DISSERTATION

ON

HR OUTSOURCING IN INDIA

For the Partial Fulfillment of the RequirementFor The Award of Degree of

MASTER OF BUSINESS ADMINISTRATION

(2012-2014)

From UTTAR PRADESH TECHNICAL UNIVERSITY, LUCKNOW

Submitted to: - Submitted by:- N.P. SINGH KESHAV RAJFaculty Guide (HR) M.B.A. 4th Sem.MIMT, Greater Noida Roll No. 1215270032

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ACKNOWLEDGEMENT

I am grateful to, “Mangalmay Institute of Management & Technology (Gr.

Noida)” for providing me with this opportunity to work on this project. Without

his assistance and continuous guidance this project would not have been

completed. My experience from this project is indescribable and it has certainly

broadened my knowledge arena by introducing me to the practical problems of

the field while performing the market research survey.

I, would like to extend my heartfelt thanks to I am thankful to

N.P SINGH, Faculty Guide (HR), MIMT, Greater Noida, whose support I would

be able to make this project a success one.

I am indebted to my family and friends for providing such a support for my

project.

Keshav Raj

MBA -4th semester

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PREFACE

The Dissertation is hard intends to reflect some of the basic issue covered under the “HR

OUTSOURCING IN INDIA”. The total aspects has been formulated and presented on the

basic of idea and information gathered by this investigator during a shorter span of

research i.e. an important portion of the MBA curriculum

Leading to an opportunity for the participant to have a practical exposure of the content

under the topic beyond what have already been studies during the classroom

interaction.

This Dissertation has been written in response to a comprehensive study,

conducted on the “HR OUTSOURCING IN INDIA”. The Dissertation mentions and

evaluate the various aspect , after a thorough analysis of the various facts and figures,

a set of recommendations has been given at the end of the report.

We are confident that anyone who goes through the report will learn how much we

have learnt & benefited during this period

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Declaration

I, hereby state that this project entitled “HR OUTSOURCING IN INDIA” has been

submitted to the U P Technical University, Lucknow at “Mangalmay Institute of

Management & Technology (Gr. Noida)” in partial fulfillment of the requirements of

MBA program Class of 2012-14.

This Dissertation has been completed by me with a lot of hard work and with the help of

some reference books and under the guidance of Faculty Guide N.P. Singh, MIMT, and

(Gr. Noida).

The empirical findings of this report are based on the data collected by me. Any part of

this project has not been reported or copied from any Dissertation of the university.

KESHAV RAJ

MBA -4th semester

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TABLE OF CONTENTS

Page No

● Executive Summary……………………………………………………... ………………………..7-8

● Introduction……………………………………………………………………………………………..9-14

● Problem of the Study………………………………………………………….....................15-17

● Objective…………………………………………………………………………………………………..18-20

● Review of Literature………………………………………………………………………………….21-86

● Research Methodology………………………………………………………………………….....87-94

●Data Analysis………………………………………………………………………………………….....95-105

● Finding & Conclusion………………………………………………………………………………….106-113

● Recommendation……………………………………………………………………………………….114-116

Appendix & Questionnaire

Bibliography

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EXECUTIVE SUMMARY

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Globalization of economies over the past years have reduced international trade

barriers and have resulted in an increasingly interlinked global economy and intense

global competition, putting pressure on business managers across the world to cut costs

of operations. At the same time a paradigm shift in the possibilities of communication

that the Internet and the telecommunications revolution has bought about has opened

up a plethora of opportunities in outsourcing business processes across continents.

Traditionally starting with just sub-contracting in manufacturing, now a holistic

definition of outsourcing involves transferring any value contributing activities,

processes and/or services to the premises of one’s own or an agent primarily to save

cost and/or to increasingly focus on its area of core competence.

Business Process Outsourcing (BPO) is a boon for developing countries but, of late, it has

become a political issue for the US with major economic implications. Our paper

analyses why outsourcing is here to stay, basing the argument on sound conceptual

reasoning, disregarding the political arguments involved. However, given the political

pressures under which many of the MNCs operate, the likelihood of more of the value

added but not very core activities outsourced while some of the real non-core not

outsourced cannot be ruled out.

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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 organization’s 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.

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The Human Resource (HR) department is critical for employee satisfaction in any firm.

Some businesses don’t 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 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.

o KPO – A form of outsourcing where knowledge & information related work is carried

out by different company resources.

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HR OUTSOURCING ASSISTING CHANGE:

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Use of HROutsourcin

g

Cost of Technology,Desire for Best Practice Support

Need to remain flexible, Risk Management

Technology Advancement

Talent Shortage

GlobalisationM&A

Org. Changes

Desire/Push to move to Strategic Planning

PROBLEM OF THE STUDY

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PROBLEM OF THE STUDY

HR Outsourcing is increasing its foothold on Indian soil by every passing day. More and

more organizations are now outsourcing HR services from service providers like IBM,

Accenture, HAY Group etc. The study here is conducted to determine why organizations

are moving to outsourced services from their in-house expertise. For this an

organization needs to weigh down the pros and cons of in-house services as compared

to outsourced services and then take the plunge. Properly applied, including concerns,

outsourcing offers many benefits; otherwise, it offers even greater risks.

The core question now is centered on whether the deepening global recession is going

to impact this market growth. It also needs to be found out that how are organizations

coping up with the current economic slow-down as more and more organizations are

going for cost-cutting, restructuring etc. For some organizations, the current scenario

may appear as an opportunity to outsource HR functions whereas for some it could

appear to be an extremely risky venture.

