CHAP 1 : INTRODUCTION

HR Outsourcing :

Everything you need to know about HR outsourcing. Outsourcing is a force behind the virtual
organization movement.
Outsourcing is simply obtaining work previously done by employees inside the company from
sources outside the company. If someone has specialized in an activity which is not strategically
critical to our business – and is able to do that cost effectively, it is better to get it from outside.
Human Resource Outsourcing is a process in which a company utilizes the services of the 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. Generally
those HR functions which are not critical and confidential are outsourced.
Human resource outsourcing is a momentous strategic HR initiative. It helps organization to
focus on internal resources towards doing what they do best and simultaneously helps to control
the bottom lines.
HR outsourcing helps an organization to gain cost and time efficiencies and provides cutting
edge over their human resource strategies and improves services to their employees. HR is an
essential partner in developing and executing organizational strategy.

Outsourcing is a force behind the virtual organization movement. Outsourcing is simply

obtaining work previously done by employees inside the company from sources outside the
company. If someone has specialized in an activity which is not strategically critical to our
business – and is able to do that cost effectively, it is better to get it from outside.
The organization gets benefitted in the form of excellent quality, reliable supply, and rock
bottom price. It can also focus exclusively on doing what it is good at – thereby enhancing its
own competitive advantage.
People are the most important asset of an organization. Leading companies around the world are
taking more strategic approach to managing their human resources. They are outsourcing day to
day human resource functions so as to focus on strategic HR issues that impact corporate
performance and shareholder value.

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Human Resource Outsourcing is a process in which a company utilizes the services of the 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. Generally those HR functions which are not critical and
confidential are outsourced.
Recruitment and selection, payroll and compensation management, staff training, employee
benefits and service, job evaluation are examples of such functions. The decision by Unilever,
for example in 2006, to outsource its HR activities – mostly transaction oriented such as pay roll
administration, applicant tracking, training and development, record keeping, performance
appraisal follow up etc. – to Accenture appears to be in the right direction.
These are basically people and effort intensive activities but are routine in nature. Such repetitive
work can easily be turned over to a third party specialist-who would be able to deliver excellent
results, leading to significant savings in cost and effort. Through standardization of processes the
specialist is able to deliver service at unbelievable speed also.
At the same time, the organization should continue to perform transformational HR roles – such
as attracting and retaining talent, bringing about strategic change in partnership with line
managers, championing employee concerns etc. Across boardrooms and business schools HR is
primarily viewed as a powerful tool to attract and retain talent, build workforce capabilities,
handle grievances and bring out the best in people.

With high attrition rates still haunting most people intensive industries, an active and vibrant HR
can be a key differentiator between mediocre and high performance organization. Seen against
this backdrop, it is not surprising to find that routine activities such as pensions/benefits, stock
options, health benefits and payroll are among the most popular HR programs being outsourced
partially or completely. HR outsourcing is growing as HR programmes and services become
more complex.
Price Waterhouse Coopers has developed a Total Human Resource Outsourcing Model which
offers companies end to end HR services and a single delivery capability. According to a Survey
by “The Conference Board and sponsored by Accenture, more than three fourths of executives in
large North-American and European firms currently outsource more than one HR function.”
Human resource outsourcing is a momentous strategic HR initiative. It helps organization to
focus on internal resources towards doing what they do best and simultaneously helps to control
the bottom lines. HR outsourcing helps an organization to gain cost and time efficiencies and
provides cutting edge over their human resource strategies and improves services to their
employees. HR is an essential partner in developing and executing organizational strategy.

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As is evident HR is something that is really critical to an organizations functioning. HR
responsibilities includes all the related functions that work towards employee wellbeing in the
organization including payroll, benefits, hiring, firing, and keeping up to date with state and
federal tax laws.

Increasingly many large firms are getting their HR activities done by outside suppliers and
contractors. Employee hiring, training and development and maintenance of statutory records are
the usual functions of contracted out to outsiders. P&G has signed a 10-year, $400 million deal
with IBM to handle employee services.

IBM will support almost 98000 of P & G employees in nearly 80 countries with services such as
payroll processing, benefits administration, compensation, planning, expatriate and relocation
services and travel and expense management.
The recent competitive challenges of the global marketplace are creating demand for expert
human resource outsourcing. The outsourcing providers in order to manage non value adding
administrative business function of their businesses thereby facilitating the businesses can
concentrate on their cost competencies.
Outsourcing is work done for a company by another company or people other than the original
company’s employees. Outsourcing entails purchasing a product or process from an outside
supplier rather than producing this product or process in-house. The business that is outsourcing
will train outsourcing provider to form a supply chain partnership.

HR Outsourcing is rapidly emerging as one of the world’s most exciting business trends. It
reflects the need, recognized by increasing numbers of organizations, to focus on their core areas
of business – and to outsource processes that add little or no value in terms of achieving their
business objectives.

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Need of HR outsourcing :

Many factors will contribute to any organization’s decision to outsource its HR functions.
The following are some of the needs of HR Outsourcing:
i. Enabling businesses to focus on core operations
ii. Delivering cost savings – whether direct or indirect
iii. Helping to create a stable, cost-effective operating platform
iv. Transferring focus from internal processes to achievement of business goals
v. Realizing investment in HR transformation and IT systems
vi. Ensuring compliance with legal, regulatory and best practice requirements, and
vii. Transferring risk and liability for people issues.

Types of HR outsourcing :

HR – outsourcing can be broadly divided into three types:

1. Application Service Provider (ASP)

2. Business Process Outsourcing (BPO)
3. Total HR Outsourcing

1. Application Service Provider:

A host of companies specialise in providing hardware and software applications to support large
organisations, including application vendors like PeopleSoft, Oracle, etc. which have developed
application packages (PeopleSoft HRMS, Oracle HRMS), for supporting human resource
activities in an organisation. They install, customise and provide support for running these
applications. The major disadvantage with ASP is the costs associated with application software.
Secondly, the successful implementation of the application software is doubtful.

 2. Business Process Outsourcing:

The major difference between BPO and ASP is that in BPO, the client is in direct contact with
the employees through call centres or support centres. MNCs generally opt for BPO as they
operate in many countries and employ a large number of people. While certain firms wish to
retain the power to control human resources, others hand over the power to the service providers.

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 3. Total HR Outsourcing:
In this type of outsourcing, the entire HR function is run by the service provider. There is no
specific HR department in the organisation. The client organisation only has senior HR
professionals who are also HR- strategists. A host of non-strategic functions and employee
contact is done by the service provider.

Main Forces Driving the Engine of HR Outsourcing :

Management of a company’s employees is entrusted to a third party, they are expected to provide
the whole range of human resource services against payment. There are three main forces that
are driving the engine of HR outsourcing.
Firstly, high manpower turnover places heavy challenge on the HR department to design HR
services that are similar with their competitors. When employees are changing their employer at
the drop of a hat, organizational HR practices for customized services give way to standardized
services.
The power of unique organizational culture is not that effective to attract people from outside or
to retain the existing employees for long if the prospective or the present employees have no
interest to know about it. Faced with depleting stock of talents, increasing number of companies
are trying to benchmark their HR practices with one or the other competitors to catch up with
them both in terms of their expenditure on manpower and in terms of manpower productivity.
More and more HR services are likely to get standardized as employees change their employers
more frequently. This has been a matter of concern for technically qualified managerial
employees whose development costs are high and time consuming. Though, such imitative HR
practices have no effect on employee turnover intention but companies get cost parity for
managing their employees.
A second force for HR service standardization is the accumulated research findings in public
domain on human behaviour under varieties of contractual and organizational control conditions.
Availability of such findings on employee behaviour and expectation shapes not just the domain
knowledge of organizational HR managers but also the expectations of potential as well as
current employees.
Example – A manager expects and demands bonus from his/her employer because he/she has
learnt about such practices from friends working in other companies or he/she may have read
about it in a newspaper or book.

