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DECLARATION
I SATISH CHANDRA , Roll no 1113270042 student of MBA 4th sem of GRETER
NOIDAINSTITUTE OF TECHNOLOGY Greater Noida hereby declare that the research
project report titled Human Resource Outsourcing in India is my original work &
the same has not been submitted for the award of other diploma or degree.
Place: Greater Noida SATISH CHANDRA
Date :
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Contentss
NAME OF THE TOPIC Page no
Title Page
Declaration
Chapter 1Introduction 1
Chapter 2 - Objectives and Rationale of the Study 7
Chapter 3Review of Literature 10
Chapter 4Research Methodology 46
4.1 Hypothesis 47
4.2 Research Design 49
4.3 Sample Size 52
4.4 Research Tools 53
Chapter 5 Research Findings 55
Chapter 6 Summary &Conclusion 66
References 73
Annexure : Questionnaire 74
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INTRODUCTION
HR OUTSOURCING: AN INTODUCTION
HR outsourcing is a process of outsourcing involving particular tasks like
recruitment, making payroll, training and development to a third party who have
expertise in these respective fields."
Today, every organization is aiming at achieving productivity by enhancing return on
investments and achieving the economies of scale. In this context, it makes sense to focus
only on the organizations core competencies and outsource non-critical business
activities. Therefore, routine administrative work, although important, can be outsourced
to third party vendors.
HR outsourcing has the potential to benefit organizations that want to transform their
ability to manage human capital. Outsourcing can provide the right blend of cost, service
levels, experience and economies of scale that allow companies to move away from
administrative activities and focus on more strategic issues.
The Human Resource (HR) department is critical for employee satisfaction in any firm.
Some businesses dont have the staff, the budgets or the inclination, to deal with the
nitty-gritty of HR management, so they opt for outsourcing. Deciding which functions to
offload and which firm to outsource is also a major decision.
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HR functions include Payroll administration (producing checks, handling taxes, dealing
with sick time and vacations), employee benefits (Health, Medical, Life insurance,
cafeteria, etc), human resource management (hiring and firing, background interviews,
exit interviews and wage reviews), risk management (workers compensation, dispute
resolution, safety inspection, office policies and handbooks) and others.
HR outsourcing can be segregated into two broad categories: Transaction and
administration outsourcing and HR consultancy. Transactional outsourcing is more of
day-to-day or month-to-month requirements, and constitutes services like payroll and
benefits. This kind of service is more prevalent in the Indian market. In the value chain, it
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falls at the lower-end compared to HR consultancy, although it happens to be an essential
function. It is a fact that companies continue to manage the strategic and policy functions
of their HR departments in-house.
HR outsourcing can happen in various areas such as payroll, employee benefits
administration, fixed assets administration, network management, receivables
management, logistics management, hardware maintenance, telemarketing, call centers
and database management. In India, the most common processes outsourced are related to
training, payroll processing, surveys, benchmark studies, and statutory compliance.
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HR outsourcing Services could fall into one of four categories:
o PEO - A Professional Employer Organization (PEO) takes legal responsibility for
employees. The PEO and business owner are partners, with the PEO handling HR
aspects and the business handling all other aspects.
o BPO - BPO refers to all fields, but specifically for HR, a BPO would ensure that a
company has access to latest technologies.
o ASP - Application Service Providers (ASPs) host HR software, on the web and rent it
to users.
o E-services - E-services are those HR services that are web-based.
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HR OUTSOURCING ASSISTING CHANGE:
Use of HR
Outsourcing
Cost ofTechnology,Desire forBest Practice
Support
Need to remainflexible, RiskManagement
Technology
AdvancementTalent Shortage
GlobalisationM&A
Org. Changes
Desire/Push to move to
Strategic Planning
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OBJECTIVES AND RATIONALE OF THE STUDY
OBJECTIVES & RATIONALE OF THE STUDY
Today, every organization is aiming at achieving productivity by enhancing return on
investments and achieving economies of scale. In this context, it makes sense to focus
only on the organizations core competencies and outsource non-critical business
activities.
Corporate focus on the implicit and explicit costs of human resources has never been
greater and outsourcing employee benefits administration can create greater efficiency
while decreasing costs. The study aims at studying the HR outsourcing phenomena and
how companies in India are reacting to this phenomenon.
The study will throw light on the various aspects like the trends, challenges, benefits and
other issues like process and vendor selection criteria used related to HR outsourcing in
the context of the Indian industry. It will also talk about the role of outsourcing outfits
like India Life Hewitt, Ma Foi, Xansa, Wipro, Accenture etc in shaping the Indian HR
outsourcing industry.
Various objectives of conducting the study are: -
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o To study the various challenges faced by the Indian industry pertaining to HR
outsourcing.
o To study the various reasons deterring the Indian HR outsourcing industry to grow at
the pace of the global market.
o To study the trends of HR outsourcing prevailing in the Indian industry.
o To ascertain the future of the HR outsourcing industry in India and the factors
responsible for molding it.
o To find out the various benefits being derived out of HR outsourcing by the Indian
companies.
o To study the impact of HR outsourcing on the internal customers in the Indian
companies.
o To study the criterion used by the Indian companies in selecting the vendor for
outsourcing their HR processes.
o To study the criterion used by the Indian companies in selection of the HR process to
be outsourced.
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REVIEW OF LITERATURE
LITERATURE SURVEY:
Outsourcing is a strategic decision to give a task or activity to an independent contractor
who determines how best to do the task or activity. The firm and the indpendent
contractor become partners and may establish a long-term relationship.