For an organization to outsource HR functions, it is often required by to share the

private information of their employees with the service provider. Here, legal issues like

data privacy and data security emerge. These issues need to be handled carefully since it

may consist of some sensitive information about an employee like his/her health

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information, family conditions etc. Organizations along with the service providers need

to develop a solution so that these issues can be handled appropriately.

Further, one needs to understand the internal scenario of the organization while an

outsourcing deal is being planned and implemented. It is important for an organization

to have full support of high level management as it affects the level of employee

satisfaction.

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OBJECTIVES & RATIONALE OF THE

STUDY

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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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1. To study the various challenges faced by the Indian industry pertaining to HR

outsourcing.

2. To study the various reasons deterring the Indian HR outsourcing industry to

grow at the pace of the global market.

3. To study the trends of HR outsourcing prevailing in the Indian industry.

4. To ascertain the future of the HR outsourcing industry in India and the factors

responsible for molding it.

5. To find out the various benefits being derived out of HR outsourcing by the

Indian companies.

6. To study the impact of HR outsourcing on the internal customers in the Indian

companies.

7. To study the criterion used by the Indian companies in selecting the vendor for

outsourcing their HR processes.

8. To study the criterion used by the Indian companies in selection of the HR

process to be outsourced.

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WHAT IS OUTSOURCING??

Outsourcing is the process by which an organization contracts with another

individual or company to get some of its work done.

Generally it is non-core aspects of the business that are outsourced.

Main reason for outsourcing is to cut costs while focusing on core business

activities.

Quality management and controlling might be a big risk

TYPES OF OUTSOURCING:

BUSINESS PROCESS OUTSOURCING:

C ontracting of the operations and responsibilities of specific business functions

to a third-party service provider.

Categorized into back office outsourcing and front office outsourcing

BPO that is contracted outside a company's country is called offshore

outsourcing and that to a company's neighbouring (or nearby) country is

called near shore outsourcing.

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FUNCTIONS UNDER BPO:

Professional - accounting, purchasing, information technology support and other

specialized services.

Manufacturing - optimizing their bottom line and positively impacting their top

line.

Process-specific - specific to a unique process or internal procedure

Operational - Machine maintenance, equipment repair cleaning

KNOWLEDGE PROCESS OUTSOURCING

KPO or Knowledge Process Outsourcing calls for work that needs higher levels of

involvement from the worker.

The worker has to employ advanced levels of research, analytical and technical

skills.

KPO industry is less older and mature than the BPO sector.

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INFORMATION TECHNOLOGY OUTSOURCING:

An organization uses IT outsourcing for functions ranging from infrastructure to

software development, maintenance and support.

A company may outsource all of its data storage needs because it does not want

to buy and maintain its own data storage devices. Most large organizations only

outsource a portion of any given IT function.

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 independent 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 crit ical to the success of a company, the human resource

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function wil l have to progress from administration to strategy if the

organization it supports is going to remain competitive.

The advantages are clear and compell ing: improved business focus, more

productive use of t ime 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 al lows a company to focus on its core

competencies and provides administrative rel ief from many employer-

related responsibil it ies, so that the company can concentrate on

developing strategies that provide competitive advantage to it.

Traditionally, people have been viewed as l iabil it ies or expenses, instead

of tangible, bottom-line assets. Successful business owners have learned,

however, that their employees have a direct impact on their profitabil ity.

The company gets more out of its business when it gets more out of its

people.

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Statistical analysis by Watson Wyatt Worldwide, which developed the

Human Capital Index to provide a standard for measuring a company’s

people practices, shows a clear relationship between the effectiveness of

a company’s people practices and the creation of superior market value.

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

company’s productivity and profitabil ity, 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 t ime spent away from growing business.

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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.

Economic Indicators

Largest democracy: 1.1 bil l ion population

1991: Wide-ranging reforms to open and deregulate the economy

GDP growth over 8% in 2005-6 – fastest growing economies in the

world, with compounded growth at 5.7%

Gross GDP - $3 tri l l ion – fourth largest economy in the world –

after USA, Japan and China

Annual per capital income is $2,880 – one of the lowest in the

world

Indian’s remit about $18.3 b. back to India annually – one of the

highest in the world

In 2003: total of 9, 500 l isted companies on the BSE and NSE (23

registered stock exchanges)

Total market capital ization is 22 –25 % of GDP

Top 100 BSE companies represent almost 86% of market cap

State-owned enterprises account for nearly 32 % of BSE market cap

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India’s Market

• India’s economy is expected to grow over 6% - faster than any

other country in the world (Duetshe Bank Research)

• India is one of the fastest growing markets in the BPO space

• India is the world’s fourth largest economy- adjusted for

purchasing power parity (PPP) – next only to U.S, China, Japan

• There is a large potential in the SMB, and mid-market space, and

for solutions enabling the (offshore) services industry

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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 Possibil ity of security breaches.

o Cost- benefits equation not clear.

o Lack of psychological acceptance.

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Goldman Sachs Report of 1 October, 2003 –

"Dreaming with BRICs: The path to 2050“

India’s GDP will reach $ 1 tri l l ion by 2011,

$ 2 tri l l ion by 2020, $ 3 tri l l ion by 2025,

$ 6 tri l l ion by 2032, $ 10 tri l l ion by 2038, and

$ 27 tri l l ion by 2050, becoming the 3rd largest economy after USA

and China.

In terms of GDP:

India will overtake Italy by the year 2016

France by 2019, UK by 2022, Germany by 2023, and Japan by 2032.

