Indian Outsourcing Industry

In today's competitive world, retaining existing customers and increasing the client base has become crucial for the mere existence of an organisation. This could be made possible only by providing the best possible service to customers. Hence, organisations today are much more focussed on doing their core activities that adds value to the business product/service directly and satisfies the needs of the customers. They do not focus on the non-core support activities for the smoother running of the organisation. This is where outsourcing comes in.

These non-cores, non-value adding activities are given to other outsourcing companies. This provides them two core benefits. Firstly, they are able to concentrate on their core activities, improve the quality of their product/service and thereby, serve customers better. Secondly, outsourcing their non-core operations tends involve less costs. Since outsourcing companies are doing the same job day in and day out, they have specialised in it and hence, can provide services at a lesser cost. This has led to a boom of outsourcing companies globally and India has been no exception to it.

Indian Outsourcing Industry

India, being one of the first nations to get into outsourcing sector (Business knowledge resource online, 2010), experienced a rapid growth. Increasing number of organisations are outsourcing their processes to Indian outsourcing companies. India has a huge market size in this segment. This sector has contributed significantly in India’s GDP. As a proportion of national GDP, the business process outsourcing sector’s revenues have grown from 1.2 percent to 5.8 percent within a year from 2008 to 2009 (NASSCOM, 2009). In fact, the Indian outsourcing sector is leading the outsourcing market (Business knowledge resource online, 2010) and is on a growth path ( Ram, 2010).

India is one of the leading source for new talent (Development Dimensions International, 2010). India has a vast talent-base of English speaking employees (Bhatnagar, 2007).This talent pool, combined with various advantages like shorter delivery/turnaround time (quick service), vast employee base and cheap operational costs makes India one of the best places for organisations to outsource their processes (Business knowledge resource online, 2010; Bhatnagar, 2007).

The outsourcing sector has addressed India's problem of unemployment by giving a lot of employment opportunities to people. The attractive compensation packages and benefits offered by outsourcing companies attract a lot of employees. Organisations involved in the outsourcing business tend to make a lot of profit and hence, they are able to give their employees more salaries. This has been one of the major reasons why Indian employees are attracted towards the outsourcing industry (Business knowledge resource online, 2010). Also, Indian employees come with a price tag which is much cheaper than that compared to most countries. Hence, it is a win-win situation for all, the employees, the employers and the country too.

The working age population of people between the age of 15 to 64 in India is on the rise (World Population Prospects, 2008; TM_in_the_21_century_attracting_retaining_and_engaging_employees_of_choice). By the year 2008, Indian IT BPO sector had employed around 2.2 million employees directly and around 8 million employees indirectly ((NASSCOM, 2009. expects the outsourcing sector is expected to grow to $148 billion by 2012 and hence, is predicted to employ for more than 3.7 million personnel (Budhwar et. al., 2006).

Like everything else has good and bad points, Alongwith these growth prospects, there are some problems which are prominent in the Indian Outsourcing sector which will is discussed below.

HR Issues in Indian Outsourcing Industry (Attrition and employee retention)

Indian outsourcing sector has grown immensely over the past years and is continuing its growth streak. But this path of growth is not smooth. There are some speed breakers, some issues which Indian outsourcing companies have to overcome. And one of the major problems in this industry is the high level of attrition (Saxena and Bharadwaj, 2007). One reason for this attrition could be because of the social climate prevalent in India. Working in the outsourcing sector is considered to be “lower down the social order” (Bhatnagar, 2007, pg 655) in India. But this is not a mojor reason why employees leave the organisation too quickly.

More than 60% of employees in this sector generally leave before completing 6 months. They generally wait till they finish the training program and once it is finished and they have gained the skills and expertise, they tend to leave the organisation and look out for better opportunities which could give them more financial benefits (Bhatnagar, 2007). Apart from this major financial reason, there are many reasons for this high attrition levels like lack of growth opportunities, no proper work-life balance, physical stress because of working in unusual times, etc. (Sharma, 2004; Ross, 2005). Attrition is posing to be a big threat to the competitive advantage which India has in the outsourcing sector. (Murali, 2009; PricewaterhouseCoopers report, 2005). This is the reason why, controlling this attrition by retaining talented and skilled employees becomes an essential activity and a challenge for HRs in today’s scenario.

Fegley (2006) emphasises that searching and retaining talent for the organisation should be considered as one of the most important agendas in today's world where there is a lot of competetion and the availability of highly skilled talent is scarce (Scullion and Collings, 2006; Sen and Shield, 2006). The constant shortfall in the availability of skilled labor has led to a war for talent (Branham, 2005; Capelli, 2000). And this war for talent not only pertains to retaining the right talent in the organisation. It starts at the recruitment and selection stage wherein organisations have to analyse and evaluate the gap for talent in the short and long run and fill in with the right kind of talent and skills which is hard to find (Ross, 2005).

