CHAPTER 1:- INTRODUCTION

1.1 INTRODUCTION

Outsourcing is a common practice among both private and public organizations and is
a major element in business strategy. Perhaps most organizations now outsource some
of the functions they used to perform themselves. Due to widespread outsourcing
practices, it has become a frequent topic in the literature. Outsourcing has been defined
as work done for a company by people other than the company’s full-time employees.
In the modern setting, outsourcing turns out to be highly complex and organizations use
outsourcing vendors for a variety of a reasons. In the modern global marketplace,
outsourcing is becoming increasingly popular as a way to operate cheaply and
efficiently. This chapter introduces the concept of outsourcing, and why it appeals to so
many companies. Outsourcing has seen a lot of press over the years. Some look to
outsourcing as the saviour of their company, while others see outsourcing as an evil,
job-killing management tactic. Before we start to evaluate an outsourcing and HR
outsourcing, we should have comprehensive understanding about it. Outsourcing is the
contracting out of any task, operation, job, or process that was originally performed by
employees within the company to a third party for a significant period of time. These
outsourced functions can be performed by the third party on-site or off-site. Hiring a
temporary employee while a secretary is on maternity leave is not outsourcing. The
most common story of outsourcing in the news today involves jobs that are sent
overseas to countries like India or China—often manufacturing jobs, but outsourcing is
not limited to this sector. This is more commonly called offshoring. Examples include
customer service and tech support call centre jobs, as well as computer programming
jobs. Examples of jobs that are generally safe from being moved overseas are janitorial
services and security services, though completely outsourcing a department or division
of a company may remove the need for these jobs in that location, so they can be
eliminated. Outsourcing, or sending off a job outside the company, may seem like more
recent phenomena which started after the internet boom in mid 1990s, but the fact that
outsourcing history is very old. During the early years of America, the manufacturing
of clippers ships sails was sent to Scotland, and the raw material came from India. India

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was also an outsourcing destination for British textile industry during the 1800s, but
eventually the British become more efficient and outsourced job came back to Britain.

In more recent times, during 1970s computer companies used to outsource their payroll
processing. The job was sent to company in another state or city, not overseas. Unlike
today offshore outsourcing was not common in those days. Late 1980s saw emergence
of offshore outsourcing when companies started sending off their manufacturing jobs
overseas. This trend got boost from the increasing technical advancement and the
1986-94 Uruguay Round of talks which lead to the creation of WTO. Kodak and
American standard were among the first companies to outsource. The latest
introduction of outsourcing in HR functions has been driven by several factors. One is
the increasing complexity of HR tasks, which require specialized expertise that many
companies may not have in-house. Another factor is the need for cost savings, as
outsourcing HR functions can be more cost-effective than hiring and training in-house
staff. Some of the HR functions that are commonly outsourced include payroll
processing, benefits administration, recruitment, training and development, and
employee relations. By outsourcing these functions, companies can focus on their core
business activities and leave HR-related tasks to experts who can handle them more
efficiently and effectively. There are also several advantages to outsourcing HR
functions, including access to specialized expertise, reduced costs, increased
efficiency, and improved compliance. However, there are also potential disadvantages,
such as loss of control over HR processes, potential data security risks, and challenges
in managing outsourced employees.

Overall, outsourcing in HR functions is a growing trend that can offer significant

benefits to companies that choose to embrace it. However, it is important for companies
to carefully evaluate their outsourcing needs and choose outsourcing partners who can
provide high-quality, reliable services.

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SCATTERED MODEL OF OUTSOURCING GAINS

Focus On Core Competencies  Outsourcing helps businesses by moving some

activities to external people so that they can concentrate on the main functions.

Costs Reduction  By using the services of external companies, you don’t have to
worry about renting (buying or selling) additional office space or incurring expenses on
appropriate work tools.

Access To Provider Quality  Contractors may possess superior expertise

,technology that contributes to higher quality work &better control over security risks
related to data protection.

Speed To Market  Outsourcing can increase the efficiency & speed of daily
functions.

Innovations & Others  Innovation through outsourcing is rapidly becoming integral

to business growth because of new or improved innovative products.

HR Outsourcing in Indian Context-

India is emerging as a major player in HR outsourcing. Riding on the success of the

BPO and IT industries, India is well positioned to be a leader in the HRO space. Indian
organizations are increasingly taking up HRO as an opportunity to streamline
processes, reduce costs, get access to the latest technology and tools, consistently

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achieve better quality, and align human resources with the overall business as quickly
as possible. Many large global HRO service providers have a presence in India and see
the country as a viable investment destination, where they can set up their operations
and cater to the rest of the international market, thus, key delivery location. Indian
companies are also expanding their horizons by extending their services globally in this
arena.

HR Outsourcing is not a very new concept to Indian outsourcing market. It essentially

means managing the human resource department of companies that are hard-pressed
for time and expertise when it comes to taking care of their HR spectrum. Research
indicates that an HR department spends 80% of their time in managing tactical and
transaction-oriented HR operations. If these processes are outsourced then the trained
HR staff could be re-deployed in the core process which will add substantial value to
the organization. From the tactical and straightforward handling of payroll and benefits,
HR services providers are moving into the strategic world of BPO. HR-enablers are
helping HR managers free themselves from the routine jobs and work towards taking
employee services to a higher level. India, with its intrinsic advantages such as low
cost, ready pool of English-speaking manpower and geographic positioning is emerging
as a viable destination for HR outsourcing companies to set up their businesses. The
HR outsourcing business opportunity is large and India is likely to emerge as a major
player in this market. Companies are looking to outsourcing the complete range of HR
delivery and designing products on policies, compensation, structure, and recruitment.
Indian companies are not only providing services for the clients abroad but are also
catering to the local market. The various HR processes that companies are venturing
into include data entry, payroll processing, staffing, training, resume management,
compensation, employee communications, pension plans, leave administration and HR
data analytics. The popular delivery models for HR services outsourcing are self-
service, call centre back up or shared services involving high calibre HR professionals
who play a consultative role to line managers. When compared to other regions, India
holds an advantage in HR outsourcing because of cost factor and education of the
workers.

HRO industry in India is still evolving. While the ability to deliver at a large global
level with the offshore component has attracted buyers, the growth has been in select
processes like payroll (few countries), benefits administration, recruitment, workforce
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administration etc., but not in other parts of HRO. The Indian service providers capable
of delivering the end-to-end HRO services are just a handful at the moment while there
is a large number of single/ stand-alone service providers. The domestic HRO is more
established and growing with some players beginning to standout.

1.2 BACKGROUNG

Human Resources (HR) functions outsourcing companies are third-party service

providers that offer a range of HR services to organizations. These services may include
payroll processing, benefits administration, recruitment and staffing, employee training
and development, performance management, and compliance management, among
others.

Pune, located in the state of Maharashtra, India, is home to several HR functions

outsourcing companies. These companies cater to the needs of organizations across
various industries, such as IT, manufacturing, healthcare, and hospitality, among others.
The rise of HR outsourcing companies in Pune can be attributed to several factors,
including the increasing complexity of HR functions, the need for specialized expertise,
and the desire of organizations to focus on their core competencies. By outsourcing HR
functions, organizations can reduce administrative burden, improve operational
efficiency, and access a wider pool of talent. Some of the prominent HR functions
outsourcing companies in Pune include WNS Global Services, ADP India, Sutherland
Global Services, Infosys BPM, and Capgemini, among others. These companies offer
a range of services tailored to the specific needs of organizations, with a focus on
delivering high-quality services at a competitive cost.