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India Corporate Profile …

Market Cap No. of Companies

(April 2006)

> $ 20 bil l ion: 3

> $ 10 bil l ion: 9

> $ 5 bil l ion 18

> $ 1 bi l l ion 62

> $ 500 m 74

** Growing over 100 Global Indian mnc’s that wil l be above $1 bil l ion –

** 50% of the over $1 bil l ion companies are currently in public sector

No. of l isted companies on BSE 10,000

No. of companies on NASDAQ

No. of companies on NYSE

DECISION FOR OUTSOURCING:

Driving Global Leadership

IT –led sectors

McKinsey and Nasscom:

India's revenues from IT industry will reach $87 billion by 2008

Profile of IT-led Sector:

• Tier 1 companies – i.e. Top 5 firms

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Account for 32 % of total software export

• Tier 2 companies –ie. Revenues Rs. 1 bi l l ion - Rs. 10 mil l ion

Account for 24 % of the industry

• MNC – back-ends

Account for about 26 % of the industry

• Focused companies – domain/ service l ine/ products/

Account for about 3-4 % of revenues

• Small companies – ie. less than Rs. 1 bi l l ion revenues,

Account for 12-14 % of the market

New emerging areas

bio-informatics, bio-technology, genomics, cl inical research and

trials – Ranbaxy, Cipla, Piramal, Reliance Life sciences, Biocon

World-class Manufacturing

Bharat Forge has the world's largest single-location forging faci l ity;

its cl ients include Honda, Toyota and Volvo amongst others.

Hero Honda with 1.7m motorcycles a year is now the largest

motorcycle manufacturer in the world.

India is the 2nd largest tractor manufacturer in the world .

India is the 5th largest commercial vehicle manufacturer in the

world.

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Ford has just presented its Gold World Excellence Award to India's

Cooper Tyres.

Worldclass Manufacturing – ctd.

Hyundai India wil l become global small car hub for Korean giant --

supplying half a mil l ion cars to Hyundai Korea, HMI and Ford – by

2010

Aston Martin latest luxury sports car, AM V8 Vantage, is being

prototyped by an Indian-based designer.

80 of the World’s 117 SEI CMM Level-5 companies are based in

India.

5 Indian companies recently received the globally acclaimed

Deming (TQM) prize .

Retail Sector: Late Riser

Largest retail density worldwide: about 15 mil l ion retail outlets

Retail trade wil l be 10-11% of GDP

Growing at 158 % between 2003-5 – compared to 40 % in other

emerging markets

Valued at $19 bil l ion currently compared to China’s $50 mil l ion

Global Outsourcing Trends:

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IT-enabled Services – BPO’s & KPO’s

Key drivers for Global offshore/ outsourcing as a strategic alternative

Increasing global competitiveness

Access to global talent

Economies of scale

Process engineering and enhancements

Wage arbitrage

Increased profit margins

Improvements in quality

Advantage India..

India holds 55% of the global Offshore BPO Industry

More than ½ of Fortune 500 companies have outsourced to India

India BPO Services grew by about 49% in 2004

Indian BPO is growing at 7 t imes the domestic GDP

Indian outsourcing is moving up the value-chain

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LOB’s developing: HR and Finance

Indian KPO (knowledge process outsourcing) to grow from $1.2

bil l ion to $15.5 bil l ion in 2010 (ie. 75% of the global KP market)

The real economics of off shoring

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India’s Value Proposition for ITES-BPO Industry: PQRS –

Productivity, Quality, Rate, Scalabil ity factor

Abil ity of Indian vendors to ramp-up operations rapidly

Widening breadth of services

Shift towards high-value services

Sustained cost advantage – nearly 40-50 % cost savings in India

offshore operations

Delivery process enhancement and improvement

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Access to an abundant ski l l pool : India has the largest english

speaking IT talent pool in the world, over 120,000 trained IT

professionals and about 3 mil l ion other graduates added each year.

Global quality credentials –ISO,TQM, 6 SIGMA

Key markets:

U.S : 2/3rds of total market

Western Europe, mainly U.K. : 20 % approx.

Market profi les:

Customer Care: 35 % of the sectors employee base at 122,000

employees, and 1/3 of revenues

Finance: 25% of revenues

Administration: 16 % of revenue

Content Development: 13 % of revenue

Ecosystem:

View from SAP Labs- Off shoring India Center

• Bangalore is one of the world’s top IT clusters

• System Integrators can be enabled to implement SAP NetWeaver

and the Business Process Platform for customers

• Independent Software Vendors (ISV) can provide platform-based

composite solutions

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Cost Factor

• India is the one of the most cost-efficient locations for many mnc’s

from Europe and U.S.

Mckinsey Study:

• and wil l be below 50% cost of Germany at least for the next 5 years

(--SAP Labs)

• “Context” can be outsourced to a large spectrum of service

providers

Phobias of Outsourcing :

… view from IBM

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What Executives are asking about India?

Will economic reforms continue…India’s noisy democracy perplexes

many MNC Executives

Are the multinationals really welcome?

Isn’t China the richer opportunity?

How do successful multinationals approach India?

Is off shoring in India worth the polit ical r isk?

Will infrastructure be a problem?

Will India protect intellectual property?

INDIA A FAVOURED DESTINATION

Availabil ity of qualif ied manpower

Polit ical stabil ity

Infrastructure

Communication ski l ls

Lower wages

Proven delivery capabil it ies

C ontracting of the operations and responsibil it ies of specific

business functions to a third-party service provider.

Categorized into back office outsourcing and front office

outsourcing

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BPO that is contracted outside a company's country is

cal led offshore outsourcing and that to a company's neighbouring

(or nearby) country is cal led near shore outsourcing .

FUNCTIONS UNDER BPO

Professional - accounting, purchasing, information technology

support and other special ized services.

Manufacturing - optimizing their bottom line and positively

impacting their top l ine.

