Strategic approaches in outsourcing activities to HR consulting firms

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This study focuses on understanding the core competencies of the HR consulting firms in India and looks at the reasons for outsourcing the HR activities. It involves probing for information from HR managers of various firms across India.

Looking in the aggregate, India has a huge number of employable workers. Out of India's population of 1.1 billion people, about 160 million are in the non-agricultural workforce. The population is matched by a large educational network of over 10,000 colleges of various sorts. India has over 22 million college graduates, 7.2 million of those in science and engineering. It turns out 2.5 million new graduates each year.

Since 2002, seasoned technical and managerial staffs have been in particularly high demand in India, with salaries rising sharply every year. Competition is fierce, with frequent job-hopping and poaching the norm. Still, salaries are significantly less than those in the US.

Salaries in India vary sharply by education quality and experience. As shown in the charts below, an entry-level IT hire may earn as little as 1.2 lakhs annually, while an engineer freshly graduated from a reputed university will easily make 7 lakhs. In some of the highest-demand sectors, salaries for particularly experienced staff have even risen to surpass American levels - IT managers with 15 years' experience, for example, command about 50 lakhs. However, this is an exceptional sector; pay for functional heads is generally about a quarter of American levels. Overall, salaries are rising by 10-30% yearly.

So the firm has to optimise the cost and retain its employees and keep them satisfied to achieve performance. Hr consulting firms help these firms to frame new strategies and policies to keep them ahead of competition.

Various HR Low end activities

Reward performance management


Applicant sourcing

Applicant selection

Applicant offer

Applicant post offer follow up

Employee data management


Time and attendance management


High end activities

Job Evaluation

Executive remuneration


Rewards assessment

Performance management

Leadership and leadership development strategies

Mergers and Acquisitions, Change management

HR transformation

Compensation surveys

Benefit surveys,

Corporate bentchmarking,

Employee mobility services

Pay monitor, etc.

Employee Health benefits,

Figure 1 List of high end activities

Service description

a. HR Consulting -High end activities:

Compensation and Benefits:

HR Consulting organisation gives clients the unparalleled advantage of local market knowledge, cost-efficient processes and access to expertise on innovations and compliance.  

Health and Benefits:

Controlling health care costs 

Using health benefits to help attract and retain the right employees 

Saving time and money 

Managing financial and regulatory risks 

Human capital management

Human Capital business helps organizations globally to optimize their performance by meeting their most critical needs around managing, rewarding, and engaging talent; ensuring responsible executive remuneration; and enhancing HR effectiveness.

 To help clients drive value through people and produce measurable business results, this area combines:

high-impact strategic advice

deep technical insights and knowledge

credible facts and data

proprietary technology and decision support tools

implementation services

Mergers and Acquisition:

It is a Critical environment where HR has to head the organisations. The culture difference, fear of job loss, loss of authority, new performance measurement methods adds to the confusion. The talent retention and change management are the primary tasks. The other trouble areas are

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HR program management office (PMO)

Stakeholder/organizational engagement and communication

HR readiness

Workforce communication & change

Driving change through effective communication:  Any kind of organizational change - from the introduction of a new workforce program to a shift in business direction - requires key internal stakeholders to embrace the change and modify their behaviours to support the change. Through workforce communication and change business, HR Consulting works with organizations to drive an array of changes necessary for business success. Consulting today includes managing communication and change related to:

New retirement programs, health programs and pay-for-performance systems

Mergers, acquisitions, reorganizations, business transformations and changes in business strategy

The way executives, managers and colleagues connect to their HR programs through portals and other new technology platforms

How organizations attract and retain employees, including developing a meaningful, actionable employee value proposition.

b. Low end activities:

Training, recruiting, employee screening, performance appraisal, payroll activities, database management etc which are routine activities of a organisation.

Organisations go to a set of pre determined consultancies for the same services repeatedly. The services are very much customerized to the individual firm's requirements. The agreements are at times signed for a long period of time. Low end activities usually implement mapping techniques. It studies the similar industry culture and work pattern. Not much strategy and planning involved in these activities. Helps in increasing the efficiency of the firm using the same old methods

Competitors/ players in India:

Low end activities:

Online Websites-ISBO, Lead, Naukari, Catch, monster etc

Mafoi, HR One, Teamlease, Crossdomain, BDO Consulting, Gulf India Consultancy, Sanjeevani Consulting, HRM Consultants, Strategy consultants, Global hunt, Unique consultants are a few that are famous in the southern region.

High end activities:

Cerebrus, Cornucopia, Accenture, Radford, Delloite, Bain, BCG, Mercer, KPMG, Genpact, Mckinsey, Hewitt etc

Target customers:

The target customers for high end activities are

Personnel head of the organization. In a PSU he is responsible for all the major decisions. Talent management, HR transformation, Employee retention and engagement are the kind of activities that are generally delegated by them.

The CEO and the directors of the firm. Investment decision, future man power planning, Change management, Acquisitions and mergers are the activities usually delegated by them.

In most of the major organizations there are chief HR Managers who specialize in a certain area. Example: Compensation and benefits. They have got years of experience in designing health care schemes, pension plans, daily allowance, loan rates, accident compensations, onsite benefits etc. These HR Managers can seek the assistance of external HR Consultancies for mapping their firm in their industry with other firms as the frame of reference. Most of the policies are compared by them and the best for the firm is adopted and periodically evaluated.

