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RESEARCH REPORT ON

HR OUTSOURCING IN INDIA
Submitted in the Fulfillment of the Requirement of the Degree for Master of Business Administration

SUBMITTED TO:
DR. HARI OM SHARMA HOD (MBA DEPTT.)

SUBMITTED BY:
YOGITA MEHTA MBA-IV SEM

INSTITUTE OF MANAGEMENT & TECHNOLOGY, FARIDABAD

Acknowledgement

I express my gratitude and thanks to our respected faculty Ms Teena to

give me the opportunity to study & understand the HR OUTSOURCING IN INDIA. The Research report would not be the same if there were no

brainstorming sessions regularly held by our faculty and the indispensable

knowledge

and

guidance

that

he

imparted with during and after the scheduled classes

Yogita Mehta

INTRODUCTION

HR OUTSOURCING: AN INTODUCTION
HR outsourcing is a process of outsourcing involving particular tasks like recruitment, making payroll, training and development to a third party who have expertise in these respective fields."

Today, every organization is aiming at achieving productivity by enhancing return on investments and achieving the economies of scale. In this context, it makes sense to focus only on the organizations core competencies and outsource noncritical business activities. Therefore, routine administrative work, although important, can be outsourced to third party vendors.

HR outsourcing has the potential to benefit organizations that want to transform their ability to manage human capital. Outsourcing can provide the right blend of cost, service levels, experience and economies of scale that allow companies to move away from administrative activities and focus on more strategic issues.

The Human Resource (HR) department is critical for employee satisfaction in any firm. Some businesses dont have the staff, the budgets or the inclination, to deal with the nitty-gritty of HR management, so they opt for outsourcing. Deciding which functions to offload and which firm to outsource is also a major decision.

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 inhouse.

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.

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.

HR OUTSOURCING ASSISTING CHANGE:

Cost of Technology, Desire for Best Practice Support Desire/Push to move to Strategic Planning

Use of HR Outsourcin g

Need to remain flexible, Risk Management

Talent Shortage

Globalisation M&A Org. Changes

Technology Advancement

OBJCETIVES AND RATIONALE OF THE STUDY

OBJECTIVES & RATIONALE OF THE STUDY


Today, every organization is aiming at achieving productivity by enhancing return on investments and achieving economies of scale. In this context, it makes sense to focus only on the organizations core competencies and outsource non-critical business activities.

Corporate focus on the implicit and explicit costs of human resources has never been greater and outsourcing employee benefits administration can create greater efficiency while decreasing costs. The study aims at studying the HR outsourcing phenomena and how companies in India are reacting to this phenomenon.

The study will throw light on the various aspects like the trends, challenges, benefits and other issues like process and vendor selection criteria used related to HR outsourcing in the context of the Indian industry. It will also talk about the role of outsourcing outfits like India Life Hewitt, Ma Foi, Xansa, Wipro, Accenture etc in shaping the Indian HR outsourcing industry.

Various objectives of conducting the study are: -

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

o To study the various reasons deterring the Indian HR outsourcing industry to grow at the pace of the global market.

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

o To ascertain the future of the HR outsourcing industry in India and the factors responsible for molding it.

o To find out the various benefits being derived out of HR outsourcing by the Indian companies.

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

o To study the criterion used by the Indian companies in selecting the vendor for outsourcing their HR processes.

o To study the criterion used by the Indian companies in selection of the HR process to be outsourced.

REVIEW OF LITERATURE

LITERATURE SURVEY:

Outsourcing is a strategic decision to give a task or activity to an independent contractor who determines how best to do the task or activity. The firm and the 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 critical to the success of a company, the human resource function will have to

progress from administration to strategy if the organization it supports is going to remain competitive.

The advantages are clear and compelling: improved business focus, more productive use of time and resources, and guidance from experts from across the business spectrum, saving money, focusing on strategy, improving compliance, improving accuracy, lacking experience in-house, taking advantage of

technological advances, and offering services they could not offer.

Outsourcing HR functions allows a company to focus on its core competencies and provides administrative relief from many employer-related responsibilities, so that the company can concentrate on developing strategies that provide competitive advantage to it.

Traditionally, people have been viewed as liabilities or expenses, instead of tangible, bottom-line assets. Successful business owners have learned, however, that their employees have a direct impact on their profitability. The company gets more out of its business when it gets more out of its people.