BENEFITS OF HR OUTSOURCING:
As the Human Resources Outsourcing market rapidly evolves, an ever-changing set of
outsourcing solutions is now available to accelerate enterprise effectiveness. HR
Outsourcing is increasingly seen as a key enabler of people and team transformation.
Properly defined goals that are supported by innovative outsourcing can drive a company
to the next level of enterprise effectiveness. As people become more critical to the
success of a company, the human resource function will have to progress from
administration to strategy if the organization it supports is going to remain competitive.
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The advantages are clear and compelling: improved business focus, more productive use
of time and resources, and guidance from experts from across the business spectrum,
saving money, focusing on strategy, improving compliance, improving accuracy, lacking
experience in-house, taking advantage of technological advances, and offering services
they could not offer.
Outsourcing HR functions allows a company to focus on its core competencies and
provides administrative relief from many employer-related responsibilities, so that the
company can concentrate on developing strategies that provide competitive advantage to
it.
Traditionally, people have been viewed as liabilities or expenses, instead of tangible,
bottom-line assets. Successful business owners have learned, however, that their
employees have a direct impact on their profitability. The company gets more out of its
business when it gets more out of its people.
Statistical analysis by Watson Wyatt Worldwide, which developed the Human Capital
Index to provide a standard for measuring a companys people practices, shows a clear
relationship between the effectiveness of a companys people practices and the creation
of superior market value.
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Once HR and other operations are outsourced, many companies experience a strong
return on investment, according to a recent survey of American executives. The 2006
survey of executives at the IDC Midwest Conference in Chicago showed nearly 85
percent of the respondents saved as much as they spent on outsourcing, with 26.4 percent
reporting a savings of twice as much. And the savings, according to nearly 95 percent of
the respondents, went toward operational performance and innovation, which improved
shareholder value.
Strong human resources practices have the potential to increase a companys productivity
and profitability, but HR management has become a colossal task, demanding
considerable resources. Legal and regulatory compliance has become an overwhelming
task, and time spent on administrative obligations is time spent away from growing
business.
Outsourcing is the great equalizer for small to medium-sized firms. Growth-oriented
entrepreneurs can benefit tremendously. Not only do employees frequently gain access to
better benefits, the owner gains freedom to focus.
Outsourcing people strategies can help a company gain a competitive advantage, but it
needs professionals who cut through the clutter of HR practices to learn which have the
most positive impact on its business.
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DETTERANTS OF HR OUTSOURCING:
There exists a set of basic reasons hampering the growth of HR outsourcing. Many
companies outsource only a bit of their requirements. Various reasons that deter many
organizations are:
o Fear of loosing jobs
o Loss of sensitive information to public/ competition.
o Ethics and quality of outsourcing vendors.
o Possibility of security breaches.
o Cost- benefit equation not clear.
o Lack of psychological acceptance.
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DECISION FOR OUTSOURCING:
Baron & Kreps, 1999 gave this matrix which talks about how and when to outsource
activities. According to this matrix, strategic importance of the activity and interdependence
on other activities are the two factors on which the decision of outsourcing should be based.
The activities that have high strategic importance and high interdependence on other
activities should be kept in-house and the activities that have low strategic importance and
low interdependence must be outsourced.
Various considerations to be taken into account while outsourcing were given by Baron
& Kreps, 1999 :
High
Low
Str
ate
gicIm
por
tan
ce
Low High
Interdependence
Insource
Outsource
???
Contingent
Employees
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o Does learning from this activity spill over to an important core activity?
o Can the outsourcing relationship be reversed and the work brought back inside when
conditions change?
o Can the outsource supplier adjust more quickly to changing labor or market demands
than we can?
o Do we have a strong clan-like culture that would be weakened with employees who
have different values or interest?
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Outsourcing may not be appropriate when:
The task is a core activity critical to strategy or technology.
Task is highly interdependent with core activity due to technology or work
design.
Task requires great deal of firm specific human capital or access to proprietary
information.
Tasks where the employees work in close proximity to regular, core employees
and are similar socially to them.
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METHODOLOGY FOR HR OUTSOURCING:
The methodology of HR outsourcing involves the following steps: -
o Situation analysis It includes business environment analysis, analysis of the work
process which is to be outsourced and risk analysis.
o Solution design
o Design of performance measures & contract It includes preparation of the HR
outsourcing contract. The expected service levels are defined and accountability &
performance measures for both the vendor and the company are set.
Situation
Analysis
Solution
Design
Design ofPerformance
Measures& Contract
Solution
Delivery
Solution
PerformanceManagement
- Businessenvironmentanalysis
- Work processanalysis
- Risk analysis
- Strategic
-Project
- Transactional
- Work Processdesign
- Service levels
- Accountability& performancemeasures forboth Vendor& Company
- Resourcing
-Work Processmanagement
- Solutionmanagement
- Vendor-Companyrelationship
management
-PerformanceAnalysis &Reporting
- Performance GAPResolution process
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o Solution delivery
o Solution performance management It includes the management of the vendor-
company relationship.
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HR OUTSOURCING DELIVERY PROCESS:
Delivery Process Support
HR
OSoluti
ons
Deliver
ables
Work Process
Resources
Hr tools
PeopleDoers
Consultant
s
Project Dedicated Expertise
Admin
BSCKPI
SLI
Process Procedures
Rules Project Management Performance Management
PerformanceMeasurement& Mana ement
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PRESENT SCENARIO OF HR OUTSOURCING IN INDIA:
The general opinion among Indian companies is that it is economical to manage all their
HR processes internally. Consequently, there is not much emphasis on outsourcing.
