Human Resource management plays an elaborate role in the success and operations of an organization. The processes involved in human are focused on the needs of the employees. Human resource (HR) management is defined as the policies, practices, and systems that influence employees' behavior, attitudes, and performance. (Noe, Hollenbeck, Gerhart, & Wright, 2003) Since its introduction into the workforce many years ago, the roles and responsibilities have changed. The objective of this document is to discuss the changing roles of HR management in response to trends in outsourcing.
For many years, HR was mainly an administrative function in a company that ensured that the office had the employees they needed. One of their other functions was to carefully house the records of each employee. Throughout the years, the importance of HR management has elevated significantly. Now it provides service to more than the employees of an organization, but that service is also provided to customers and the community as well. Today, HR roles and responsibilities collectively maintain and secure the company's human capital. Human capital can be referred to as an organization's employees, described in terms of their training, experience, judgment, intelligence, relationships, and insight. (Noe, Hollenbeck, Gerhert, & Wright, 2003)
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The roles of HR are carefully executed with the responsibilities of analysis of work design, employee recruitment and selection, monitor employee performance, comply with all work laws and regulations, support strategies for change management, explain compensation and benefits, and provide personnel policies and employee relations. Even though these factors are the overall responsibilities of HR management, the roles can change depending on the characteristics and industry of the company.
Globalization is one of the reasons for the changing roles of HR, and it has ultimately affected the way business is conducted in a company period. Many companies have international offices or they outsource for technical support. When an organization do this, HR management must be knowledgeable and follow all the employee laws and regulations of that county. This can prevent any legal and compliance issues for the company. HR Outsourcing (HRO) is becoming more like second nature for most companies now. More companies have embraced outsourcing as a driver of overall business performance, vital to their success, and strategies for financial risk reduction. The art of creating a good HRO deal is to ensure that nearly all your transactional and basic advisory services are outsourced and that you redesign the jobs of the HR teams that remain so that they no longer focus on the routine operations but are focused on more complex organizational challenges and strategic needs. (Hunter, 2007)
It has been argued for a long time why organization should outsource but it has been understood that companies cannot escape the remedy of outsourcing therefore Tompkins (2005) argues that organization no longer need to question if to outsource but should emphasize to understand what and which functions should be outsourced. It has been concluded that outsourcing is a business imperative and therefore all organizational function needs to contribute to a new and better competitive form of outsourcing.
A good literature review will summaries and asses the range of existing materials dealing with knowledge in the given subject (Anon, 1). This chapter will analyze the literature relevant to the topic areas that have been identified and the references are mostly from the past ten years. It should be noted that the theory of outsourcing was prevalent since early years of 1980's
To understand the associated research aims the following questions have been framed to understand the relevant literature.
What are the recent challenges facing the Human Resource Management?
With the evolution from personal management to human resource management "the old has died and new are struggling to be born"- Antonia Gramasci.
"The future calls for change " the article s summarizes the thought of forty eight HR leaders who call for the changes and arguments in relation to the future of HR future role. Some believe that the HR personnel should be strategic consultants for the people who believe HR functions should be outsourced. In a survey conducted by Ulrich to have an appropriate judgment on the issue, line managers were made focused group and asked to speak about HR roles. The result concluded that some believed that for HR to become tactical partner, they should exchange transactional functions to line managers which would be an increase burden. There were a few who believe that HR should continue perform their function and should not change from this tradition.
Always on Time
Marked to Standard
The future of HR is bound to make a different shape with most of their functional experiencing change, Boninelli and Meyer(2004) has predicted the following shift in HR functions.
Strategic Role- 5%
Performance Augmentation - 23%
It is understood from the above literature that partnering strategy, and it has been recommended that HR professional need to fulfill functional role. It means the HR should fulfill the basic functional activities before being opting for a strategic role. It is also stated that expertise is not technically required to implement an alternative service delivery mechanism (Schulman, Harmar Lusk, 1999) but crucial skill is required to solve the issues by understanding the business thoroughly.