Therefore, the outsourcing of HR functions has become a popular trend in Pune and
other regions, as organizations seek to optimize their operations and focus on their core
business objectives.

1.3 HISTORY

The practice of outsourcing can be traced back to the early stages of industrialization
in the 18th century when textile mills in Europe began to outsource some of their

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production processes to independent contractors who worked from their homes.
However, the modern history of outsourcing can be traced back to the 1970s when
companies in the United States began to outsource some of their manufacturing
processes to countries with lower labour costs, such as Japan and later, China.

During the 1980s and 1990s, the trend of outsourcing continued to grow as companies
began to outsource other non-core functions, such as accounting, customer service, and
information technology. This was driven in part by advances in technology, which
made it easier and more cost-effective for companies to communicate and collaborate
with outsourcing partners around the world. The early 2000s saw a significant shift in
the outsourcing landscape as companies began to outsource not just low-skilled, low-
cost tasks but also more complex and strategic functions, such as research and
development, engineering, and design. This trend was driven by the globalization of
markets and the need for companies to access talent and expertise from around the
world.

In the post-war period companies were either conglomerated, horizontally integrated,

or vertically integrated (Lonsdale & Cox, 2000). In the absence of developed external
markets organizations, of necessity, sourced a wide range of activities in-house
(Jennings, 2002). According to Lonsdale & Cox (2000) there were as well four main
motives behind these strategies. First, companies were able to achieve economies of
scale. Second, due to horizontal integration, companies had an opportunity to exercise
greater market power. Third, conglomeration strategy gave firms a potential for greater
security through an increased product range. And fourth, vertical integration
potentially offered greater control for the companies (Lonsdale & Cox, 2000).The idea
of outsourcing is certainly not new. Hiring outside groups to do work that an
organization either cannot do or chooses not to do for itself dates back as far as one
cares to look. Explorers, traders, and mercenaries are all early examples of the concept
of outsourcing. Even the term outsourcing was first used in the 1970s by manufacturing
executives and has been gradually adopted since then by executives in just about every
other business function. In the late 1970s and 1980s, it was increasingly recognized
that many of these large and diverse companies were under-performing the market.
The large vertically structured companies were not sufficiently efficient to meet ever
greater cost discipline demands and academic studies pointed disappointing rates of
return (Kakabadse & Kakabadse, 2002; Lonsdale & Cox, 2000).
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In the early 1980s, with the onset of a global recession, this under-performance became
even more pronounced (Lonsdale & Cox, 2000). That led companies re-evaluating
their strategies and focusing on fewer activities. The idea of core became dominant and
managers were re-evaluating the idea that they needed to be vertically integrated and
self-sufficient. Over the past 20 years, one of the most notable trends in the world of
business has been the move away from high levels of vertical integration toward
outsourcing (Leavy, 2001). In the early 1990s at a time when the U.S. economy faced
a severe recession and the very competitiveness of its businesses was in question,
outsourcing gained significance as the potent strategic business model. Companies
used outsourcing then to help streamline their operations and to regain their
competitive strength. The result was an unprecedented period of economic growth
during the latter half of the 1990s. Today's challenges may be even more pressing than
those of a decade ago. Peter Drucker was among the first to focus the attention of
business executives on the power of outsourcing. While writing for The Wall Street
Journal in 1989, he made a prediction that "more and more people working for
organizations will actually be on the payroll of an independent outside contractor." The
inefficiencies of many internal clerical, maintenance, and support operations, he
argued, pose one of the biggest problems for the productivity and competitiveness of
most organizations. The problem cannot really be fixed as long as these activities are
performed by internal departments operating as de facto monopolies. Through
outsourcing, a company places its existing internal operations into competition with
the marketplace of external service providers. Although some may not like the idea of
elements of a business competing in this way, competition brings out the best in people
and organizations. Competition improves performance and quickly strips away
unnecessary costs. Whichever way the competition comes out, the organization is
better off for it. If the operation is kept inside the company, the competitive pressure
leads to the much-needed improvements. If the operation is outsourced, then needed
improvements are brought in from the outside. As the contemporary use of the term
outsourcing has grown, so has the actual amount of outsourcing taking place. The
typical manufacturing company now outsources 70 to 80 percent of the content of its
finished product. The entire professional services industry of accountants, lawyers,
advertisers, consultants, and the like is based on the concept of outsourcing. Facilities
executives routinely outsource cleaning, food services, and mailrooms. CIOS in large

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companies often outsource more than half of their company's information technology
budget. Call centre outsourcing is commonplace as well. Most recently, organizations
have started outsourcing entire back offices, performing work as diverse as customer
order processing, payroll, accounts receivables, and accounts payables through outside
specialists. In fact, it would be difficult to find any organization that is not outsourcing,
to some extent, in just about every part of its operation. Outsourcing has, thus, emerged
as one of the most important and powerful forces available for building successful
companies, creating economic growth, and generating and enhancing jobs.

However, the practice of outsourcing has not been without controversy. Critics argue
that outsourcing can lead to job losses, lower wages for workers, and a loss of control
over key business processes. Supporters, on the other hand, argue that outsourcing can
help companies reduce costs, improve efficiency, and access specialized expertise that
may not be available in-house. Despite the controversy, outsourcing has become an
integral part of the modern business landscape and is expected to continue to play a
significant role in the years to come.

1.4 WHAT IS OUTSOURCING?

No matter which industry it is that your business is under, you would have encountered
the term outsourcing at one point or another. For many entrepreneurs who would like
to save on labour costs without sacrificing the efficiency of work done, outsourcing
has become a viable alternative for running certain aspects of their business. However,
before deciding whether outsourcing is the right option for you or not, it‘s good to have
a deeper understanding of what this business practice is all about in the first place.

Outsourcing refers to the practice of hiring external companies or individuals to

perform services or tasks that are traditionally performed in-house. This can include a
wide range of services, such as customer service, data entry, IT support, accounting,
manufacturing, and many others. The practice of outsourcing has been around for
centuries, with examples dating back to the 18th century when British manufacturers
outsourced production to low-cost countries like India. However, outsourcing as we
know it today really began to take off in the 1980s and 1990s, as advances in
technology and communication made it easier to work with partners in different parts
of the world.

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Outsourcing: A Definition

Outsourcing is the process of subcontracting to a third-party. Whenever there‘s a

task, operation, job or process that could be performed by employees within your
company – but is instead contracted to a third party service provider that is when
outsourcing occurs. If your secretary goes on maternity leave, for example, you will
need to hire a temporary replacement until she is ready to go back to work. This is not
a case of outsourcing. Instead, you will be outsourcing the secretarial services when
you hire a virtual assistant who is working in another country. There are cases,
however, when outsourcers work within your company‘s site. The only difference is
that you are outsourcing when they are not there to perform the task on a full-time
basis, but on a per-project term instead.

Why It Pays to Outsource?

When you visit websites like www.vietnamoutsourcing.org, you will see just how
popular outsourcing has become to Southeast Asian countries. This is especially true
when it comes to Information Technology-related tasks, projects, jobs and services. If
you need a web developer for an additional site that you would like to build, for
instance, why does it pay to outsource the project or task to a Vietnam software
development company? First, you will save a lot of time, effort, and money. Rather
than spending company resources and hiring a web developer who might not have a
full-time job in your company later on, it‘s a more practical option to hire someone
from a Vietnam software outsourcing company.