Typically, very small companies (which do not have the competency to staff a full-
fledged HR department) and very large companies (who wish to outsource all routine HR
processes so that they can concentrate on core issues), are the ones that use HR
outsourcing in a significant way. Besides, many multinational companies are fast
adopting these practices.
Sateesh R Kurugod, head of marketing and alliances, Crossdomain Solutions says that
now CXOs realise that HR teams typically spends over 80 percent of its time in
managing tactical and transaction oriented HR operations. If these tactical processes are
outsourced, the company could re-deploy their trained HR resources to core processes,
he adds. Pramode Sadarjoshi, the director and head of Human Resources of Cognizant
Technologies says, Today, every organization is aiming at achieving productivity by
enhancing return on investments and achieving the economies of scale. In this context, it
makes business sense to focus only on the organizations core competencies and
outsource non-critical business activities. Therefore, routine administrative tasks,
although important, can be outsourced to third party vendors.
Experts believe that in present times HR outsourcing is undergoing a transition phase.
"There has also been a transition on its user acceptance, where it is moving from a
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corporate domain to public sector undertakings and the government sector. All this
reflects on the growth of this sector.
HR outsourcing comes third in the list of potentially high paybacks, after IT and the
telecomm industry. However, many companies wrap up their HR functionalities as
something that happens in the back office, and do not give enough attention to the
infrastructure that essentially props up its employees. Over the years, this has bred
neglect, leading to antiquated HR management systems.
Now, it is time for this mindset to change, because companies are suddenly waking up to
the fact that their HR policies are not in step with the times, and a major overhaul is
called for to keep pace with company acquisitions and mergers. A few companies have
tried mending their HR management system on their own, but they soon discovered that
it is like opening Pandora's Box; more you inquire into the state of HR policies, you keep
unearthing more anomalies.
That's where outsourcing can step in. If you have a problem managing your HR and
bringing the existing system up to scratch, why not let a third party worry about it? What
comes with HR outsourcing is better management at a lower cost
Implications of HR outsourcing for India need to be looked at in two parts economic
impact and HR impact.
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The economic impact is positive, given that India is the beneficiary of the global
outsourcing wave, at least for now. It is creating more jobs and increasing earnings for
the country.
The second part of the India impact is from the HR point of view. What is quite obvious
is the fact that cost arbitrage will not be the driver for this trend within India, if ever, even
if a large organization were to outsource to a small operator.
India must be the country hiring the most in the world. In fact, HR in India would rank as
the most dynamic and turbulent in the whole world today. There are so many new jobs,
so many to hire, so many to train, and so many to retain. After many years of fighting for
identity, HR in India has come of age. HR and organization building issues are center of
the plate in any Indian CEOs agenda today. CEOs are willing to spend as much as it takes
to manage their people and people processes well. It may never get any better for HR.
With more and more companies looking to rationalize employees on their payroll,
Human Resource outsourcing is slowly becoming the buzz in India. Companies to whom
organizations outsource their human resource function possess the knowledge and
resources to expertly perform part or all of a clients human resources function, allowing
the client to streamline their internal processes and concentrate on generating profits in
their core business.
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Estimates show that the latent size of HR outsourcing in India is about $ 2 billion with a
current market $ 27 million and it is growing at the rate of about 50 per cent. HR
outsourcing in India has not seen the required momentum and is limited to a trickle
effect, with companies outsourcing a few selected low-end HR processes. Companies
which havent joined the HR outsourcing bandwagon are either unfamiliar with the
process and procedures of HR outsourcing, or are unaware of the players operating in the
area or are unaware of the probable value obtained from doing so.
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Projections show that in the Asia Pacific region, HR outsourcing will go up to 2560
million dollars (Garter 2004). The projections for HR outsourcing processes are
mentioned below: -
Pay roll services 761
Benefits administration 536
Education & training 556
Recruitment & staffing 348
Personnel administration 167
Other HR functions 192
Total 2560
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Some key findings of the Outsourcing Asia-Pacific online survey that was conducted by
Hewitt in June 2002 with regards to the Indian market: -
o Outsourcing of the complete HR function was prevalent among foreign
companies that have established operations in India.
o Outsourced expertise where staff expertise is provided as an outsourced service
rather than processing services was observed particularly among small and
medium sized companies that find difficulty retaining skilled, senior HR staff.
o The outsourcing of HR processing, including payroll and benefits processing.
Even though across the globe companies are realizing that headcount is directly related to
the revenue and are outsourcing most of their transaction and administration related
work, the general opinion among the Indian companies is that it is still economical to
manage all their HR process internally. Here people are also not very clear about what
exactly is manpower outsourcing all about.
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GROWING IMPORTANCE:
After customer care services and medical transcription, outsourcing of human resource
services or HR BPO is emerging as the next big opportunity for Indian BPOs with the
global market in this segment estimated at $40-60 billion per annum according to experts.
HR BPO comes to about 33% of the outsourcing pie. India has immense potential as
more than 80% of fortune 1,000 companies will discuss offshore BPO as a way to cut
costs and increase productivity. Sensing the potential, global BPO players including
Fidelity, Exult and Hewitt have begun setting up operations in India. However, most HR
BPO players had not leveraged the offshore advantage as yet.
