HR Outsourcing :

Everything you need to know about HR outsourcing. Outsourcing is a force behind the virtual
organization movement.
Outsourcing is simply obtaining work previously done by employees inside the company from
sources outside the company. If someone has specialized in an activity which is not strategically
critical to our business – and is able to do that cost effectively, it is better to get it from outside.
Human Resource Outsourcing is a process in which a company utilizes the services of the third
party to take care of its HR functions.

A company may outsource a few or all of its HR related activities to a single or combination of
service provides located in offshore destinations like India, China, Philippines etc. Generally
those HR functions which are not critical and confidential are outsourced.
Human resource outsourcing is a momentous strategic HR initiative. It helps organization to
focus on internal resources towards doing what they do best and simultaneously helps to control
the bottom lines.
HR outsourcing helps an organization to gain cost and time efficiencies and provides cutting
edge over their human resource strategies and improves services to their employees. HR is an
essential partner in developing and executing organizational strategy.

Outsourcing is a force behind the virtual organization movement. Outsourcing is simply

obtaining work previously done by employees inside the company from sources outside the
company. If someone has specialized in an activity which is not strategically critical to our
business – and is able to do that cost effectively, it is better to get it from outside.
The organization gets benefitted in the form of excellent quality, reliable supply, and rock
bottom price. It can also focus exclusively on doing what it is good at – thereby enhancing its
own competitive advantage.
People are the most important asset of an organization. Leading companies around the world are
taking more strategic approach to managing their human resources. They are outsourcing day to
day human resource functions so as to focus on strategic HR issues that impact corporate
performance and shareholder value.

Human Resource Outsourcing is a process in which a company utilizes the services of the third
party to take care of its HR functions. A company may outsource a few or all of its HR related
activities to a single or combination of service provides located in offshore destinations like
India, China, Philippines etc. Generally those HR functions which are not critical and
confidential are outsourced.
Recruitment and selection, payroll and compensation management, staff training, employee
benefits and service, job evaluation are examples of such functions. The decision by Unilever,
for example in 2006, to outsource its HR activities – mostly transaction oriented such as pay roll
administration, applicant tracking, training and development, record keeping, performance
appraisal follow up etc. – to Accenture appears to be in the right direction.
These are basically people and effort intensive activities but are routine in nature. Such repetitive
work can easily be turned over to a third party specialist-who would be able to deliver excellent
results, leading to significant savings in cost and effort. Through standardization of processes the
specialist is able to deliver service at unbelievable speed also.
At the same time, the organization should continue to perform transformational HR roles – such
as attracting and retaining talent, bringing about strategic change in partnership with line
managers, championing employee concerns etc. Across boardrooms and business schools HR is
primarily viewed as a powerful tool to attract and retain talent, build workforce capabilities,
handle grievances and bring out the best in people.

With high attrition rates still haunting most people intensive industries, an active and vibrant HR
can be a key differentiator between mediocre and high performance organization. Seen against
this backdrop, it is not surprising to find that routine activities such as pensions/benefits, stock
options, health benefits and payroll are among the most popular HR programs being outsourced
partially or completely. HR outsourcing is growing as HR programmes and services become
more complex.
Price Waterhouse Coopers has developed a Total Human Resource Outsourcing Model which
offers companies end to end HR services and a single delivery capability. According to a Survey
by “The Conference Board and sponsored by Accenture, more than three fourths of executives in
large North-American and European firms currently outsource more than one HR function.”
Human resource outsourcing is a momentous strategic HR initiative. It helps organization to
focus on internal resources towards doing what they do best and simultaneously helps to control
the bottom lines. HR outsourcing helps an organization to gain cost and time efficiencies and
provides cutting edge over their human resource strategies and improves services to their
employees. HR is an essential partner in developing and executing organizational strategy.
As is evident HR is something that is really critical to an organizations functioning. HR
responsibilities includes all the related functions that work towards employee wellbeing in the
organization including payroll, benefits, hiring, firing, and keeping up to date with state and
federal tax laws.

Increasingly many large firms are getting their HR activities done by outside suppliers and
contractors. Employee hiring, training and development and maintenance of statutory records are
the usual functions of contracted out to outsiders. P&G has signed a 10-year, $400 million deal
with IBM to handle employee services.

IBM will support almost 98000 of P & G employees in nearly 80 countries with services such as
payroll processing, benefits administration, compensation, planning, expatriate and relocation
services and travel and expense management.
The recent competitive challenges of the global marketplace are creating demand for expert
human resource outsourcing. The outsourcing providers in order to manage non value adding
administrative business function of their businesses thereby facilitating the businesses can
concentrate on their cost competencies.
Outsourcing is work done for a company by another company or people other than the original
company’s employees. Outsourcing entails purchasing a product or process from an outside
supplier rather than producing this product or process in-house. The business that is outsourcing
will train outsourcing provider to form a supply chain partnership.

HR Outsourcing is rapidly emerging as one of the world’s most exciting business trends. It
reflects the need, recognized by increasing numbers of organizations, to focus on their core areas
of business – and to outsource processes that add little or no value in terms of achieving their
business objectives.

