Business Process Outsourcing (BPO)

Introduction:

The research is result of study project designed to examine few important parts of human resource management, which are hiring and selection process, sometimes suffering with under staffing and sometimes firing due to over staffing. This essay is also includes some of the recent theories about recruitment and staffing with reference to human resource management. Theories will be followed by literature review emphasising on concepts of staffing, managing people, recruitment and selection, practical and challenging problems. These theories will be followed by the research methodology of the case study research.

This part is an overview of the research. It begins by background study to the research, followed by the research aim for this study. This part will conclude with a theoretical framework.

Background Study

Business process outsourcing sector is one of the fastest growing sectors in India. There have been a lot many companies entering the market which includes multinational companies coming to India and new organisations in India starting their business for these companies. Business process outsourcing (BPO) in India offers customer services; IT support, financial services and many back end services to many MNC’s. The projections for theBusiness process outsourcing (BPO)) sectorare huge: almost five-fold increase in size from $11 billion to $50 billion by 2012 and a 50 % growth rate over the next five years as compared to 35% in the past five years. Two million jobs across the country in four years – the BUSINESS PROCESS OUTSOURCING (BPO) sectorsure has enormous untapped potential but mere potential does not amount to performance (Nexis, Financial Express, June 5, 2008 Thursday).

BUSINESS PROCESS OUTSOURCING (BPO) sector does not only cover international market but it also has a strong domestic market. Many big organisations outsource their customer services and other back office works to service offering firms. India’s domestic Business process outsourcing (BPO)) market, with nearly 500 players, is set to grow at a compounded annual growth rate of 33.3% to touch revenues of $6.82 billion by 2013. The industry recorded a turnover of $1.62 billion in 2008. Voice processes in the Indian domestic BUSINESS PROCESS OUTSOURCING (BPO) market contribute 55% to the overall domestic revenues while non-voice market such as offering solutions, back office works, makes up the rest. The domesticBUSINESS PROCESS OUTSOURCING (BPO)market shows promise of growth, especially insectorslike banking and finance as well as the telecomsectorin the short term. The industry currently offers a range of services from customer care to research and analytics. Of this, the banking financial services and insurance segment contributes the lion’s share of 37% to revenues (Nexis, Financial Express, November 14, 2009 Saturday)

HRM plays a very important role in an organisations success or failure. As the BUSINESS PROCESS OUTSOURCING (BPO) sector was growing the requirement for strategic human resource management was increasing. According to Storey (1995), Human resource management is a distinctive approach to employment management which seeks to achieve competitive advantage through the strategic deployment of a highly committed and capable workforce using and array of cultural, structure and personnel techniques. As the competition was growing every organisation in this sector wanted to hire the best ones.

Business process outsourcing (BPO)industry inIndiais witnessing a decline in attrition rates due to therecession. BUSINESS PROCESS OUTSOURCING (BPO)companies are hiring in smaller numbers and prefer to work with on-board employees to reduce costs. Genpact has recorded a decline of five percent in attrition to 21 percent in Jan-Mar 2009. EXL has recorded a decline of 12.8 percent in attrition to 21 percent. WNS (part of one of the top 10 BPO firms as per Business Today) has reported a decline of seven percent in attrition to 22 percent. Wipro (one of the top five firms as per Business Today)BUSINESS PROCESS OUTSOURCING (BPO)has reported a decline of five percent in attrition to 13 percent (Nexis, IndiaBusiness Insight, May 12, 2009 Tuesday).

This research is going to be conducted in Adventity in order to understand what were the Human Resource strategies adopted by them, what went wrong and what should have been done. Adventity is a part of both domestic and international BUSINESS PROCESS OUTSOURCING (BPO) sector. It’s a full service KPO/BUSINESS PROCESS OUTSOURCING (BPO) organisation for the Banking and Financial Services and the Airlines and Travel industry, offering solutions to clients across the globe. Adventity is a financial organisation working in Mortgage sector in US. In 2008 when mortgage market was suffering and all financial institutions were filing for bankruptcy, Adventity decided to increase its employee strength. With the help of its HR team Adventity started hiring on a large scale. Adventity is competing in the BUSINESS PROCESS OUTSOURCING (BPO) market, where the competition is much ferocious than any other market in India. Every organisation in this sector wanted the best of employees in order to compete. Thus it was very essential for Adventity to evaluate and manage its employment strength by adapting some of the key HR process. Thus Human resource management is one of the focused strategies of Adventity growth policy.