The revenues in the HR outsourcing space are projected to increase to $3.5 billion by
2008 according to a Nasscom-McKinsey survey. Even if 10 per cent of HR outsourcing is
off shored in the next 5 years, offshore opportunity can be anywhere around $1.4 billion.
Research firm Gartner has forecast HR BPO to reach $51 billion and represent 39% of all
BPO revenue by 2004-end. In HR BPO, revenues depend on the number of employees
the clients have. This is in sharp contrast to a typical customer care center, where bills are
charged on the workers servicing a client in the BPOs. Despite huge potential, not many
companies have leveraged the offshore strategy. The main reasons for not leveraging the
offshore benefit have fabeen companies being undercapitalized or not knowing enough
about the offshore business.
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Research proves that the market for HR outsourcing in the APAC region could grow
from $1.14 billion in 1999 to $2.56 billion in 2004. Although it is not a very huge
growth, it has still shown an upward trend.
Some of the key companies, which have gone ahead for manpower hiring outsourcing
practices, are Cisco, GE, Honeywell, Sun, i2, LG Soft India, Escosoft and Legato
Systems. While LG Soft India has outsourced its PF management, Escosoft has
outsourced payroll processing, execution of training programmes and survey conduction.
According to Shubho Kundu-senior general manager HR of LG Soft India, the company
has been able to save a lot in terms of reducing paperwork and interaction with
government agencies. Besides, there are other companies like Xansa India, which is
planning to take a plunge in HR outsourcing business and offer services to its parent
organisation. Binnoo Wadhwa, the head of HR for Xansa India, says that the move
showcases the robustness of the HR department to handle such critical applications.
There are many others who do not believe that HR outsourcing is necessary. Take the
case of Aptech, which has not considered HR outsourcing as the company feels that HRD
is strategically linked to its business. According to this company any job or function,
which is of strategic importance to the organization should not be left for outsiders or the
so-called outsourcing partners.
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DRIVERS OF SUCCESSFUL HR OUTSOURCING:
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SELECTION OF HR OUTSOURCING VENDOR:
Selection of the right vendor is a very important factor in making it a successful venture.
For some businesses, cost is the deciding factor in vendor selection. Other companies
look for a cultural fit or a commitment to quality. Some things a company should
consider when evaluating a firm include:
o The range of outsourcing services it offers;
o The expertise it has in the particular industry;
o Its general HR experience;
Its understanding of the companys priorities;
o Its available resources;
o The flexibility of its contracts.
It must be kept in mind that an HR firm is an extension of a company culture, so the
company must try to find one that fits its image.
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KEY QUESTIONS ASSOCIATED WITH HUMAN RESOURCE
OUTSOURCING:
Six important questions companies must focus on as they decide whether to outsource
some or all of their HR processes:
What are the external forces that are driving the company to examine the
opportunity for outsourcing HR activities?
Globalization, restructuring, increased administration complexity and cost pressures are
all driving companies to consider the use of HR BTO. As companies begin to operate in
more countries, they are finding it increasingly difficult and costly to keep track of, and
manage, the variety of benefits and regulatory requirements in each area.
For example, a multinational organization that has been built over time from a series of
acquisitions and buyouts can find itself with a bewildering mix of compensation
packages, pension plans, human resource management (HRM) systems, hiring guidelines
and HR contact centers. Further, as compliance directives and legal regulations change in
each of the countries in which the company operates, the companys ability to stay
current becomes more difficult and costly as extensive resources are required to maintain
and apply this knowledge. Allowing an outside party that has already built existing
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capabilities in these areas to manage the process becomes an increasingly attractive
proposition.
Finally, overall cost pressures are forcing companies to identify new methods for cutting
administrative expenses. A number of recent studies suggest that reducing costs is the
primary benefit that companies seek when outsourcing HR processes. As new
competitors enter the market, particularly those with lower labor costs, many companies
profit margins are put at risk, prompting them to examine closely all activities where cost
reduction is possible. Outsourcing provides an opportunity for companies to leverage the
cost base and experience of an outside provider, which can potentially lower the cost of
delivering HR services, while maintaining or improving service levels.
What are the initial drivers that make HR outsourcing an attractive
proposition?
A number of internal drivers are also pushing firms to investigate HR Outsourcing. For
example, some companies see it as a means of controlling the cost and effort associated
with operating their HRM systems. After evaluating the total cost associated with
upgrading and maintaining these systems, companies are increasingly turning to outside
providers to manage their HRM systems and take responsibility for upgrades and system
availability.
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Companies are also recognizing that they are unable or unwilling to bear the cost of
developing employee or managerial self-service tools; they would prefer to rent these
applications from outsourcing providers who have already invested in development, have
the ability to keep up with the latest technology solutions and can provide best-in-class
tool sets.
Also, the level of complexity involved in administering complicated programs and
processes in multiple regulatory environments and managing data across borders often
requires sophisticated expertise, which many companies may not have in-house. Sourcing
this capability from a vendor could offer lower costs and a higher likelihood of staying
current on recent developments.
Third, companies want to reduce the risks associated with business volatility. Having
gone through numerous hiring/layoff cycles, they are looking to increase process capacity
without commensurate increases in full-time headcount. For example, companies need to
increase their ability to recruit without having to bring on a number of full-time recruiters
(because, typically, recruiters are the first people exposed to layoffs during a business
slowdown).