Need of HR outsourcing :

Many factors will contribute to any organization’s decision to outsource its HR functions.
The following are some of the needs of HR Outsourcing:
i. Enabling businesses to focus on core operations
ii. Delivering cost savings – whether direct or indirect
iii. Helping to create a stable, cost-effective operating platform
iv. Transferring focus from internal processes to achievement of business goals
v. Realizing investment in HR transformation and IT systems
vi. Ensuring compliance with legal, regulatory and best practice requirements, and
vii. Transferring risk and liability for people issues.
Tyeps of HR outsourcing :

HR – outsourcing can be broadly divided into three types:

1. Application Service Provider (ASP)

2. Business Process Outsourcing (BPO)
3. Total HR Outsourcing

1. Application Service Provider:

A host of companies specialise in providing hardware and software applications to support large
organisations, including application vendors like PeopleSoft, Oracle, etc. which have developed
application packages (PeopleSoft HRMS, Oracle HRMS), for supporting human resource
activities in an organisation.
They install, customise and provide support for running these applications. The major disadvantage with
ASP is the costs associated with application software. Secondly, the successful implementation of the
application software is doubtful.

2. Business Process Outsourcing:

The major difference between BPO and ASP is that in BPO, the client is in direct contact with
the employees through call centres or support centres. MNCs generally opt for BPO as they
operate in many countries and employ a large number of people. While certain firms wish to
retain the power to control human resources, others hand over the power to the service providers.

3. Total HR Outsourcing:
In this type of outsourcing, the entire HR function is run by the service provider. There is no
specific HR department in the organisation. The client organisation only has senior HR
professionals who are also HR- strategists. A host of non-strategic functions and employee
contact is done by the service provider.

Main Forces Driving the Engine of HR Outsourcing :

 Management of a company’s employees is entrusted to a third party, they are expected to
provide the whole range of human resource services against payment. There are three main
forces that are driving the engine of HR outsourcing.
Firstly, high manpower turnover places heavy challenge on the HR department to design HR
services that are similar with their competitors. When employees are changing their employer at
the drop of a hat, organizational HR practices for customized services give way to standardized
services.
The power of unique organizational culture is not that effective to attract people from outside or
to retain the existing employees for long if the prospective or the present employees have no
interest to know about it. Faced with depleting stock of talents, increasing number of companies
are trying to benchmark their HR practices with one or the other competitors to catch up with
them both in terms of their expenditure on manpower and in terms of manpower productivity.
More and more HR services are likely to get standardized as employees change their employers
more frequently. This has been a matter of concern for technically qualified managerial
employees whose development costs are high and time consuming. Though, such imitative HR
practices have no effect on employee turnover intention but companies get cost parity for
managing their employees.
A second force for HR service standardization is the accumulated research findings in public
domain on human behaviour under varieties of contractual and organizational control conditions.
Availability of such findings on employee behaviour and expectation shapes not just the domain
knowledge of organizational HR managers but also the expectations of potential as well as
current employees.
Example – A manager expects and demands bonus from his/her employer because he/she has
learnt about such practices from friends working in other companies or he/she may have read
about it in a newspaper or book.
A third force that makes the practice of outsourced HR services a popular option is the increasing
inroad of IT and modern communications systems in the management of human resources.
Availability of low-cost IT and communication has been making the need of collocation of HR
service designers and the service users, i.e., the employees superfluous. An external HR service
provider could generate such standardized services and sell them too many similar organizations.
As a result of high volume generation, it can support major technological investment which will
reduce the organization’s operating cost substantially. Benchmarking of internal processes
including HR processes allows one to learn from the good practices of others and avoid the
costly exercise of learning by failing. But acquiring and processing this market-related HR
information requires specialized dedicated employees which an organization can find too costly
because such information is used only occasionally.
Further, since market practices change continuously, an organization spends considerable
amount of resources to keep track of those changes which may be used only once in five years.
The areas that mark such rapid standardization are employee search services, developmental
resource for specialized expertise, industry practice for employee performance appraisal system,
compensation and incentive practices in similar industries, and employee management for low
value standardized jobs.
An external vendor, because of its dedicated business in these areas, is likely to have better
knowledge about such market practices than any single organization. By outsourcing these
services from outside, an organization can enhance the knowledge intensity of its HR personnel.

Outsourcing of HR Services:

1. Hiring Services
2. Developmental Services
3. Performance Management
4. Compensation and Benefit Management
Under pressure of competition, a company not only increases its purchase of manufactured parts
and services generated by other companies but also considers many other innovations for
outsourcing new areas of its internal processes. Human resource outsourcing is one such new
area which is going for external servicing.
Like many other support functions, the human resource function is also going through major
changes in terms of its content, processes, and outcomes. Concerns for more strategic use of a
company human resources and demands for developing their competencies in line with the
company long- term business goals are growing.
Faced with increasing pressure on its margin, many are trying new kind of employment relations
where employees work side by side with different types of employment contracts. There has
been increasing demands and suggestions for using new methods for evaluating direct
contribution of human resource management services in a company business.
Among these varieties of innovations, perhaps the most radical and notable is the process
innovation of human resource management outsourcing whereby a company buys either a part or
the full requirements of its human resource services from an external vendor. Even in emerging
industrial markets like India, the presence of this business process innovation of HR outsourcing
is being increasingly felt.
However, unlike outsourcing of other areas of a company’s internal processes, e.g., maintenance,
catering, or IT services, which can be defined and described clearly and can be put into a
contract with relatively limited risk on company performance in other areas, the same cannot be
said about human resource services.
Human resource services involve the total organization and any inconsistency, shortcut, or
opportunistic behaviour on the part of the service provider will seriously impede a company’s
long-term competitive advantage. Further, when a vendor makes a contract for supplying certain
physical objects or goods, he/she can exercise full control over when and how much of the goods
are to be sent to a client’s premise.
But the same cannot be said when a vendor makes supply contract for providing employee
services to a client. A vendor or a client has little control over the quality of service given by the
contracted employee sent by the vendor.
Company human resource-based competitive advantage is sustainable because it is difficult to
duplicate by others. It cannot be replicated because the critical sources of such competitive
advantages cannot be seen and can only be managed by undocumented and invisible cultural
instruments that are developed over a period of time. Nevertheless, under pressure of
competition, outsourcing of HR services is making steady in-roads into business process.