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A third force that makes the practice of outsourced HR services a popular option is the increasing
inroad of IT and modern communications systems in the management of human resources.
Availability of low-cost IT and communication has been making the need of collocation of HR
service designers and the service users, i.e., the employees superfluous. An external HR service
provider could generate such standardized services and sell them too many similar organizations.
As a result of high volume generation, it can support major technological investment which will
reduce the organization’s operating cost substantially. Benchmarking of internal processes
including HR processes allows one to learn from the good practices of others and avoid the
costly exercise of learning by failing. But acquiring and processing this market-related HR
information requires specialized dedicated employees which an organization can find too costly
because such information is used only occasionally.
Further, since market practices change continuously, an organization spends considerable
amount of resources to keep track of those changes which may be used only once in five years.
The areas that mark such rapid standardization are employee search services, developmental
resource for specialized expertise, industry practice for employee performance appraisal system,
compensation and incentive practices in similar industries, and employee management for low
value standardized jobs.
An external vendor, because of its dedicated business in these areas, is likely to have better
knowledge about such market practices than any single organization. By outsourcing these
services from outside, an organization can enhance the knowledge intensity of its HR personnel.

Outsourcing of HR Services:

1. Hiring Services
2. Developmental Services
3. Performance Management
4. Compensation and Benefit Management
Under pressure of competition, a company not only increases its purchase of manufactured parts
and services generated by other companies but also considers many other innovations for
outsourcing new areas of its internal processes. Human resource outsourcing is one such new
area which is going for external servicing.
Like many other support functions, the human resource function is also going through major
changes in terms of its content, processes, and outcomes. Concerns for more strategic use of a

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company human resources and demands for developing their competencies in line with the
company long- term business goals are growing.
Faced with increasing pressure on its margin, many are trying new kind of employment relations
where employees work side by side with different types of employment contracts. There has
been increasing demands and suggestions for using new methods for evaluating direct
contribution of human resource management services in a company business.
Among these varieties of innovations, perhaps the most radical and notable is the process
innovation of human resource management outsourcing whereby a company buys either a part or
the full requirements of its human resource services from an external vendor. Even in emerging
industrial markets like India, the presence of this business process innovation of HR outsourcing
is being increasingly felt.
However, unlike outsourcing of other areas of a company’s internal processes, e.g., maintenance,
catering, or IT services, which can be defined and described clearly and can be put into a
contract with relatively limited risk on company performance in other areas, the same cannot be
said about human resource services.
Human resource services involve the total organization and any inconsistency, shortcut, or
opportunistic behaviour on the part of the service provider will seriously impede a company’s
long-term competitive advantage. Further, when a vendor makes a contract for supplying certain
physical objects or goods, he/she can exercise full control over when and how much of the goods
are to be sent to a client’s premise.
But the same cannot be said when a vendor makes supply contract for providing employee
services to a client. A vendor or a client has little control over the quality of service given by the
contracted employee sent by the vendor.
Company human resource-based competitive advantage is sustainable because it is difficult to
duplicate by others. It cannot be replicated because the critical sources of such competitive
advantages cannot be seen and can only be managed by undocumented and invisible cultural
instruments that are developed over a period of time. Nevertheless, under pressure of
competition, outsourcing of HR services is making steady in-roads into business process.

Choice of Services for HR Outsourcing :

Organizational competitive advantage originates from the generation of unit or group level
capabilities that emerge from sharing and exchanging of knowledge by different employees.
These sharing processes are facilitated by careful deployment and development of employees
based on internal assessment of individual employee expertise, aspirations, and personal
dispositions. It is the relational capital of the employees that make them perform efficiently

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while the same employees may fail to deliver if placed in another group. This relational history
between employees are purely tacit knowledge driven and cannot be placed on a contract.
It can only be handled by someone with considerable experience with the employee concerned
and the culture of the company. In other words, HR services of a company can be outsourced as
long as the responsibility of capability generation is still in the hand of the internal managers.
While outsourcing an HR service to an external agent, an organizational competitive advantage
is less likely to dissipate as long as this tacit part of the HR service is kept intact within the
internal managers who are familiar with the culture of the company and are bound with the
organization under a long-term contract.

Accordingly, the following processes can be adopted for outsourcing a few of

the HR services from outside:

1. Hiring Services:

Recruitment and selection are the human resource services through which knowledge carriers
from outside are brought into a company. External market gets its supply of human resources or
knowledge carriers mainly from three sources, viz., the households, academic institutes, and
industries. All those people who look for jobs are available in different types of markets.
Prospective employees search for jobs using varieties of means and media.
As such there are varieties of markets where an employer can find its employees. These potential
employee markets differ not only in terms of number and qualities of employees available but
also in terms of willingness of a new hire to continue the employment relations with the
company for a good many years.
With varieties of people joining the labour markets at different stages of their career,
organizations find the task of reaching out to the right market for hiring a few good quality
employees who will stick with the company for some number of years a very costly and risky
affair. It requires good amount of investment to keep track of changing employee profiles of
different markets. Furthermore, an employer may use such market specific knowledge assets
only occasionally.
Further, with the growing entry of varieties of employment practices, these characteristics of the
employee market are also changing very fast. Much of the activities required to get a few

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potential employees who show interest for the company positions are highly repetitive and are
amenable to computerization.
Thus, specialized agencies have developed data base of potential employees of various kinds
which a company can use to fill up its position at a much shorter time. This is one of the reasons
why employee search service is one of the first human resource services that has been outsourced
to external vendors.
However, a company that hires its potential employees through outside vendor must take
adequate protection against losing its competitive edge through such suppliers. There are various
ways by which organizational knowledge asset and source of competitive advantage can diffuse
to competitors. Firstly, the vendor may be sending the same list of employees to you and the
competitors or may be sending better list of candidates to your competitors.
This means the average characteristics of the potential employees received by both the
companies can be very similar. Under such conditions, human resource-based competitive edge
can be protected only by keeping the selection part of the employee hiring service in the hand of
the internal line function. Within a common average there is room for wide variations among the
potential candidates.
Only a human learning system that is non-mechanical and tacit knowledge driven can spot the
presence of such variability in a pool of candidates. Since organizational capability is generated
from the joint efforts of a group of employees, by keeping this final choice in its hand, it ensures
that a selected employee has the required learning capability and social relational skills
compatible with other employees.
In other words, though explicit knowledge about market is bought from outside but its
conversion into tacit knowledge useful for the company is still kept in the hand of the internal
management.
Similarly, for a company where employee diversity is one of the essential requirements for
implementation of its business policy, the employee selection must incorporate assessment of
additional characteristics of the potential employees. This can be done only if the final selection
is still kept in the hands of the management.

2. Developmental Services :

In the area of outsourcing of external developmental resources, companies buy explicit market
developed knowledge. Since there are many other organizations who are experimenting with
newer innovations in the area of management processes, an organization can enhance the

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capability of its employees by giving them exposure to those practices of other companies.
Further, there are economy of scale in acquisition and compilation of such information.
And, some organizations, e.g., academic institutes, professional manpower training institutes
specialize in such information acquisition, structuring, and presentations to prospective learners.
However, if an organization straightaway uses the same external knowledge for its internal em-
ployee development, then it will not get any competitive advantage over the competitors. In
order to gain competitive advantage out of an externally designed and delivered explicit
knowledge, an organization again should use a human learning system to convert such explicit
knowledge into internally useful tacit knowledge.
This conversion of externally purchased knowledge into internally useful tacit knowledge can be
effective if the choice of learner is not left to the external vendor but is managed by the internal
managers who are well acquainted with the employees. Such a choice must take into account not
just the company requirements of trained employee but also the ability and aspirations of the
learners. Not all employees are willing to acquire new knowledge nor do they have the same
ability to internalize them and work as a source of learning to others. Both requirements of
development for a particular area and the person who should be developed must be left in the
hands of the line function manager who is familiar with the long-term strategic goals of the
company and the expectations and abilities of the potential trainees.
Before sending a group of employees to any externally provided developmental programme, an
organization should carry out a thorough internal learner identification.
Further, by placing a group of selected employees that has gone through a common learning
programme together, it cannot only increase the scope for conversion of such externally acquired
explicit knowledge into internally useful tacit knowledge but also ensure that such externally
procured organizational knowledge capital will not diffuse easily.