Thus as discussed above, after knowing the importance and very essential role of recruitment and selection to human resource, this research emphasises on the human resources management which includes hiring and selection and removal process that affects Adventity.

Research Objective:

The major objectives of this research is to understand the effect of human resources management which includes hiring and selection and removal process that affects Adventity . The objectives are stated below:

• Hiring and selection process conducted by the human resource team in Adventity.
• Literature review assessment on hiring and selection and removal process.
• Evaluate the outcome of hiring and selection and removal process.
• Evaluate the affects of the same process on Adventity.

Literature Review

Business Process Outsourcing:

In September 1989, Jack Welch, then General Electric Co.’s chairman, flew to India hoping to sell products like airplane engines and plastics to the Indian government. During a meeting with top government advisers, Sam Pitroda, chief technology adviser of the late Premiere Rajiv Gandhi, surprised Mr. Welch by saying “We want to sell you software.” Mr Welch, by agreeing to start this business relationship, became the motion that started India on its way to becoming one of the strongholds of outsourcing and sparked the global outsourcing revolution (Solomon and Kranhold, 2005)

Business Process Outsourcing, which began as an arrangement for necessity and later a major cost cutting move, has now evolved to become a mainstream management practice in number of industries. The increased uptake of outsourcing, particularly in the form of global-sourcing, raises a number of critical and crucial issues for corporate management (Currie, 1995). Recent years have seen dramatic growth in its use – statistics indicates that business process outsourcing now an $180 billion industry (Anderson, 2004) and information technology outsourcing now accounts for over 35% of global information technology spending (Cap Gemini Ernst & Young, 2003). Like any other move, there is a degree of risk involved with outsourcing (Aubert, Patry & Rivard, 1998; Earl, 1996). Approximately 75% of outsourcing deals are unsuccessful and that American businesses wasted a lot of billion dollars on poorly managed contracts.

Advances in transmission technology and deregulation of telecommunication facilities have resulted in the ability for cheaper global communication via voice and data networks (Namasivayam, 2004; Weinstein, 2004). The prevalent locations choices for this offshore outsourcing trend are India and china, primarily due to the potential of cheap labour cost arbitrage to achieve an overall reduction in operations costs.

Recruitment:

Recruit process refers to the process of attracting, evaluating and selecting the qualified and the eligible candidates for any position in the organisation. Human resource management is acknowledged to play an important role in today’s dynamic business environment (Schuler and Jackson, 2007). Business process outsourcing firms, in particular, need to pay special attention to the management of their human resources due to the unique nature of their work where worker becomes the central figure. It is therefore important to attract, retain and keep employees motivated and efficient (Derry and Kinnie, 2004).

The analysis reveals that the activities relating to recruitment are formal and structured across all the BPO’s and the responsibility for the recruitment process is shared by both HR department and the operations department of the organisation (Pawan, Budhwar and Bhatnagar, 2009).

The importance of recruiting is pointed out by Luftman et al. who named recruiting as a top issue for executives (Luftman et al., 2006). Moreover, the renewed increasing demand for BPO workers turns out to be a local phenomenon, but global in its scope and implications (Riemenschneider et al., 2008). The rising importance of the recruiting process is also recognised in practice, since more global operating companies started to standardise their worldwide staffing process recently (Eckhardt et al., 2008). According to Kim and Won, the recruiting process is the most time and cost consuming process among all the other human resource processes. Organisation are increasingly recognising the importance of coordination among the numerous different in staff recruitment (Kim and Won, 2007) as recruitment process in a BPO takes approximately one entire day as it includes many stages of different types of evaluations. Keim and Weitzel showed that applicants from highly values, with high expectations who contact the hiring agencies or companies via different modes of communications and media and apply for jobs using different forms of application (Keim and Weitzel, 2006). The candidates from diverse preferences for particular application forms split the applicants in different in different groups (Eckhart et al., 2007). In order to response to these different applications many organisations change their recruiting process.

The forecast is that more organisations would outsource their knowledge-intensive business to India given the shortage of skilled labour in the US/UK and other markets, and indeed the potential cost savings involved (Evalueserve, 2004; Sen and Shiel, 2006). It is estimated that more than 250,000 people are to be employed in this sector by 2010 (The Hindu, 2006). Thus considering the speedy growth and the people-driven nature of this sector, competent human resource management has a very crucial role to play. Some of the reports suggest that one of the foremost challenges for these BPO’s and KPO’s would be related to recruitment, retention and nurturing i.e. training of appropriate talent (Evalueserve, 2004; RocSearch, 2006).