Statistical analysis by Watson Wyatt Worldwide, which developed the Human Capital Index to provide a standard for measuring a companys people practices,

shows a clear relationship between the effectiveness of a companys people practices and the creation of superior market value.

Once HR and other operations are outsourced, many companies experience a strong return on investment, according to a recent survey of American executives. The 2006 survey of executives at the IDC Midwest Conference in Chicago showed nearly 85 percent of the respondents saved as much as they spent on outsourcing, with 26.4 percent reporting a savings of twice as much. And the savings, according to nearly 95 percent of the respondents, went toward operational performance and innovation, which improved shareholder value.

Strong human resources practices have the potential to increase a companys productivity and profitability, but HR management has become a colossal task, demanding considerable resources. Legal and regulatory compliance has become an overwhelming task, and time spent on administrative obligations is time spent away from growing business.

Outsourcing is the great equalizer for small to medium-sized firms. Growthoriented 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.

DETTERANTS OF HR OUTSOURCING:

There exists a set of basic reasons hampering the growth of HR outsourcing. Many companies outsource only a bit of their requirements. Various reasons that deter many organizations are:

o Fear of loosing jobs

o Loss of sensitive information to public/ competition.

o Ethics and quality of outsourcing vendors.

o Possibility of security breaches.

o Cost- benefit equation not clear.

o Lack of psychological acceptance.

DECISION FOR OUTSOURCING:


Baron & Kreps, 1999 gave this matrix which talks about how and when to outsource activities. According to this matrix, strategic importance of the activity and interdependence on other activities are the two factors on which the decision of outsourcing should be based.

The activities that have high strategic importance and high interdependence on other activities should be kept in-house and the activities that have low strategic importance and low interdependence must be outsourced.

High

???
Strategic Importance

Insource

Outsource
Low Low

Interdependence

Contingent Employees
High

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:

1. The task is a core activity critical to strategy or technology.

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

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

4. Tasks where the employees work in close proximity to regular, core employees and are similar socially to them.

METHODOLOGY FOR HR OUTSOURCING:

Situation Analysis - Business -

Solution Design
Strategic

Design of Performance Measures & Contract

Solution Delivery

Solution Performance Management

environment Project analysis & performance Transactional measures for Work process both Vendor analysis Work Process & Company - Risk analysis design

- Service levels - Resourcing Vendor-Company relationship Accountability Work Process management Solution management

management Performance Analysis & Reporting Performance GAP Resolution process

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:

Soluti ons

Delive rables

Performance Measurement & Management Process

BSC KPI SLI

Process Procedures Rules Project Management Performance Management Resources Work Process

Consultan ts

Admin

Doers

People

Hr tools Project Dedicated Expertise

Delivery Process Support

PRESENT SCENARIO OF HR OUTSOURCING IN INDIA:


The general opinion among Indian companies is that it is economical to manage all their HR processes internally. Consequently, there is not much emphasis on outsourcing. Typically, very small companies (which do not have the competency to staff a full-fledged HR department) and very large companies (who wish to outsource all routine HR processes so that they can concentrate on core issues), are the ones that use HR outsourcing in a significant way. Besides, many multinational companies are fast adopting these practices.

Sateesh R Kurugod, head of marketing and alliances, Crossdomain Solutions says that now CXOs realise that HR teams typically spends over 80 percent of its time in managing tactical and transaction oriented HR operations. If these tactical processes are outsourced, the company could re-deploy their trained HR resources to core processes, he adds. Pramode Sadarjoshi, the director and head of Human Resources of Cognizant Technologies says, Today, every organization is aiming at achieving productivity by enhancing return on investments and achieving the economies of scale. In this context, it makes business sense to focus only on the organizations core competencies and outsource non-critical business activities. Therefore, routine administrative tasks, although important, can be outsourced to third party vendors.

Experts believe that in present times HR outsourcing is undergoing a transition phase. "There has also been a transition on its user acceptance, where it is moving from a corporate domain to public sector undertakings and the government sector. All this reflects on the growth of this sector.

HR outsourcing comes third in the list of potentially high paybacks, after IT and the telecomm industry. However, many companies wrap up their HR functionalities as something that happens in the back office, and do not give enough attention to the infrastructure that essentially props up its employees. Over the years, this has bred neglect, leading to antiquated HR management systems.