3. Performance Management:

Organizational performance evaluation involves measurement at three levels, viz., at total

organizational level, at group or at departmental level, and at individual employee level.
Performance information or data at total organization and at group or department level are
mostly explicit knowledge intensive and their measurements are less controversial though there
can be a few areas which are tacit and personalized knowledge intensive.

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As such a company can outsource evaluation of those parts of its organizational and
departmental performance that are explicit knowledge intensive keeping the subjective and
qualitative part of the assessments in-house.
In the area of individual employee assessment, the scope of outsourcing is extremely limited
because much of these assessments are subjective and tacit relational knowledge intensive.
However, individual performance assessment uses tools and techniques which are being
continuously improved upon and are explicit knowledge intensive.
These markets or industry specific knowledge, e.g., the format of performance appraisal system
or the weights given to different types of measurements, viz., economic results, observable
behaviour or personal traits, can be outsourced. An organization can learn from the practices of
other companies doing business in the same industry.
The benefit of such external sourcing of measurement format is that a company can acquire the
design of a successful company in the same industry without spending much in its actual design.
However, the actual outcome from the administration of a formal performance evaluation system
depends not only on the format used for such measurement but also on the way it is applied for
assessing the performance of an individual employee, i.e., the way performance data is
generated. This execution part of performance evaluation is mostly tacit knowledge intensive and
must be handled by someone responsible for supervision and observation of the employees.
It is through the action of the internal line function, the explicit knowledge driven performance
evaluation form gets converted into useable knowledge in the company. Since such measurement
involves extensive use of prior experience of the line function manager and mostly driven by the
internal culture of the company, such knowledge cannot diffuse easily to competitors even
though the format for measurement has been bought from a third party.

4. Compensation and Benefit Management:

Compensation is an important part of the human resource services which ensures supply of
adequately skilled manpower to the company and to its various positions. Unless the
compensation for various positions are adequate to remunerate the qualification and experience
that is required for the job, it may fail to attract the right people for those positions and it will be
harder to retain such employees for long.
Since the main utility of a well-designed compensation is to attract and retain employees in the
organization, it is important that the compensation system and method are as per the practices of
its competitors. This means an external designer of a compensation system can perform a better

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job than an internal expert. Since such external vendors provide similar services in many other
organizations, their design and practices reflect the prevailing market practices well.
Further, for ensuring consistency across many other employees and fairness in compensation of
any employee, compensation growth is generally linked with a few indicators including
educational qualification, work experience, and performance results. Though performance
assessment process is tacit knowledge intensive but the outcome of such a process is an explicit
knowledge or data.
Naturally, once a compensation formula has been decided, an algorithm can be used to write a
software program that is administered repeatedly for calculating the compensation of all the
employees. And, the system administrator doing the job of calculating employee compensation
need not be working in the company. In other words, it can be contracted out to a third party with
sufficient technical skill and modern IT infrastructure.

5. Reward and Incentive Management:

Rewards and incentives are used to encourage employees to go beyond their call of duty. A good
reward system not only attracts the right kind of employees into the organization but also
encourages them to work in such a way that organizational capabilities are maintained. A reward
that is well linked with the achievement of objective outcome is a powerful motivating force for
employees to work hard and show the desired behaviour.
However, for most managerial positions such objective outcome is available mostly at the unit
and group level. There are only a few positions for which an employee’s actual contribution to
organizational goals can be related directly with the incumbent skill, competency, and
motivation. This means an organization is able to outsource reward management at group and
unit levels but not at the individual level.
The advantage of such outsourced reward management is that a supplier can bring in lot of
expert knowledge from the market and provide a reward system that is being used in the
industry.
However, even if the reward at group level is driven by explicit knowledge there is still the tacit
knowledge driven reward when such group-level rewards are distributed among the members of
a team. Trust among members and faith and confidence on the leaders ensure that such internal
distribution of rewards based on the leader’s personalized knowledge about individual employee
competence and contribution will not encourage development of destructive inter-member
competition or jealousy.

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Thus, the key to maintenance of competitive advantage is the trust and faith on the internal
culture of the organization and the team. This is possible when a leader knows the members well
and is in turn well accepted by them.

6. Specialized Consultancy Services:

Consultancy is a fast growing service business in many countries including India. There are a
number of reasons why this business has been growing so fast. Firstly, many big multi-
functional, multi-product companies occasionally find a glaring mismatch between manpower
required and the manpower available both in terms of number and quality in different
departments. This happens because organizational processes have inertia and are often hostages
to their past successes.
Very few organizations can change their internal policies and fewer can change their
departmental manpower allocations in the same pace as that of the external environment. The
presence of different interests groups with their distinct powers and pulls gives shape to any
change in an organization’s policies.
Faced with the growing burden of operating cost and declining share of a company’s products in
the market, a management team often looks for an objective and neutral assessment of internal
functional departments. High inter-departmental rivalry often makes it difficult for an internal
expert to arrive at any valid assessment of these internal functions.
Secondly, survival and growth in a competitive environment requires fast learning and adoption
of good practices of others. Innovation is a risky and costly exercise. But a company can reduce
its risk and cost of adoption by learning from the experiences of others. This has been making the
benchmarking of organizational practices with competitors quite a popular move.
There are specialized consultancy organizations which collect, process, and sell such
organizational process-oriented information. With growing importance of process innovation and
risk in such innovations, the market for consultancy services is certain to expand very fast.

7. Management of Employment Relations for Low-Level Jobs:

Apart from outsourcing of selective parts of human resource management services, another type
of HR outsourcing is emerging as a new development where Company A allows another
Company B to manage its entire department or division. Company B will bring its own

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employees in Company A premise and supervise them while they are working there. The
contract of Company A is only with the owner of Company B.
In any big manufacturing or service company, there are lots of jobs that are required for its
business but are not directly related to its main business. Let us take a ship building company
employing over 5000 employees. For providing tea, coffee, and food, it needs a big canteen
facility. This canteen has to engage as many as 50-60 employees to prepare and serve food and
drinks to its various departments.
For running the company, these services are essential but their relations with its main business
are not direct and the effects of service failure from these departments on the company market
performance are not immediate. In the past, many of these services were managed through
internal departments and controlled through hierarchy.
But the problem of having such a remotely related activity as a part of a ship building activity is
that if a manager overseeing such activities may not gain any knowledge that can be utilized in
other departments of a ship builder that are directly related to ship making. As a result, a
manager who has worked for say ten years very efficiently in overseeing a catering service in a
ship building company will not find a befitting position in the hierarchy. He/she will reach a
career ceiling very quickly.
The net effect is that no good manager will be interested in working as a Canteen Manager if
he/she finds that there is no further growth in that line. As a result, these types of unrelated
service areas are fast going for contract employment.
Unlike a consultancy service which is a temporary job, a contract employment is good for those
areas of business where the jobs are of permanent nature but the services are in non-core areas of
the company. A vendor or contractor generates the services in the client premise using all the
facilities required for service generation. A contractor will provide only the employees.
Such externally served services are good arrangement both from the point of view of the client
organization and from the point of view of the employee who is engaged by an external vendor.
The external contractor can engage a large number of employees and managerial staff to provide
similar services to many other companies and use a separate specialized managerial hierarchy to
supervise workers.
And, from the client’s point of view, it can redeploy its employees more on those services that
generate knowledge and competency in line with its core business. Thus, most manufacturing
and service companies have started engaging external vendors mostly in their own premise to get
a lot of their low end services, e.g., maintenance services, IT management, security services,
catering services, through contract.
Apart from this core versus non-core analysis that prompts companies to go for external
servicing of certain functional areas, contractual employment of worker has been found to be
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quite popular in certain industries. Seasonal industries, e.g., woollen garments industry cannot
afford to have too many employees on its permanent roll as its main business varies widely over
different times of the year.
Industries that operate on a project mode, e.g., building construction industry will engage a lot of
workers on contract basis because its demand for workers varies to the project cycle time. BPO
industries go for contractual employment because many of them are heavily dependent on a few
clients. If at the end of its present contract, a big client does not renew its contract, then they
cannot keep the employees engaged.
On the other hand, if they are engaged by a contractor then they can be redeployed in another
BPO firm by the contractor. In India Team-Lease Service is a big contractor who provides lot of
employees to BPO companies.
Industries that are highly export oriented are very susceptible to frequent slump of demand for
their goods and services caused by international business cycles. During a recession, the net
worth of any such organization whose business is heavily dependent on international markets
could get wiped out in a short time if it has to cam- the full burden of its employees that it hired
during the boom time.
There are varieties of regulation mandated payments for regular employees, e.g., benefits and
welfare which are fixed irrespective of whether a company has any business or not. In order to
protect it from the burden of statutory payment for employees without any job, these industries
hire a large number of employees under contract category whose payment burdens could be
avoided by not renewing their contracts at the end of the current period.