Selection Process:

The selection process can be defined as process of interviewing and assessing the candidates for a specific job profile in an organisation based on the criteria set by the organisation. The selection process is developed to determine the final choice, including an interview and how it will be conducted, the approach that will be used to “sell” the company, the methods that will be used to evaluate the candidates, tests that may be used and reference and credential checks. The process can be very simple or very complicated or intensive depending upon the job profile and the organisation. The main objective when hiring is to select the appropriate candidate for the appropriate job.

In order to select the appropriate candidate an interview is conducted. Interviewing is still the most commonly used method of selection in Employment and the most popular selection technique in use in public and private sectors (Robertson and Makin, 1986; Shackleton and Newell, 1991; Williams 1992).

The selection process is designed to decide the final choice, which includes an interview and how that interview will be conducted, the approach the organisation will use to hire the candidate, the evaluation method, the tests that may be used and reference and background check. Of all the selecting methods available, interviewing is the most heavily relied upon and the most difficult to master. The key to an effective interview is to remain focused on the objectives of the interview (Rice, 1984).

Retention:

Because of downsizing due to recession (Hirsch, 1987; Cameron et al., 1993) and hiring contingent employees (Pfeffer and Baron, 1988; Pfeffer, 1994), long-term organizational commitments are largely disappearing (Rousseau, 1996; Rousseau and Libuser, 1997) and high employee turnover has become common (Cohen, 1993; Hunt and Morgan, 1994). Under these circumstances, employee’s mobility decisions become a critical issue. Employee mobility represents the flow and exchange of workforces (Ehrenberg and Smith, 1994). For an employee, it’s his decision of “to stay or to go”, or “retention or turnover”. Employee mobility plays an important role in improving the “match” between a worker and a given employer over time (Ehrenberg and Smith, 1994). It also forces both employee and employer to remain alert of the big marketplace and to continuously study one another’s requirements. In this way, mobility actually performs a socially useful role by matching workers with those employers who will most value their skills (Ehrenberg and Smith, 1994).

Attrition costs time and money to employee and employer both. Employers find replacement cost and hidden organisational cost high (Mitchell et al., 2001); employees find monetary and psychological costs taxing (Ehrenberg and Smith, 1994; Mitchell et al., 2001). Human capital theory (Mincer, 1962; Becker, 1962) considers voluntary retirement service as an investment in which the cost incurs well before in time and the organisation can earn return over a long period of time. If the current value of returns which is directly related with the attrition exceeds both monetary and psychological costs of leaving, then the employee will be motivated to switch jobs. If the discounted stream of benefits is not as large as the costs, the employee will refrain from switching jobs (Ehrenberg and Smith, 1994).

HR Challenges in BPO/KPO Organisations:

In India, the literature on human resource management in general grabbed attention after the liberalization of the economy in 1991. Few learning’s have highlighted that the human resource task in Indian firms is beginning to adopt a more strategic approach in the management of this critical resource (Budhwar and Sparrow, 1997). However, it has also been pointed out that these practices vary across sectors with marked differences between private and public sector organizations (Budhwar and Boyne, 2004; Amba Rao et al., 2000; Bordia and Blau, 1998). However, there is a prominent lack in researches on business processing outsourcing organizations (especially on KPOs). An analysis of secondary sources which are mainly articles from the press and business magazines and the some of the very rare available research papers on Indian BPOs, reveal that the basic “cost-effective” model of Indian business process outsourcing sector has started to weakening as income continues to rise on an per annum basis at 10-20 percent, and in some of the scenarios the average revenue is declining. Few analysts are questioning the sustainability of the rapid growth of the Indian business process outsourcing sector and are worried that the industry after a while might burst like the dot.com bubble.

Many HR-related issues are becoming obvious. For an example it was predicted that, by 2008 the outsourcing sector might face shortage of approximately 262,000 employees (Budhwar et al., 2006a). To add more, the sector has a very high attrition rate and many outsourcing firms find it difficult to retain their tenure and the best employees. Despite the fact that there is a huge number of students graduating every year, but the education system of many institute in India does not meet the quality required by this sector, thus the scarcity of new joiners is increasing. Due to the shortage, the hiring of new talent has become more expensive. Due to high attrition rates in the sector, every employee who quits the job costs the company another Rs40,000 to 50,000 (£1 ¼ 84 Indian rupees approximately) to recruit and train a replacement. At present, the quality of the sector has increased so high that for every 20 applicants in Mumbai, just one or two make the cut. Apart from this, employees in the sector are experiencing problems related to stress, careers, and dissatisfaction at work (Budhwar et al., 2006a, b).

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