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HR Outsourcing: DR C S Venkata Ratnam Director, IMI

1) HR functions are increasingly being outsourced, automated, or moved back to the business lines as HR takes on more strategic roles. Approximately 1/3 of HR functions are being outsourced, including repetitive administrative tasks. 2) When deciding whether and what to outsource, firms should analyze costs and the core vs. peripheral nature of the work. Transaction cost analysis can help determine whether to outsource based on asset specificity and uncertainty. 3) Potential benefits of HR outsourcing include cost reductions, access to expertise, and allowing HR to focus on more strategic functions. However, risks include loss of control, impacts on employee morale and motivation, and dependency on external providers. Close management of contracts

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200 views18 pages

HR Outsourcing: DR C S Venkata Ratnam Director, IMI

1) HR functions are increasingly being outsourced, automated, or moved back to the business lines as HR takes on more strategic roles. Approximately 1/3 of HR functions are being outsourced, including repetitive administrative tasks. 2) When deciding whether and what to outsource, firms should analyze costs and the core vs. peripheral nature of the work. Transaction cost analysis can help determine whether to outsource based on asset specificity and uncertainty. 3) Potential benefits of HR outsourcing include cost reductions, access to expertise, and allowing HR to focus on more strategic functions. However, risks include loss of control, impacts on employee morale and motivation, and dependency on external providers. Close management of contracts

Uploaded by

murugesh_mbahit
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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HR OUTSOURCING

Dr C S Venkata Ratnam
Director, IMI
What is HR doing?
• Too much of HR into administration and too less
into people orientation: Disproportionate time
spent on routine administration
• Power centre, not service centre
• Cost centre, not value adding profit centre
• Poor alignment of HR programs with business
needs
• Need for strategic fit between business strategy
and HR strategy: the business of business is
business: Therefore the business of HR also
should be business!
What is happening to HR?
• 1/3 is going back to Line (employee
champion roles)
• 1/3 is getting automated (routine and
repetitive information processing tasks)
• 1/3 can be outsourced (repetitive non
value adding services)
• What is left of HR in HR?
– Specialist consultancy roles?
– Change agent role
What to outsource in HR?
• Three things that managers do (Henry
Mintzberg’s Nature of Manager’s Job)
– Interaction (outsource)
– Information gathering/processing (outsource)
– Decision-making and problem solving (do not
outsource)
The decision to outsource
Transaction cost analysis
• TCA combines economic theory with
management theory to determine the best type
of relationship a firm should develop in the
market place.
• The properties of the transaction determine the
governance structure.
– High asset specificity and uncertainty lead to
transactional difficulties, with transaction held
internally within the firm – vertical integration
– Medium asset specificity – leads to bilateral relations
in the form of cooperative alliances between the
organisations
– Low : transactions frequent and governed by market
Core and peripheral in banking
• In the core banking activity the decision to
outsource takes place within the regulatory
framework dictated by the RBI
• Typical problems
– No formal processes/supply chain issues
– Limited cost analysis
– Core business definition

• Consider the problems with DSAs in credit card


business – internal checks and balances: in one
bank approval rate is high in the other low.
Why outsource HR
REDUCE COST OF HR AND CONTINUE TO PROVIDE VALUE
• Tightening labour markets and competitive
product markets – pressure to reduce head
count
• Cut costs
• Add value
• Do more with less
– Upgrade, but not upsize
– Downsize, but not downgrade
• HR itself is becoming the target of belt tightening
• Shed routine administrative tasks and focus on
talent management
Strategic outsourcing
• Beyond cost control
• Specialization and expertise that goes with it for
which there is no need on a regular full time
basis
• Focus on quality, technology and service
delivery
• Outsourcing to best of class, best of industry
• Problems with technology – address need for
customization (which presently means largely
adjusting to supply side than demand side)
Deciding Whether to outsource?
• Create a project team
• Analyse the current position
• Pay attention to people issues
• Benchmark
• Come to a decision
– What is core to the business and the future of
business?
– What can bring competitive advantage?
Deciding whether to outsource
• Decide what to outsource
• Tender the package
• Choose a partner
• Introduce your staff to the agency
• Draw up the contract
• Test the contract
Pros and cons
• Cons
Pros
• Cost and
Need greater
savings
coordination flow with agencies
• Financial organizational
Reduces and operationallearning
flexibility
by depleting its skill
• base
Need to focus on few things
• Loss
Access of to
control
quality, expertise and better management
• skills
Adverse affects on morale and motivation
• Staffing
Job insecurity
flexibility
Which functions/sub-systems
to outsource
• Recruitment – preliminary screening and short listing
• Training – Trg. Needs identification, content
development, delivery, logistics, third party evaluation
• Performance management - on line – automation
• Compensation – pay roll and compensation surveys
• Safety -- inspections
• welfare – transport, security, catering
• Labour contract – contract employees doing the job
which was earlier done by regular employees
• Which function not to outsource
– Decision making in each of the sub functions
– Leading change and transforming the organization
Implications – Need for caution
• What is formerly inside is going outside and what is
formerly outside is coming inside
• Formerly strong relations are becoming weak and
formerly weak relations are becoming strong
• Huge disparity in profile, pay and working conditions:
casual, contract, contingent employees are less
educated, less trained, over worked under usually less
safe conditions, underpaid and enjoy little or no social
security/protection
• Pay attention to outsourced employees the same way as
you do with regular employees in terms of how they are
recruited, trained, paid and motivated
Dominant trends
3 main HR outsourcing industry segments
• Consultants
• Administrative – service providers
• Technology enablers
– Customizing imported software products
remains an issue: supply oriented rather than
demand based customization
Typical Problems
• Integration with over all strategy
• Fragmented and piecemeal approach – cleaning
part of the pool
• Absence of formal outsourcing process
• Limited cost analysis
• Core business definition – Everything is core?
• Contract management how to ensure that we
achieve desired objectives
• Work flow, supply chain and logistics
management critical to outsourcing process
Risks of HR outsourcing
• Trust
• Confidentiality
• Dependency
• Spillover risks
• Relative proficiency
• Strategic capability
• Commitment
• Flexibility
Managing people issues
• What happens to people?
• When to communicate?
• Who to communicate with?
– Those whose jobs are outsourced and those whose
jobs are not outsourced
• How do you deal in the transition phase?
• What about HR staff?
– Who will survive who has to leave?
• How will the HR department look like, post
outsourcing?
websites
• www.sharedxpertise.org
• Websites of all leading HR consulting firms

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