CHAPTER 2 : LITERATURE REVIEW

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Outsourcing is a strategic decision to give a task or activity to an independent contractor who
determines how best to do the task or activity. The firm and the independent contractor become
partners and may establish a long-term relationship.

BENEFITS OF HR OUTSOURCING:

As the Human Resources Outsourcing market rapidly evolves, an ever-changing set of

outsourcing solutions is now available to accelerate enterprise effectiveness. HR Outsourcing is
increasingly seen as a key enabler of people and team transformation. ProperlyProperly defined
goals that are supported by innovative outsourcing can drive a company to the next level of
enterprise effectiveness. As people become more critical to the success of a company, the human
resource function will have to progress from administration to strategy if the organization it
supports is going to remain competitive.

The advantages are clear and compelling: improved business focus, more productive use of time
and resources, and guidance from experts from across the business spectrum, saving money,
focusing on strategy, improving compliance, improving accuracy, lacking experience in-house,
taking advantage of technological advances, and offering services they could not offer.
Outsourcing HR functions allows a company to focus on its core competencies and provides
administrative relief from many employer-related responsibilities, so that the company can
concentrate on developing strategies that provide competitive advantage to it.Traditionally,
people have been viewed as liabilities or expenses, instead of tangible, bottom-line assets.
Successful business owners have learned, however, that their employees have a direct impact on
their profitability. The company gets more out of its business when it gets more out of its people.

Statistical analysis by Watson Wyatt Worldwide, which developed the Human Capital Index to
provide a standard for measuring a company’s people practices, shows a clear relationship
between the effectiveness of a company’s people practices and the creation of superior market
value. Once HR and other operations are outsourced, many companies experience a strong return
on investment, according to a recent survey of American executives. The 2006 survey of
executives at the IDC Midwest Conference in Chicago showed nearly 85 percent of the
respondents saved as much as they spent on outsourcing, with 26.4 percent reporting a savings of
twice as much. And the savings, according to nearly 95 percent of the respondents, went toward
operational performance and innovation, which improved shareholder value. StrongStrong
human resources practices have the potential to increase a company’s productivity and
profitability, but HR management has become a colossal task, demanding considerable
resources. Legal and regulatory compliance has become an overwhelming task, and time spent
on administrative obligations is time spent away from growing business.

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Outsourcing is the great equalizer for small to medium-sized firms. Growth-oriented
entrepreneurs can benefit tremendously. Not only do employees frequently gain access to better
benefits, the owner gains freedom to focus. Outsourcing “people strategies” can help a company
gain a competitive advantage, but it needs professionals who cut through the clutter of HR
practices to learn which have the most positive impact on its business.

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.

 Possibility of security breaches.

 Cost- benefit equation not clear.

 Lack of psychological acceptance.

DECISION FOR OUTSOURCING:

Baron & Kreps, 1999 gave this matrix which talks about how and when to outsource activities.
According to this matrix, strategic importance of the activity and interdependence on other
activities are the two factors on which the decision of outsourcing should be based. The
activities that have high strategic importance and high interdependence on other activities should
be kept in-house and the activities that have low strategic importance and low interdependence
must be outsourced.

Various considerations to be taken into account while outsourcing were given by

Baron & Kreps, 1999 :

 Does learning from this activity spill over to an important “core” activity?

 Can the outsourcing relationship be reversed and the work brought back inside when
conditions change?

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  Can the outsource supplier adjust more quickly to changing labor or market demands
than we can?

 Do we have a strong clan-like culture that would be weakened with employees who have
different values or interest ?

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.

METHODOLOGY FOR HR OUTSOURCING :

The methodology of HR outsourcing involves the following steps: -

 Situation analysis – It includes business environment analysis, analysis of the work

process which is to be outsourced and risk analysis.

 Solution design

 Design of performance measures & contract – It includes preparation of the HR

outsourcing contract. The expected service levels are defined and accountability &
performance measures for both the vendor and the company are set.

 Solution delivery

 Solution performance management – It includes the management of the vendor-company

relationship.

PRESENT SCENARIO OF HR OUTSOURCING IN INDIA :

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The general opinion among Indian companies is that it is economical to manage all their HR
processes internally. Consequently, there is not much emphasis on outsourcing. Typically, very
small companies (which do not have the competency to staff a full-fledged HR department) and
very large companies (who wish to outsource all routine HR processes so that they can
concentrate on core issues), are the ones that use HR outsourcing in a significant way. Besides,
many multinational companies are fast adopting these practices. Sateesh R Kurugod, head of
marketing and alliances, Cross domain Solutions says that now CXO’s realise that HR teams
typically spends over 80 percent of its time in managing tactical and transaction oriented HR
operations. “If these tactical processes are outsourced, the company could re-deploy their trained
HR resources to core processes,” he adds. Pramode Sadarjoshi, the director and head of Human
Resources of Cognizant Technologies says, “Today, every organization is aiming at achieving
productivity by enhancing return on investments and achieving the economies of scale. In this
context, it makes business sense to focus only on the organization’s core competencies and
outsource non-critical business activities. Therefore, routine administrative tasks, although
important, can be outsourced to third party vendors.” Experts believe that in present times HR
outsourcing is undergoing a transition phase. "There has also been a transition on its user
acceptance, where it is moving from a corporate domain to public sector undertakings and the
government sector. All this reflects on the growth of this sector. HR outsourcing comes third in
the list of potentially high paybacks, after IT and the telecomm industry. However, many
companies wrap up their HR functionalities as something that happens in the back office, and do
not give enough attention to the infrastructure that essentially props up its employees. Over the
years, this has bred neglect, leading to antiquated HR management systems. NowNow, it is time
for this mindset to change, because companies are suddenly waking up to the fact that their HR
policies are not in step with the times, and a major overhaul is called for to keep pace with
company acquisitions and mergers. A few companies have tried mending their HR management
system on their own, but they soon discovered that it is like opening Pandora's Box; more you
inquire into the state of HR policies, you keep unearthing more anomalies. That's where
outsourcing can step in. If you have a problem managing your HR and bringing the existing
system up to scratch, why not let a third party worry about it? What comes with HR outsourcing
is better management at a lower cost Implications of HR outsourcing for India need to be looked
at in two parts — economic impact and HR impact. TheThe economic impact is positive, given

19
that India is the beneficiary of the global outsourcing wave, at least for now. It is creating more
jobs and increasing earnings for the country. The second part of the India impact is from the HR
point of view. What is quite obvious is the fact that cost arbitrage will not be the driver for this
trend within India, if ever, even if a large organization were to outsource to a small operator.
India must be the country hiring the most in the world. In fact, HR in India would rank as the
most dynamic and turbulent in the whole world today. There are so many new jobs, so many to
hire, so many to train, and so many to retain. After many years of fighting for identity, HR in
India has come of age. HR and organization building issues are center of the plate in any Indian
CEOs agenda today. CEOs are willing to spend as much as it takes to manage their people and
people processes well. It may never get any better for HR. With more and more companies
looking to rationalize employees on their payroll, Human Resource outsourcing is slowly
becoming the buzz in India. Companies to whom organizations outsource their human resource
function possess the knowledge and resources to expertly perform part or all of a client’s human
resources function, allowing the client to streamline their internal processes and concentrate on
generating profits in their core business. Estimates show that the latent size of HR outsourcing in
India is about $ 2 billion with a current market $ 27 million and it is growing at the rate of about
50 per cent. 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. Companies
which haven’t joined the HR outsourcing bandwagon are either unfamiliar with the process and
procedures of HR outsourcing, or are unaware of the players operating in the area or are unaware
of the probable value obtained from doing so.