Process-specific - specific to a unique process or internal

procedure

Operational - Machine maintenance, equipment repair cleaning

Baron & Kreps, 1999 gave this matrix which talks about how and when to

outsource activit ies. According to this matrix, strategic importance of the

activity and interdependence on other activit ies are the two factors on

which the decision of outsourcing should be based.

The activit ies that have high strategic importance and high interdependence

on other activit ies should be kept in-house and the activit ies that have low

strategic importance and low interdependence must be outsourced.

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Why choose India for BPO Services

Outsourcing has become a strategic management approach for most companies around the

world. Outsourcing of back office and front office administration processes allow businesses

to achieve their business objectives and increase profitability. Business process outsourcing

helps you in achieving operational excellence at a relatively low cost and also enables you to

focus on core business issues.

India is an ideal destination for business outsourcing due to innumerable benefits that it

offers. Outsourcing work to India offers the benefit of cost reduction, in addition to

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High

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orta

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Str

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ic I

mp

orta

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Low High

Interdependence

Insource

Outsource

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ContingentEmployees

increased productivity and profitability. India has a rich pool of talented people who are not

only well versed with English language but are also technically literate.

It also gives companies access to experts at much lower rates. BPOs in India have also

offered great long term career opportunities to Indian graduates and undergraduates. BPO

sector is expanding at a rapid pace in India because of highly qualified professionals,

advanced technology and lower management cost.

Most of the leading organizations resort to Indian BPO services for handling their work

related to HR, finance, telemarketing, sales, technical support, etc. as it allows them to

transfer their responsibility and get quality solutions. Indian BPO sector is booming because

of its high-end infrastructure and expert manpower. Outsourcing in India guarantees full

value for money as high quality performance is available at competent prices because of the

growing rate of BPOs.

Indian brainpower has given a new dimension to the corporate world by providing quality

services. Most of the companies are turning to India because of the level of excellence it has

attained in the outsourcing sector. India is a rich pool of talented people who speak fluent

English and easily adapt to western accents.

Training provided by the Indian BPOs hone the soft skills of BPO professionals and makes

them experts to handle specialized tasks. The Indian BPO sector now plays a key role in the

global corporate world. Outsourcing optimizes business operations of global companies and

reduces their expenses through efficient and accurate process management solutions.

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Outsourcing to India is also very reliable as the information security issues are taken care of

diligently. Outsourcing business processes to India is here to stay for long. Sutherland Global

services has Indian facilities in Chennai, Mumbai and Kochi.

It was founded in 1986 in Rochester, New York, Sutherland. The company has over 24,000

professionals who offer Right Sourced seamlessly blended services. Apart from India, it also

has its delivery centers in Bulgaria, Canada, Mexico, Nicaragua, Philippines, The United

Kingdom, and the United States.

WHY HR OUTSOURCING ?

* 85 % of the time on Administration and Management with no Added Value

* 15% of the time on HR strategies, communication, planning.

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According to Hewitt’s HR outsourcing Trend and Insights 2009 survey, top reasons for

outsourcing HR services:

1. Opportunity for cost savings 78%

2. Access to outside expertise 78%

3. Improve service quality 74%

4. Realign resources/focus

On strategic HR properties 72%

5. Relief from regulatory/

Administrative burden 70%

ADVANTAGES VS DISADVANTAGES

ADVANTAGES

1. Access to pool of talent, sustainable sources of skill

2. Efficiency, focus on core business, core resources

3. Cost saving, no investment for infrastructure, software…

4. Cost restructure: move fixed cost to variable cost and make variable cost more

predictable

5. Risk management: transfer risk of non tax and legal compliance to outsourced

vendor

6. Backup plan

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DISADVANTAGES

1. More expenses if not choosing a good outsourced vendor

2. Sensitive information may leak to competitors

3. Less control of the processes

4. Weak connection with staff/end users

5. Dependency on outsourced vendor

CHALLENGES OF HR OUTSOURCING IN VN

1. HR outsourcing is new concept with Vietnamese Government and community

2. HR outsourcing industry is still immature market

3. Organization do not have too many options in selecting a professional HR

outsourcing vendor to meet their needs

4. Pool of skillful resources are limited

5. Outsourcing costs are high compared with labour cost and very high compared

with ones in developed countries

6. IT Infra-structure, data integrity, data security should be invested in large scale

7. Integrated solutions should be developed

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IMPORTANT NOTES FOR SUCCESSFUL HR OUTSOURCING PROJECT

IMPORTANT NOTES FOR SUCCESSFUL HR OUTSOURCING

1. Service Level Agreement (SLA): clear, detail and there are some valuable points need

to focus:

Timeline to deliver the services: an fixed schedule should be

discussed and agreed in advance between the organization and

vendor

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What kind of reports/output to be delivered: a check list of reports,

outputs should be discussed and followed on

monthly/quarterly/yearly basic

Responsibilities of organization and vendor: this should be

mentioned as detailed as possible as many unclear services

will be extra charged to your organization

Decisions to be made by organization, vendor: this is very important

in HR outsourcing as it much link with your staff ‘ feeling and your

HR cost

2. Planning transition

Keep end users informed about the goals and progress of

the arrangement

Get end users involved: input in outsourcing plans, how the

changes affect them..

Buy-in end users and sign-off on outsourced activities

Educate end users about new method of the process

Take care with high sensitivity if it involves transition of employee

from organization to HR outsourcing vendor.

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3. Management commitment and support :

• Management commitment and support are essential as outsourcing project

involves a great deal of changes, especially in cases of reorganization

4. Performance monitoring and support:

• Performance should be review frequently to make sure the service can meet the

organization’s expectation.

• Mutual support, understanding and solving problems with a we’re- in-this-

together attitude.