Now, it is time for this mindset to change, because companies are suddenly waking up to the fact that their HR policies are not in step with the times, and a major overhaul is called for to keep pace with company acquisitions and mergers. A few companies have tried mending their HR management system on their own, but they soon discovered that it is like opening Pandora's Box; more you inquire into the state of HR policies, you keep unearthing more anomalies. That's where outsourcing can step in. If you have a problem managing your HR and bringing the existing system up to scratch, why not let a third party worry about it? What comes with HR outsourcing is better management at a lower cost

Implications of HR outsourcing for India need to be looked at in two parts economic impact and HR impact.

The economic impact is positive, given that India is the beneficiary of the global outsourcing wave, at least for now. It is creating more jobs and increasing earnings for the country.

The second part of the India impact is from the HR point of view. What is quite obvious is the fact that cost arbitrage will not be the driver for this trend within India, if ever, even if a large organization were to outsource to a small operator.

India must be the country hiring the most in the world. In fact, HR in India would rank as the most dynamic and turbulent in the whole world today. There are so many new jobs, so many to hire, so many to train, and so many to retain. After many years of fighting for identity, HR in India has come of age. HR and organization building issues are center of the plate in any Indian CEOs agenda today. CEOs are willing to spend as much as it takes to manage their people and people processes well. It may never get any better for HR.

With more and more companies looking to rationalize employees on their payroll, Human Resource outsourcing is slowly becoming the buzz in India. Companies to whom organizations outsource their human resource function possess the knowledge and resources to expertly perform part or all of a clients human resources function, allowing the client to streamline their internal processes and concentrate on generating profits in their core business.

Estimates show that the latent size of HR outsourcing in India is about $ 2 billion with a current market $ 27 million and it is growing at the rate of about 50 per cent. HR outsourcing in India has not seen the required momentum and is limited to a trickle effect, with companies outsourcing a few selected low-end HR processes. Companies which havent joined the HR outsourcing bandwagon are either unfamiliar with the process and procedures of HR outsourcing, or are unaware of the players operating in the area or are unaware of the probable value obtained from doing so.

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 Benefits administration Education & training Recruitment & staffing Personnel administration Other HR functions Total

761 536 556 348 167 192 2560

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.

GROWING IMPORTANCE:

After customer care services and medical transcription, outsourcing of human resource services or HR BPO is emerging as the next big opportunity for Indian BPOs with the global market in this segment estimated at $40-60 billion per annum according to experts.

HR BPO comes to about 33% of the outsourcing pie. India has immense potential as more than 80% of fortune 1,000 companies will discuss offshore BPO as a way to cut costs and increase productivity. Sensing the potential, global BPO players including Fidelity, Exult and Hewitt have begun setting up operations in India. However, most HR BPO players had not leveraged the offshore advantage as yet.

The revenues in the HR outsourcing space are projected to increase to $3.5 billion by 2008 according to a Nasscom-McKinsey survey. Even if 10 per cent of HR outsourcing is off shored in the next 5 years, offshore opportunity can be anywhere around $1.4 billion. Research firm Gartner has forecast HR BPO to reach $51 billion and represent 39% of all BPO revenue by 2004-end. In HR BPO, revenues depend on the number of employees the clients have. This is in sharp contrast to a typical

customer care center, where bills are charged on the workers servicing a client in the BPOs. Despite huge potential, not many companies have leveraged the offshore strategy. The main reasons for not leveraging the offshore benefit have fabeen companies being undercapitalized or not knowing enough about the offshore business.

Research proves that the market for HR outsourcing in the APAC region could grow from $1.14 billion in 1999 to $2.56 billion in 2004. Although it is not a very huge growth, it has still shown an upward trend.

Some of the key companies, which have gone ahead for manpower hiring outsourcing practices, are Cisco, GE, Honeywell, Sun, i2, LG Soft India, Escosoft and Legato Systems. While LG Soft India has outsourced its PF management, Escosoft has outsourced payroll processing, execution of training programmes and survey conduction. According to Shubho Kundu-senior general manager HR of LG Soft India, the company has been able to save a lot in terms of reducing paperwork and interaction with government agencies. Besides, there are other companies like Xansa India, which is planning to take a plunge in HR outsourcing business and offer services to its parent organisation. Binnoo Wadhwa, the head of HR for Xansa India, says that the move showcases the robustness of the HR department to handle such critical applications.