Second, you can rest assured that the professional to whom you will outsource the job
to, is someone who is knowledgeable with the IT-related task that you want finished.
Third, outsourcing gives you better flexibility because you can hire personnel on a per-
project or temporary basis – without having to worry about providing the employee
with benefits. Although outsourcing may not be a business model suited for every type
of company, there are instances when this is a more cost-effective option than hiring
an employee full-time. Before deciding to take this path, weigh the pros and cons of
going with an outsourcing company and go for it if the advantages far outweigh the
disadvantages.

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Outsourcing involves the transfer of the management and/or day-to-day execution of
an entire business function to an external service provider. According to McIvor (2005,
p. 7), ―Outsourcing involves the sourcing of goods and services previously produced
internally within the sourcing organization from external suppliers. The client
organization and the supplier enter into a contractual agreement that defines the
transferred services. Under the agreement the supplier acquires the means of
production in the form of a transfer of people, assets and other resources from the
client. The client agrees to procure the services from the supplier for the term of the
contract. Business segments typically outsourced include information technology,
human resources, facilities, real estate management, and accounting. Many companies
also outsource customer support and call centre functions like telemarketing, cad
drafting, customer service, market research, manufacturing, human resource,
designing, web development, content writing, ghost-writing, and engineering.

Strategic outsourcing is the organizing arrangement that emerges when firms rely on
intermediate markets to provide specialized capabilities that supplement existing
capabilities deployed along a firm‘s value chain. Such an arrangement produces value
within firms‘supply chains beyond those benefits achieved through cost economies.
Intermediate markets that provide specialized capabilities emerge as different industry
conditions intensify the partitioning of production. As a result of greater information
standardization and simplified coordination, clear administrative demarcations emerge
along a value chain. Partitioning of intermediate markets occurs as the coordination of
production across a value chain is simplified and as information becomes standardized,
making it easier to transfer activities across boundaries.

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.
Examples of outsourced activities: IT, HR, Legal services, Manufacturing, R&D.

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1.5 THE PROS & CONS OF OUTSOURCING HR FUNCTIONS

PROS OF OUTSOURCING:-

Some of points in short description that holds the outsourcing edge:

Cost savings: The lowering of the overall cost of the service to the business. This will
involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost
restructuring. Access to lower cost economies through off shoring called "labour
arbitrage" generated by the wage gap between industrialized and developing nations.

Cost restructuring: Operating leverage is a measure that compares fixed costs to

variable costs. Outsourcing changes, the balance of this ratio by offering a move from
variable to fixed cost and also by making variable costs more predictable.

Improve quality: Achieve a step change in quality through contracting out the service
with a new service level agreement.

Knowledge: Access to intellectual property and wider experience and knowledge.

Contract: Services will be provided to a legally binding contract with financial

penalties and legal redress. This is not the case with internal services.

Operational expertise: Access to operational best practice that would be too difficult
or time consuming to develop in-house.

Staffing issues: Access to a larger talent pool and a sustainable source of skills.

Capacity management: An improved method of capacity management of services

and technology where the risk in providing the excess capacity is borne by the supplier.

Catalyst for change: An organization can use an outsourcing agreement as a catalyst

for major step change that cannot be achieved alone. The outsourcer becomes a Change
agent in the process.

Reduce time to market: The acceleration of the development or production of a

product through the additional capability brought by the supplier.

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Risk management: An approach to risk management for some types of risks is to
partner with an outsourcer who is better able to provide the mitigation.

CONS OF OUTSOURCING: -

Against many advantages there are equal drawbacks outsourcing possesses, to make it
clearer, more than short description given in below mentioned points:

Public opinion: There is a strong public opinion regarding outsourcing (especially

when combined with off shoring) that outsourcing damages a local labour market.
Outsourcing is the transfer of the delivery of services which affects both jobs and
individuals. It is difficult to dispute that outsourcing has a detrimental effect on
individuals who face job disruption and employment insecurity; however, its
supporters believe that outsourcing should bring down prices, providing greater
economic benefit to all. There are legal protections in the European Union regulations
called the Transfer of Undertakings (Protection of Employment). Labour laws in the
United States are not as protective as those in the European Union. A study has
attempted to show that public controversies about outsourcing in the U.S. have much
more to do with class and ethnic tensions within the U.S. itself, than with actual impacts
of outsourcing.

Failure to realize business value: The main business criticism of outsourcing is that it
fails to realize the business value that the outsourcer promised the client citation
needed.

Language skills: In the area of call centres end-user-experience is deemed to be of

lower quality when a service is outsourced. This is exacerbated when outsourcing is
combined with off-shoring to regions where the first language and culture are different.
The questionable quality is particularly evident when call centres that service the public
are outsourced and off shored. There are a number of the public who find the linguistics
features such as accents, word use and phraseology different which may make call
centre agents difficult to understand. The visual clues that are present in face-to-face
encounters are missing from the call centre interactions and this also may lead to
misunderstandings and difficulties.

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Social responsibility: Outsourcing sends jobs to the lower-income areas where work
is being outsourced to, which provides jobs in these areas and has a net equalizing
effect on the overall distribution of wealth. Some argue that the outsourcing of jobs
(particularly off-shore) exploits the lower paid workers. A contrary view is that more
people are employed and benefit from paid work.

On the issue of high-skilled labour, such as computer programming, some argue that it
is unfair to both the local and off-shore programmers to outsource the work simply
because the foreign pay rate is lower. On the other hand, one can argue that paying the
higher-rate for local programmers is wasteful, or charity, or simply overpayment. If the
end goal of buyers is to pay less for what they buy, and for sellers it is to get a higher
price for what they sell, there is nothing automatically unethical about choosing the
cheaper of two products, services, or employees.

Quality of service: Quality of service is measured through a service level agreement

(SLA) in the outsourcing contract. In poorly defined contracts there is no measure of
quality or SLA defined. Even when an SLA exists it may not be to the same level as
previously enjoyed. This may be due to the process of implementing proper objective
measurement and reporting which is being done for the first time. It may also be lower
quality through design to match the lower price. There are a number of stakeholders
who are affected and there is no single view of quality. The CEO may view the lower
quality acceptable to meet the business needs at the right price. The retained
management team may view quality as slipping compared to what they previously
achieved. The end consumer of the service may also receive a change in service that is
within agreed SLAs but is still perceived as inadequate. The supplier may view quality
in purely meeting the defined SLAs regardless of perception or ability to do better.

Quality in terms of end-user-experience is best measured through customer satisfaction

questionnaires which are professionally designed to capture an unbiased view of
quality. Surveys can be one of research. This allows quality to be tracked over time and
also for corrective action to be identified and taken.

Staff turnover: The staff turnover of employee who originally transferred to the
outsourcer is a concern for many companies. Turnover is higher under an outsourcer
and key company skills may be lost with retention outside of the control of the
company. In outsourcing offshore there is an issue of staff turnover in the outsourcer
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companies call centres. It is quite normal for such companies to replace its entire
workforce each year in a call centre. This inhibits the build-up of employee knowledge
and keeps quality at a low level.

Company knowledge: Outsourcing could lead to communication problems with

transferred employees. For example, before transfer staff have access to broadcast
company e-mail informing them of new products, procedures etc. Once in the
outsourcing organization the same access may not be available. Also, to reduce costs,
some outsource employees may not have access to e-mail, but any information which
is new is delivered in team meetings.

Qualifications of outsourcers: The outsourcer may replace staff with less qualified
people or with people with different non-equivalent qualifications. In the engineering
discipline there has been a debate about the number of engineers being produced by
the major economies of the United States, India, and China. The argument centres on
the definition of an engineering graduate and also disputed numbers.