HOW TO CHOOSE A GOOD HR VENDOR IN VIETNAM

Hewitt’s HR Outsourcing Trends and Insights 2009 Survey gives top factors to

consider in choosing outsourcing provider:

• Service quality

• Track record

• Strong HR Process expertise

• Brand trust

• Strength in customizing solutions

Strength in customizing solutions

• Very few organizations select their HR providers based on lowest cost

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Major HR Function in Outsourced

1) Recruitment : The process of finding and hiring the best-qualified candidate (from within or outside of an organization) for a job opening, in a timely and cost effective manner. The recruitment process includes analyzing the requirements of a job, attracting employees to that job, screening and selecting applicants, hiring, and integrating the new employee to the organization.

2) Pay Roll : Government agencies at various levels require employers to withhold income taxes from employees' wages. In the United States, "payroll taxes" are separate from income taxes, although they are levied on employers in proportion to salary; the programs they fund include Social Security, and Medicare. U.S. income and payroll taxes collected through deductions are considered to be trust fund taxes, because the employer holds the deducted money in trust for later remittance.

3) Training : Training is the acquisition of knowledge, skills, and competencies as a result of the teaching of vocational or practical skills and knowledge that relate to specific useful competencies. Training has specific goals of improving one's capability, capacity, productivity and performance. It forms the core of apprenticeships and provides the backbone of content at institutes of technology (also known as technical colleges or polytechnics). In addition to the basic training required for a trade, occupation or profession, observers of the labor-market[who?] recognize as of 2008 the need to continue training beyond initial qualifications: to maintain, upgrade and update skills throughout working life. People within many professions and occupations may refer to this sort of training as professional development.

4) Security : A financial instrument that represents: an ownership position in a publicly-traded corporation (stock), a creditor relationship with governmental body or a corporation (bond), or rights to ownership as represented by an option. A security is a fungible, negotiable financial instrument that represents some type of financial value. The company or entity that issues the security is known as the issuer.

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For example, the issuer of a bond issue may be a municipal government raising funds for a particular project. Investors of securities may be retail investors - those who buy and sell securities on their own behalf and not for an organization - and wholesale investors - financial institutions acting on behalf of clients or acting on their own account. Institutional investors include investment banks, pension funds, managed funds and insurance companies.

Outsourcing solutions are economical and promise full worth for the cash spent. When choosing an outsourcing solutions supplier, it is vital to make sure about security in dealings. Payroll outsourcing services is described as a service that gives to try and do the payroll on behalf of a business's work schedule on a weekly or monthly basis. Payroll outsourcing solutions are provided on-line. In such cases, encryption technology and password protection are vital. The rationale why this may be thought-about is just that an organization dedicated to giving an outsourcing service is one which will typically supply the service at a greatly reduced price to small business owner along with ensuring safe transactions.

Changing roles of HR :

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Most projects as part of the two Strategic Business Units (SBUs) we undertake involve:

HR ServicesManpower & Talent AcquisitionExecutive Search and HiringTurnkey Recruitment SolutionTemporary and Permanent StaffingAllied HR Services

Marketing Process OutsourcingMarketing CommunicationInternet & Digital MarketingBranding, PR, Market ResearchCSR Activities and Sports PromotionPrint Production and ManagementEvents and Promotions

Human Resource Services :

Our HR Strategic Business Unit (SBU) is a professional staffing entity providing flexible and permanent staffingsolutions for hiring organizations and career management for job seekers in the following specialty skill areas: Engineering & Manufacturing Oil & Gas, Power, Infrastructure IT, ITES & BPO Telecom & Retail Financial Services, Banking, Insurance

At Sparkle Minds, we believe that Great People = Great Results. By understanding what drives our specialtyindustries, becoming involved in our communities on a professional and personal basis, following a disciplined processof identifying quality candidates, partnering with employers to understand their core business and their employmentrequirements and delivering exceptional service, we achieve great results for all concerned.

Sparkle Minds staffing specialists operate to bring the value of our 10 years of experience to your staffing and career

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development needs. Contact us for more information on temporary, temp-to-perm or permanent placement, forproject work.Sparkle Minds is incorporated with an aim to provide complete solutions encompassing the wide world of MANPOWERSOLUTIONS. Growing our foothold providing excellent customer services, we at Sparkle Minds believe in providingmanpower solutions and services in domains such as Financial Services and Banking, IT, BPO & ITES, Oil & Gas, Power,Infrastructure, Project & Engineering. Adding to greater value in customer satisfaction, we have developed relation intie-up with major Organizations in the industry.

Laterals Level 1 / Level 2 / Level 3 Top Management Senior Management Middle Management

Temporary StaffingWe would offer temporary, temporary to hire and permanent placement solutions and help reduce administrativeburdens with these time - and money-saving options: Onsite staffing Outsourcing Staff leasing Workforce procurement

Sparkle Minds follows a strict recruitment process in order to cater the best services to the satisfaction of our clients

and to make sure that the right person fills up the position.

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Other Allied HR Assignments we intend to undertake are : Payroll Management – Compensation & Benefits, Leave Records Statutory Compliances filling Statutory Compliances - Professional Tax, PF, Insurance, ESIC Insurance and Risk Assessment Training and Development

Liaisons and Coordination

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Various considerations to be taken into account while outsourcing were given by Baron

& Kreps, 1999 :

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?Outsourcing may not be appropriate when:The task

is a core activity critical to strategy or technology.

1. Task is highly interdependent with core activity due to technology or work design.

2. Task requires great deal of firm specific human capital or access to proprietary

information.

3. Tasks where the employees work in close proximity to regular, core employees and

are similar socially to them.