Fourth, as organizations try to shift resources from administrative to more strategic
activities, outsourcing offers one way to build a new sense of focus within HR
organizations. Many HR organizations believe being able to reengineer their internal
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processes anddeliver strategic HR services is simply too much for one organization to
undertake at the same time. However, by allowing a vendor to manage many of the
administrative processes that take time and energy away from HR organizations, the
internal HR organization can focus its limited resources on delivering the services that
truly provide strategic benefits to the entire company.
Lastly, for many organizations, outsourcing serves as a catalyst for change. Implementing
and maintaining a client service orientation and metrics-driven approach are difficult for
most HR functions to achieve on their own. In an outsourced environment, these skills
are critical in determining the success or failure of the arrangement. Therefore,
outsourcing efforts can be used as motivation to move HR service delivery toward a more
accountable, results-oriented focus.
How should the company identify potential processes to be outsourced?
Determining the scope of the outsourcing effort is among the most important and difficult
decisions companies make. Recently, several studies have indicated that the processes
most likely to be outsourced are retirement program administration (including defined
benefit, defined contribution and retiree services) and health and welfare administration.
Further, these studies found that HR processes closely associated with employee
evaluation and communications are the least likely to be outsourced. To make the right
decisions on which processes to outsource at a particular company, it is helpful to
establish a formal set of evaluation criteria. Paul Adler, a management professor at the
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University of Southern California, suggests six dimensions an organization can use to
evaluate HR processes when identifying their potential for outsourcing: -
a) Dependency are there specific assets that require dedicated facilities, equipment,
capacity, training or investments?
b) Spillover is there confidential information or sources of advantage that could be
leaked to competitors?
c) Trustis there a positive relationship between the two organizations that could reduce
transaction costs associated with contracting and monitoring?
d) Competence can greater vendor capability in process execution lead to improved
results?
e) Core capabilityis this process viewed as a differentiator for the organization in the
marketplace?
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f) Commitment/flexibility is the process stable enough so that changes in
capacity/technology are not required on a frequent basis?
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Who should be involved in making the decision to outsource HR processes?
Decision-makers
Within the HR organization, the CHRO (or equivalent title in the organization) usually
plays an active role in making the outsourcing decision. Ultimately, it is the CHROs
responsibility to determine whether the outsourcing arrangement will enable the HR
organization to provide cost-effective, quality service to its internal clients, while, at the
same time, support the organizations larger strategic objectives. In addition to the
CHRO, the HR Operations Leader is often involved in developing the specifications of
the outsourcing arrangement. While the HR function clearly has primary responsibility in
this area, two other individuals play important roles in the outsourcing decision.
The Chief Financial Officeroften participates in the decision-making process, as entering
into a long-term contract with an outsourcing vendor can have potentially significant
financial ramifications for the corporation. In addition, the Procurement Manager
assumes a prominent role during the vendor selection, negotiation and contracting
process, leveraging experience in developing terms and conditions that are favorable to
the organization.
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Further, a decision to outsource components of the human resources organization may be
perceived by the others in the organization as the first step toward outsourcing other non-
core processes. Given the impact of these types of arrangements, the CEO and Board of
Directors need to understand and articulate the rationale for the decision.
How should the company evaluate potential vendors?
Once the right individuals have been identified to make the outsourcing decision, the next
major step in the process involves selecting an appropriate vendor. A number of recent
studies have highlighted three primary criteria that companies use to evaluate vendors.
These include: the vendors track record for delivering service, the costs associated with
the outsourcing service and the willingness of the vendor to guarantee service levels.
Other criteria highlighted by these studies included: the vendors technological capability
and competence, process expertise, flexible contracting, recommendations from other
companies, relevant industry experience etc.
To evaluate vendor capabilities in these areas companies undertake a host of activities
including:
Distributing experience questionnaires. As part of this activity, a company develops a
standard experience questionnaire that it sends to multiple vendors early in the
evaluation process to obtain initial insights and compare vendors capabilities.
Information that is usually collected as part of this process includes understanding the
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vendors areas of expertise, client experience, and approach to contract development,
service level creation and how they address changes in project scope. There are a
number of third-party consultants who, having participated in many vendor selection
efforts, have developed and refined these types of questionnaires to quickly ascertain
a vendors particular level of experience.
Conducting a financial and credit review of the vendor. Companies undertake this
activity to determine whether the vendor has the financial resources to maintain
appropriate service levels throughout the lifespan of the contract. During this review,
the potential client examines the vendors history of fiscal responsibility and
regulatory compliance, its credit rating and analysts predictions of ongoing viability.
Companies are also looking for signs that the vendor is a potential takeover candidate,
as an acquisition can often redirect senior management attention and increase the
complexity of the ongoing relationship.
Conducting a security and compliance review. Given the sensitivity of the employee
data associated with an HR BTO relationship, and the governmental/industry
regulations and standards associated with the privacy of employee data, companies
should conduct a review of the vendors security and compliance policies and
procedures. As part of this assessment, companies should investigate whether a
vendor has a demonstrated knowledge of, and is in compliance with, the regulatory
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requirements of each of the countries in which it operates. They also should
determine if the vendor has been fined as a result of noncompliance and if the vendor
has access to regulatory and legal specialists on staff or on retainer.
Conducting reference checks/site visits to other clients. Organizations considering
outsourcing often speak with or visit current clients of vendors under consideration.