There are many others who do not believe that HR outsourcing is necessary. Take the case of Aptech, which has not considered HR outsourcing as the company feels that HRD is strategically linked to its business. According to this company any job or function, which is of strategic importance to the organization should not be left for outsiders or the so-called outsourcing partners.

DRIVERS OF SUCCESSFUL HR OUTSOURCING:

SELECTION OF HR OUTSOURCING VENDOR:


Selection of the right vendor is a very important factor in making it a successful venture. For some businesses, cost is the deciding factor in vendor selection. Other companies look for a cultural fit or a commitment to quality. Some things a company should consider when evaluating a firm include:

o The range of outsourcing services it offers; o The expertise it has in the particular industry; o Its general HR experience; Its understanding of the companys priorities; o Its available resources; o The flexibility of its contracts.

It must be kept in mind that an HR firm is an extension of a company culture, so the company must try to find one that fits its image.

KEY QUESTIONS ASSOCIATED WITH HUMAN RESOURCE OUTSOURCING:

Six important questions companies must focus on as they decide whether to outsource some or all of their HR processes:

What are the external forces that are driving the company to examine the opportunity for outsourcing HR activities?

Globalization, restructuring, increased administration complexity and cost pressures are all driving companies to consider the use of HR BTO. As companies begin to operate in more countries, they are finding it increasingly difficult and costly to keep track of, and manage, the variety of benefits and regulatory requirements in each area. For example, a multinational organization that has been built over time from a series of acquisitions and buyouts can find itself with a bewildering mix of compensation packages, pension plans, human resource management (HRM) systems, hiring guidelines and HR contact centers. Further, as compliance directives and legal regulations change in each of the countries in which the company operates, the companys ability to stay current becomes more difficult and costly as extensive resources are required to maintain and apply this

knowledge. Allowing an outside party that has already built existing capabilities in these areas to manage the process becomes an increasingly attractive proposition.

Finally, overall cost pressures are forcing companies to identify new methods for cutting administrative expenses. A number of recent studies suggest that reducing costs is the primary benefit that companies seek when outsourcing HR processes. As new competitors enter the market, particularly those with lower labor costs, many companies profit margins are put at risk, prompting them to examine closely all activities where cost reduction is possible. Outsourcing provides an opportunity for companies to leverage the cost base and experience of an outside provider, which can potentially lower the cost of delivering HR services, while maintaining or improving service levels.

What are the initial drivers that make HR outsourcing an attractive proposition?

A number of internal drivers are also pushing firms to investigate HR Outsourcing. For example, some companies see it as a means of controlling the cost and effort associated with operating their HRM systems. After evaluating the total cost associated with upgrading and maintaining these systems, companies

are increasingly turning to outside providers to manage their HRM systems and take responsibility for upgrades and system availability.

Companies are also recognizing that they are unable or unwilling to bear the cost of developing employee or managerial self-service tools; they would prefer to rent these applications from outsourcing providers who have already invested in development, have the ability to keep up with the latest technology solutions and can provide best-in-class tool sets.

Also, the level of complexity involved in administering complicated programs and processes in multiple regulatory environments and managing data across borders often requires sophisticated expertise, which many companies may not have in-house. Sourcing this capability from a vendor could offer lower costs and a higher likelihood of staying current on recent developments.

Third, companies want to reduce the risks associated with business volatility. Having gone through numerous hiring/layoff cycles, they are looking to increase process capacity without commensurate increases in full-time headcount. For example, companies need to increase their ability to recruit without having to bring on a number of full-time recruiters (because, typically, recruiters are the first people exposed to layoffs during a business slowdown).

Fourth, as organizations try to shift resources from administrative to more strategic activities, outsourcing offers one way to build a new sense of focus within HR organizations. Many HR organizations believe being able to reengineer their internal processes and deliver strategic HR services is simply too much for one organization to undertake at the same time. However, by allowing a vendor to manage many of the administrative processes that take time and energy away from HR organizations, the internal HR organization can focus its limited resources on delivering the services that truly provide strategic benefits to the entire company.

Lastly, for many organizations, outsourcing serves as a catalyst for change. Implementing and maintaining a client service orientation and metrics-driven approach are difficult for most HR functions to achieve on their own. In an outsourced environment, these skills are critical in determining the success or failure of the arrangement. Therefore, outsourcing efforts can be used as motivation to move HR service delivery toward a more accountable, resultsoriented focus. How should outsourced? the company identify potential processes to be

Determining the scope of the outsourcing effort is among the most important and difficult decisions companies make. Recently, several studies have indicated that the processes most likely to be outsourced are retirement program administration (including defined benefit, defined contribution and retiree services) and health and welfare administration.