Academics, authors and professionals are voicing for HR to perform more strategic function and play huge role in the competitive position of the organization, it is though understood that transnational function should be done in an efficient and effective manner. Exchanging the responsibilities to line managers in small proportions too is not a durable alternative as the managers need to focus their responsibilities on the core competencies just as HR need to. HR practitioners believe that they should be free from administrative and communicational agendas to have the ability to provide value adding service to the organization (Bininelli and Meyer, 2004). Hence, being inquisitive to ask " can HR outsourcing have the capability for HR to become premeditated partners in an efficient and effective manner so it can ensures HR functions can focus on their core responsibilities? "
What are the motivating factors in sourcing decision and how are these factors determined?
The answer what to operate in-house and what to outsource was an issue which existed during the early days of manufacturing. (Probert, 1996). It has been indicated that even in the late 19th century subcontracting was present amongst shipbuilders and in the textile industry. Blumberg (1998) reveals the existence of outsourcing during the times of the empires where they would seek neighboring nations to guard their borders. In the modern era, Henry ford model of vertical integration model were being followed by many organization for a very long term and not until the early 1960's companies and nations exchanged raw materials or finished goods (Dubois, 1998).
Over the past thirty years with the development in technology, increasing innovative management practices and globalization the need for a competitive for a competitive strategy to derive result was essential. Thus, the practice of outsourcing seemed to provide a competitive edge among all the management practices. It helped organization to attain leverage between the internal and external resources to obtain a competitive advantage (Kevcic & Tavcar, 1998)
Cost is summoned to be the main reason for outsourcing but it is not the only significant factor
Cost: At the outset of implementation of outsourcing in 1990, it was assumed that outsourcing can by its own can reduce cost and increase efficiency (Blumberg, 1998). At a base level especially in the manufacturing sector outsourcing for reducing cost is possible if the supplier's price is low enough with added overhead, profit and transaction cost. (Kermic et al, 2006). The highest level of efficiency can be attained by being technologically specialized or by attaining economy of scale.
However, it may not be the same case in many of the large multinational organizations, the economies of scale in the organization can be much greater than their service providers (Alexander and Young, 1996). The idea of lowering cost by attaining large revenue and quality service in a cost efficient manner was the primary reason for outsourcing even after a decade of its acclamation (Fill and Visser). However, the inability to anticipate occurring cost is proved to be a failure to outsourcing (Jennings, 2000)
Strategy: After considering cost, the other important factor that an organization analyzes is their strategy. The decision to shift from vertical integration to outsourcing their process is an important decision to be made by the top level management.
In accordance to service industry, it is recommended that a complete strategic forecast must be implemented before the outsourcing decision is made. The criteria for these forecasts must understand the following statements:
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The importance of this service
The market perception of the quality of the service
The actual quality of the service as compared to their competitors ( Blumberg, 1998)
The primary reason for any strategy is the impact of the quality of the result. The quality is what establishes reputation, demand and eventually profit. The management should understand by no means while outsourcing the quality and the perceived quality remains intact ( Kermic, Tukel and Ram,2006).
While choosing a sourcing strategy, every management should measure up first with other operations within the chain to understand whether to seek internal or external provisions.
Approach: It is the macro environmental factors in which the company operates in; which indirectly has an influence on the souring decision. While analyzing the benefits of sourcing, the management should understand not only the quantifiable elements but also the unquantifiable drivers and these factors vary in different situation. (Fill and Visser, 2009).
There are several contextual factors to be considered while outsourcing
The extraordinary exceptionality of the nature of the business makes it difficult to find a suitable service provider. Also, there may be discrepancies amongst management levels on decision if to outsource or not. ( Kermic et la, 2006)
If an organization is already successful in the environment of its functioning, then the question arises why is there a need for a change? To reason this theory, analyst argues " if the competition are out rightly outsourcing to be better, why not follow the suit to be the best".