Choice of Services for HR Outsourcing:

Organizational competitive advantage originates from the generation of unit or group level
capabilities that emerge from sharing and exchanging of knowledge by different employees.
These sharing processes are facilitated by careful deployment and development of employees
based on internal assessment of individual employee expertise, aspirations, and personal
dispositions.
It is the relational capital of the employees that make them perform efficiently while the same
employees may fail to deliver if placed in another group. This relational history between
employees are purely tacit knowledge driven and cannot be placed on a contract.
It can only be handled by someone with considerable experience with the employee concerned
and the culture of the company. In other words, HR services of a company can be outsourced as
long as the responsibility of capability generation is still in the hand of the internal managers.
While outsourcing an HR service to an external agent, an organizational competitive advantage
is less likely to dissipate as long as this tacit part of the HR service is kept intact within the
internal managers who are familiar with the culture of the company and are bound with the
organization under a long-term contract.

Accordingly, the following processes can be adopted for outsourcing a few of

the HR services from outside:

1. Hiring Services:

Recruitment and selection are the human resource services through which knowledge carriers
from outside are brought into a company. External market gets its supply of human resources or
knowledge carriers mainly from three sources, viz., the households, academic institutes, and
industries. All those people who look for jobs are available in different types of markets.
Prospective employees search for jobs using varieties of means and media.
As such there are varieties of markets where an employer can find its employees. These potential
employee markets differ not only in terms of number and qualities of employees available but
also in terms of willingness of a new hire to continue the employment relations with the
company for a good many years.
With varieties of people joining the labour markets at different stages of their career,
organizations find the task of reaching out to the right market for hiring a few good quality
employees who will stick with the company for some number of years a very costly and risky
affair. It requires good amount of investment to keep track of changing employee profiles of
different markets. Furthermore, an employer may use such market specific knowledge assets
only occasionally.
Further, with the growing entry of varieties of employment practices, these characteristics of the
employee market are also changing very fast. Much of the activities required to get a few
potential employees who show interest for the company positions are highly repetitive and are
amenable to computerization.
Thus, specialized agencies have developed data base of potential employees of various kinds
which a company can use to fill up its position at a much shorter time. This is one of the reasons
why employee search service is one of the first human resource services that has been outsourced
to external vendors.
However, a company that hires its potential employees through outside vendor must take
adequate protection against losing its competitive edge through such suppliers. There are various
ways by which organizational knowledge asset and source of competitive advantage can diffuse
to competitors. Firstly, the vendor may be sending the same list of employees to you and the
competitors or may be sending better list of candidates to your competitors.
This means the average characteristics of the potential employees received by both the
companies can be very similar. Under such conditions, human resource-based competitive edge
can be protected only by keeping the selection part of the employee hiring service in the hand of
the internal line function. Within a common average there is room for wide variations among the
potential candidates.
Only a human learning system that is non-mechanical and tacit knowledge driven can spot the
presence of such variability in a pool of candidates. Since organizational capability is generated
from the joint efforts of a group of employees, by keeping this final choice in its hand, it ensures
that a selected employee has the required learning capability and social relational skills
compatible with other employees.
In other words, though explicit knowledge about market is bought from outside but its
conversion into tacit knowledge useful for the company is still kept in the hand of the internal
management.
Similarly, for a company where employee diversity is one of the essential requirements for
implementation of its business policy, the employee selection must incorporate assessment of
additional characteristics of the potential employees. This can be done only if the final selection
is still kept in the hands of the management.

2. Developmental Services:

In the area of outsourcing of external developmental resources, companies buy explicit market
developed knowledge. Since there are many other organizations who are experimenting with
newer innovations in the area of management processes, an organization can enhance the
capability of its employees by giving them exposure to those practices of other companies.
Further, there are economy of scale in acquisition and compilation of such information.
And, some organizations, e.g., academic institutes, professional manpower training institutes
specialize in such information acquisition, structuring, and presentations to prospective learners.
However, if an organization straightaway uses the same external knowledge for its internal em-
ployee development, then it will not get any competitive advantage over the competitors. In
order to gain competitive advantage out of an externally designed and delivered explicit
knowledge, an organization again should use a human learning system to convert such explicit
knowledge into internally useful tacit knowledge.
This conversion of externally purchased knowledge into internally useful tacit knowledge can be
effective if the choice of learner is not left to the external vendor but is managed by the internal
managers who are well acquainted with the employees. Such a choice must take into account not
just the company requirements of trained employee but also the ability and aspirations of the
learners.
Not all employees are willing to acquire new knowledge nor do they have the same ability to
internalize them and work as a source of learning to others. Both requirements of development
for a particular area and the person who should be developed must be left in the hands of the line
function manager who is familiar with the long-term strategic goals of the company and the
expectations and abilities of the potential trainees.
Before sending a group of employees to any externally provided developmental programme, an
organization should carry out a thorough internal learner identification.
Further, by placing a group of selected employees that has gone through a common learning
programme together, it cannot only increase the scope for conversion of such externally acquired
explicit knowledge into internally useful tacit knowledge but also ensure that such externally
procured organizational knowledge capital will not diffuse easily.