This allows them the opportunity to validate other clients experiences and identify
potential issues in working with the vendor. During these meetings, evaluators can get
a sense from their counterparts at those other firms as to the vendors flexibility,
willingness to support new client programs, ease of partnership and whether the
vendor has met the clients overall expectations.
Visiting processing/contact centers. Many companies find it quite useful to visit the
actual locations where the vendor is answering employee calls and processing
documents. This gives the prospective client a sense for how the vendor is organized
and what technology is being used. This first-hand view can be coupled with
assessments of the attrition rates at the center and how service center staff are trained,
evaluated and given feedback to continually improve their performance. These visits
also provide potential clients a glimpse at the level of professionalism and service that
their internal clients will likely receive and the level of investment the vendor is
putting into its own staff and operations.
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Meeting potential delivery team leaders. Given the importance of personal
relationships between client and vendor, potential clients should meet the individuals
who will be responsible for both service delivery and the overall account relationship.
These face-to-face meetings can help potential clients understand the managerial style
of their counterparts and the extent to which specific individuals have authority to act
on behalf of the vendor in addressing client concerns. Further, should the potential
client decide to engage the vendor, these initial face-to-face meetings can begin to lay
the groundwork for the type of trust building that is critical during the transition phase
and subsequent ongoing operations.
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How should the company begin to prepare itself for HR outsourcing?
As executives get closer to making the decision to outsource HR processes, they need to
pay special attention to preparing the organization for the eventual transfer of people,
processes and/or technologies to the vendor.
Assembling the team that will lead the outsourcing effort. Once the decision to
outsource as been agreed upon, the organization needs to identify and select
individuals to lead the transition and ongoing management of the outsourcing
arrangement. Initially, the organization needs to identify the roles and skills that will
be required to transfer the outsourced activities to the vendor and oversee the vendor
relationship. Finding these individuals can be a time-consuming effort, as they often
have other significant responsibilities and need to be made available to work on the
outsourcing effort. Therefore, it is beneficial for the organization to obtain the time
and commitment of these individuals and their managers early in the process, rather
than waiting for the final contract to be signed.
Communicating the effort throughout the HR organization and the lines of
business. Many organizations fall into the trap of developing their communication
strategy after the outsourcing agreement is put into action. However, effective
companies start executing a tailored communication plan far earlier in the process, as
they recognize that rumors will likely surface long before any formal discussions are
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in process. Organizations need to develop formal mechanisms for communicating to
HR leaders and staff during the early stages of an outsourcing effort since these
individuals may be called upon to provide data or reallocate their time to work on
outsourcing related tasks. Further, organizations need to listen closely to informal
influencers within the HR organization and business units, as they may have insight
into potential areas of resistance and concern that can have a negative impact on the
outsourcing effort.
Gathering data on the current state of the HR organization. To develop a
compelling business case for HR BTO, organizations often need to obtain a clearer
understanding of their current spending for HR activities and measure levels of
operational effectiveness. Also, many organizations do not have a strong sense for the
industry and competitive benchmarks that are useful in comparing HR cost and
performance across companies. Collecting this data can be a time and labor-intensive
process that often must be accomplished in a relatively short amount of time.
While outside resources can be used to facilitate this collection, both internal HR
process experts and individuals with experience in obtaining information from HRM
systems need to be involved. Dedicating these scarce resources is well worth the
effort, as it can help ensure that the organization is entering into a financially
beneficial arrangement.
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RESEARCH METHODOLOGY
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HYPOTHESIS:
HR outsourcing: benefits, trends and challenges is a study aimed to get familiar with
the current scenario of HR outsourcing in Indian companies and the potential future for
the industry vis a vis the global scenario.
HR outsourcing is the next big thing to happen and is rapidly gaining momentum
especially in the US. With respect to the Indian scenario it is still at a nascent stage but is
expected to grow rapidly. India currently is facing an economic boom and almost every
industry is at its best state. Hence there is a need for the companies operating in a highly
competitive and dynamic environment to focus on their strategic aspect and core
competencies. The companies can do this by outsourcing the unimportant and non-
strategic tasks.
Due to the presence of some factors in the Indian market, the HR outsourcing industry is
very small but it is expected to grow in the future. This is evident from the fact that
various big players like Hewitt associates, Xansa, Convergys, Accenture, Wipro are
entering this arena of HR outsourcing in India.
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The study is based on the following assumptions and hence the hypothesis for the study
is: -
o Indian companies are outsourcing most of their HR processes.
o HR outsourcing is expected to grow at a rapid pace in the Indian industry.
o Indian companies derive lot of benefits out of HR outsourcing.
o Internal customers of the company are satisfied with the decision of the company to
outsource their HR processes.
o Cost is the main criteria for vendor selection for HR outsourcing by Indian
companies.
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RESEARCH DESIGN:
Exploratory research
Exploratory research is often conducted because a problem has not been clearly defined
as yet, or its real scope is as yet unclear. It allows the researcher to familiarize him/herself
with the problem or concept to be studied, and perhaps generate hypotheses (definition of
hypothesis) to be tested.
It is the initial research, before more conclusive research is undertaken. Exploratory
research helps determine the best research design; data collection method and selection of
subjects and sometimes it even conclude that the problem does not exist.
Exploratory research can be quite informal, relying on secondary research such as
reviewing available literature and/or data, or qualitative approaches such as informal
discussions with consumers, employees, management or competitors, and more formal
approaches through in-depth interviews, focus groups, projective methods, case studies or
pilot studies.
The results of exploratory research can provide significant insight into a given situation.