Some key findings of the Outsourcing Asia-Pacific online survey that was conducted by
Hewitt in June 2002 with regards to the Indian market: -

 Outsourcing of the complete HR function was prevalent among foreign companies that
have established operations in India.

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  Outsourced expertise where staff expertise is provided as an outsourced service rather
than processing services was observed particularly among small and medium sized
companies that find difficulty retaining skilled, senior HR staff.

 The outsourcing of HR processing, including payroll and benefits processing.

Even though across the globe companies are realizing 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.

GROWING IMPORTANCE :

After customer care services and medical transcription, outsourcing of human resource services
or HR BPO is emerging as the next big opportunity for Indian BPOs with the global market in
this segment estimated at $40-60 billion per annum according to experts. HR BPO comes to
about 33% of the outsourcing pie. India has immense potential as more than 80% of fortune
1,000 companies will discuss offshore BPO as a way to cut costs and increase productivity.
Sensing the potential, global BPO players including Fidelity, Exult and Hewitt have begun
setting up operations in India. However, most HR BPO players had not leveraged the offshore
advantage as yet. The revenues in the HR outsourcing space are projected to increase to $3.5
billion by 2008 according to a Nasscom-McKinsey survey. Even if 10 per cent of HR
outsourcing is off shored in the next 5 years, offshore opportunity can be anywhere around $1.4
billion.

Research firm Gartner has forecast HR BPO to reach $51 billion and represent 39% of all BPO
revenue by 2004-end. In HR BPO, revenues depend on the number of employees the clients
have. This is in sharp contrast to a typical customer care center, where bills are charged on the

21
workers servicing a client in the BPOs. Despite huge potential, not many companies have
leveraged the offshore strategy. The main reasons for not leveraging the offshore benefit have
fabeen companies being undercapitalized or not knowing enough about the offshore business.
Research proves that the market for HR outsourcing in the APAC region could grow from $1.14
billion in 1999 to $2.56 billion in 2004. Although it is not a very huge growth, it has still shown
an upward trend. Some of the key companies, which have gone ahead for manpower hiring
outsourcing practices, are Cisco, GE, Honeywell, Sun, i2, LG Soft India, Escosoft and Legato
Systems. While LG Soft India has outsourced its PF management, Escosoft has outsourced
payroll processing, execution of training programmes and survey conduction. According to
Shubho Kundu-senior general manager HR of LG Soft India, the company has been able to save
a lot in terms of reducing paperwork and interaction with government agencies. Besides, there
are other companies like Xansa India, which is planning to take a plunge in HR outsourcing
business and offer services to its parent organisation. Binnoo Wadhwa, the head of HR for Xansa
India, says that the move showcases the robustness of the HR department to handle such critical
applications. There are many others who do not believe that HR outsourcing is necessary. Take
the case of Aptech, which has not considered HR outsourcing as the company feels that HRD is
strategically linked to its business. According to this company any job or function, which is of
strategic importance to the organization should not be left for outsiders or the so-called
outsourcing partners.

SELECTION OF HR OUTSOURCING VENDOR :

Selection of the right vendor is a very important factor in making it a successful venture. For
some businesses, cost is the deciding factor in vendor selection. Other companies look for a
cultural fit or a commitment to quality. Some things a company should consider when evaluating
a firm include:

 The range of outsourcing services it offers;

 The expertise it has in the particular industry;

 Its general HR experience;

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  Its understanding of the company’s priorities;

 Its available resources;

 The flexibility of its contracts.

It must be kept in mind that an HR firm is an extension of a company culture, so the company
must try to find one that fits its image.

KEY QUESTIONS ASSOCIATED WITH HUMAN RESOURCE OUTSOURCING:

Six important questions companies must focus on as they decide whether to outsource some or
all of their HR processes:

 What are the external forces that are driving the company to examine the opportunity
for outsourcing HR activities?

Globalization, restructuring, increased administration complexity and cost pressures are all
driving companies to consider the use of HR BTO. As companies begin to operate in more
countries, they are finding it increasingly difficult and costly to keep track of, and manage,
the variety of benefits and regulatory requirements in each area. For example, a multinational
organization that has been built over time from a series of acquisitions and buyouts can find
itself with a bewildering mix of compensation packages, pension plans, human resource
management (HRM) systems, hiring guidelines and HR contact centers. Further, as
compliance directives and legal regulations change in each of the countries in which the
company operates, the company’s ability to stay current becomes more difficult and costly as
extensive resources are required to maintain and apply this knowledge. Allowing an outside
party that has already built existing capabilities in these areas to manage the process becomes
an increasingly attractive proposition. Finally, overall cost pressures are forcing companies to
identify new methods for cutting administrative expenses. A number of recent studies
suggest that reducing costs is the primary benefit that companies seek when outsourcing HR
processes. As new competitors enter the market, particularly those with lower labor costs,
many companies’ profit margins are put at risk, prompting them to examine closely all

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 activities where cost reduction is possible. Outsourcing provides an opportunity for
companies to leverage the cost base and experience of an outside provider, which can
potentially lower the cost of delivering HR services, while maintaining or improving service
levels.

 What are the initial drivers that make HR outsourcing an attractive proposition?

A number of internal drivers are also pushing firms to investigate HR Outsourcing. For
example, some companies see it as a means of controlling the cost and effort associated with
operating their HRM systems. After evaluating the total cost associated with upgrading and
maintaining these systems, companies are increasingly turning to outside providers to
manage their HRM systems and take responsibility for upgrades and system availability.
Companies are also recognizing that they are unable or unwilling to bear the cost of
developing employee or managerial self-service tools; they would prefer to “rent” these
applications from outsourcing providers who have already invested in development, have the
ability to keep up with the latest technology solutions and can provide best-in-class tool sets.
Also, the level of complexity involved in administering complicated programs and processes
in multiple regulatory environments and managing data across borders often requires
sophisticated expertise, which many companies may not have in-house. Sourcing this
capability from a vendor could offer lower costs and a higher likelihood of staying current on
recent developments. Third, companies want to reduce the risks associated with business
volatility. Having gone through numerous hiring/layoff cycles, they are looking to increase
process capacity without commensurate increases in full-time headcount. For example,
companies need to increase their ability to recruit without having to bring on a number of
full-time recruiters (because, typically, recruiters are the first people exposed to layoffs
during a business slowdown). Fourth, as organizations try to shift resources from
administrative to more strategic activities, outsourcing offers one way to build a new sense of

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 focus within HR organizations. Many HR organizations believe being able to reengineer their
internal processes and deliver strategic HR services is simply too much for one organization
to undertake at the same time. However, by allowing a vendor to manage many of the
administrative processes that take time and energy away from HR organizations, the internal
HR organization can focus its limited resources on delivering the services that truly provide
strategic benefits to the entire company. Lastly, for many organizations, outsourcing serves
as a catalyst for change. Implementing and maintaining a client service orientation and
metrics-driven approach are difficult for most HR functions to achieve on their own. In an
outsourced environment, these skills are critical in determining the success or failure of the
arrangement. Therefore, outsourcing efforts can be used as motivation to move HR service
delivery toward a more accountable, results-oriented focus.