METHODOLOGY FOR HR OUTSOURCING:

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SituationAnalysis

Solution Design

Design of Performance

Measures & Contract

Solution Delivery

Solution Performance Management

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.

o Solution delivery

o Solution performance management – It includes the management of the vendor-

company relationship.

HR OUTSOURCING DELIVERY PROCESS:

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- Business environment analysis

- Work process analysis- Risk analysis

- Strategic

- Project

- Transactional

- Work Process design

- Service levels

- Accountability & performance measures for both Vendor & Company

- Resourcing

- Work Process management

- Solution management

- Vendor-Company relationship management

- Performance Analysis & Reporting

- Performance GAP Resolution process

HRO Soluti

onsDeliverables

ConsultantsProject Dedicated ExpertiseAdmin

BSCKPISLI

PerformanceMeasurement& Management

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

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Delivery Process Support

Work Process

Resources

Hr tools

PeopleDoers

• Process

• Procedures

• Rules

• Project Management

• Performance Management

competency to staff a ful l-f ledged HR department) and very large

companies (who wish to outsource al l 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 all iances, Cross domain

Solutions says that now CXO’s realize that HR teams typically spends over

80 percent of its t ime 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 organization’s core competencies and outsource non-crit ical

business activit ies. 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

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acceptance, where it is moving from a 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 l ist of potential ly high paybacks, after

IT and the telecomm industry. However, many companies wrap up their

HR functionalit ies as something that happens in the back office, and do

not give enough attention to the infrastructure that essential ly props up

its employees. Over the years, this has bred neglect, leading to

antiquated HR management systems.

Now, it is t ime 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 cal led for to keep pace with company

acquisit ions and mergers. A few companies have tried mending their HR

management system on their own, but they soon discovered that it is l ike

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

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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.

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 wil l 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 f ighting 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 wil l ing to spend as

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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 al l of a cl ient’s human resources function, al lowing the cl ient to

streamline their internal processes and concentrate on generating profits

in their core business.

Estimates show that the latent size of HR outsourcing in India is about $

2 bil l ion with a current market $ 27 mil l ion and it is growing at the rate

of about 50 per cent. HR outsourcing in India has not seen the required

momentum and is l imited to a trickle effect, with companies outsourcing

a few selected low-end HR processes. Companies which haven’t 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.

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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.

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

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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 f it or a

commitment to quality. Some things a company should consider when

evaluating a f irm 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 company’s priorit ies;

o Its available resources;

o The flexibil ity 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 f ind one that f its its image.

KEY QUESTIONS ASSOCIATED WITH HUMAN RESOURCE

OUTSOURCING:

Six important questions companies must focus on as they decide whether

to outsource some or al l of their HR processes:

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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 al l driving companies to consider the use of HR BTO.

As companies begin to operate in more countries, they are finding it

increasingly diff icult 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 acquisit ions 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 company’s

abil ity to stay current becomes more diff icult and costly as extensive

resources are required to maintain and apply this knowledge. Allowing an

outside party that has already built existing capabil it ies 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,

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particularly those with lower labor costs, many companies’ profit margins

are put at r isk, prompting them to examine closely al l activit ies where

cost reduction is possible. Outsourcing provides an opportunity for

companies to leverage the cost base and experience of an outside

provider, which can potential ly 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

controll ing 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 responsibil ity for

upgrades and system availabil ity.

Companies are also recognizing that they are unable or unwil l ing 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 abil ity to keep up with

the latest technology solutions and can provide best-in-class tool sets.

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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 capabil ity

from a vendor could offer lower costs and a higher l ikelihood of staying

current on recent developments.

Third, companies want to reduce the risks associated with business

volati l ity. Having gone through numerous hiring/layoff cycles, they are

looking to increase process capacity without commensurate increases in

ful l-t ime headcount. For example, companies need to increase their

abil ity to recruit without having to bring on a number of ful l-t ime

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 activit ies, outsourcing offers one way to build a new sense

of focus within HR organizations. Many HR organizations believe being

able to reengineer their internal processes and deliver strategic HR

services is simply too much for one organization to undertake at the

same time. However, by al lowing a vendor to manage many of the

administrative processes that take time and energy away from HR

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organizations, the internal HR organization can focus its l imited

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 cl ient service orientation and

metrics-driven approach are diff icult for most HR functions to achieve on

their own. In an outsourced environment, these ski l ls are crit ical in

determining the success or fai lure 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 diff icult decisions companies make. Recently, several

studies have indicated that the processes most l ikely to be outsourced

are retirement program administration (including defined benefit,

defined contribution and retiree services) and health and welfare

administration.

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Further, these studies found that HR processes closely associated with

employee evaluation and communications are the least l ikely 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 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

faci l it ies, equipment, capacity, training or investments?

b) Spil lover – is there confidential information or sources of advantage

that could be leaked to competitors?

c) Trust – is there a positive relationship between the two organizations

that could reduce transaction costs associated with contracting and

monitoring?

d) Competence – can greater vendor capabil ity in process execution lead

to improved results?

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e) Core capabil ity – is this process viewed as a differentiator for the

organization in the marketplace?

f) Commitment/flexibi l ity – is the process stable enough so that changes

in capacity/technology are not required on a frequent basis?

Who should be involved in making the decision to outsource HR

processes?

Decision-makers

Within the HR organization, the CHRO (or equivalent t it le in the

organization) usually plays an active role in making the outsourcing

decision. Ultimately, it is the CHRO’s responsibil ity to determine whether

the outsourcing arrangement wil l enable the HR organization to provide

cost-effective, quality service to its internal cl ients, while, at the same

time, support the organization’s 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 responsibil ity in this area, two other individuals play

important roles in the outsourcing decision.