The target customers for low end activities:

In a PSU these decisions are also taken by the top management. Clear rules and policies are handed over to the region HR managers. The budget is also fixed and the procedure along with the specifications is mentioned. The regional managers facilitate the same and report results.

In a private organisation, the zonal HR Managers have the authority to take decision regarding to the HR Consulting. They understand the regional requirements better and cater to their needs efficiently. He has an idea about the man power required in the future and the pay package that is expected in the locality. The training programs are conducted as per the necessity and is more effective than the previous model

High end activities:

Evaluate the Company performance

HR Consultancy

CEO and Directors

HR head, HR specialists

Assigns designs the

Task policies and


Figure 4.3 Target customers for high end activities

Evaluate the individual performance

Low end activities:

HR Consultancy

Zonal HR Managers

Assigns A pre planned

Task set of activities

Figure 4.4 Target customers for low end activities

Key dissatisfiers:

It is very difficult to evaluate the performance of the service perceived.

The risk factor is very high in high end activities.

Shifting cost is high.

Level of customerization and personalisation is vague.

Company's confidential details have to be handed to the consulting services.

Same strategy implemented by more than two firms in a similar industry will lead to a disaster.

Implementation and execution of the strategy involves resistance and uncertainty.

Reasons for outsourcing

Time limitation

Lack of expertise

Optimizing cost/ cost effective

Recruiting and retaining personnel who are necessary for the company

To concentrate on their core competency

To know the market trends

Responsiveness to emergency situation

Need of standardisation

Reasons for not outsourcing

Shifting is costlier

Confidentiality reasons

No proper performance evaluation schemes

Unexpected cost

Point of differentiation:

1. Conducting surveys and Insights and awarding firms under various categories.

2. Expertise in a particular industry. This is very helpful in recruiting professionals.

3. Certain Consultancies provide employees for a temporary period to evaluate their efficiency. If the company is not satisfied by the employees the consulting supplied, it can terminate the deal.

4. Acquiring expertise in a field like KPMG which is an expertise in making financial decisions.

5. Customerisation, establishing long term relation and being responsive to emergencies gives an advantage.

6. Establishing tools and techniques for evaluating and measuring the performance after the activity is completed.

Consulting cycle:

1. Know yourself

Core competencies, Strengths and weakness, What customers want?, Cost benefit analysis, Risk benefit analysis

2. Communication plan:

Communicate the need to outsource internally both horizontally and vertically. Get the support of the employees

3. Transition plan:

The blueprint for outsourcing is prepared by the company staff.

4. Risk assessment:

The risk involved is evaluated and the related terms and conditions are framed.

5. Rational is framed detailing what has to be outsourced and to whom.

The private sectors are more decentralized in comparison to the public sector. They Function according to the local markets demand.

For Example: The pay to a new post depends on the region where the company is located, the education, the economic conditions, the relative market demand etc. The profitability and efficiency is the core responsibility of the regional manager.

Overall Conclusion:

A firm when it outsources its work looks into the core competency of the consulting firms. This study is actually studies the competitive advantage of a consultancy in comparison to the others. To determine the perception, these large firms have developed in the eye of the major firms in India.

KPMG- Exclusively for financial auditing, lean management and advising on financial investments.

Mckinsey- Assists in developing corporate strategies in the most complex environment. When a situation arises, that was not dealt before. They approach this firm in extreme conditions, when the firm is not clear about the cause.

Mercer: Employee benefits and compensation specialist. It conducts many credible surveys and issues reliable insights in Leadership skills, HR engagement and Talent retention. Usually benefits survey and compensation surveys are done as a single survey. But at times the benefits survey is revised individually. It has got one fourth of the split of the market.

Hewitt: Organisational surveys and insights, industry wise mapping, pay rise survey across sectors

Delloite: Complete transformation- Financial audit, risk management, HR Transformation. Investment, manpower estimation, technological transformation

Certain HR Consulting firms are more industry specific. They follow the trend of the industry and are acquainted with the technological, economical and human resource problems.

Cerebrus: Major consulting firm for the IT sector in India. Key areas are Talent management and HR transformation. Most of the IT firms outsource the performance management to this firm

Torrent power outsources their

Compensation survey- Onam Consultancy

HR Transformation- Marsh Consultancy

Competency mapping, assisting top managers- Middle earth consultants

These above three consultancies provide its services only in the power Industry. Recruitment for specialised positions is easier and efficient this way.

Management development programmes (MDP) are regularly conducted by the top business schools in India. Companies approach IIM Ahmedhabad and ISB Hyderabad regularly. XIME is also one of the most approached.

Training is one area where the free lancers operate the most. They are experts who have developed expertise in a particular field and are contacted regularly as they get to understand the company better over a period of time.

Low end activities:

The companies delegate their training activities to more than two firms simultaneously. It is a highly fragmented market. Since the level of perceived risk is comparatively less in the low end activities, the regional managers will take the decision. Here free lancers are a major competition. More than 60 percent of the market is occupied by them.

Though recruitment is also a highly fragmented market, DKCS and mafoi have succeeded gaining a significant market share. Almost 90% of the firms outsource their recruiting activities to HR consultancies.