When we look at both sides i.e., positive and negative, there is little ambiguity to make
decision regarding to go with outsourcing or not but if we look at the trends in India
regarding outsourcing, our country is becoming prime destination for most of
outsourcing activities.

1.6 WHAT IS HUMAN RESOURCE OUTSOURCING?

HR Outsourcing is a process in which the human resource activities of an organization

are outsourced so as to focus on the organization`s core competencies. Often HR
functions are complex and time consuming that it will create difficulty in managing
other important thrust areas.

Human resource outsourcing (HRO) occurs when a business instructs an external

supplier to take responsibility (and risk) for HR functions and perform these tasks for
the business. Payroll outsourcing is commonly outsourced for two reasons: it‘s a time-
consuming administrative task for employers, and there are many specialist companies
with the technology and knowledge to run it efficiently and compliantly. Some
businesses will outsource their entire HR department while others will just outsource

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time-consuming administrative tasks, which allow their internal resource to focus on
the strategic level. HRO (Human Resource Outsourcing) has emerged as a flexible and
dominant substitute that corporate leaders can practice to accomplish an inclusive
growth and strategic goals. Human Resource (HR) 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. The HRO
market is in transition. Until recently, the market followed a relatively predictable path,
with the majority of HR outsourcing engagements conforming to conventional
transaction-focused, single-process business arrangements with individual third-party
providers (e.g., payroll services, health care and pension plan administrators,
temporary staffing agencies, etc.). However, it is now clear that the HRO market has
achieved a degree of maturity on the business life-cycle continuum. A second-
generation market has emerged, the HRO multi-process market.

As the HRO vendors have begun to partner with and acquire other firms, they are
broadening their service capabilities to include organizational and people
development, employee data management, workforce planning and deployment, and
human capital services. In other words, in terms of projected growth, the
multiprocessing component of the HRO market is expected to be appreciably more
robust in terms of projected growth than the market for those organizations electing to
outsource the HR function in its entirety.

1.7 WHY HUMAN RESOURCE OUTSOURCED?

HR is an essential partner in developing and executing organizational strategy as is

evident HR is something that is really critical to an organization functioning. Human
Resources (HR) responsibilities includes all the related functions that work towards
employee well-being in the organization including payroll, benefits, hiring, firing, and
keeping up to date with state and federal tax laws. The recent competitive challenges
of the global marketplace are creating demand for Expert human resource outsourcing
HRO providers in order to manage non-value adding administrative business function
of their businesses thereby facilitating the businesses can concentrate on their core
competencies.

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So, Creation of Strategic and Competitive Advantage is at the centre stage and man
reason behind outsourcing human resource activities.

1.8 HOW DOES HR OUTSOURCING HELP?

Human Resources Outsourcing helps in boosting organizational performance with

many strategic benefits like eliminating the redundant non-core HR functions,
increasing cost competitiveness effectiveness and helps in maintaining strategic HR
focus.

HR outsourcing can,

 Help in structural reduction of the Human Resource Management (HRM) cost

base, by identifying the non-value adding activities and eliminate the hidden
HR operations costs.

 Help in identifying the inefficient Human Resources (HR) Administration

processes and HR practices.

 Helps organization to focus on human resource performance.

 Help organizations to serve their employees better.

1.9 HR OUTSOURCING SERVICES

The role of human resource outsourcing services in an organization differs with the
extent of outsourced functions. Some services go with the "all-or-nothing" approach,
requiring that they handle all your HR functions or none at all. Others offer their
services "a la carte," meaning you can pick and choose from the HR outsourcing
services they offer.

1.9.1 Comprehensive HR outsourcing services

 Maintenance of personnel records

 Annual review and revision of employee handbook

 Audit of HR strategies, policies, and procedures

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  Implementation of employment/termination procedures

 Job description process

 Exit interviews

 Employee development program

 Performance management process

 On-site support

 Employee retention programs

 Long term incentive/equity stock option programs

 Employee Morale Building

 Compensation plan review

1.9.2 Recruiting services

 Retained Search

 Job Description Development Strategy

 Ad Placement

 Applicant Screening

 Reference and Background Check

 Candidate Interviews and Recommendations

 Development and Coordination of Offer

 Integration of New Hire

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1.9.3 HR management services

 Compensation plan review and analysis

 Culture development

 Due diligence/Acquisition planning

 Incentive and retention programs

 Executive Coaching

 Succession Planning

1.9.4 Benefits administration

 Brokerage Services

 Custom Benefit Plan Strategies and Design

 Benefit analysis, cost control and reduction recommendations

 Development of Employee Communications

 Eligibility and Enrolment Services

 Employee claims resolution

 Monthly invoice audit and reconciliation

 On-line employee access to benefits information

1.9.5 Payroll services

 Employee self-service features

 Payroll processing and reporting

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  Payroll tax reporting

 Time off tracking

 Online benefits enrolment

1.9.6 Online HR Outsourcing Services

Online services tend to be limited in their offerings, but provide added options like
Web access, which allows companies to view information (like benefits packages) and
even make changes to such information online. Most HR Outsourcing companies will
be able to provide employer and employees access to view their benefits plans, enrol
in benefits, read policies, and make changes to current data.

Human resource outsourcing services portfolio includes Payroll Administration,

Employee Benefits, and HR Management & Risk Management. These services help
organizations to define a definitive role of a HR outsourcing company's functions and
responsibilities.

1.10 BENEFITS OF OUTSOURCING HR ACTIVITIES

Low cost of service, higher level of service, time saving & controlling of hassle factors
are main benefits of outsourcing HR services.

1)Low Cost of service: One of the most crucial factors that can't be ignored while
making outsourcing HR decision is cost - both operating cost & cost avoidance. Any
outsourcing HR company has to provide some level of savings. This cost is reflected
in operating cost and cost avoidance, such as having to put in new technology and
keeping it current.

2)Expected higher level of service: There‘s a perceived higher level of service

associated with HR outsourcing Companies. They specialize in providing efficient and
cost-effective services. With their highly skilled team of consultants; employers can

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expect a better career path for employees, and the ability to better retain them for a
specified job.

3)Time saving: Senior HR people are more interested in the business of their company
than the business of human resource that is they are more concerned with well-being
as well as growth of the business in the long run. They would like to become more
strategic, and the only way they can have the time to do so is to get rid of the time that's
committed to some of the administrative functions by outsourcing them.

4) Controlling the Hassle factors: There are loads of "hassle factors" like keeping
track of all people, managing technology budgets, managing service level agreements
etc. all these core competencies of business are really required, but these factors can
easily be taken care by outsourcing HR company, to give employers ease from
managing such complex functionalities.

1.11 OPERATIONAL MODELS OF HR OUTSOURCING -

There are various operational models of HR outsourcing for providing various

services. Mainly there are five models operating in India which are Professional
Employer Organization, Business Process Outsourcing, Knowledge Process
Outsourcing, Application Service Provider and E-services. Here is brief overview of
all operational models.

PEO: Professional Employer Organization

A Professional Employer Organization (PEO) assumes full legal responsibility of a
company's Human Resources. The PEO and business owner work as associates, where
PEO handles the human resource aspects and the owner handles core business. A
professional employer organization (PEO) provides outsourcing of payroll, workers'
compensation, human resources, and employee benefits administration. It does this by
hiring a client company‘s employees, thus becoming their employer of record. It then
leases them back under contract to the original employer. This practice is known as co-
employment, employee leasing, or staff leasing. Several variations on the PEO model
exist, differing in the nature of the relationship formed between PEO and Client
Company. Administrative services organizations (ASO) are PEOs that provide
outsourcing of human resources tasks but do not create a co-employment relationship.
Employees remain solely under the control of the client company. Tax and insurance
20
filings are done by the PEO, but under the client company‘s Employer Identification
Number. Pass-through agencies are staffing firms that act as the employer of record for
independent contractors, but do not obtain work for them. Like umbrella companies in
the UK, the contractors do not become employees of the client. Financial
intermediaries, also called fiscal intermediaries, act as an employer of record for home
healthcare workers who serve disabled persons. This streamlines the process of hiring
such workers, because neither the household hiring them nor government units that
provide funding need to take on the duties of an employer.