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The Chief Financial Officer often participates in the decision-making

process, as entering into a long-term contract with an outsourcing vendor

can have potential ly significant f inancial 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.

Influencers.

Two groups of individuals were seen as influencing, if not directly

participating in, the HR BTO decision. Given the importance of integrating

HRM systems with various vendor-driven applications, the Information

Technology (IT) organization should have input in the HR Outsourcing

decision process. IT must determine how the outsourcing arrangement

wil l impact current and future technology investments and plans.

Also, the leaders of the various business units supported by HR usually

provide input into the decision, as their employees are the ones most

l ikely to be impacted by changes in processes and service levels.

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Approvers.

Typically, the CEO and the Board of Directors are responsible for f inal

approval of the decision to outsource HR processes. This is particularly

true if a significant number of processes are involved, if the outsourcing

arrangement wil l impact a large number of jobs throughout the

organization or if the arrangement wil l require communication with

important external stakeholders such as industry analysts and financial

markets. A significant outsourcing deal can signal changes not only in

overall strategy and approach to managing human capital, but also

efforts to cut costs, focus on core competencies and mitigate risks.

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 identif ied to make the outsourcing

decision, the next major step in the process involves selecting an

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appropriate vendor. A number of recent studies have highlighted three

primary criteria that companies use to evaluate vendors.

These include: the vendor’s track record for delivering service, the costs

associated with the outsourcing service and the wil l ingness of the vendor

to guarantee service levels. Other criteria highlighted by these studies

included: the vendor’s technological capabil ity and competence, process

expertise, f lexible contracting, recommendations from other companies,

relevant industry experience etc.

To evaluate vendor capabil it ies in these areas companies undertake a

host of activit ies 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’ capabil it ies. Information that is usually

collected as part of this process includes understanding the vendors’

areas of expertise, cl ient 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

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and refined these types of questionnaires to quickly ascertain a

vendor’s particular level of experience.

Conducting a f inancial 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 l ifespan of the contract. During this review, the potential cl ient

examines the vendor’s history of f iscal responsibil ity and regulatory

compliance, its credit rating and analysts’ predictions of ongoing

viabil ity. Companies are also looking for signs that the vendor is a

potential takeover candidate, as an acquisit ion 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

vendor’s 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

requirements of each of the countries in which it operates. They also

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should determine if the vendor has been fined as a result of

noncompliance and if the vendor has access to regulatory and legal

special ists on staff or on retainer.

Conducting reference checks/site visits to other cl ients . Organizations

considering outsourcing often speak with or visit current cl ients of

vendors under consideration. This al lows them the opportunity to

validate other cl ients’ experiences and identify potential issues in

working with the vendor. During these meetings, evaluators can get a

sense from their counterparts at those other f irms as to the vendor’s

f lexibil ity, wil l ingness to support new cl ient programs, ease of

partnership and whether the vendor has met the cl ient’s overall

expectations.

Visit ing processing/contact centers. Many companies f ind it quite

useful to visit the actual locations where the vendor is answering

employee calls and processing documents. This gives the prospective

cl ient a sense for how the vendor is organized and what technology is

being used. This f irst-hand view can be coupled with assessments of

the attrit ion 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 cl ients a gl impse at

the level of professionalism and service that their internal cl ients wil l

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l ikely receive and the level of investment the vendor is putting into its

own staff and operations.

Meeting potential delivery team leaders . Given the importance of

personal relationships between cl ient and vendor, potential cl ients

should meet the individuals who wil l be responsible for both service

delivery and the overall account relationship. These face-to-face

meetings can help potential cl ients 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 cl ient concerns.

Further, should the potential cl ient 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 crit ical during the transition phase

and subsequent ongoing operations.

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.

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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. Init ial ly, the

organization needs to identify the roles and ski l ls that wil l be required

to transfer the outsourced activit ies to the vendor and oversee the

vendor relationship. Finding these individuals can be a time-

consuming effort, as they often have other significant responsibil it ies

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

l ines of business. Many organizations fal l into the trap of developing

their communication strategy after the outsourcing agreement is put

into action. However, effective companies start executing a tai lored

communication plan far earl ier in the process, as they recognize that

rumors wil l l ikely surface long before any formal discussions are in

process. Organizations need to develop formal mechanisms for

communicating to HR leaders and staff during the early stages of an

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outsourcing effort since these individuals may be called upon to

provide data or reallocate their t ime to work on outsourcing related

tasks. Further, organizations need to l isten 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 compell ing business case for HR BTO, organizations often

need to obtain a clearer understanding of their current spending for

HR activit ies 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 t ime.

While outside resources can be used to faci l itate 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

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help ensure that the organization is entering into a f inancial ly

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

famil iar 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 especial ly in the US. With respect to the Indian scenario it is

sti l l 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 l ike 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 al lows the

researcher to famil iarize 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 l iterature 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 pi lot

studies.

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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 tel l us "how often" or "how many".

Descriptive research

Descriptive research or statistical research provides 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 t imes 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

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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:

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 Questionnaire – The 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.

SAMPLE SIZE:

o The primary data is collected from twenty-five HR personnel of various

companies.

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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, f inancial 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 l iterature 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 al l 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.

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.

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o Outsourcing by the competitors and business partners if any.

o Impact of HR outsourcing by the company on its employees.

DATA ANALYSIS

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Q1.

The respondents were asked whether they outsource their HR processes. 11 out of 25

i.e. 44% of the respondent’s companies have outsourced their HR processes.

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Q2.