Although the results of qualitative research can give some indication as to the "why",
"how" and "when" something occurs, it cannot tell us "how often" or "how many".
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Descriptive research
Descriptive research or statistical researchprovides data about the population or universe
being studied. But it can only describe the "who, what, when, where and how" of a
situation, not what caused it. Therefore, descriptive research is used when the objective is
to provide a systematic description that is as factual and accurate as possible. It provides
the number of times something occurs, or frequency, lends itself to statistical calculations
such as determining the average number of occurrences or central tendencies.
The two most commonly types of descriptive research designs are
1. Observation
2. Surveys
The study would include exploratory and descriptive research. Exploratory
research would be done by reviewing all the relevant literature on HR outsourcing.
Descriptive research would be conducted through a questionnaire. The study hence
comprises of:
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o Secondary data analysis Secondary data is collected from various research papers,
journals and Internet. This data aided in understanding the subject better and building
the base for collection of primary data and drawing conclusions.
o QuestionnaireThe questionnaire is a mix of objective and open-ended questions. It
is aimed at the employees of the HR department of various organizations in the Delhi
and NCR region.
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SAMPLE SIZE:
o The primary data is collected from twenty-five HR personnel of various companies.
o The respondents belong to the middle or top-level management in the HR department.
o The data collection includes in its scope both government and private companies.
o The data is collected from companies belonging to various industries (Power, IT,
Liquor, financial etc) in order to have an idea of the complete Indian industry as a
whole.
o Data would be collected from companies operating in the Delhi and NCR region.
o HR personnel from the following companies would be the respondents for the study:
o NTPC
o Xansa
o HCL Technologies
o Radico Khaitan etc
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RESEARCH TOOLS:
The study includes exploratory and descriptive research. Exploratory research would be
done by reviewing the literature related to HR outsourcing and descriptive research
would be done by a survey of the HR personnel of various organizations through a
questionnaire.
Questionnaire is used as the tool for collecting primary data from employees working in
HR department of different companies. The questionnaire consists of both open ended
and objective questions on HR outsourcing.
The questions cover all the aspects related to HR outsourcing: -
o Process that has been outsourced.
o Benefits derived by them from outsourcing of HR processes.
o Criterion for selection of the process to be outsourced.
o Criterion for selection of vendor for outsourcing.
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o Reasons for not outsourcing in case the company has not outsourced any of their HR
process.
o Person/s involved or responsible for taking the decision for HR outsourcing.
o Outsourcing by the competitors and business partners if any.
o Impact of HR outsourcing by the company on its employees.
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RESEARCH FINDINGS
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Q1.
The respondents were asked whether they outsource their HR processes. 11 out of 25 i.e.44% of the respondents companies have outsourced their HR processes.
Q2.
YES
44%
NO56%
HR OUTSOURCING
YES
NO
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The respondents gave the above reasons for not outsourcing their HR processes. 12 out of14 respondents gave cost as a reason for not outsourcing, security breaches were given asa reason by 9, lack of reliability by 7, data privacy and lack of quality by 5, lack ofunderstanding by 4 and maturity of market by 1. Hence cost, security breaches and lackof reliability were identified as the major reasons for not outsourcing by companies in theIndian market.
12
5
7
4
1
9
5
COST
DATA PRIVACY
LACK OF RELIABILITY
COMPANY CULTURE
MARKET NOT MATURE
SECURITY BREACHES
LACK OF QUALITY
REASONS FOR NOT OUTSOURCING
Series1
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Q3.
Recruitment was found to be the mostly outsourced process followed by training
delivery, payroll processing, compensation surveys and statutory compliance. 6
respondents replied that their company has outsourced the recruitment process, 4 replied
that they have outsourced their training process, 2 replied they have outsourced
compensation surveys and payroll processing and 1 respondent said the they have
outsourced statutory compliance.
6
2
4
2
1
0
1
2
3
4
5
6
7
RECRUITMENT
PAYROLL
PROCESSING
TRAINING
DELIVERY
COMPENSATION
SURVEYS
STATUOTARY
COMPLIANCE
HR PROCESSES OUTSOURCED BY COMPANIES
Series2
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Q4.
8 out of 11 respondents replied that the top management was responsible in taking
decision related to HR outsourcing, 2 out of 11 said that the middle management was
involved in the whole process of HR outsourcing and 1 respondent said that both the
middle and top management were involved. Hence the study throws light on the fact that
HR outsourcing is an important decision for the company and mostly involves top
management.
TOP
MANAGEMENT
73%
MIDDLE
MANAGEMENT
18%
BOTH
9%
PEOPLE RESPONSIBLE FOR HR OUTSOURCING DECISIONS
TOP MANAGEMENT
MIDDLE MANAGEMENT
BOTH
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Q5.
9 out of 11 respondents stated checking core capability as a criterion for selection of the
HR process to be outsourced i.e. checking whether the process is a core capability or not
before outsourcing. 5 respondents responded that the processes which if outsourced pose
a risk of data exposure were not outsourced. 3 respondents stated that the processes that
are standard across industries are outsourced and 2 said that process which are less
interdependent on other processes are outsourced. I respondent said that those processes
that require physical presence of the HR personnel are not outsourced. Hence core
capability and risk of data exposure were identified as a criterion for selection of process
to be outsourced by maximum respondents.
Q6.