3. Performance Management:

Organizational performance evaluation involves measurement at three levels, viz., at total

organizational level, at group or at departmental level, and at individual employee level.
Performance information or data at total organization and at group or department level are
mostly explicit knowledge intensive and their measurements are less controversial though there
can be a few areas which are tacit and personalized knowledge intensive.
As such a company can outsource evaluation of those parts of its organizational and
departmental performance that are explicit knowledge intensive keeping the subjective and
qualitative part of the assessments in-house.
In the area of individual employee assessment, the scope of outsourcing is extremely limited
because much of these assessments are subjective and tacit relational knowledge intensive.
However, individual performance assessment uses tools and techniques which are being
continuously improved upon and are explicit knowledge intensive.
These markets or industry specific knowledge, e.g., the format of performance appraisal system
or the weights given to different types of measurements, viz., economic results, observable
behaviour or personal traits, can be outsourced. An organization can learn from the practices of
other companies doing business in the same industry.
The benefit of such external sourcing of measurement format is that a company can acquire the
design of a successful company in the same industry without spending much in its actual design.
However, the actual outcome from the administration of a formal performance evaluation system
depends not only on the format used for such measurement but also on the way it is applied for
assessing the performance of an individual employee, i.e., the way performance data is
generated. This execution part of performance evaluation is mostly tacit knowledge intensive and
must be handled by someone responsible for supervision and observation of the employees.
It is through the action of the internal line function, the explicit knowledge driven performance
evaluation form gets converted into useable knowledge in the company. Since such measurement
involves extensive use of prior experience of the line function manager and mostly driven by the
internal culture of the company, such knowledge cannot diffuse easily to competitors even
though the format for measurement has been bought from a third party.

4. Compensation and Benefit Management:

Compensation is an important part of the human resource services which ensures supply of
adequately skilled manpower to the company and to its various positions. Unless the
compensation for various positions are adequate to remunerate the qualification and experience
that is required for the job, it may fail to attract the right people for those positions and it will be
harder to retain such employees for long.
Since the main utility of a well-designed compensation is to attract and retain employees in the
organization, it is important that the compensation system and method are as per the practices of
its competitors. This means an external designer of a compensation system can perform a better
job than an internal expert. Since such external vendors provide similar services in many other
organizations, their design and practices reflect the prevailing market practices well.
Further, for ensuring consistency across many other employees and fairness in compensation of
any employee, compensation growth is generally linked with a few indicators including
educational qualification, work experience, and performance results. Though performance
assessment process is tacit knowledge intensive but the outcome of such a process is an explicit
knowledge or data.
Naturally, once a compensation formula has been decided, an algorithm can be used to write a
software program that is administered repeatedly for calculating the compensation of all the
employees. And, the system administrator doing the job of calculating employee compensation
need not be working in the company. In other words, it can be contracted out to a third party with
sufficient technical skill and modern IT infrastructure.

5. Reward and Incentive Management:

Rewards and incentives are used to encourage employees to go beyond their call of duty. A good
reward system not only attracts the right kind of employees into the organization but also
encourages them to work in such a way that organizational capabilities are maintained. A reward
that is well linked with the achievement of objective outcome is a powerful motivating force for
employees to work hard and show the desired behaviour.
However, for most managerial positions such objective outcome is available mostly at the unit
and group level. There are only a few positions for which an employee’s actual contribution to
organizational goals can be related directly with the incumbent skill, competency, and
motivation. This means an organization is able to outsource reward management at group and
unit levels but not at the individual level.
The advantage of such outsourced reward management is that a supplier can bring in lot of
expert knowledge from the market and provide a reward system that is being used in the
industry.
However, even if the reward at group level is driven by explicit knowledge there is still the tacit
knowledge driven reward when such group-level rewards are distributed among the members of
a team. Trust among members and faith and confidence on the leaders ensure that such internal
distribution of rewards based on the leader’s personalized knowledge about individual employee
competence and contribution will not encourage development of destructive inter-member
competition or jealousy.
Thus, the key to maintenance of competitive advantage is the trust and faith on the internal
culture of the organization and the team. This is possible when a leader knows the members well
and is in turn well accepted by them.