The newer trend of outsourcing deals with multi sourcing, the business must identify the advantage and disadvantage for selecting multi-sourcing or single sourcing.
Public Sector: The outsourcing in the public sector began with the introduction of competitive tendering during the early 1980's. Government organizations have an image of being huge, bureaucratic and inefficient. It is noted that in a public organization the main motive to outsource was to in order to make money and satisfy the need of the public by making them content. (Kremic et al,2006).
What led to the eminent development of HR outsourcing?
HR outsourcing can be defined as "placing responsibility for various elements of the HR function with a third-party provider"(Turnbull, 2002, p.11). There is now a global trend of continuing growth of HR outsourcing. This growth is pushed by organizations' needs to acquire outsourcing services, as well as pulled by international HR outsourcing provider firms which are keen to expand their services in different business areas and geographical locations. Large multinational corporations (MNCs) are the main user firms of HR outsourcing. Equally, outsourcing providers are mainly large MNCs, offering an increasing number of HR services delivered in innovative manners. Outsourcing has been a prominent strategy tool used by many organizations. Organizations are on a constant look out for improving procedures and reducing cost to obtain competitive advantage.
There are many reasons why HR outsourcing has been implemented in many organizations, some being the reduction of cost itself or the incompetence of the department to handle the situation, but in the current time outsourcing has been an integral part of every business strategy and the reason has been
The widespread use of outsourcing by larger private sector companies
Substantial increase in the extent to which public sector organization buy in external provided services
The development of a view that sees the decision to outsource a function as a central plank in an organization's business strategy.
The extent to which organizations are prepared to replace established in house functions with externally provided alternatives often involving large scale redundancies. ( Stephen Taylor, 2009)
As far as the trend goes only there has been evidence the scenario of outsourcing has been vigorously developed over the last two decades (Collings, 2005). However, the growth of HR outsourcing has not followed the anticipated speed predicted by some commentators. Nor has the scope of the outsourcing been as radical as some may assume. For example, only 3 per cent of organizations surveyed by SBPOA in 2005 reported that they outsourced the entire HR function (Pickard, 2006). This is because the diversity of the HR function makes it difficult for firms to outsource its HR function as a whole to a single service provider to gain economies of scale. Instead, organizations tend to outsource single processes to different service providers to take advantage of their unique strengths.
Half of this recent growth in HR outsourcing originated in the public sector and was the direct result of government requirement to introduce competitive tendering (Rielly 2001). The private companies seeing the success and result attained by the public companies joined the race to outsource their HRM departments. The type of work outsourced to other organization varies substantially with the different kind of arrangement the organization or the department wish to derive. Some of the areas in which HR services are regularly outsourced
Training and Development
Executive search and Selection
Recruitment of temporary staff
Outplacement and Redundancy Counseling. ( Adams,1991)
Over the years it has been sighted and investigated that the above mentioned departments or criterions are the most outsourced while other areas such as strategy, planning and appraisal still remain an in-house objective. It has also been researched and confirmed that recruitment, development and selection are the most extensively outsourced activity in HR outsourcing. (Cooke et al, 2005)
The type of work outsourced to organization varies substantially, some these function are mere generic in nature and therefore less risky. Organization argue that reliance on an outsourcing depends on a number of variable factors such as
Product Market Uncertainty
Importance of HR strategy to the organization ( Adrian,2009)
It can be explained that outsourcing is still a cause of unrest in the minds of management; it is an interesting fact that organization who operate on unique approaches to HRM are less likely to outsource their generic and human capital activities presumably it is because contractors provide less level of performance than ascertained by the in-house staff. (Adler, 2003) also notes some of the reason why the decision to outsource might vary between organizations depending on the degree of risk in the relationship and the extent to which high-level and deep seated trust relations can minimize problems.