Further, these studies found that HR processes closely associated with employee evaluation and communications are the least likely to be outsourced. To make the right decisions on which processes to outsource at a particular company, it is helpful to establish a formal set of evaluation criteria. Paul Adler, a management professor at the University of Southern California, suggests six dimensions an organization can use to evaluate HR processes when identifying their potential for outsourcing: -

a) Dependency are there specific assets that require dedicated facilities, equipment, capacity, training or investments?

b) Spillover is there confidential information or sources of advantage that could be leaked to competitors?

c) 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 capability in process execution lead to improved results?

e) Core capability is this process viewed as a differentiator for the organization in the marketplace?

f) Commitment/flexibility 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 title in the organization) usually plays an active role in making the outsourcing decision. Ultimately, it is the CHROs responsibility to determine whether the outsourcing arrangement will enable the HR organization to provide cost-effective, quality service to its internal clients, while, at the same time, support the organizations larger strategic objectives. In addition to the CHRO, the HR Operations Leader is often involved in developing the specifications of the outsourcing arrangement. While the HR function clearly has primary responsibility in this area, two other individuals play important roles in the outsourcing decision.

The Chief Financial Officer often participates in the decision-making process, as entering into a long-term contract with an outsourcing vendor can have potentially significant financial ramifications for the corporation. In addition, the Procurement Manager assumes a prominent role during the vendor selection, negotiation and contracting process, leveraging experience in developing terms and conditions that are favorable to the organization.

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 will 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 likely to be impacted by changes in processes and service levels.

Approvers.

Typically, the CEO and the Board of Directors are responsible for final approval of the decision to outsource HR processes. This is particularly true if a significant number of processes are involved, if the outsourcing arrangement will impact a large number of jobs throughout the organization or if the arrangement will 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 identified to make the outsourcing decision, the next major step in the process involves selecting an appropriate vendor. A number of recent studies have highlighted three primary criteria that companies use to evaluate vendors.

These include: the vendors track record for delivering service, the costs associated with the outsourcing service and the willingness of the vendor to guarantee service levels. Other criteria highlighted by these studies included: the

vendors technological capability and competence, process expertise, flexible contracting, recommendations from other companies, relevant industry

experience etc.

To evaluate vendor capabilities in these areas companies undertake a host of activities including:

Distributing experience questionnaires . As part of this activity, a company develops a standard experience questionnaire that it sends to multiple vendors early in the evaluation process to obtain initial insights and compare vendors capabilities. Information that is usually collected as part of this process includes understanding the vendors areas of expertise, client experience, and approach to contract development, service level creation and how they address changes in project scope. There are a number of third-party consultants who, having participated in many vendor selection efforts, have developed and refined these types of questionnaires to quickly ascertain a vendors particular level of experience.

Conducting a financial and credit review of the vendor . Companies undertake this activity to determine whether the vendor has the financial resources to

maintain appropriate service levels throughout the lifespan of the contract. During this review, the potential client examines the vendors history of fiscal responsibility and regulatory compliance, its credit rating and analysts predictions of ongoing viability. Companies are also looking for signs that the vendor is a potential takeover candidate, as an acquisition can often redirect senior management attention and increase the complexity of the ongoing relationship.

Conducting a security and compliance review . Given the sensitivity of the employee data associated with an HR BTO relationship, and the governmental/industry regulations and standards associated with the privacy of employee data, companies should conduct a review of the vendors security and compliance policies and procedures. As part of this assessment, companies should investigate whether a vendor has a demonstrated knowledge of, and is in compliance with, the regulatory requirements of each of the countries in which it operates. They also should determine if the vendor has been fined as a result of noncompliance and if the vendor has access to regulatory and legal specialists on staff or on retainer.

Conducting reference checks/site visits to other clients . Organizations considering outsourcing often speak with or visit current clients of vendors under consideration. This allows them the opportunity to validate other clients experiences and identify potential issues in working with the vendor. During these meetings, evaluators can get a sense from their counterparts at those other firms as to the vendors flexibility, willingness to support new client programs, ease of partnership and whether the vendor has met the clients overall expectations.