6. Specialized Consultancy Services:

Consultancy is a fast growing service business in many countries including India. There are a
number of reasons why this business has been growing so fast. Firstly, many big multi-
functional, multi-product companies occasionally find a glaring mismatch between manpower
required and the manpower available both in terms of number and quality in different
departments. This happens because organizational processes have inertia and are often hostages
to their past successes.
Very few organizations can change their internal policies and fewer can change their
departmental manpower allocations in the same pace as that of the external environment. The
presence of different interests groups with their distinct powers and pulls gives shape to any
change in an organization’s policies.
Faced with the growing burden of operating cost and declining share of a company’s products in
the market, a management team often looks for an objective and neutral assessment of internal
functional departments. High inter-departmental rivalry often makes it difficult for an internal
expert to arrive at any valid assessment of these internal functions.
Secondly, survival and growth in a competitive environment requires fast learning and adoption
of good practices of others. Innovation is a risky and costly exercise. But a company can reduce
its risk and cost of adoption by learning from the experiences of others. This has been making the
benchmarking of organizational practices with competitors quite a popular move.
There are specialized consultancy organizations which collect, process, and sell such
organizational process-oriented information. With growing importance of process innovation and
risk in such innovations, the market for consultancy services is certain to expand very fast.

7. Management of Employment Relations for Low-Level Jobs:

Apart from outsourcing of selective parts of human resource management services, another type
of HR outsourcing is emerging as a new development where Company A allows another
Company B to manage its entire department or division. Company B will bring its own
employees in Company A premise and supervise them while they are working there. The
contract of Company A is only with the owner of Company B.
In any big manufacturing or service company, there are lots of jobs that are required for its
business but are not directly related to its main business. Let us take a ship building company
employing over 5000 employees. For providing tea, coffee, and food, it needs a big canteen
facility. This canteen has to engage as many as 50-60 employees to prepare and serve food and
drinks to its various departments.
For running the company, these services are essential but their relations with its main business
are not direct and the effects of service failure from these departments on the company market
performance are not immediate. In the past, many of these services were managed through
internal departments and controlled through hierarchy.
But the problem of having such a remotely related activity as a part of a ship building activity is
that if a manager overseeing such activities may not gain any knowledge that can be utilized in
other departments of a ship builder that are directly related to ship making. As a result, a
manager who has worked for say ten years very efficiently in overseeing a catering service in a
ship building company will not find a befitting position in the hierarchy. He/she will reach a
career ceiling very quickly.
The net effect is that no good manager will be interested in working as a Canteen Manager if
he/she finds that there is no further growth in that line. As a result, these types of unrelated
service areas are fast going for contract employment.
Unlike a consultancy service which is a temporary job, a contract employment is good for those
areas of business where the jobs are of permanent nature but the services are in non-core areas of
the company. A vendor or contractor generates the services in the client premise using all the
facilities required for service generation. A contractor will provide only the employees.
Such externally served services are good arrangement both from the point of view of the client
organization and from the point of view of the employee who is engaged by an external vendor.
The external contractor can engage a large number of employees and managerial staff to provide
similar services to many other companies and use a separate specialized managerial hierarchy to
supervise workers.
And, from the client’s point of view, it can redeploy its employees more on those services that
generate knowledge and competency in line with its core business. Thus, most manufacturing
and service companies have started engaging external vendors mostly in their own premise to get
a lot of their low end services, e.g., maintenance services, IT management, security services,
catering services, through contract.
Apart from this core versus non-core analysis that prompts companies to go for external
servicing of certain functional areas, contractual employment of worker has been found to be
quite popular in certain industries. Seasonal industries, e.g., woollen garments industry cannot
afford to have too many employees on its permanent roll as its main business varies widely over
different times of the year.
Industries that operate on a project mode, e.g., building construction industry will engage a lot of
workers on contract basis because its demand for workers varies to the project cycle time. BPO
industries go for contractual employment because many of them are heavily dependent on a few
clients. If at the end of its present contract, a big client does not renew its contract, then they
cannot keep the employees engaged.
On the other hand, if they are engaged by a contractor then they can be redeployed in another
BPO firm by the contractor. In India Team-Lease Service is a big contractor who provides lot of
employees to BPO companies.
Industries that are highly export oriented are very susceptible to frequent slump of demand for
their goods and services caused by international business cycles. During a recession, the net
worth of any such organization whose business is heavily dependent on international markets
could get wiped out in a short time if it has to cam- the full burden of its employees that it hired
during the boom time.
There are varieties of regulation mandated payments for regular employees, e.g., benefits and
welfare which are fixed irrespective of whether a company has any business or not. In order to
protect it from the burden of statutory payment for employees without any job, these industries
hire a large number of employees under contract category whose payment burdens could be
avoided by not renewing their contracts at the end of the current period.
Chap 2 :- literature review :

Recruitment and selection services :

Succession management is the process of ensuring that, a pool of skilled employees is trainedand
available to the organization to meet the strategic objective of the organization.It is very much i
mportant for the organization as organization has unlimited life and it requiredmore and more co
mpetent people to meet the need of the fast moving world. Another thing isskilled people are not
made in one day. The need to build up and it required time. For this reason,organizations have to
practice good succession management based on the future need and groomup employees accordi
ngly.Succession management is a complex process as it deals with the complex human being. A
welltested succession management process consists of five steps. Those steps are briefly discusse
dhere for the better understanding.
Align succession management plans with strategy
Depending on the market or the types of business the required skill vary from organization toorg
anization. Organizations need people to meet the objective of the organization. So the HR hasto a
lign all its strategy with its objective. So the managers has to determine what are the requiredskill
s of the manager, how many managers need to fight in the competitive global world, howmany e
mployees have those required skills. After determining these things the HR manager hasto plan a
ll the things accordingly like succession planning, performance evaluation etc.
Identify the skills and competencies needed to meet strategic objectives
Once the HR manager has decided the required succession management objectives than theyhave
to go for the determination of the scale for the performance measurement. There are twotypes of
performance measurement scale. They are as follows:
Job-Based approach
This approach assume that, the employee who has the significant experience as manager andhave
acquire job skills such as motivation, delegating, marketing, or managing finance will be asucce
ssful manager.