There has been a tendency of talent loss in an organisation. Many organisations are not able to gauge the calibre of their available workforce and their talents. Hence, these talented employees are put into jobs which they do not like. This is somewhat underutilising or wastage of their talents. Not only that, but it creates a negative feeling inside them. The results are eventually seen in them getting frustrated and leaving the organisation (Bryan et. al., 2006).

India has a vast talent pool of more than 14 million university graduates but MNCs would only consider recruiting the top 10-25% of this lot because majority of these graduates are deficient when it comes to the essential training and lingual skills to work in this sector (McKinsey report, 2003; Bhatnagar, 2007). Hence, managing this talent in the organisation is proving to become a pressing issue for today's Indian HRs. One of the prominent answer to this issue is adopting to a good talent management strategy. In order to source and retain quality employees, HR in the organisation should be able to gauge, manage and appreciate the existing talent in the organisation.

Talent Management:

Talent management is a concept that takes into consideration, both the individual as well as the organisational aspect. It not only concentrates on improving the skills and talents of individuals in an organisation, but also focuses on creating an overall supportive environment which brings out the talent in individuals (Ulrich et. al., 2007). Talent management as a concept does not have a peculiar fit-for-all definition (Ashton & Morton, 2005). Different researchers have defined it in different ways depending on their own convenience/approach. Redford, (2005) considers Talent management to be an endeavour to boost the work of all the employees to their maximum possible potential. Cheloha and Swain (2005) consider it to be a vital part of a sound career succession plan. Another set of researchers describe Talent management to be a combination of distinctive Human Resource functions and practices in areas pertaining to Recruitment, selection, development, and succession management (Chowanee & Newstrom, 1991; Mercer, 2005). Talent Management also stresses on the idea of talent pools which includes processes which are created specifically to ascertain the flow of employees in positions across the organisation (Kesler, 2002). The various aspects of talent management are recruitment, selection, on-boarding, mentoring, performance management, career development, leadership development, replacement planning, career planning, and recognition and reward (Bhatnagar, 2007).

Talent management tends to have been explained differently by experts in different fields. Leadership inclined writers explain talent management to be a process with prominence on succession planning and development of leadership skills (Conger and Fulmer, 2003). Writers in the field of compensation and monetary rewards and recognition consider talent management to be directly linked with compensation and performance management of an individual (Garger, 1999). Writers in the field of training and development consider talent management to be a course of enhancing the skills, knowledge and thereby, talent of the organisation by conducting training and development programs (Cohn et. al., 2005). Recruiters on the other hand think talent management is associated with providing the best possible candidate that has the skills and talent to fit the requirement (Sullivan, 2005). Altogether, it could be said that Talent management is not any one, but a combination of all the above mentioned concepts.

Talent Management post recession:

On of the major concept which acts as a base for the idea of talent management is to retain employees. Now, in the environment of economic turmoil, many organisations started to retrench their manpower as a cost-cutting measure. Hence, there was no recruitment of labour which ruled out recruitment of talented workforce. Also, since there were no jobs in the markets outside, people would stick to their job and would not leave. This eliminates the need for managing and retaining staff. So in totality, it could be said that recession has put an end to this talent war. But on the contrary, it has made matters worse. Organisations are finding it difficult to downsize, or rather, right size their employees. HR now have to find the right talent in their organisation and accordingly, and have to choose from people they can do without. Choosing people whom they want to exit has become a big issue (Cheese, 2010).

Employee engagement

Employee engagement has developed to become one of the crucial priorities of HRs in the past years (May et. al., 2004) but there has not been major literature research on the topic (Bhatnagar, 2007). A survey conducted by HR focus in 2006 disclosed the importance of employee engagement to the world. The survey highlighted employee engagement as the second most important issue, first being retaining and developing employees. Also, a SHRM report in the same year indicated that a higher engagement level will lead to a better result. It has become crucial for Indian outsourcing sector to take the concept of employee engagement seriously and convert engage disengaged employees (Bhatnagar, 2007).

An employee becomes engaged with an organisation when he totally gets engulfed in his job. It is a stage wherein an employee is totally committed to the organisation and is devoted towards his work (Falcone, 2006). Baumruk (2006) describes this concept from a different angle, through the HR lens. He states that engagement is related with making employees realise that they are a vital part in the organisation. He characterizes employee engagement to be a process whereby the HR can help employees of the organisation get more involved in the day to day happenings inside the organisation and hence, feel a sense of being important. This will help employees deliver more commitment and dedication to the organisation. These committed employees tend to give in more to the organisation than the others. A research conducted by Lockwood (2006) shows that employees who are more committed perform better than their not so engaged counterpart by 20%. Engaged employees have this sense of positive feeling in their minds which is reflected in their work (Macey and Schneider, 2008). Not only does their performance increase, their chances of leaving the organisation drops by 87%.