 How should the company identify potential processes to be outsourced?

Determining the scope of the outsourcing effort is among the most important and difficult
decisions companies make. Recently, several studies have indicated that the processes most
likely to be outsourced are retirement program administration (including defined benefit,
defined contribution and retiree services) and health and welfare administration. Further,
these studies found that HR processes closely associated with employee evaluation and
communications are the least likely to be outsourced. To make the right decisions on which
processes to outsource at a particular company, it is helpful to establish a formal set of
evaluation criteria. Paul Adler, a management professor at the University of Southern
California, suggests six dimensions an organization can use to evaluate HR processes when
identifying their potential for outsourcing: -

a) Dependency – are there specific assets that require dedicated facilities, equipment,
capacity, training or investments?

b) Spillover – is there confidential information or sources of advantage that could be leaked

to competitors?

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 c) Trust – is there a positive relationship between the two organizations that could reduce
transaction costs associated with contracting and monitoring?

d) Competence – can greater vendor capability in process execution lead to improved

results?

e) Core capability – is this process viewed as a differentiator for the organization in the
marketplace?

f) Commitment/flexibility – is the process stable enough so that changes in

capacity/technology are not required on a frequent basis?

 Who should be involved in making the decision to outsource HR processes?

 Decision-makers :Within the HR organization, the CHRO (or equivalent title in the
organization) usually plays an active role in making the outsourcing decision.
Ultimately, it is the CHRO’s responsibility to determine whether the outsourcing
arrangement will enable the HR organization to provide cost-effective, quality service
to its internal clients, while, at the same time, support the organization’s larger
strategic objectives. In addition to the CHRO, the HR Operations Leader is often
involved in developing the specifications of the outsourcing arrangement. While the
HR function clearly has primary responsibility in this area, two other individuals play
important roles in the outsourcing decision. The Chief Financial Officer often
participates in the decision-making process, as entering into a long-term contract with
an outsourcing vendor can have potentially significant financial ramifications for the
corporation. In addition, the Procurement Manager assumes a prominent role during
the vendor selection, negotiation and contracting process, leveraging experience in
developing terms and conditions that are favourable to the organization.

 Influencers :Two groups of individuals were seen as influencing, if not directly

participating in, the HR BTO decision. Given the importance of integrating HRM

26
 systems with various vendor-driven applications, the Information Technology (IT)
organization should have input in the HR Outsourcing decision process. IT must
determine how the outsourcing arrangement will impact current and future
technology investments and plans. Also, the leaders of the various business units
supported by HR usually provide input into the decision, as their employees are the
ones most likely to be impacted by changes in processes and service levels.

 Approvers : Typically, the CEO and the Board of Directors are responsible for final
approval of the decision to outsource HR processes. This is particularly true if a
significant number of processes are involved, if the outsourcing arrangement will
impact a large number of jobs throughout the organization or if the arrangement will
require communication with important external stakeholders such as industry analysts
and financial markets. A significant outsourcing deal can signal changes not only in
overall strategy and approach to managing human capital, but also efforts to cut costs,
focus on core competencies and mitigate risks. Further, a decision to outsource
components of the human resources organization may be perceived by the others in
the organization as the first step toward outsourcing other non-core processes. Given
the impact of these types of arrangements, the CEO and Board of Directors need to
understand and articulate the rationale for the decision.

 How should the company evaluate potential vendors?

Once the right individuals have been identified to make the outsourcing decision, the next major
step in the process involves selecting an appropriate vendor. A number of recent studies have
highlighted three primary criteria that companies use to evaluate vendors. These include: the
vendor’s track record for delivering service, the costs associated with the outsourcing service and
the willingness of the vendor to guarantee service levels. Other criteria highlighted by these
studies included: the vendor’s technological capability and competence, process expertise,
flexible contracting, recommendations from other companies, relevant industry experience etc.

To evaluate vendor capabilities in these areas companies undertake a host of activities

including:

27
 Distributing experience questionnaires . As part of this activity, a company develops a
standard experience questionnaire that it sends to multiple vendors early in the evaluation
process to obtain initial insights and compare vendors’ capabilities. Information that is usually
collected as part of this process includes understanding the vendors’ areas of expertise, client
experience, and approach to contract development, service level creation and how they
address changes in project scope. There are a number of third-party consultants who, having
participated in many vendor selection efforts, have developed and refined these types of
questionnaires to quickly ascertain a vendor’s particular level of experience.
 Conducting a financial and credit review of the vendor . Companies undertake this activity to
determine whether the vendor has the financial resources to maintain appropriate service
levels throughout the lifespan of the contract. During this review, the potential client
examines the vendor’s history of fiscal responsibility and regulatory compliance, its credit
rating and analysts’ predictions of ongoing viability. Companies are also looking for signs
that the vendor is a potential takeover candidate, as an acquisition can often redirect senior
management attention and increase the complexity of the ongoing relationship.
 Conducting a security and compliance review. Given the sensitivity of the employee data
associated with an HR BTO relationship, and the governmental/industry regulations and
standards associated with the privacy of employee data, companies should conduct a review
of the vendor’s security and compliance policies and procedures. As part of this assessment,
companies should investigate whether a vendor has a demonstrated knowledge of, and is in
compliance with, the regulatory requirements of each of the countries in which it operates.
They also should determine if the vendor has been fined as a result of noncompliance and if
the vendor has access to regulatory and legal specialists on staff or on retainer.
 Conducting reference checks/site visits to other clients. Organizations considering
outsourcing often speak with or visit current clients of vendors under consideration. This
allows them the opportunity to validate other clients’ experiences and identify potential issues
in working with the vendor. During these meetings, evaluators can get a sense from their
counterparts at those other firms as to the vendor’s flexibility, willingness to support new
client programs, ease of partnership and whether the vendor has met the client’s overall
expectations.
 Visiting processing/contact centers. Many companies find it quite useful to visit the actual
locations where the vendor is answering employee calls and processing documents. This gives
the prospective client a sense for how the vendor is organized and what technology is being
used. This first-hand view can be coupled with assessments of the attrition rates at the center
and how service center staff are trained, evaluated and given feedback to continually improve
their performance. These visits also provide potential clients a glimpse at the level of
professionalism and service that their internal clients will likely receive and the level of
investment the vendor is putting into its own staff and operations.
 Meeting potential delivery team leaders . Given the importance of personal relationships
between client and vendor, potential clients should meet the individuals who will be
responsible for both service delivery and the overall account relationship. These face-to-face
meetings can help potential clients understand the managerial style of their counterparts and
the extent to which specific individuals have authority to act on behalf of the vendor in

28
 addressing client concerns. Further, should the potential client decide to engage the vendor,
these initial face-to-face meetings can begin to lay the groundwork for the type of trust
building that is critical during the transition phase and subsequent ongoing operations.
 How should the company begin to prepare itself for HR outsourcing?
As executives get closer to making the decision to outsource HR processes, they need to pay
special attention to preparing the organization for the eventual transfer of people, processes
and/or technologies to the vendor.
 Assembling the team that will lead the outsourcing effort
Once the decision to outsource as been agreed upon, the organization needs to identify and
select individuals to lead the transition and ongoing management of the outsourcing
arrangement. Initially, the organization needs to identify the roles and skills that will be
required to transfer the outsourced activities to the vendor and oversee the vendor
relationship. Finding these individuals can be a time-consuming effort, as they often have
other significant responsibilities and need to be made available to work on the outsourcing
effort. Therefore, it is beneficial for the organization to obtain the time and commitment of
these individuals and their managers early in the process,
rather than waiting for the final contract to be signed.

 Communicating the effort throughout the HR organization and

the lines of business
Many organizations fall into the trap of developing their communication strategy after the
outsourcing agreement is put into action. However, effective companies start executing a
tailored communication plan far earlier in the process, as they recognize that rumors will
likely surface long before any formal discussions are in process. Organizations need to
develop formal mechanisms for communicating to HR leaders and staff during the early
stages of an outsourcing effort since these individuals may be called upon to provide data or
reallocate their time to work on outsourcing related tasks. Further, organizations need to
listen closely to informal influencers within the HR organization and business units, as they
may have insight into potential areas of resistance and concern that can have a negative
impact on the outsourcing effort.