Competency-Based approach
It refers to the group of related behavior that is needed for successful performance. They aremeas
urable performance that differentiates successful manager from the others. Thesecompetencies m
ay be hard or soft. Hard competencies are the ability to build a new technologyand the soft comp
etencies is the ability to be in the top ten. Manager acquires these competenciesthrough job rotati
on and with the spirit of learning new things.Among the above two competency measurement sc
ale, most of the manager and HR specialist prefer the second one. It is so because, the global busi
ness world is dramatically changing everyday and a successful manager have to know all the thin
gs related to the business of theorganization.

Discussions about Recruitment

Recruitment refers to the process of attracting, screening, and selecting a qualified person for a
job. At the strategic level it may involve the development of an employer brand
which includesan 'employee offering'. The process of identifying and hiring the best-qualified
candidate from within or outside of an organisation for a job vacancy, in a most timely atcost
effective
manner.The recruitment phase of the hiring process takes place when the company tries to reach
a poolof candidates through job postings on company and external websites, job referrals, help w
antedadvertisements, college campus recruitment, social media recruiting, etc.Job applicants who
respond to the recruitment efforts of the company are then screened todetermine if they are quali
fied for the job.Selected candidates are invited to interviews and other methods of assessment. E
mployers maycheck the background of prospective employees, as well as check references prior t
o making a job offer and hiring the top candidate for the positionThe stages of the recruitment pr
ocess include: job analysis and developing a personspecification; the sourcing of candidates by
networking, advertising, or other search methods;matching candidates to job requirements and s
creening individuals using testings (skills or personality assessment); assessment of candidates'
motivations and their fit with organizationalrequirements by interviewing and other assessment t
echniques. The recruitment process also.

Consultant services
Consultancy is the practice of helping organisations to improve their performance, usually by
analysing existing organisational problems and developing plans for improvement. Organisations
may draw upon the services of management consultants for a number of reasons, these include
the desire to gain external, objective advice about a problem, or to draw upon the expertise of the
consultant. Chapman (1998) suggests that the role of a consultant can vary depending on the
situation and nature of the problem with Blundson (2002) suggesting that consultancy is needed
when managers are aware that there is a problem within their organisation, but are not sure of
what they need to do to fix the problem. Further to this therefore is the suggestion that the
consultant should provide a “sense of control” within a situation, thereby “assisting them in the
relief of any anxieties” (Blundsdon, 2002).
There appears to disagreement within the literature regarding the extent to which the consultant
should be involved in the implementation of the solution. For example, Steele (1975) describes
consultancy as “any form of providing help on the content, process, or structure of a task or
series of tasks, where the consultant is not actually responsible for doing the task itself, but is
helping those who are”. However a later definition from Kakabadse (1986) describes
consultation as “continued development of the organisation by helping to diagnose problem
areas, generate new strategies, implement solutions and review the continuous progress of
change and development”.

The literature also highlights disagreement about the extent to which a consultant should be
considered a specialist service. For example, Greiner and Metzger (1983) describe consultancy
as “an advisory service contracted for and provided by organisations by specially trained and
qualified persons” whereas this term is not seen in other definitions (e.g. Kubr, 1996) due to the
fact that not all consultants are specifically trained.

Overall therefore from reading the literature related to consultancy, it appears that there is no
single definitive description of exactly what activities a consultant undertakes. However, there
are a number of differing models / methodologies which can be drawn upon to provide a
framework in which consultancy work can take place. A selection of these methods will be
discussed further in this review.

Organisations Organisations which specialised in management advice first emerged in the late in
the industrial age. The first recorded instance of a management consulting firm being established
was in 1890 by Arthur D Little who was a Technology Professor at the Massachusetts Institute of
Technology, However, due to the initial purpose of this firm being technical research, and with it
only later on becoming a management consultancy firm, it is generally considered that Frederic
Tailor’s “Treatise on Scientific Management”, published in 1911 marks the beginnings of
business consultancy (Pellegrinelli, 2002). The field of consultancy grew in magnitude from the
1930s onwards and was driven by demand for “advice on finance, strategy and organization”
(Kipping, 2002). However the biggest period of growth within the industry occurred in 1980s
and 1990s as a result of an increased need for advice on Information Technology (Canbeck,
1998). Although consultancy has traditionally played a role in the mainstream private sector,
consultancy can also play a key role in improving the functioning of criminal or civil justice
organisations also (Ireland, 2010).

Performance management

Noe et al (2006) define performance management as “the process through which managers
ensure that employees’ activities and outputs are congruent with the organisation’s goals”.The
concept of performance management has contributed a lot in the development Human Resource
Management in recent years. The concept was first coined by Beer and Ruh in 1976. However, it
is barely in the mid 1980’s that it had been accepted as a distinctive approach.
PerformancePerformance Management is widely being used in organizations so as to obtain the
best results by trying to improve performance of the workforce. Goals and standards are being
planned well beforehand in order to get satisfied outcomes.