There are three common forces that lead employers to implement new forms of service delivery
Saving Costs and Shifting Risk
Gaining External Expertise, Not Available In-House
Independence from Internal Pressure
When the strategy of outsourcing comes into any organizations mind, the main reason is to eliminate cost and improving service. (Cook et al, 2005) identify a wide range of benefits from outsourcing
Allowing the firm to concentrate on their core business
Gaining from the specialist supplier's economies of scale and learning fro them
Shifting the burden of risk
Enabling greater numerical flexibility
Outsourcing the whole of HR is quiet complex from outsourcing their differentiated activities. Some organizations make the mistake of outsourcing an already effective project and thus ending up in a loss. (Main 2006) suggests that the lack of some outsourcing experience are due to the fact that outsourcing is seen as a way to get rid of problems such as cost and inadequate expertise and management supervision is nothing once it has been outsourced. These has led to demise of end to end outsourcing and on the alternative companies have engaged in shared services and outsourced separate HR functions like training, administration and payroll to separate agencies.
Many organizations have experienced advantage from outsourcing and most of these companies are based in the US. While others across the world are resistant to outsourcing. Eg. BA experienced only limited success when it outsourced to Infosys and terminated the contract in 2009 during the recession thus resulting to make a conclusion that outsourcing is a different proposition for big companies as opposed to smaller organization (Hammond 2002). This conclusion made skepticism amongst managers and managements about outsourcing important HR functions which they believed might lead to loss of control, loss of personal touch and doubts of the quality and commitment of the external staff. Managements from big multinationals like Royal Dutch/ Shell believes that only high levels of internal staffing can lead to and maintain high level of HR practices (Peoples Management 2002). On the other hand Gratton (2003) argues that there exists alienation of these service providers and with the devolution HR functions. The distance makes a huge difference in the working efforts of the employees thus making them feel that HR would provide greater added value if the whole integrated functions were outsourced than disseminated. Many organization have integrated this opinion while outsourcing, Gratton on this regard has formulated four mechanism to help improve this course
Operational Integration- Using standard technology to improve employee efficiency
Intellectual Integration- Using shared knowledge base from both parties
Social Integration- Having a common agenda and developing a common goal strategy
Emotional Integration- Using bonds of friendship and reciprocity, sense of shared identity and meaning.
The major challenges while outsourcing is to bring together the outsourced entities with the segmented elements. When organizations have not been able to resolve these issues they have either lost money or transferred back their operations in house. According to Brockett (2006) it is stated that organizations are forced to answer to tenders who are not specialized in HR but rather in purchasing thereby making cost as a primary motive. This procedure makes it difficult for the exchange of data, information, concept and strategy, therefore hampering the main objective of outsourcing. Such circumstanced eventually has an adverse effect such as loss of skill; knowledge and capacity which are the main reason organization outsource (Cook et al 2005). It is therefore understood that outsourcing is not just a threat for a particular function or a business but for the individual who are involved in the process. In spite of these drawbacks outsourcing of HR process and function continue to increase to a large extent to countries like India. This maybe called as "off shoring".Single-process outsourcing is therefore believed to be the main growth area (Pickard, 2006). Nevertheless, multi-business-process outsourcing has been on the increase too in recent years. This is a result of the growing maturity of the HR outsourcing providers. Differences exist in the use of HR outsourcing in different parts of the world. These differences arise from the size of the businesses, the degree of sophistication of the HR function, the extent of development of the HR outsourcing market, cultural norms, employment regulations, and labor market characteristics in specific countries and regions. In general, the use of HR outsourcing is much less common in Asian countries than in Europe and the US. A major reason for the relative low uptake of HR outsourcing and shared services activities in Asian countries is the perceived poor quality of service and competency level of consultants in the market and the associated lack of options. Concerns about data security and loss of management control are also important reasons for not outsourcing.