BPO: Business Process Outsourcing

Business Process Outsourcing refers to outsourcing in all fields for overall process
improvements, not just outsourcing human resource functions. HR based BPO function
ensures that organization is compatible with latest HR automation and technologies.
Business process outsourcing (BPO) contains the transmission of processes along with
the associated operational activities and responsibilities, to a third party with at least a
guaranteed equal service level and where the client contains a firm grip over the
(activities of the) vendor for mutual long-term success. BPO is positively related to the
search for more efficient organizational designs: cost reduction, productivity growth
and innovative capabilities. Hence, source of strategic advantage. Traditionally, BPO
is undertaken by manufacturing firms. For instance, Coca Cola, where almost the entire
supply chain is outsourced and the company is essentially becoming a marketing
organization. However, BPO is nowadays rapidly conquering the service-oriented
firms as well. A well-known example is provided by the Bank of America, who
outsourced their entire HR function to Exult, one of the leading Human Resources BPO
vendors. BPO is often divided into two categories: back-office outsourcing, which
includes internal business functions such as billing or purchasing, and front office
outsourcing, which includes customer-related services such as marketing or tech
support. The endless opportunities IT provides, stimulates (cross-border) BPO
activities. BPO that is contracted outside a company's own country is sometimes called
offshore outsourcing. BPO that is contracted to a company's neighbouring country is
sometimes called near shore outsourcing. Use of a BPO as opposed to an application
service provider (ASP) usually also means that a certain amount of risk is transferred
to the company that is running the process elements on behalf of the outsourcer. BPO
includes the software, the process management, and the people to operate the service,
21
while a typical ASP model includes only the provision of access to functionalities and
features provided or 'served up' through the use of software, usually via web browser
to the customer. BPO is a part of the outsourcing industry. It is dependent on
information technology; hence it is also referred to as information technology enabled
services or ITES. Knowledge process outsourcing and legal process outsourcing are
some of the subsets of business process outsourcing.

(RPO)Recruitment Process Outsourcing

It is a form of business process outsourcing (BPO) where an employer outsources or

transfers all or part of its recruitment activities to an external service provider. quote
the Recruitment Process Outsourcing Association, "Recruitment Process Outsourcing
is when a provider acts as a company's internal recruitment function for a portion or
all of its jobs. RPO providers manage the entire recruiting/hiring process from job
profiling through the on-boarding of the new hire, including staff, technology, and
method and reporting. A properly managed RPO will improve a company's time to
hire, increase the quality of the candidate pool, provide verifiable metrics, reduce cost
and improve governmental compliance."

On the other hand, occasional recruitment support, for example a temporary,

contingency, and executive search service is more analogous to out-tasking, sourcing
or just sourcing. In this example the service provider is "a" source for certain types of
recruitment activity. The biggest distinction between RPO and other types of staffing
is Process. In RPO the service provider assumes ownership of the process, while in
other types of staffing the service provider is part of a process controlled by the
organization buying their services.

KPO: Knowledge Processing Outsourcing

Knowledge Processing Outsourcing (popularly known as a KPO), calls for the
application of specialized domain pertinent knowledge of a high level. The KPO
typically involves a component of Business Processing Outsourcing (BPO), Research
Process Outsourcing (RPO) and Analysis Proves Outsourcing (APO). KPO business
entities provide typical domain-based processes, advanced analytical skills and
business expertise, rather than just process expertise. KPO Industry is handling more
amount of high skilled work other than the BPO Industry. While KPO derives its
strength from the depth of knowledge, experience and judgment factor; BPO in
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contrast is more about size, volume and efficiency. It is being claimed that KPO is one
step extension of Business Processing Outsourcing (BPO) because BPO Industry is
shaping into Knowledge Process Outsourcing because of its favourable advantageous
and future scope. But, let us not treat it only a 'B' replaced by a 'K'. In fact, Knowledge
process can be defined as high added value processes chain where the achievement of
objectives is highly dependent on the skills, domain knowledge and experience of the
people carrying out the activity. And when this activity gets outsourced a new business
activity emerges, which is generally known as Knowledge Process Outsourcing.
Knowledge Processing Outsourcing (popularly known as a KPO), calls for the
application of specialized domain pertinent knowledge of a high level. The KPO
typically involves a component of Business Processing Outsourcing (BPO), Research
Process Outsourcing (RPO) and Analysis Proves Outsourcing (APO). KPO business
entities provide typical domain-based processes, advanced analytical skills, and
business expertise, rather than just process expertise. KPO Industry is handling more
amount of high skilled work other than the BPO Industry. While KPO derives its
strength from the depth of knowledge, experience and judgment factor; BPO in
contrast is more about size, volume and efficiency. In fact, it is the evolution and
maturity of the Indian BPO sector that has given rise to yet another wave in the global
outsourcing scenario: KPO or Knowledge Process Outsourcing. The success achieved
by many overseas companies in outsourcing business process operations to India has
encouraged many of the said companies to start outsourcing their high-end knowledge
work as well. Cost savings, operational efficiencies, availability of and access to a
highly skilled and talented workforce and improved quality are all underlying
expectations in outsourcing high-end processes to India. The future of KPO has a high
potential as it is not restricted to only Information Technology (IT) or Information
Technology Enabled Services (ITES) sectors and includes other sectors like Legal
Processes, Intellectual Property and Patent related services, Engineering Services, Web
Development application, CAD/CAM Applications, Business Research and Analytics,
Legal Research, Clinical Research, Publishing, Market Research (Market research
KPO) etc.

In today's competitive environment, focus is to concentrate on core specialization and

core-competency areas and outsource the rest of the activities. Many companies and
organizations have come to realize that by outsourcing non-core activities, not only
23
cost is minimized and efficiencies improved but the total business improves because
the focus shifts to the key growth areas of the business activity.

Knowledge Process Outsourcing (KPO) Services:

 Website Design

 Search Engine

 Financial Services

 2D Animation & Design

ASP: Application Service Provider

Application Service Provider (ASP) offers HRIS support via latest HR software and
web-based HR solutions. An application service provider (ASP) is a business that
provides computer-based services to customers over a network. Software offered using
an ASP model is also sometimes called On-demand software or software as a service
(SaaS). The most limited sense of this business is that of providing access to a
particular application program (such as medical billing) using a standard protocol such
as HTTP. The need for ASPs has evolved from the increasing costs of specialized
software that have far exceeded the price range of small to medium sized businesses.
As well, the growing complexities of software have led to huge costs in distributing
the software to end-users. Through ASPs, the complexities and costs of such software
can be cut down. In addition, the issues of upgrading have been eliminated from the
end-firm by placing the onus on the ASP to maintain up-to-date services, 24 x 7
technical support, physical and electronic security and in-built support for business
continuity and flexible working.

There are several forms of ASP business. These are:

 A specialist or functional ASP delivers a single application, such as credit card

payment processing or timesheet services;

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  A vertical market ASP delivers a solution package for a specific customer type,
such as a dental practice;

 An enterprise ASP delivers broad spectrum solutions;

 A local ASP delivers small business services within a limited area.

