiate and manage vendor relationships : Demonstrate ability to provide business solutions for employee and customer problems : Change bureaucratic culture : Develop strategic expertise necessary to manage human capital : Deliver exceptional customer service : Sharpen your skills : Build/Develop your network : Stay on top of trends and their implications

: Utilize vendors now so that they can help you later .

Satisfaction
Recent survey of 129 large companies representing 2 million employees: : 89% satisfied with outsourcing arrangement : 85% achieved hoped-for benefits : Additional 20% achieved unexpected benefits

satisfied

achieved hoped-for benefits

Series1

achieved unexpected benefits

20

40

60

80

100

Overview of Process 1. Planning 2. Exploring strategic initiatives 3. Analyzing costs/performance 4. Selecting providers 5. Negotiating terms 6. Transitioning resources 7. Managing relationships

: Prepare

HR

Develop and communicate new HR strategy Define new roles and responsibilities Restructure HR Hire new employees to fill skill gaps Provide training for employees in new roles

: Prepare Organization
Develop HR strategy within overall organizational strategy Communication plan Resolve issue of whose payroll individuals are now on Are HR employees actually employees of provider? Does head of HR work for company or provider

: Assessment Self examination SWOT of department Organizational scan

: Define opportunities and benefits : Build the business case consider all costs and impacts on organization : All functions that are not core competencies should be considered for HRO nothing is sacred : Consider the driver behind HRO decision

Analyzing Cost/Performance

: Understand market trends and competitive position : Identify goals and objectives : Determine added value : Gather baseline HR costs and metrics : Compare current HR operations to benchmarks : Determine which processes have highest strategic importance and add most value

Negotiating Terms
:Good contracts make good partners : Maintain heat of competition during negotiation : Reasonable, but clearly established, expectations : Well-documented deliverables regarding every aspect of deal : Attorney involvement

Specifications of Contract
Contract Duration Exact beginning and ending dates Financial penalties for early termination

Parties to the Contract

Allow for additions or deletions (in case of acquisitions or divestitures) Require vendor to name all subcontractors and give you right of approval for those introduced later

Services Performed
Specify all functions to be provided Outline all support services Ensure escalation process and dispute governance included

Performance Standards
Tweak standard performance guarantees Reinforce performance guarantees through at-risk fees

:Hold-Harmless Statement
: Fees : Data Security : Communication Review : Contingency Plans : Audits : Final Contract Review

Findings
Till that time, HR outsourcing in India remains to be a gold mine waiting to be unearthed. 1. Cost-benefit advantage - lower cost of outsourcing viz-a-viz outsourced content/processes 2. 3. 4. Confidentiality of processes away from in-house leaks

External expertise as compared to existing in-house expertise Time advantage - timely process completion commitments and easier time-to-market processes/products/services.

5.

Focus internally on innovative/creative/strategic work and to do away with in-house with mundane, time consuming processes 6. Greater objectivity/credibility gain amongst employees

7.

Confidence of top management on external professionalism and proven expertise

8. 9. 10.

Strategic intent of doing away with high, permanent salary/pay loads Client preference, especially overseas clients Branding/credibility enhancement by associating globally renowned outsourcing Companies

Recommendations
This Corporate Research Forum research identified six trends that will dominate the future of HRO:Increased outsourcing of higher value HR processes such as recruitment. Increased use of shared services models. Performance issues surrounding HRO deals. Continued evolution of electronic HR activities. Emergence of new HR roles and competencies. Continued debates over HR and HRO measurement.

The report makes recommendations, in particular pointing to areas where mistakes have been made: Clients must be clear about what it is sensible to outsource or not, to meet their business needs. This responsibility should not be shared with HRO providers, although consultants' advice may be useful where clients are unsure what to do. Outsourcing deals are typically constructed to last many yearsthe client must think through the implications in the event of significant changes in strategy, structure and operating environment.

Clients must achieve real understanding of where and how HRO will improve business performance, and when these performance gains may occur over the lifetime of a contract.

Robust governance systems should be created that spell out the parties' responsibilities.

There should be timely and honest communication with employees about the purpose, benefits and processes of outsourcinganticipating and addressing their likely areas of concern, particularly employees within the HR function.

HR must ensure it has undertaken serious "homework" in mapping its processes before embarking on HRO. Measurement of provider service and of improvement require clarity about the start point.

The new roles emerging have new skill requirements to manage relationships with HRO providers effectivelyposts such as HRO business partner and chief outsourcing officer are being created.

BIBLIOGRAPHY

DESIGNING AND MANAGING HUMAN RESOURCE SYSTEM .Udai Parek & T.V.Rao

PERSONNEL MANAGEMENT ..C. B. MAMORIA

INTERNET

Questionnaire
1).

How

often

will

you

process

payroll

for

your

employees? Weekly Monthly Biweekly (every other week) Semimonthly (2 times per month)

2). Are most of your employees paid on an hourly or salaried basis? Hourly Salary Evenly mixed

3) Are you aware of the objective of strategic outsourcing? Very much Some what Dont know

4) Is strategic outsourcing helps the organization in achieving goal? Yes No Cant say

5) Do strategic outsourcing affect the working efficiency of employee? Yes No

6) Whether the strategic outsourcing is able to develop high result orientation approach? Yes No

7)Outsourcing decision making in the organization is based on Performance Experience Both

Give your Suggestion for the strategic outsourcing.