The majority of outsourcing user firms in the Asia region appear to be western MNCs. Perceived benefit of cost reduction and the desire to focus on core competencies are the main reasons for outsourcing the HR function. Social security benefits, payroll processing, legal compliance, recruitment, and training and development are the main HR activities to be outsourced. Recruitment is the first and most common HR process to be outsourced by MNCs in Asia Pacific countries because it is an area in which they rarely have core competency (Beaman and Eastman, 2003) and can benefit from the specialist services from well-established HR outsourcing provider firms such as recruitment agencies. Outsourcing transactional activities (e.g. payroll) and specialist HR activities (e.g. legal compliance) enables client firms to gain cost efficiency and access specialist knowledge with relatively little negative impact to the corporate.
However, outsourcing human capital activities (e.g. recruitment and training and development) may present additional challenge to the maintenance of corporate culture and value, which is already a difficult task to manage for MNCs. Local employees from HR outsourcing service providers may have their own cultural values and ethical norms which do not necessarily conform to the western ethical standards and stakeholders' values. They may impose these cultural values and ethical norms consciously or subconsciously and in the process of providing the HR services.
The outsourcing of HR activities (a transactional process) inevitably take away the opportunity of interaction between line/HR managers and the employees (a bonding process). Employees may feel less valued when they have to deal with an external provider for issues that may be private and confidential.
The reduced bonding between employees and managers may in turn reduce employees' engagement with the firm. This is particularly the case in India where the talent retention problem is even more acute than that in China and developing a good relationship with the employees and their extended family is highly important in effective management of the workforce. Outsourcing certain elements of their HR function in offshore countries where they operate enables MNCs to tap into local expertise and to focus on core competence. This practice helps firms to acquire the necessary expertise resource in a relatively short period of time without having to go through the traditional life cycle stages assumed for internationalizing firms. However, this 'short-cut' to acquiring HR competence requires a corporate HR structure that is different from one that may evolve through in-house development. Indeed, the advent of HR outsourcing and shared services centers has led to significant changes to the corporate HR structure for many firms as a prerequisite for adopting these services. Off-shored outsourcing of the HR function adds further challenges to the complexity of centralization, decentralization, control and coordination that are exhibited in managing HR in MNCs and the outsourcing relationship.
What are the sourcing frameworks to be followed in HR outsourcing process?
A successful outsourcing strategy relies on an organizations ability to identify, implement and establish proven methodologies (Bonifazi and Desouza, 2004). All large corporations believe that outsourcing is a core a competency and it is a major influence for their competitive strength. After analyzing the general literature, it can be concluded that the main activities that are to be outsourced in an organization are the generic process example recruitment, training and development while core competent process such as payrolls should be an in house process. It is therefore needed by every business to understand and distinguish the core competency processes.
Core competent processes are usually
Imbued with tactical knowledge
The process in which the company does better than their competitor
The ability to deliver unique value
Fundamental to the company's capability to make gain for the future (Goddard, 1997).
Melvor (2009) in his framework assumes all non- core operation would be outsourced and strategies would be built around the core competent processes. This approach has also been agreed upon by Kakabadse and Kakabadse (2000). While taking an example of international companies Goldman Sachs have their back end operations in Bangalore, India. The HR department has outsourced their head hunting process to MaFoi consultancy (Part of Randstad group of companies) and Team-lease, but the recruitment process is wholly and completely done by the HR process at Goldman Sachs. This allows the company to have their own unique recruitment system which is different from KPMG or JP Morgan and making sure the right is at the right job.
The outsourcing decision should be made by senior level management and they have to be careful that the long- term strategic goals are highlighted and benefits are reaped by the eventual implication of the process (Melvor, 2006). The importance of assessing strategic position requires careful analysis (Prober, 1996). The management should use various success indicators to understand and predict the result of their sourcing strategy. This can be done by using techniques such as SWOT and Porter's five forces analysis (Porter, 1979).
Even though there are large amount of information available on outsourcing but there are only few that discusses the decision making process before implementing HR outsourcing. There are several theories on framework for outsourcing but most the companies follow two common strategies while implementing HR strategy.