Some analysts identify a volume ASP as a fifth type. This is basically a specialist ASP
that offers a low cost packaged solution via their own website. PayPal was an instance
of this type, and their volume was one way to lower the unit cost of each transaction.
In addition to these types, some large multi-line companies (such as IBM), use ASP
concepts as a particular business model that supports some specific customers.

E-Services
E-services, outsourcing electronic HR services is a means to procure web aware online
utilities for the organizational HR process improvement. The E-HR service providers
offer value added web-based applications to cater to the need of the employers. E-
Services or "e-Services" is a highly general/generic term usually referring to the
provision of services via the Internet (the prefix 'e' standing for "electronic", as it does
in many other uses). It is true Web jargon, meaning just about anything done online. It
can cause confusion when used in conjunction with "Support," as who knows the
difference between "e-Services" and online Support. It is often best to be avoided for
this reason, especially in Website navigation.

E-Services include "e-commerce", although they may also include non-commercial

services. Non-ecommerce e-services include (at least some) "government" services.

1.12 OUTSOURCING AS A STRATEGIC ALTERNAVTIVE :-

Outsourcing, then, is in direct response to these realities of the modern world.

Organizations of all kinds use outsourcing every day to improve the products and
services they provide customers. They use outsourcing to free capital and brainpower
for investment in research and development, leading to new products and new services.
In fact, more than 90 percent of companies say that outsourcing is an important part of
their overall business strategy.

25
Many firms are finding that even trimming budgets and restructuring departments can't
deliver the savings and performance improvements required to meet the new business
imperatives. One solution seems to be a viable alternative for managing virtually any
critical, non-core function is outsourcing. Outsourcing, or subcontracting
responsibility for completing certain business functions, has been a fact of corporate
life for a number of years. Traditionally, corporations have outsourced individual
business functions, such as computer hardware infrastructure or payroll processing.
With the pressure to refocus and restructure without degrading the service levels of
critical functions, corporations are outsourcing responsibility for entire business
processes. In many cases, only a small monitoring function remains within the
corporation. Several key trends in business process outsourcing are emerging: Most if
not all transaction-intensive, back-office functions have already been or will shortly be
outsourced, if the corporation is to remain competitive .Most of the transactional or
administrative functions are outsourced as others can do better and cheaper due to
economies of scale and focus. The trend toward outsourcing non-core functions is
critical to refocus the precious skills and resources of the business on its central
mission.

Massive business process outsourcing contracts have been the stuff of business news
for a number of years. Fortune 50 firms have negotiated multiyear, multi-billion-dollar
contracts with major service providers such as Accenture, IBM and EDS etc.

1.13 TYPES OF HR OUTSOURCING

In the past, HR outsourcing was thought of as hiring a vendor to provide a service.

With the new focus on outsourcing, there is more of an opportunity to partner with the
vendor to provide the service on a longer term basis rather than just a one-time vendor
contract. HR outsourcing can include:

Discrete services: In this instance, one element of a business process or a single set of
high-volume repetitive functions is outsourced to a third-party administrator.
Examples of discrete services could include the annual open enrolment process,
flexible spending accounts or employee background checks.

Multi-process services: The complete outsourcing of one or more functional human

resource processes would be an example of multi-process outsourcing (also called
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blended services). As such, the outsourcing of either health and welfare benefits
administration or defined retirement plan n to a third-party administrator would be an
example of multi-process or blended services outsourcing.

Total HR outsourcing: Total HR outsourcing represents the transfer of the majority

of HR services to a third party, to include recruitment, payroll, HRIS, benefits,
compensation and communications, as well as the transition of HR management and
staff. However, HR executive management would normally remain in place within the
organization, along with strategic planning related to people management and other
key HR functions at the discretion of management.

1.14 SHOULD ORGANIZATIONS OUTSOURCE THEIR HR FUNCTION?

Successful HR outsourcing means quality service. The recent decision by Unilever to

outsource its HR activities to Accenture appears to be in the right direction. For over
two decades now, much of the literature on the role of the HR function has tended to
emphasize the fact that HR departments in organizations are seen as administration
departments. They do very little value addition in the realm of human potential and
capital management. What Unilever has outsourced, based on media reports, is the
transaction part. In most organizations, pay-roll administration, applicant tracking,
training and development record- keeping, performance appraisal follow-up, human
resource policy clarification are all transaction activities. These are people and effort-
intensive activities but are routine in nature. Such activities, repetitive and routine in
nature, ought to be automated or outsourced.

Outsourcing rests on the premise that activities which are core and central to the
organization need to be performed effectively within the organization. Most successful
outsourcing relationships offer cost-savings, standardization of processes, increased
speed and quality of service. Effective delivery of transaction is the first step in the
journey of the HR department towards becoming a strategic partner. It is quite apparent
by now that success in transaction offers the HR function the credibility to engage in
transformation.

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Outsourcing of HR function has to be a part of an integrated business strategy for it to
succeed. The key, however, is for the senior management team and HR professionals
to identify the core HR processes, and the non-core processes that can be outsourced.
It is increasingly being recognized that human resources are a source of competitive
advantage for organizations, particularly in the information and knowledge sectors.
Various stakeholders in the organization such as the line managers, CEOs and
employees have urged the HR department to play the role of a strategic partner. The
core aspects of HR function related to transformation consist of attracting and retaining
talent, building people capability in the organization, developing a leadership pipeline
and creating a learning organization.

The transformation role envisaged for the HR function in organizations would require
them to contribute in different spheres. Dave Ulrich, in the 1990s, proposed multiple
roles for HR professionals which are extremely relevant in the globalize context. HR
professionals have to play the role of an employee advocate. Advocacy involves both
a discussion and representation of employee concerns. They need to ensure that
employees are treated fairly and that the culture within is one of mutual respect, dignity
and trust.

The role of a functional expert demands specialization. It would entail an

understanding of the various HR systems and processes to solve routine and complex
problems. The role of a strategic partner is to understand the business and work with
line managers to create design and deliver high performance work systems which will
ensure that the organization is competitive on an on-going basis. This would require
the HR function to look at a fit between business strategy and HR strategy and also
between HR strategy and the various HR processes and practices in organizations.

What set of HR activities can be outsourced and what cannot? In my opinion,

recruitment or the process of attracting talent can be outsourced, but selection of
candidates to join the organization cannot be outsourced. Selection is the culture
building process in an organization. While a large part of performance management
has been automated, the task of ensuring that goal setting, feedback, counselling and
mentoring happens is the role of HR.

Similarly, training delivery can be technology enabled, but ensuring that there is an
ongoing development process which builds internal technical management and
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leadership capability is an in-house function. Building an organizational culture that
enables innovation, learning and adaptation is the role of the HR function in an
organization. These core and transformational activities of the HR function are the
drivers of value in an organization.

A Changing Environment for HRM and its Functionality-

In most companies, the human resource function has little strategic importance. The HR
staffs spend 70% - 80% of its time in administration and clerical activities-activities
that are not seen as very critical, and certainly not as core. Nevertheless, there are signs
of a shift in the role of HR functions. Changes in the broader business environment are
altering how firms are managing their human resources and affecting nearly every
aspect of HRM.

Labor markets: Over the past decade, conflicting pressures in the labor market have
brought the role of HR to the fore. Intensifying competitive pressure has also forced
firms to be more aggressive in cutting costs and headcount.

Costs pressures: As the domestic and global competitive pressures intensify, firms pay
increasing attention to their costs operating, overheads and capital costs. In many firms,
HR departments are regarded as a target for efficiency improvement efforts. A growing
number of firms are discovering that HR-BPO providers are more efficient in providing
specialized services to stay ahead in the present competitive environment.