 Gathering data on the current state of the HR organization To develop a compelling

business case for HR BTO, organizations often need to obtain a clearer understanding of their
current spending for HR activities and measure levels of operational effectiveness. Also,
many organizations do not have a strong sense for the industry and competitive benchmarks
that are useful in comparing HR cost and performance across companies.
Collecting this data can be a time and labor-intensive process that often must be
accomplished in a relatively short amount of time. While outside resources can be used to
facilitate this collection, both internal HR process experts and individuals with experience in
obtaining information from HRM systems need to be involved. Dedicating these scarce
resources is well worth the effort, as it can help ensure that the organization is entering into a
financially beneficial arrangement.

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 Chap 3 : OBJECTIVES OF STUDY

OBJECTIVES OF THE STUDY :

Today, every organization is aiming at achieving productivity by enhancing return on
investments and achieving economies of scale. In this context, it makes sense to focus only on
the organizations core competencies and outsource non-critical business activities. Corporate
focus on the implicit and explicit costs of human resources has never been greater and
outsourcing employee benefits administration can create greater efficiency while decreasing
costs. The study aims at studying the HR outsourcing phenomena and how companies in India
are reacting to this phenomenon. 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. It will also talk about the role of outsourcing
outfits like India Life Hewitt, Ma Foi, Xansa, Wipro, Accenture etc in shaping the Indian HR
outsourcing industry. Various objectives of conducting the study are: -
 To study the various challenges faced by the Indian industry pertaining to HR
outsourcing.
 To study the various reasons deterring the Indian HR outsourcing industry to grow at the
pace of the global market.

30
  To study the trends of HR outsourcing prevailing in the Indian industry.
 To ascertain the future of the HR outsourcing industry in India and the factors responsible
for molding it.
 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.

Chap 4 : RESEARCH METHODOLOGY

HYPOTHESIS:
“HR outsourcing: benefits, trends and challenges ” is a study aimed to get familiar with the
current scenario of HR outsourcing in Indian companies and the potential future for the industry
vis a vis the global scenario. HR outsourcing is the next big thing to happen and is rapidly
gaining momentum especially in the US. With respect to the Indian scenario it is still at a nascent
stage but is expected to grow rapidly. India currently is facing an economic boom and almost
every industry is at its best state. Hence there is a need for the companies operating in a highly
competitive and dynamic environment to focus on their strategic aspect and core competencies.
The companies can do this by outsourcing the unimportant and non-strategic tasks. Due to the
presence of some factors in the Indian market, the HR outsourcing industry is very small but it is
expected to grow in the future. This is evident from the fact that various big players like Hewitt
associates, Xansa, Convergys, Accenture, Wipro are entering this arena of HR outsourcing in
India.

The study is based on the following assumptions and hence the hypothesis for the
study is: -

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  Indian companies are outsourcing most of their HR processes.
 HR outsourcing is expected to grow at a rapid pace in the Indian industry.
 Indian companies derive lot of benefits out of HR outsourcing.
 Internal customers of the company are satisfied with the decision of the company to
outsource their HR processes.
 Cost is the main criteria for vendor selection for HR outsourcing by Indian companies.

RESEARCH DESIGN:
 Exploratory research
Exploratory research is often conducted because a problem has not been clearly defined as yet, or
its real scope is as yet unclear. It allows the researcher to familiarize him/herself with the
problem or concept to be studied, and perhaps generate hypotheses (definition of hypothesis) to
be tested. It is the initial research, before more conclusive research is undertaken. Exploratory
research helps determine the best research design; data collection method and selection of
subjects and sometimes it even conclude that the problem does not exist. Exploratory research
can be quite informal, relying on secondary research such as reviewing available literature and/or
data, or qualitative approaches such as informal discussions with consumers, employees,
management or competitors, and more formal approaches through in-depth interviews, focus
groups, projective methods, case studies or pilot studies. The results of exploratory research can
provide significant insight into a given situation. Although the results of qualitative research can
give some indication as to the "why", "how" and "when" something occurs, it cannot tell us "how
often" or "how many".
 Descriptive research
Descriptive research or statistical research provides data about the population or universe being
studied. But it can only describe the "who, what, when, where and how" of a situation, not what
caused it. Therefore, descriptive research is used when the objective is to provide a systematic
description that is as factual and accurate as possible. It provides the number of times something
occurs, or frequency, lends itself to statistical calculations such as determining the average
number of occurrences or central tendencies.

The two most commonly types of descriptive research designs are

1. Observation
2. Surveys
The study would include exploratory and descriptive research. Exploratory research would be
done by reviewing all the relevant literature on HR outsourcing. Descriptive research would be
conducted through a questionnaire. The study hence comprises of:

32
  Secondary data analysis – Secondary data is collected from various research papers,
journals and Internet. This data aided in understanding the subject better and building the
base for collection of primary data and drawing conclusions.
 Questionnaire – The questionnaire is a mix of objective and open-ended questions. It is
aimed at the employees of the HR department of various organizations in the Delhi and
NCR region.

SAMPLE SIZE:
 The primary data is collected from twenty-five HR personnel of various companies.
 The respondents belong to the middle or top-level management in the HR department.
 The data collection includes in its scope both government and private companies.
 The data is collected from companies belonging to various industries (Power, IT, Liquor,
financial etc) in order to have an idea of the complete Indian industry as a whole.
 Data would be collected from companies operating in the Delhi and NCR region.

 HR personnel from the following companies would be the respondents for the study:
o NTPC
o Xansa
o HCL Technologies
o Radico Khaitan etc

RESEARCH TOOLS:
The study includes exploratory and descriptive research. Exploratory research would be done by
reviewing the literature related to HR outsourcing and descriptive research would be done by a
survey of the HR personnel of various organizations through a questionnaire. Questionnaire is
used as the tool for collecting primary data from employees working in HR department of
different companies. The questionnaire consists of both open ended and objective questions
on HR outsourcing. Thehe questions cover all the aspects related to HR outsourcing: -
 Process that has been outsourced.
 Benefits derived by them from outsourcing of HR processes.
 Criterion for selection of the process to be outsourced.
 Criterio`n for selection of vendor for outsource
 Reasons for not outsourcing in case the company has not outsourced any of their HR
process.
 Person’s involved or responsible for taking the decision for HR outsourcing.
 Outsourcing by the competitors and business partneroutsourcin

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  Impact of HR outsourcing by the company on its employees.

CHAP 5 : COMPANY PROFILE

Founded in 1969 by Dr Bish Agrawal, ABC Consultants is the pioneer of organised recruitment
services in India. Over the years, we have acted as preferred talent acquisition partner to
multinationals and leading Indian businesses to emerge as the leading recruitment brand
nationally. This combined with our role as trusted consultants for Indian professionals translates
into our core capability - Building Careers. Building Organisations.

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ABC’s roots in management consulting enable us to bring a unique approach to recruitment at
the middle and senior management levels .

We recruit across various industry segments for multinational corporations as well as leading
Indian business houses and have helped shape the careers of over 1,65,000 professionals over our
50 year history.

Our network includes 9 offices spread across 8 major Indian cities. We have over 465
consultants who have over 2800 man years of experience with leading Indian and international
companies and operate within domain-specialist teams spread across the country, providing
customized recruitment solutions across 24 industry practices.

ABC is proud of its long standing relationships in the industry and the fact the 75% of our
business is in the form of repeat business from existing clients is testimony to the quality of work
we do.

The ABC journey Over the Years

1. 1969 (July 1)

Bish Agrawal founded Associated Business Consultants (soon rechristened as ABC Consultants)

Located in Kolkata as a management consulting firm that quickly evolves into India’s first organised
recruitment firm

2. 1970s & 1980s

ABC grows beyond Kolkata and opens offices across major cities in India.