Figure 1, Tukel and s Kremic 2003
Some of the organization do feel to value factors such as cost more significant and hence follow the second framework
Figure 2: Visser and Fill, 2004
While Kremic and Tukel's model emphasis more on the macro factors, the cost aspect is more specifically measured in Fill and Visser's model. With total cost and transactional cost theories being viable tools for analyzing the company's cost, the problem lies when trying to compare these to that of the competitors as data sharing is sensitive and impossible. Therefore, the management should not base their decision on cost alone but also on quality.
On a successful analyzing of the framework the management would come to an understanding whether to outsource or not. If the decision is "positive" the next step for the management is to find a suitable service provider. With the development and enhancement of outsourcing strategies, the theory of operational relationship between the provider and buyer has been diminished, rather a new form of partnership has emerged called the "strategic alliance". Zineldin and Brendnlow (2003) summarizes, if the management is able to create and nurture a relationship of trust, it can provide the organization a potential competitive advantage to the strategy.
Having selected the appropriate service provider, the next step is to formulate the terms of the agreement of the contract. A successful outsourcing always relishes upon a good contract (Zhu, Hsu and Lillie, 2001). The contract has a clear, realistic and absolute flow which can lead the project to a good transition. Implementing a transition is always vital as it shotime uld be ensuring continuous service to the customers and helping the those employees who are involved in the process to sync to their new responsibilities quickly and efficiently (Kakouris and G, Binioris, 2006).The management must also be vary about the time line while the process is being transferred, the longer time it takes to transfer the process then the more the scope for delay. However, a speedy process might offer a chance of being careless and miss details while effecting change.
What are the risks while outsourcing and how can they be mitigated?
The risk of an organization not achieving the benefits of outsourcing is quiet large. It is quoted in a survey (Melvor, 2000) that only five percent of companies have benefited from short term outsourcing. Risk control is an integral part of outsourcing (Jiang and Qureshi, 2006), understanding the value of outsourcing and controlling the contract without shifting from its objective is the key to controlling the risk. Organization who are extremely conscious take contingency measures before implementing of the process on the circumstance what would happen if the alliance ends; all circumstances and implication for a problem has to be answered so that risk reduction strategies can be implemented at the beginning thus helping in reducing the aftermath of problem. It cannot be overruled that no risk is likely to hamper the business and during the long term some of these risks can eventually be the success story of the business (Jiang and Quershi, 2006).
There can also be risk that employees and middle level management do not support the project for their own safety and reasons. The reason why the company decided to source, its benefits and implication has to be communicated to the employees and this is a vital to the organization. Rumor can bring a lot of grapevine and thus cause fear and apprehension which will result in the decrease of morale and affect the commitment towards their job (Blumberg, 1998).
Maturity of HR Outsourcing
International Data Corporation assumes that worldwide outsourcing will have an annual growth of 18% between 2008 and 2012, with managements predicted to spend over $30 billion in 2011. It was documented that there is a thriving market for HR outsourcing and increasing engagements from customers (Mortorelli, 2006). Kevin Cambell, MD Accenture Global states "The overall outsourcing market is growing at a significant rate and the company continues to be extremely bullish"
There are two main reasons why HR outsourcing grows in an unprecedented manner
The clients in the HR industry are looking for more HR functions and processes to be outsourced which includes the core activities.
Organizations are looking for methods to standardize their global HR process (Martorelli, 2006)
One method to understand the growth of outsourcing is trying to understand the availability of the service providers and understanding the stable set of providers. Outsourcing generally have a set of relatively stable service providers, 24*7, Accenture HR outsourcing, WNS. Henceforth there are no significant outsourcing firms dominant in the Indian market, although there are more than 60 consulting firms that provide outsourcing in India. Understanding the maturity and adoption rate of the HR outsourcing process helps to understand how long the process is viable and how long it can survive.( De Koeker, 2003).
Benefits of expected to derive of HR outsourcing?