Visiting processing/contact centers. Many companies find it quite useful to visit the actual locations where the vendor is answering employee calls and processing documents. This gives the prospective client a sense for how the vendor is organized and what technology is being used. This first-hand view can be coupled with assessments of the attrition rates at the center and how service center staff are trained, evaluated and given feedback to continually improve their performance. These visits also provide potential clients a glimpse at the level of professionalism and service that their internal clients will likely receive and the level of investment the vendor is putting into its own staff and operations.

Meeting potential delivery team leaders . Given the importance of personal relationships between client and vendor, potential clients should meet the individuals who will be responsible for both service delivery and the overall account relationship. These face-to-face meetings can help potential clients understand the managerial style of their counterparts and the extent to which specific individuals have authority to act on behalf of the vendor in addressing client concerns. Further, should the potential client decide to engage the vendor, these initial face-to-face meetings can begin to lay the groundwork for the type of trust building that is critical during the transition phase and subsequent ongoing operations.

How should the company begin to prepare itself for HR outsourcing?

As executives get closer to making the decision to outsource HR processes, they need to pay special attention to preparing the organization for the eventual transfer of people, processes and/or technologies to the vendor.

Assembling the team that will lead the outsourcing effort. Once the decision to outsource as been agreed upon, the organization needs to identify and select individuals to lead the transition and ongoing management of the outsourcing arrangement. Initially, the organization needs to identify the roles and skills that will be required to transfer the outsourced activities to the vendor and oversee the vendor relationship. Finding these individuals can be a time-consuming effort, as they often have other significant responsibilities and need to be made available to work on the outsourcing effort. Therefore, it is beneficial for the organization to obtain the time and commitment of these individuals and their managers early in the process, rather than waiting for the final contract to be signed.

Communicating the effort throughout the HR organization and the lines of business. Many organizations fall into the trap of developing their communication strategy after the outsourcing agreement is put into action. However, effective companies start executing a tailored communication plan far earlier in the process, as they recognize that rumors will likely surface long before any formal discussions are in process. Organizations need to develop formal mechanisms for communicating to HR leaders and staff during the early stages of an outsourcing effort since these individuals may be called upon to provide data or reallocate their time to work on outsourcing related tasks. Further, organizations need to listen closely to informal influencers

within the HR organization and business units, as they may have insight into potential areas of resistance and concern that can have a negative impact on the outsourcing effort.

Gathering data on the current state of the HR organization . To develop a compelling business case for HR BTO, organizations often need to obtain a clearer understanding of their current spending for HR activities and measure levels of operational effectiveness. Also, many organizations do not have a strong sense for the industry and competitive benchmarks that are useful in comparing HR cost and performance across companies. Collecting this data can be a time and labor-intensive process that often must be accomplished in a relatively short amount of time.

While outside resources can be used to facilitate this collection, both internal HR process experts and individuals with experience in obtaining information from HRM systems need to be involved. Dedicating these scarce resources is well worth the effort, as it can help ensure that the organization is entering into a financially beneficial arrangement.

RESEARCH METHODOLOGY

HYPOTHESIS:
HR outsourcing: benefits, trends and challenges is a study aimed to get familiar with the current scenario of HR outsourcing in Indian companies and the potential future for the industry vis a vis the global scenario.

HR outsourcing is the next big thing to happen and is rapidly gaining momentum especially in the US. With respect to the Indian scenario it is still at a nascent stage but is expected to grow rapidly. India currently is facing an economic boom and almost every industry is at its best state. Hence there is a need for the companies operating in a highly competitive and dynamic environment to focus on their strategic aspect and core competencies. The companies can do this by outsourcing the unimportant and non-strategic tasks.

Due to the presence of some factors in the Indian market, the HR outsourcing industry is very small but it is expected to grow in the future. This is evident from the fact that various big players like Hewitt associates, Xansa, Convergys, Accenture, Wipro are entering this arena of HR outsourcing in India.

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.

RESEARCH DESIGN:
Exploratory research Exploratory research is often conducted because a problem has not been clearly defined as yet, or its real scope is as yet unclear. It allows the researcher to familiarize him/herself with the problem or concept to be studied, and perhaps generate hypotheses (definition of hypothesis) to be tested.