The respondents gave the above reasons for not outsourcing their HR processes. 12 out

of 14 respondents gave cost as a reason for not outsourcing, security breaches were

given as a reason by 9, lack of reliability by 7, data privacy and lack of quality by 5, lack

of understanding by 4 and maturity of market by 1. Hence cost, security breaches and

lack of reliability were identified as the major reasons for not outsourcing by companies

in the Indian market.

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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.

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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.

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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.

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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.

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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.

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Q8.

7 respondents replied that their competitors also outsource their HR processes. 2

replied that their competitors don’t outsource any HR process and 2 replied that they

don’t know.

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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.

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Q10.

7 respondents said that they have not taken any feedback from the company’s

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.

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FINDINGS AND CONCLUSION

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FINDINGS:

HR outsourcing in India is gaining momentum but sti l l the number of

companies outsourcing their HR processes in India are few as

compared to the global scenario. 25 respondents were surveyed, out

of which only 44% replied that their companies have outsourced their

HR processes. Hence it proved that despite of the rapid growth of HR

outsourcing worldwide, not many companies in India outsource their

HR processes.

Recruitment was found to be outsourced by maximum number of

companies surveyed. Other HR processes that are outsourced by

Indian companies are training delivery, payroll processing, statutory

compliance and compensation surveys.

73% of the respondents responded that top management was

responsible for taking decisions related to HR outsourcing which

further proves that HR outsourcing is an important decision for the

company. 18% of the respondents said that the middle management

was involved and responsible and 9% said that both the top and

middle level management were involved.

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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, inabil ity 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, l itt le 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 identif ied were cost saving, availabil ity 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 don’t outsource their

HR processes and 18% said that they don’t 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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CONCLUSION:

Certain assumptions were made before the study. The hypotheses were

tested through a survey of HR professionals from various industries and

the following results were found. The study gave the following

conclusions: -

HR outsourcing is at a nascent stage in India.

The study proved that HR outsourcing is sti l l as a nascent stage in India.

Only 44% of the respondents replied that their company has outsourced

some of their HR processes. Hence the first hypothesis i .e. Indian

companies are outsourcing most of their HR processes has proved

incorrect. HR outsourcing is not widely fol lowed by Indian companies due

to various reasons l ike lack of quality, security breaches, cost, lack of

data privacy, lack of rel iabil ity, lack of understanding of the company

culture by the vendor and immature HR outsourcing market etc.

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HR outsourcing is expected to grow at a rapid pace in the Indian

industry.

India has immense potential as more than 80% of fortune 1,000

companies are discussing off shoring 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. 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

l ike more focus on core activit ies, t ime saving, cost saving, expertise and

removal of unnecessary manpower. Focus on core activit ies, t ime saving

and expertise of the vendor were the major benefits found out the survey

as maximum respondents l isted these benefits. Hence the third

hypothesis is proved true.

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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 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 identif ied 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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RECOMMENDATIONS

There are general recommendations for each of the major stakeholders in the HRO

market.

For Organizations outsourcing HR functions

1. Articulate how the HR function can change through HRO to enable the business -

not just the function - to achieve its business goals.

2. Show how HR can become financially and commercially fluent in order to drive

through required culture change, improved performance and evaluation by

outsourcing HR functions.

3. Do not depend on the outsourced services entirely. If the risk is high, use the

services as a benchmark and modify them according to the organizations

requirements.

4. Don’t outsource what you don’t understand. The outsource provider will only

have to subsequently solve the problem (at a cost) and the provider’s solution

might not be most suitable from your organisation’s perspective.

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For providers

1. Clarify your HR capability and seek to engage with the HR function and its

mission.

2. Work with the capability already available in-house.

3. Be transparent and accountable over the value you bring to your client's HR

function and the wider business.

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BIBLIOGRAPHY:

References:

Research papers

o HR outsourcing in India: organized & unorganized sector

Author: Mary Mathew, Welingkar Institute of Management, Mumbai

o Preparing for human resources business transformation outsourcing

IBM Business Consulting Services

Journals

o Successful HR outsourcing means quality service

By Vasanthi Srinivasan, Associate professor, IIM-Bangalore

o HR gains as outsourcing grows

By Ganesh Chella, CEO, Totus Consulting

Internet

o www.indianchild.com

o www.peoplemangement.com

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ANNEXURE:

QUESTIONNAIRE:

Q1. Has your company outsourced any of the HR processes?

1. Yes2. No

Q2. If no, what are the reasons for not outsourcing?

1. Cost of outsourcing activit ies2. Lack of data privacy3. Lack of rel iabil ity4. Lack of understanding of company culture5. Market not mature6. Security breaches7. Lack of quality

Q3. If yes, which HR process of the company has been outsourced?

Q4. Who was responsible or involved in making the decision to outsource HR processes?

Q5. What was the criteria in selecting the HR process to be outsourced?

1. Little interdependency with other processes2. Is the process a core capabil ity3. Potential r isk of exposure of secret data4. Need for physical presence

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5. Components of the process standard across companies

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Q6. What were the criteria in evaluating the potential vendor for the HR outsourcing?

1. Vendor’s past track records2. Costs associated with the service3. Recommendations from other companies4. Vendor’s technological capabil ity and competence5. Relevant industry experience6. Other. __________________________________

Q7. What are the various benefits derived by the company from HR outsourcing?

1. More focus on core activit ies2. Time saving3. Cost saving4. Expertise5. Less number of manpower needed

Q8. Are your competitors and business partners outsourcing any of their HR services?

1. Yes2. No3. Don’t know

Q9. Has the company taken the feedback of the internal customers on the HR outsourcing done?

1. Yes2. No

Q10. How does your internal customers feel about the HR outsourcing done by the company?

1. Satisfied2. Dissatisfied3. Never asked

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Name: ___________________________________

Designation: ______________________________

Company: _______________________________

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