0
1
2
3
4
5
6
7
8
9
LITTLEINTERDEPEN
DENCY
CORECAPABILITY
RISK OFDATA
EXPOSURE
NEED FORPHYSICALPRESENCE
STANDARDPROCESSES
Series1 2 9 5 1 3
CRITERION FOR PROCESS SELECTION
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According to 10 out of 11 respondents, competence is considered as a criterion for
selection of vendor for HR outsourcing. 9 respondents stated experience as a criterion, 8
stated cost, and 7 stated past records and 2 recommendations from other companies.
Hence competence and technological capability, relevant industry experience and cost of
services were identified as a criterion for evaluation and selection of potential vendor by
the company for HR outsourcing.
0
2
4
6
8
10
12
PASTREC
ORDS
COST
COMPET
ENCE
EXPERIENCE
RECOMMENDATION
S
CRITERION FOR VENDOR SELECTION
Series1
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Q7.
All the 11 respondents responded that HR outsourcing makes them focus more on their
core activities, 7 said that it saves their time, 6 said that HR outsourcing provides
expertise to the company, 3 said that it saves cost and 2 said that it requires less
manpower to be employed in the company. Hence focus on the core processes and saving
of time were identified as major benefits of HR outsourcing.
11
7
3
6
2
0
2
4
6
8
10
12
FOCUS ON
CORE
ACTIVITIES
TIME SAVING COST SAVING EXPERTISE LESS
MANPOWER
NEEDED
BENEFITS OF HR OUTSOURCING
Series2
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Q8.
7 respondents replied that their competitors also outsource their HR processes. 2 replied
that their competitors dont outsource any HR process and 2 replied that they dont know.
YES
64%
NO
18%
DONT KNOW
18%
HR OUTSOURCING BY COMPETITORS
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Q9.
8 respondents replied that they have not taken feedback from the employees of the
company on the HR outsourcing done by them. 3 respondents replied that feedback has
been taken in their organizations from the employees on the HR outsourcing done.
Q10.
Seri
es1
YES NO
3
8
FEEDBACK FROM EMPLOYEES ON HR
OUTSOURCING
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7 respondents said that they have not taken any feedback from the companys employees
on the HR outsourcing done. 4 said that the employees of the company were satisfied
with the HR outsourcing done by the company and no respondent replied that their
employees were dissatisfied with it.
0
2
4
6
8
SATISFIEDDISSATISFIEDNEVER ASKED
4
0
7
IMPACT OF HR OUTSOURCING ON
EMPLOYEES
Series1
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SUMMARY AND CONCLUSION
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Cost and security breaches were identified as the major reasons for not
outsourcing HR processes by Indian companies. Lack of quality, data privacy
issues, inability of the vendor to understand company culture, immaturity of the HR
outsourcing market were other reasons for not outsourcing.
Core capability was identified as the major criterion for selecting the process to
be outsourced i.e. the process which is a core capability is not outsourced. Other
criterion used for selecting processes to be outsourced are standard processes, little
interdependency with other processes and need for physical processes.
Competence & technical capability and relevant industry experience were
identified as major criteria for selection of vendors for outsourcing HR
processes. Other criterion used by Indian companies for evaluating potential vendors
for outsourcing were past track records of the vendor, cost and recommendations
from other companies.
More focus on core activities and time saving were identified as main benefits of
HR outsourcing to Indian companies. Other benefits that were identified were cost
saving, availability of vendor expertise and need for lesser manpower in the
organization.
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64% of the respondents replied that HR outsourcing is done by their
competitors, 18% said that their competitors dont outsource their HR processes
and 18% said that they dont know whether their competitors outsource their
HR processes or not.
Most of the companies surveyed do not take feedback from their internal
customers on the HR outsourcing done by them. 7 respondents said that their
companies do not take feedback on HR outsourcing from their employees and 4
respondents said that their companies take feedback from their employees.
The employees of the companies which outsource their HR processes are usually
satisfied by the outsourcing done. All the 4 respondents whose company takes
feedback on HR outsourcing from their employees said that their employees were
satisfied from the HR outsourcing.
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India. Various factors that make India a potential option are its education system, English
advantage, government policies, infrastructure improvements etc. India would be a
destination for HR outsourcing by foreign companies. But growth in HR outsourcing by
Indian companies would be slow vis a vis the global scenario. Hence the second
hypothesis is proved true.
Indian companies derive lot of benefits out of HR outsourcing.
Various benefits are derived by Indian companies from HR outsourcing like more focus
on core activities, time saving, cost saving, expertise and removal of unnecessary
manpower. Focus on core activities, time saving and expertise of the vendor were the
major benefits found out the survey as maximum respondents listed these benefits. Hence
the third hypothesis is proved true.
Internal customers of the company are satisfied with the decision of the company
to outsource their HR processes.
8 respondents out of 11 that outsource their HR processes replied that they have not taken
feedback from the employees of the company on the HR outsourcing done by them. Also
the ones that had taken feedback were satisfied with the outsourcing done. Hence the
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fourth hypothesis is partly true as most of the companies included in the study did not
take any feedback from the employees.
Cost is the not the main criteria for vendor selection for HR outsourcing by
Indian companies.
Competence and experience of the vendor were identified as the criterion used by
maximum companies for vendor selection. 10 respondents replied competence as
criterion, 9 replied experience and 8 replied cost as a criterion. So cost is a criterion for
selecting vendors for HR outsourcing by Indian companies but it is considered after
competence and experience. Hence the fifth hypothesis that cost is the main criteria
for vendor selection for HR outsourcing by Indian companies is proved incorrect.
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