As explained earlier in the literature the main reason why companies do outsource is to reduce or contain cost. According to analyst it has become a common practice and expectation amongst contract agreement between service providers and their clients, retaining cost to be the essential for outsourcing (Gibson, 2006). It is believed that a cost can be saved at least by about 20% while HR administrations are outsourced (Lawer et al, 2004). The main reason service providers are able to control cost are through efficient management and time control (Cohen and Young).
According to Management Report (2004), it was stated that after a successful implementation of HR outsourcing more cost was increasingly reduced by reduction is the number of HR employees. It was also noted that the accuracy level also improved by administration by three times within a couple of months of their implementation. There has been constant argument between industrialists on cost being the primary benefit of outsourcing, Thompkins( 2005 ) believes the main purpose of for outsourcing is for management ease and for them to focus more on the core competencies and core processes. Some analyst believes that outsourcing is a simplified business solution that can help managers to focus on providing the right value to the customers and the organizations shareholders (Kruse and Berry, 2004).Outsourcing generally helps companies to enhance their employees on their core competency and leading them to grow in their competencies which are essential for the success of the organizations development (Aldisert, 2002).
Every organization strive is to be more competitive advantageous as compared to that of their rivals. It is believed that an organization earns a certain level of advantage when they have outsourced their process; when especially the provider has far superior technology and process is facilitated by it (Metty, 2006). It should be highlighted that outsourcing providers are generally highly competitive across all aspects of their value chain, outsourcing generally do no focus only on the national level but also internationally, therefore the providers are highly equipped in fractions of their potential.
The other factors which organization benefit from outsourcing is the ability to be flexible (Patel and Aran). This can also include the scalability and the ability of HR administrative systems to expand and contract as the organization strategy changes (Lawler et al). Sometimes flexibility can tend to be a disadvantage to an organization as it can be a task and costly for organization to undo an outsourcing agreement especially during change in the market condition, change in the strategy of the organization or during a merger and acquisition (Kruse and Berry, 2004).
Summarizing the to the above literature, Boninelli and Meyer (2004) has stated the following points as the key benefits from outsourcing
Helps in proving a greater expertise from what the organization already owned.
Qualitative improvement in the process outsourced.
Automated service which the earlier process could not let go off
Improvements and access to latest technology
Maintaining focus on core activities.
Has HR outsourcing obtained desired results?
Even though with so much hype about outsourcing, Hartfield (2005) seeks answers for the question "why does not many organization outsource"? There has been evidence that eighty percent of outsourcing alliance fail to reduce cost (Debt Clubed, 2005). There has been many been many authors who have published books on the right kind of outsourcing methods; but still yet the question remains "how successful can outsourcing be"? Every year the number of organization preferring to outsourcing has been decreasing.
No of Employees Contracted
Operating Cost Savings
Increase in HR strategy
Decrease in capital Expenditure
Sustained agreed cost Savings
Earned Process Efficiency
Helped HR to focus on the Banks core business
HR managers play strategic roles
Where do companies look for HR outsourcing?
It has been researched that HR outsourcing selection has been generally based on two perspectives
Focus on selection factors
Suppliers Internal Capability
However, it has been concluded that the main criteria any client looks forward as core selection process is the vendor location. With companies operating globally around the world, it is important that the vendor companies are positioned in the right location. Researchers and technicians were not able to summarize any qualitative reason on where outsourcing has to be based on. Organizations are based in the United States and United Kingdom look prefer to outsource to countries with English fluency and less political risk as they believe these countries have superior skills in functional areas (King, 2005). Other researchers believe that this decision should be based on portfolio of countries as each country has their particular strengths and weakness. For example, India is rated one of the largest outsourcers in the world but their lack of infrastructure and quality as compared to Ireland or Denmark (Vestring, Rouse and Reinert, 2005). The researchers believe factors like cost, environment, markets, talent, knowledge, currency fluctuations and infrastructure to be the main reason as compared to language, politics and location. There have been several frame work which have been implemented by various technicians for choosing HR outsourcing at a strategic level (Smith, Mitra & Narasimhan, 1996).Most of these framework believes while making strategic outsourcing decision there should be a interrelationship between cost environmental factors, location resources and requirement of the projects. Handsfiled's (1994) study of various organization based in United States believe in a set of factors while evaluating vendors to be cost, trust, experience, technology, administration and efficiency.