It is the initial research, before more conclusive research is undertaken. Exploratory research helps determine the best research design; data collection method and selection of subjects and sometimes it even conclude that the problem does not exist.

Exploratory research can be quite informal, relying on secondary research such as reviewing available literature and/or data, or qualitative approaches such as informal discussions with consumers, employees, management or competitors, and more formal approaches through in-depth interviews, focus groups, projective methods, case studies or pilot studies.

The results of exploratory research can provide significant insight into a given situation. Although the results of qualitative research can give some indication as to the "why", "how" and "when" something occurs, it cannot tell us "how often" or "how many".

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 times something occurs, or frequency, lends itself to statistical calculations such as determining the average number of occurrences or central tendencies.

The two most commonly types of descriptive research designs are

1. Observation 2. Surveys

The study would include exploratory and descriptive research. Exploratory research would be done by reviewing all the relevant literature on HR outsourcing. Descriptive research would questionnaire. The study hence comprises of: be conducted through a

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. o The respondents belong to the middle or top-level management in the HR department. o The data collection includes in its scope both government and private companies. o The data is collected from companies belonging to various industries (Power, IT, Liquor, financial etc) in order to have an idea of the complete Indian industry as a whole. o Data would be collected from companies operating in the Delhi and NCR region. o HR personnel from the following companies would be the respondents for the study:

o NTPC o Xansa o HCL Technologies o Radico Khaitan etc

RESEARCH TOOLS:

The study includes exploratory and descriptive research. Exploratory research would be done by reviewing the literature related to HR outsourcing and descriptive research would be done by a survey of the HR personnel of various organizations through a questionnaire.

Questionnaire is used as the tool for collecting primary data from employees working in HR department of different companies. The questionnaire consists of both open ended and objective questions on HR outsourcing.

The questions cover all the aspects related to HR outsourcing: -

o Process that has been outsourced.

o Benefits derived by them from outsourcing of HR processes.

o Criterion for selection of the process to be outsourced.

o Criterion for selection of vendor for outsourcing.

o Reasons for not outsourcing in case the company has not outsourced any of their HR process.

Person/s involved or responsible for taking the decision for HR outsourcing.

o Outsourcing by the competitors and business partners if any.

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

RESEARCH FINDINGS

Q1.

HR OUTSOURCING

YES 44% NO 56%

YES NO

The respondents were asked whether they outsource their HR processes. 11 out of 25 i.e. 44% of the respondents companies have outsourced their HR processes.

Q2.

REASONS FOR NOT OUTSOURCING


LACK OF QUALITY SECURITY BREACHES MARKET NOT MATURE COMPANY CULTURE LACK OF RELIABILITY DATA PRIVACY COST

5 9 1 4 7 5 12 Series1

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.

Q3.

HR PROCESSES OUTSOURCED BY COMPANIES


7 6 5 4 3 2 1 RECRUITMENT COMPENSATION SURVEYS 0 PAYROLL PROCESSING TRAINING DELIVERY 2 4 2 1 STATUOTARY COMPLIANCE 6

Series2

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.

Q4.

PEOPLE RESPONSIBLE FOR HR OUTSOURCING DECISIONS


BOTH 9% MIDDLE MANAGEMENT 18%

TOP MANAGEMENT 73%

TOP MANAGEMENT MIDDLE MANAGEMENT BOTH

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.

Q5.

CRITERION FOR PROCESS SELECTION


10 8 6 4 2 0
Series1 LITTLE CORE INTERDEPEN CAPABILITY 2 9 RISK OF DATA 5 NEED FOR PHYSICAL 1 STANDARD PROCESSES 3

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.

CRITERION FOR VENDOR SELECTION

T h |

.EX

* >,C >

,AiS

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.

1R '

Q7.

BENEFITS OF HR OUTSOURCING
12 10 8 6 4 2 0 FOCUS ON CORE ACTIVITIES TIME SAVING COST SAVING EXPERTISE LESS MANPOWER NEEDED 3 2 7 6 Series2 11

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.

Q8.

HR OUTSOURCING BY COMPETITORS

DONT KNOW 18% NO 18%

YES 64%

7 respondents replied that their competitors also outsource their HR processes. 2 replied that their competitors dont outsource any HR process and 2 replied that they dont know.

Q9.

FEEDBACK FROM EMPLOYEES ON HR OUTSOURCING

8 3 S1

YES

NO

8 respondents replied that they have not taken feedback from the employees of the company on the HR outsourcing done by them. 3 respondents replied that feedback has been taken in their organizations from the employees on the HR outsourcing done.