Legal and regulatory environment: The legal environment of HR has grown

increasingly complex. HR managers have been struggling to stay abreast of these
regulatory changes. An increasingly complex regulatory environment drives demand
for outsourced employee services. Many HR specialists feel that an outsourcing vendor
can perform the more heavily regulated functions better, cheaper, and faster than in-
house staff can.

Mergers and acquisitions: Recent years also saw increasingly frequent mergers and
acquisitions. These created huge challenges for the HR function. Globalization

29
represents a comparable need for employees in, and moving between, different
countries. Companies confronted with the challenge of merging heterogeneous HR
technology and infrastructures into one cohesive program often find outsourcing
appealing.

Technology: Of the various forces affecting HR, the development of technology is

perhaps the most important. On the "demand" side, many employees today are
accustomed to working with PCs on their desks that allow self-service information
access. On the "supply" side, the Internet and new generations of software systems have
revolutionized human resource information systems (HRISS) and significantly
improved HR productivity and cost-effectiveness. GE estimated annual savings of $ 2
million when 25,000 calls per month were diverted from HR staff to their HR portal.
Microsoft saved about $1 million in labour costs using portals. These various
environmental changes have led to different HR activities. Under conflicting pressures,
companies have abandoned promises of career employment and shifted to more market-
oriented employment practices. HR functions are looking for ways to provide more
value at lower cost. The key, many argue, is to focus on activities that are "truly
strategic" and outsource the rest. Study shows that there are significant changes in the
activities performed by HR professionals during the last decade.

1.14 MEASURES OF SUCCESSFUL OUTSOURCING

The HR department traditionally has been a cost-consuming function, but is now

slowly contributing significantly to a company's bottom line. This has led to
outsourcing tasks like payroll, benefits, education/training, recruiting, personnel
administration, organizational development, and workforce management. The
outsourcing market is beginning to see HR as a preferred choice.

A Gartner Focus Report (Outsourcing: Time to Deliver Results) echoes that thought:
"Only those companies ready to address the necessary transformation of their HR
processes will find that outsourcing will bring access to world-class processes,
competitive advantage, and increased shareholder value." Technology compatibility,
confidentiality and cost are other challenges that both sides must work on. Mutual trust
is critical, as it's a long-haul commitment. It is imperative that senior management is
involved right from the beginning and also drives the initiative. In addition, a clear
30
understanding of requirements and expectations from both sides is an important
platform in building the relationship. Compatibility in culture and values along with
an open and flexible approach go a long way in ensuring that the outsourcing venture
is a successful one.

A few measures that would help the outsourcing relationship remain contemporary and
relevant are:

 Saving process time and cost

 Levels of satisfaction

 Updates on mandatory practices

 Effective implementation of workflow and policy changes

 Continuous feedback mechanisms

1.15 HUMAN RESOURCE OUTSOURCING PROCESS

Any organization making a significant commitment to HRO is planning with far-

reaching implications-not just for HR, but for the entire organization. For this reason,
it is crucial that all stakeholders involved in the HRO process be involved from the
outset and that there is clarity in relation to the goals and objectives that the
organization expects to achieve.

As a starting point, a multi-departmental steering team, consisting of representatives

of all potential users of the service provider, should be formed and convened. Ideally,
HR will either lead the decision-making process or be crucial to it. Other key members
of the steering team should include high-level managers and executives with a vested
interest in all aspects of human capital asset management and its return on investment,
including operations, information systems technology, finance, accounting, and
logistics. The goals and expectations of the outsourcing process should be developed
and defined in a detailed project plan.

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Stage: 1 Developing a Detailed Project Plan

The multi-departmental steering team should work together throughout the outsourcing
process. The following steps are offered as a resource in this effort. This tool can be
tailored to meet the particular needs of the organization.

1. Map internal processes and assess baseline costs.

2. Select processes for outsourcing.

3. Define vendor requirements and selection criteria.

4. Draft Request for Information (RFI)/Request for Proposal (RFP).

5. Identify potential vendors and pre-qualify.

6. Distribute RFI/RFP.

7. Implement review steps.

8. Select vendor and backup vendor(s).

9. Determine service level requirements.

10. Determine vendor review points.

11. Negotiate contract.

12. Develop transition plan.

13. Determine impact on current staff and need for job transition arrangements.

14. Monitor vendor performance/key performance indicators (KPIs).

15. Initiate corrective action in accordance with contract terms, if needed.

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Stage: 2 Helping Ensure a Successful Solicitation Process

It takes time and effort to ensure a successful solicitation effort. Suggestions to help
guarantee a favourable outcome for the organization are summarized below.

Independent third-party advisor—an organization new to HRO may wish to seek the
services of an independent third-party advisor specializing in HRO to guide it through
the initial outsourcing process. This firm should have no vested interest in the outcome
of the final HRO contract.

Soliciting vendor input—In addition to a formal RFP, it is recommended that a formal

RFI be issued first. This document serves as a first-level screen for qualified, interested
vendors. It also serves to outline the basics of the project and asks for vendor
capabilities and background. The reason that this is important is that the organization
will be able to use the RFI as a prequalification tool to help identify the most qualified
vendors to participate in the RFP.

RFP format—The RFP - request for proposal, should include an introduction and
background of the company, an overview of the project, including submission
information, due date, scope, requirements, selection criteria and objectives. The RFP
should also include a proposal outline or main content points in relation to approach,
company structure, resources, anticipated project timeline, references and related
previous experience. A non-disclosure agreement or confidentiality agreement should
be included to protect the proprietary interests of the organization.

Assessing vendors— a structured approach should be used; the RFP is frequently

formatted in a way that allows weighted points to be assigned for each criterion.
Multiple ratters are encouraged in this process. Vendor presentations are normally first
made to the steering team for phase-one eliminations, with the top finalists going
forward with presentations to senior management.

Due diligence—Care should be exercised in checking vendor references; an effort

should be made to make site visits, if possible. Both current and former clients should
be interviewed (i.e., be sure to ask why former clients elected not to renew outsourcing
contracts). Develop a structured interview questionnaire to ensure that the same
questions are asked of all clients for the sake of consistency and the references are
documented for the benefit of the steering team. Be sure that services are consistent
33
with past experience, especially if industry experience is important. Obtain bios for all
staff assigned to the project and check the personal references of these individuals.
Interview the people who will be responsible for working with the client company, not
just the sales team. If possible, get a commitment that any change in team members
will be coordinated with the company first. The financial stability of the vendor should
also be assessed, and all required business licenses should be checked to ensure they
are current.

Contract—the contract should be developed and reviewed by legal counsel. There will
normally be a master services agreement or a service level agreement, or both. These
documents set specific service levels, document all project requirements and
expectations, and establish fees and invoicing, the duration of the contract, stipulations
of vendor ownership changes, cancellation provisions, parties to the contract, services,
performance standards, contract termination provisions, the
confidentiality/nondisclosure agreement, fees (i.e., invoicing, payment terms,
resolving differences, incentives and penalties), and audit proceedings.

Transition process—this is a team effort. The company and the vendor are equally
responsible for ensuring a smooth transition. Communication and project management
are the key watchwords during this phase of the project. Plan to jointly review all
project plans, services, equipment, and staff who will be in transition. Ensure that
responsibilities for the transfer have been defined well in advance and confirmed. A
successful transition should be transparent to the organization. This means that the
culture of the company must be considered. For example, if there is a high-touch
culture where people expect lots of personal service and insight from HR, consider
how to integrate the outsourcing vendor. Include the vendor as a resource in the internal
company directory, have assimilation meetings to ensure that the staff from the
outsourcing partner are properly introduced to the in-house management staff, etc.