Several practioners (Parsley, 2006; Woodruffle, 2005; Bennet and Bell, 2004) are of the opinion that employee engagement is a key factor in the retention of talent within the organisation. They agree with Bamruk’s (2006) proposal that an increase in the engagement levels of employees will not only result in better productivity and results, but also lower the employee turnover. Greater the employee engagement, greater will be the engagement level of the employee, lesser will be the chances of him leaving the organisation (Hom and Kinicki, 2001). Engaged employees tend to become a “strategic asset” (Joo and Mclean, 2006). They possess skills and capabilities which are hard to find and imitate (Amit and Shoemaker, 1993) and hence, prove useful to the organisation. They help organisation to raise its overall performance in such a way that the organisation could outrun the competition. It is also found that highly engaged employees can increase their organisation’s product quality, thereby serve customer better (Sejits and Crim, 2006).

Talent management activities and its impact:

Most organisations have the perception that having a big brand name in the market and offering a heavy pay package will help them attract and retain the best of the talents available in the market (Development Dimensions International, 2010). That however is not true in the current scenario. In the case of emerging economy like India, researchers (Ready, et. al., 2008) have identified four core factors that has a direct impact on talent attraction and retention. These four factors are: Brand, Purpose, Culture and opportunity. In today’s environment, the best of the talents may fall for a small organisation which has a pleasing cultural condition and provides a legitimate job opportunity rather than opting a higher pay package. Money is no more the focal point in the decision making process of an employee. All in all, a Talent management activity boils down to HR’s efforts in managing these four factors which will automatically help in engaging and thereby, retaining talented employees in the organisation. The rationale behind these four factors is mentioned below:

Brand: Today’s employee is not the same as what he used to be a couple of years back. Their priorities have changed significantly. They look for a Brand name in their employer (Dell and Hickey, 2002). They look for leadership qualities of the organisation in the market. Employees look for these brands because it challenges them to develop their own leadership skills. Today’s employees also look out for factors like CSR while determining the brand reputation (Branco and Rodrigues, 2006; Cheese, 2010). A socially responsible organisation tends to make a good brand name in the market and hence, attracts and retains employees better (Bhattacharya_Sen_&_Korschun, 2008). Hence, by developing a good leadership brand value in the minds of perspective employees, HRs can attract the best possible talent in the organisation. Such an environment will provide employees with the challenging environment they aspire, thereby enhances their engagement level and eventually results in them staying longer with the organisation.

Purpose: Today’s employees are looking for a specific purpose in their job roles. They look for a link of how their job is contributing against the organisational goals. Not only that, but today’s employees are thinking on a national and a global level on how they can contribute in the development of their nation or the globe through the daily activities they are doing. Helping employees find that purpose, that linkage, proves to be a crucial activity for HRs. This purpose will act as one more reason for employees to stick with their current organisation.

Culture: Employees have become conscious about the culture of the organisation. They look for a culture which supports rewards for their merits. Employees want to gain credit for their achievements. They want to be treated as an important reason for the inflow of money in the organisation. They want to be treated as partners of success of the organisation (Bhatnagar, 2007).They look for a culture that supports teamwork too. Providing such a cultural climate at the workplace will install a feeling of being significantly involved in the organisation’s achievement thereby, reducing their tendency to leave.

Opportunity: employees are constantly in search of improving and developing themselves and climbing the next ladder. So, they are always in search of putting their hands on a new role or function which gives them an opportunity to develop. HRs can provide this opportunity by providing a job which demands challenging work provides a fast-paced career progress, trains and develops skills and, nevertheless, provides competitive pay. A well defined, explicit career development path will reduce the attrition in the organisation (Taylor_audia_gupta et. Al., 1996). The disparity between employee’s expectations and their actual work profile should be resolved (Bhatnagar, 2007).

A survey conducted in 2005 (Bhatnagar, 2007).also rates challenging work environment and a learning climate to be more important factors of retention as compared to pay package. The above determinants bring about engagement within the empoloyees of the organisation. This is evident from the findings of a study conducted by Butler and Waldrop in 2004 which suggested that a climate which supports leadership, development and creativity will surely enhance the engagement levels of employees within an organisation.

Need for this research

In an emergent market like India, there has been very less research done in the field of Talent Management. Effective strategies of recruiting the right kind of talent and retaining it have not been explored to the core. Especially, research which indicates a relation between talent management efforts, employee engagement and retention are very less (Bhatnagar, 2007).