Performance Appraisal System (PAS)

Performance appraisal also known as performance review, formally documents the achievements
of an individual with regards to set targets. It is a component of PMS. The system has become an
essential management tool in today’s organizations. Managing employees’ performance can be
said to be as important as any other work that all managers execute during the year. GroteGrote
(2002) describes performance appraisal as a formal management tool that helps evaluate the
performance quality of an employee. Schneier and Beatty as cited in Patterson (1987) define it as
a process which apart from evaluating also identifies and develops human performance.
AccordingAccording to Karol (1996) performance appraisal includes a communication event
planned between a manager and an employee specifically for the purpose of assessing that
employee’s past job performance and discussing areas for future improvement.

Compensation and benefits service :

According to Tang, Roberto, Toto & Tang (2004) from United States and Spain, job satisfaction
is an affective reaction to a job that results from the incumbent’s comparison of actual outcomes
with those that are desired or expected. Job satisfaction of the employees is just as important as
customer satisfaction in terms of the organizational performance. Therefore, employers must
make sure all their employees are satisfied with their job. But, how to make sure the staffs are
motivated? How to ensure the staff are satisfied with their job? Here, the compensation and
benefits is the key to those questions.

Nowadays, compensation and benefits are one of the fastest changing fields in Human
Resources, as many company are continue to investigate various ways of rewarding employees
for increase their job satisfaction and their performance. Here, compensation refers to all forms
of financial return and tangible services and benefits employees receive as part of an
employment relationship, which includes topics in regard to wages or salary programs; for
example, salary ranges for job descriptions, merit based programs, bonus based programs,
commission based programs, long term or short terms incentives programs, and etc. Besides,
employee’s benefit includes the allowances, income protection, life insurances, life balance,
vacation, and etc. Benefits are forms of value, other than payment, that are provided to the
employee in return for their contribution to the organization, that is, for doing their job.

Why the compensation and benefits is so important for all the employees? The answer is
compensation is the main sources of employee’s financial security. As we know, everyone is
works in expectation of some rewards; employees may see compensation as a return in an
exchange between employer and themselves, as an entitlement for being an employee of the
company and as a reward for a job well done. Besides, compensation is a motivator for
employees. Now, people look for a job that not only suit their interested and talent, people also
look for the salary and the other benefits which the company will be offer, for example, life
insurance, incentive, allowances, SOSCO, EPF and etc.
Besides, in the economic downturn, based wages is become very important sources to employees
for living. Therefore, if the employers give higher salary to their staff, this will be motivates
them to perform well and they will more satisfy with their job. By doing so, the employees will
know that the company is appreciate their contribution and their efforts are noted by
management.

Employee relations

The Employer-Employee relations is no doubt an enormous topic in Human Resource

Management that covers key areas of Employment relationship, Collective Bargaining,
performance and reward management also Employee involvement which help to determine the
nature of organisational commitment and performance.

The employment relationship aspect deals with the role and influence of law which determines
the rights and responsibilities/rules that govern the behaviour of both employer and employee
which has an impact on how relationship works out. However in recent years newer concept
have emerged in Human Resource Management that has considerable changed relationship that
was formally dependent upon interaction of formal legal regulations.(Beardwell and Claydon
2007)

Collective bargaining is a situation where representatives of both parties come together to

negotiate on matters relating to pay, terms of employment and working conditions, in recent
years there has been a shift from the traditional collective bargain to a more individualised
method of bargaining.(Henderson 2008).

Performance and reward management relates to the use of individualised pay, performance-
related pay and performance management. This factors determines behaviour in terms of
motivation, communication and level of commitment.(Beardwell and Claydon 2007)

Employee involvement is a form of employer-employee relations that allows more participation

of the employee in organisational decisions, this is when employees can influence decisions that
are normally reserved for management(Marchington and Wilkinson 2008).

Employee relations is characterised by both conflict and cooperation, Marchington and

Wilkinson (2008) described the management of employee relations as being vital to the success
or failure of an organisation and it is seen as central to Human resource management.

(Dawson 1995)acknowledged that the achievement of organisational objectives depends upon

employment relations, evidence from (Limerick 1992)suggests that individual empowering
should be consistent in the event of strategic change.
Considering the competitive nature of industries and technological advancement, the importance
of employer-employee relationship becomes more critical, reason being that to meet constant
changing needs of consumers, effective human resource management becomes very crucial in
achieving business success.

I am an MBA (General Management) Student and I am interested in this topic because as a

future General Manager/business owner I want to have a better understanding on the effective
ways developing positive employee relations, also to have an idea of the factors that motivates
employees, how strategic objectives can be achieved through effective communication with
employees? I am basing my research on a multinational company.

The greatest asset of an organisation is considered to be the Human Resource and the greatest
challenge of an organisation is how to manage these human resources efficiently and effectively
so as to achieve set objectives of the organisation, my research objective will be to stress the
importance of employer-employee relations, because in the UK the relationship is considered to
be an employee to do a particular job in return for wage or salaries for the work they do and this
goes beyond mere work for pay.

For the purpose of this research, my focus will be on the impact of employer-employee relations
on key areas of Collective bargaining, performance and reward management which places
emphasis on motivation and various reward systems, also emphasis will be placed on employee
involvement and participation in the context of organisational commitment, all these variables
constitute to the achievement of organisational objectives.