Rapidly becomes a household name amongst corporates and professionals across levels,
locations and industries. Businesses include Recruitment, management consulting and HR
consulting

3. 1996

Executive search arm of the group was formed as ABC Search

4. 1997

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 HR consulting arm of the group forms JV with Watson Wyatt Worldwide to launch Watson
Wyatt (HR Consulting) in India. ABC eventually exits HR & Management Consulting to
focus exclusively on Recruitment

ABC Placements created as volume hiring arm of the group

5. 1998

ABC Search joined Accord Group Worldwide in early 1998 and was rebranded as Accord Group
India in 2000

6. 2005

JV with Manpower Inc – the volume recruitment business was sold to Manpower as part of
JV

7. 2006

Accord co - founded AltoPartners, now a top 10 global network of retained search firms across the
world

8. 2011

Launched Flexibility, as an Recruitment Process Outsourcing (RPO) solution provider. Signed

partnership with Alexander Mann Solutions (AMS), the world’s leading independent RPO company

Launched Head Honchos (www.headhonchos.com), India’s first online career services marketplace
for senior professionals

Launched project hiring business unit, Head Count

9. 2011

ABC logo was changed after

43 years

10. 2012

A group advisory board was created to oversee group strategy and governance

11. 2014

The search arm of ABC, Chairman’s High Circle, spun out and joined Stanton Chase International

12. 2015

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 ABC reorganized from a location (branch) to a national Industry vertical-led structure

13. 2017

Stanton Chase merged into Accord India to create one of India’s leading retained search firms

ABC merges HeadHonchos into QuezX.com, India’s leading recruitment aggregator and takes a
majority stake in the combined entity

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CHAP 6 : DATA ANALYSIS
CHAP 7 : FINDING AND SUGGESTIONS

CHAP 8 : summary and conclusions

SUMMARY:
 HR outsourcing in India is gaining momentum but still the number of companies
outsourcing their HR processes in India are few as compared to the global scenario. 25
respondents were surveyed, out of which only 44% replied that their companies have
outsourced their HR processes. Hence it proved that despite of the rapid growth of HR
outsourcing worldwide, not many companies in India outsource their HR processes.
 Recruitment was found to be outsourced by maximum number of companies surveyed.
Other HR processes that are outsourced by Indian companies are training delivery,
payroll processing, statutory compliance and compensation surveys.
 73% of the respondents responded that top management was responsible for taking
decisions related to HR outsourcing which further proves that HR outsourcing is an
important decision for the company. 18% of the respondents said that the middle
management was involved and responsible and 9% said that both the top and middle level
management were involved.
 Cost and security breaches were identified as the major reasons for not outsourcing HR
processes by Indian companies. Lack of quality, data privacy issues, inability of the
vendor to understand company culture, immaturity of the HR outsourcing market were
other reasons for not outsourcing.
 Core capability was identified as the major criterion for selecting the process to be
outsourced i.e. the process which is a core capability is not outsourced. Other criterion
used for selecting processes to be outsourced are standard processes, little
interdependency with other processes and need for physical processes.
 Competence & technical capability and relevant industry experience were identified as
major criteria for selection of vendors for outsourcing HR processes. Other criterion used

38
 by Indian companies for evaluating potential vendors for outsourcing were past track
records of the vendor, cost and recommendations from other companies.
 More focus on core activities and time saving were identified as main benefits of HR
outsourcing to Indian companies. Other benefits that were identified were cost saving,
availability of vendor expertise and need for lesser manpower in the organization.
 64% of the respondents replied that HR outsourcing is done by their competitors, 18%
said that their competitors don’t outsource their HR processes and 18% said that they
don’t know whether their competitors outsource their HR processes or not.
 Most of the companies surveyed do not take feedback from their internal customers on
the HR outsourcing done by them. 7 respondents said that their companies do not take
feedback on HR outsourcing from their employees and 4 respondents said that their
companies take feedback from their employees.
 The employees of the companies which outsource their HR processes are usually satisfied
by the outsourcing done. All the 4 respondents whose company takes feedback on HR
outsourcing from their employees said that their employees were satisfied from the HR
outsourcing.

CONCLUSION:
Certain assumptions were made before the study. The hypotheses were tested through a survey
of HR professionals from various industries and the following results were found. The study
gave the following conclusions: -
 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.
Hence the first hypothesis i.e. Indian companies are outsourcing most of their HR
processes has proved incorrect. 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.

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

India has immense potential as more than 80% of fortune 1,000 companies are
discussing off shoring as a way to cut costs and increase productivity. Sensing the
potential, global BPO players including Fidelity, Exult and Hewitt have begun setting up
Operations India. Various factors that make India a potential option are its education
system, English advantage, government policies, infrastructure improvements etc. India
would be a destination for HR outsourcing by foreign companies. But growth in HR
outsourcing by Indian companies would be slow vis a vis the global scenario. Hence
the second hypothesis is proved true.

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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. Hence the third hypothesis is proved true.

 Internal customers of the company are satisfied with the decision of the company to
outsource their HR processes.
8 respondents out of 11 that outsource their HR processes replied that they have not
taken feedback from the employees of the company on the HR outsourcing done by
them. Also the ones that had taken feedback were satisfied with the outsourcing done.
Hence the fourth hypothesis is partly true as most of the companies included in the study
did not take any feedback from the employees.

 Cost is the not the main criteria for vendor selection for HR outsourcing by Indian
companies.
Competence and experience of the vendor were identified as the criterion used by
maximum companies for vendor selection. 10 respondents replied competence as
criterion, 9 replied experience and 8 replied cost as a criterion. So cost is a criterion for
selecting vendors for HR outsourcing by Indian companies but it is considered after
competence and experience. Hence the fifth hypothesis that cost is the main criteria for
vendor selection for HR outsourcing by Indian companies is proved incorrect.

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 CHAP 9 : ANNEXURE

QUESTIONNAIRE:

Q1. Has your company outsourced any of the HR processes?

1) Yes
2) No

Q2. If no, what are the reasons for not outsourcing?

1) Cost of outsourcing activities
2) Lack of data privacy
3) Lack of reliability
4) Lack of understanding of company culture
5) Market not mature
6) Security breaches
7) Lack of quality

Q3. If yes, which HR process of the company has been outsourced?

Q4. Who was responsible or involved in making the decision to outsource HR processes?

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Q5. What was the criteria in selecting the HR process to be outsourced?
1) Little interdependency with other processes
2) Is the process a core capability
3) Potential risk of exposure of secret data
4) Need for physical presence
5) Components of the process standard across companies

Q6. What were the criteria in evaluating the potential vendor for the HR outsourcing?
1) Vendor’s past track records
2) Costs associated with the service
3) Recommendations from other companies
4) Vendor’s technological capability and competence
5) Relevant industry experience
6) Other. __________________________________

Q7. What are the various benefits derived by the company from HR outsourcing?
1) More focus on core activities
2) Time saving
3) Cost saving
4) Expertise
5) Less number of manpower needed

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Q8. Are your competitors and business partners outsourcing any of their HR services?
1) Yes
2) No
3) Don’t know

Q9. Has the company taken the feedback of the internal customers on the HR outsourcing
done?
1) Yes
2) No

Q10. How does your internal customers feel about the HR outsourcing done by the
company?
1) Satisfied
2) Dissatisfied
3) Never asked

Name: ___________________________________
Designation: ______________________________
Company: _______________________________

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BIBLIOGRAPHY:
 References:

 Research papers :

 HR outsourcing in India: organized & unorganized sector Author: Mary Mathew,

Welingkar Institute of Management, Mumbai
 Preparing for human resources business transformation outsourcing IBM Business
Consulting Services.

 Journals :

 Successful HR outsourcing means quality service By Vasanthi Srinivasan, Associate

professor, IIM-Bangalore
 HR gains as outsourcing grows By Ganesh Chella, CEO, Totus Consulting

 Internet :

 www.indianchild.com
 www.peoplemangement.com

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