Q10.

IMPACT OF HR OUTSOURCING ON EMPLOYEES


7 8 6 4 2 0 0 4 Series1

SATISFIEDDISSATISFIED NEVER ASKED

7 respondents said that they have not taken any feedback from the companys employees on the HR outsourcing done. 4 said that the employees of the company were satisfied with the HR outsourcing done by the company and no respondent replied that their employees were dissatisfied with it.

SUMMARY AND CONCLUSION

SUMMARY:

HR outsourcing in India is gaining momentum but still 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.

Cost and security breaches were identified as the major reasons for not outsourcing HR processes by Indian companies. Lack of quality, data privacy issues, inability of the vendor to understand company culture, immaturity of the HR outsourcing market were other reasons for not outsourcing.

Core capability was identified as the major criterion for selecting the process to be outsourced i.e. the process which is a core capability is not outsourced. Other criterion used for selecting processes to be outsourced are standard processes, little interdependency with other processes and need for physical processes.

Competence & technical capability and relevant industry experience were identified as major criteria for selection of vendors for outsourcing HR processes. Other criterion used by Indian companies for evaluating potential vendors for outsourcing were past track records of the vendor, cost and recommendations from other companies.

More focus on core activities and time saving were identified as main benefits of HR outsourcing to Indian companies. Other benefits that were identified were cost saving, availability of vendor expertise and need for lesser manpower in the organization.

64% of the respondents replied that HR outsourcing is done by their competitors, 18% said that their competitors dont outsource their HR processes and 18% said that they dont know whether their competitors outsource their HR processes or not.

Most of the companies surveyed do not take feedback from their internal customers on the HR outsourcing done by them. 7 respondents said that their companies do not take feedback on HR outsourcing from their employees and 4 respondents said that their companies take feedback from their employees.

The employees of the companies which outsource their HR processes are usually satisfied by the outsourcing done. All the 4 respondents whose company takes feedback on HR outsourcing from their employees said that their employees were satisfied from the HR outsourcing.

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 still 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 followed by Indian companies due to various reasons like lack of quality, security breaches, cost, lack of data privacy, lack of reliability, lack of understanding of the company culture by the vendor and immature HR outsourcing market etc.

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 like more focus on core activities, time saving, cost saving, expertise and removal of unnecessary manpower. Focus on core activities, time saving and expertise of the vendor were the major benefits found out the survey as maximum respondents listed these benefits. Hence the third hypothesis is proved true.

Internal customers of the company are satisfied with the decision of the company to outsource their HR processes.

8 respondents out of 11 that outsource their HR processes replied that they have not taken feedback from the employees of the company on the HR outsourcing done by them. Also the ones that had taken feedback were satisfied with the outsourcing done. Hence the fourth hypothesis is partly true as most of the companies included in the study did not take any feedback from the employees.

Cost is the not the main criteria for vendor selection for HR outsourcing by Indian companies.

Competence and experience of the vendor were identified as the criterion used by maximum companies for vendor selection. 10 respondents replied competence as criterion, 9 replied experience and 8 replied cost as a criterion. So cost is a criterion for selecting vendors for HR outsourcing by Indian companies but it is considered after competence and experience. Hence the fifth hypothesis that cost is the main criteria for vendor selection for HR outsourcing by Indian companies is proved incorrect.

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

ANNEXURE:

QUESTIONNAIRE:

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

1. Yes 2. No

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

1. Cost of outsourcing activities 2. Lack of data privacy 3. Lack of reliability 4. Lack of understanding of company culture 5. Market not mature 6. Security breaches 7. 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 processes 2. Is the process a core capability 3. Potential risk of exposure of secret data 4. Need for physical presence 5. Components of the process standard across companies

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

1. Vendors past track records

2. Costs associated with the service 3. Recommendations from other companies 4. Vendors technological capability and competence 5. Relevant industry experience 6. Other. __________________________________

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

1. More focus on core activities 2. Time saving 3. Cost saving 4. Expertise 5. Less number of manpower needed

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

1. Yes 2. No 3. Dont know

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

1. Yes 2. No

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

1. Satisfied 2. Dissatisfied 3. Never asked

Name: ___________________________________

Designation: ______________________________

Company: _______________________________