The literature review will be divided into four parts

 A brief history and Definition

 Theoretical and Empirical literature
 Benefits of mutual employer-employee relations
 Employer-employee relations within the UK including Ford

A brief history
In the early 70s the relationship between employers and employees in work place was more of a
collective relationship which involves collective bargaining where representatives of both
employer and employees meet to negotiate on matters relating to pay, terms of employment and
working conditions, representatives of employees are known as trade union(Henderson 2008).
Organisations were encouraged to recognise and work with trade unions so as to improve the
employment rights of workers through collective bargaining(Marchington and Wilkinson 2005).

However, in the early 1990s, countries like UK where trade unionism were highly recognised
witnessed a significant decline in trade unionism, employee relations changed from the
traditional collective method of bargain to a more individualised method as a result of increase in
sophisticated HRM style initiative in communication, participation and recognition(Henderson
2008)
(Edwards 2003) described the relationship between employer and employee as a system where
both parties have common and divergent interest, this is a situation where employer and
employee communicate their requirement and views to one another in terms of agreement on
work related issues.

Theoretical literature

(Newell and Scarbrough 2002) posed different dimension on how organisations handle issues of
employee relation and on this basis four management style have been suggested:

 Sophisticated human relations: employees are viewed as the most valuable resource of
the organisation, emphasis employees’ appraisal and extensive method of communication
aimed at enhancing employee loyalty and commitment. Trade unionism is discouraged.
Many US companies adopt this style.
 Consultative approach: this is similar to the first approach only those trade unions are
recognised. This style is mostly found in the European countries such as Germany
 Traditional style: employees are seen as a mere factor of production, it represents the
Taylors management approach. Unions are opposed.
 Constitutional style: this is similar to the traditional style only that unions are recognised
and accepted.

It limitation above theory is that different management styles can be used in the same
organisation for example the sophisticated human relations style can be used when managing
managers while the traditional style when managing other employee(Newell and Scarbrough
2002).

Considering theories that relate to performance and reward management, motivation theories like
the Maslow’s hierarchy of need, his theory identifies five levels of needs. Level 1- physiological
needs like food, water and comfort. The organisation provides financial reward. Level 2-safety
needs: the organisation provides this by benefits. Level 3- social needs: the organisation satisfies
employee’s social need through social gathering. Level 4-esteem needs: the organisation helps to
satisfy employee esteem needs by showing employees appreciation of work done. Level 5:self-
actualisation needs: deal with self needs, discovering individual’s full potential(Beardwell and
Claydon 2007). Researchers have often criticised this theory following the proportion that there
is no clear relationship between needs and behaviour. Alternatively Alderfer’s ERG theory
suggested that needs could be classified into three instead of Maslow’s five; these types of needs
are existence, relatedness and growth. Herzberg identified two factors based on his research
namely motivators and hygiene factor(Beardwell and Claydon 2007).Several other theories of
motivation will be examined in my dissertation.

Besides motivation, modern theory in employee participation known as employee engagement

was defined by CIPD 2007 as ”the combination of commitment to the organisation and its values
that goes beyond job satisfaction and motivation”. This can be linked to psychological contract
which will be later discussed extensively, but this has to do with a stronger emotional attachment
between employer and employee that helps in attracting and retaining employees(Henderson
2008)

The concept of ‘soft’ model HRM throws light to the positive attitude created from the use of
appropriate HRM practices together with communication, motivation and leadership enhances
commitment to the organisation and improved performance (Guest 2002). while the ‘Hard’ HRM
model emphasizes on the effective utilization of employees, ensuring that HRM strategy are
driven by overall corporate strategy(Keenan 2005).

Empirical literature

In a research carried out by (Edgar and Alan 2005)” they stated that effective HRM policies and
practices should be measured by their perceived quality, not simply by the number of practices
introduced.”

Another important issue raised by (Mac Mahon 1996) is that, even in small firms where the need
for improved productivity is very important, reward systems was rarely tied to productivity and
performance, and also conflict between employer and employee tend to be rare rather conflict
was apparent on a personal level.

(Savolainen 2000)also linked employer-employee relations with the aspect of leadership and
suggested three development strategies: 1)Trust building or participative strategy, 2)The
entrepreneurial cooperative strategy, 3)Negotiative strategy. Findings also revealed how
organisation change or move towards a new workplace and the role of line managers.

Another research suggest that the effective communication of information and ideas to
employees should be developed through practice and commitment, findings also revealed that
organisation should assess current culture to desired objectives and as a result new attitude often
needs to be acquired by both employer and employees(Owusu 1999). In the work of (Dawson
1995) evidence suggest that human resource strategy has shifted focus of job design to career
development, skill development which enhanced employee involvement.

From my findings I have discovered that most research on areas of employee relations have
focused more on the impact of HRM practices on employee performance, however few
researchers have worked on employee relations and how it affects organisational commitment
and performance, the justification for this research is to shed more light on the impact of this
relationship and how it can be improved to enhance organisational performance. I have decided
to look at a car manufacturing company (Ford motor company).
Benefits

The mutual relationship between both parties increases motivation which in turn leads to
increase productivity and profit maximization.

Estenson (1999) describes employer-employee relations as a key ingredient in the

implementation of quality improvement(Savolainen 2000).

Furthermore, (Sadri and Lees 2001)said a positive relationship between both parties could lead to
a competitive advantage over other firms in the industry and also provide enormous benefits to
the organisation.