In two studies of outsourcing activities where the unit of analysis was the country that outsource (Data received from US overseas assemble program) provides that country cost are generally considered while engaging in outsourcing and sunk cost which includes entry cost plays an important role while deciding where to outsource . In the second study it was shown that the country share increases when its cost decreases or when the other country's cost increases. When evaluating a country for outsourcing a process a varied number of factors should be considered. Each of these factors when selected would also have several sub factors which the companies also have to be considered. Example, a production process would care less about the ability of the employees to speak fluent English as compared to a recruiting officer. The classification of five of five decision categories is shown below.
OUTSOURCING DECISION FRAMEWORK
What are the current HR scenarios in India?
With many organization deciding rationalize employees or their payroll,
HR outsourcing is slowly turning into the new source of alternative to organization in India. The trend has not just concentrated on large multinational but also public and government organization as well but in low very low key but at a constant rise.
Estimates shows a rising growth in the HR outsourcing in India and the latent growth is about $2 billion with a market of 27 million which is growing more than 50 percent.
Experts, however criticize even though large multinationals make use of the advent human resources available in India by outsourcing and providing a huge boom for the country but Indian companies stick to in-house strategy and are not captivated with this strategy. Anil Mahajan director of Talent Hunt Pvt Ltd says "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
"Outsourcing in the Asia-Pacific" a survey conducted by Hewitt associates claim HR claims that most of the national companies in India are unfamiliar with this strategy, steps and process of HR outsourcing and contracting. It was concluded in the survey organizations are unaware of such business model. The many reasons why organizations in India are in such a situation because the country has a large small business enterprise with less number of employees who believe internal and personal management is the best form to extract results out of the employees adds Mahajan. It is also stated Mr Kris Lakshmikanth, CEO, Head Hunter Pvt ltd.
"It is a process of outsourcing involving particular tasks like recruitment, making
payroll, training and development to a third party who have expertise in these
HR functions which are sourced to include training and development, payrolls, asset management, networking, logistic, telemarketing, support centers. In India, the most significant HR function outsourced includes payrolls, call centers, backend operation and statutory compliance - Mahajan,
Adding on the values of HR outsourcing in India it is said that most multinationals are trying to achieve productivity by outsourcing hence expecting a return on their investment and achieving economies of scale.- Lakhmikanth. Multinationals feel to outsource the competencies and not the non- core business activities to India are highly economical and efficient and therefore, administration work are generally outsourced through third party vendors. It has been reasoned that the growth of HR outsourcing are the cost, knowledge transformation, political risk, quality and in experienced vendors. Many multinationals are concerned over the inexperienced vendors in India, as they feel that these vendors demand a higher price but are not reaping the desired benefits. With the economy shaping out and with a growing international demand for HR outsourcing, the vendors will have to shape up their quality as they cannot fall behind their competitors who are making inroads in HR Outsourcing. Experts believe, HR outsourcing is on the birth stage process, it would take years before companies can believe and outsource their non critical process to vendors. India on the other hand is slowly trying to increase their scope of outsourcing by increasing their value and quality.
â€¢ Will an RPO solution work until the end of time?
â€¢ An assortment of considerations for deciding on RPO
â€¢ To whom should it be outsourced?
â€¢ To identify the RPO providers
â€¢ To figure out the significance of RPO for a company
â€¢ To identify the factors considered while outsourcing the recruitment process
â€¢ To provide a scheme of recommendations to the company based on the major findings
â€¢ Since the research investigation is generic in nature hence the importance of RPO for a company will vary from other's opinions.
â€¢ There can be a hurdle to access the information gatekeeper since certain factors regarding RPO will not be disclosed for their own security reasons However, we seek to reduce the rigor of these limitations through meticulous cross checking of data