Implementation—Implement HRO as a change management initiative for the entire

organization. Decide who needs to be involved in the planning, communicate the
compelling business case for the change and discuss how potential resistance in the
organization can/will be managed, how people will be rewarded, as well as what needs
to be communicated and when.

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Vendor management—it should come as no surprise that a few matters may fall
through the cracks during the implementation phase. HRO is a massive undertaking,
and the planning and implementation process is intensive for both the vendor and the
client organization.

The internal senior HR staff is normally responsible for the day-to-day management of
the vendor relationship, tracking work performed against defined service levels and
continuing service levels for HR operations not outsourced.

A regular meeting schedule should be established with the vendor at the outset to review
status and vendor reports, service levels, routine contingency planning and disaster
recovery, process improvement plans, rewards/incentives for performance, etc. If and
when problems should develop, contingency plans will need to be implemented, so
consideration should be given to some of the more common problems that may surface
during HRO operations. Typical problems for which remedial action may be required
are: service levels do not meet expectations, turnover of employees at vendor,
difficulties managing the vendor, hidden and escalating costs, employee resistance, and
cultural differences in the way business is conducted. Using good judgment in relation
to contract terms can help avoid some of these problems in advance. For example, in
an attempt to head off/avoid problems with employee turnover, the client company can
specify in the contract which vendor staff members must be assigned to the contract.

To address potential cost escalation, the company may negotiate limits to fee increases
and/or fee additions to the contract for new services. The best time to negotiate these
contingencies is before the initial contract is signed.

1.16 IMPACT OF HUMAN RESOURCE OUTSOURCING

In the competitive business environments that entrepreneurs and business leaders must
operate, every advantage must be identified and exploited to stay ahead of market
rivals. Many companies are seeking to achieve greater economies by reducing the
impact on their human resources departments by outsourcing some HR functions and
tasks. Human resources outsourcing evolved from hiring payroll processing companies
in the 1990s to delegating tasks previously performed by human resources assistants

35
and specialists, such as recruiting, coordinating benefits and handling unemployment
claims. Some small businesses outsource entire human resources departmental
functions; however, many companies outsource singular processes. Here is overview
of impact of HR Outsourcing on companies, HR Profession and on careers of HR
professionals.

1.16.1 Impact on Companies

 Employee reactions

 HR executives taking part in operational and strategic decisions

 Elimination of bureaucracy

 Customer service improvements

 Growth of self-service platform

 Slimming down staff

 Cost savings

 Model will serve to guide other organizational functions

1.16.2 Impact on HR Profession

 Internal HR at significant disadvantage in cost per transaction

 Loss of control of key processes

 Enhanced credibility

 Strategic focus

 Decentralized structure

 Internal politics – HR as business partner

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  Move to customer service culture

 Management and Organizational Development

 New roles – consultant and HR strategist

 Develop competencies to remain valuable

 HR is exposed and more visible as organizational function

 HR is far more measurable

 Align HR strategy with corporate goals

1.16.3 Impact on Career of HR professionals

 Transformation – from transactional administrator to business partner that sets
strategy

 Develop competencies to negotiate and manage vendor relationships

 Demonstrate ability to provide business solutions for customer prob.

 Change bureaucratic culture

 Develop strategic expertise necessary to manage human capital

 Deliver exceptional customer service

 Sharpen your skills

 Build/Develop your network

 Stay on top of trends and their implications

 Utilize vendors now so that they can help you later

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When 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
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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 number 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.

1.17 CHALLENGES OF HR OUTSOURCING

Before you decide if HR outsourcing is right for you, it is important to understand not
only the benefits, but also the challenges associated with outsourcing HR functions.

Disconnection with staff

The word “human” isn’t part of “human resources” for nothing. HR representatives are
critical to help employees feel like they have a voice and value in the company.
Transferring these duties to computer software or to an offsite third party can lead to
staff feeling disconnected from their employers – and employers not fully
understanding their teams’ needs.

39
Less flexibility

In small businesses especially, HR reps and managers can help employees out in a pinch
– paying out unused vacation days in an emergency or letting them dip into next year’s
leave early, for example. When HR is automated and/or outsourced, these types of
accommodations for loyal workers are difficult if not impossible.

Culture changes

Outsourcing your HR functions can change the culture of your organization as well. No
one knows your company culture better than you and your staff, and it can be hard for
a third party to identify and perpetuate that culture. When you outsource HR, team
members may become insecure, less engaged and even less productive. An internal HR
representative who works on the floor with your employees can be key to keeping your
company culture alive and well.

Problems taking longer to fix

In situations where an error has been made – say with payroll or with the number of
vacation days an employee has – going through a third-party HR service can mean a
long wait before the error is fixed, leaving the employee angry or frustrated. In
addition, when an employee quits and the business is using an outside recruiter, the
hiring and training process might take longer than it would with an in-house HR
department, which can be more proactive about hiring and training employees before
positions even open up.

Limited choices

Companies using a professional employer organization (PEO) to handle everything

from hiring and firing to payroll and insurance might have fewer choices for employee
benefits. By handing off control of certain functions to a third party, you’re limiting
your company to whatever packages that PEO has to offer.

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Lack of control

Giving another organization control over some of your internal processes could leave
you somewhat uninformed about your workforce. Although you can work closely with
the HR outsourcing organization to ensure you are on the same page, you likely won’t
be informed on day-to-day processes. If you lose sight of your workplace dynamics,
you might be left with unhappy employees without even knowing. This reduction in
knowledge can transform into a lack of control.

Privacy and security issues

HR outsourcing can leave your employee data vulnerable to security threats if the
company’s software isn’t secure. Many service providers use web-hosted software to
handle HR functions, leaving sensitive employee information potentially vulnerable to
security threats and crashes. The last thing you want is to have your employees’
personal banking or medical information released to the public and break HIPAA laws.

Cost

One of the biggest concerns for many small businesses considering outsourced HR is
the cost, since HR outsourcing costs can vary a great deal. It might seem tempting to
simply hire an internal HR professional to take care of all your HR needs, but they
might also be expensive or unable to cover the many functions HR entails. The good.
thing about HR outsourcing is that you can choose which functions you want to
outsource. This means you can start small and then add on more HR functions as your
needs grow. For example, maybe you want to keep your employee benefits in-house,
but outsource your HR compliance needs.

HR outsourcing services typically cost $50 to $1,500 per employee per month,
depending on what features you need and how many employees you have.

1.18 How to overcome these challenges

A satisfied, hardworking staff is the biggest competitive advantage a business can have,
and you can create a company culture that values employees and their contributions by
making sure their voices are heard. As you can see from the list above, one of the
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biggest challenges of outsourced HR is not having someone who can troubleshoot the
workaday problems, frustrations and miscommunications that are inevitable in any
work environment.

Fortunately for companies considering outsourcing, the best HR outsourcing services

let you pick and choose which functions to hand over to them, so you can keep
personnel on hand to handle those important interpersonal relationships and to act as a
liaison between employees and your HR vendors. While some vendors have an all-or-
nothing policy regarding your HR functions (they either want to handle all your HR
processes or you cannot use them at all), many offer an a la carte option, allowing you
to decide which functions you’d like to keep in the building and which can be performed
elsewhere.

These are the most common services HR outsourcing companies offer:

 Payroll services (paying employees, handling taxes, and tracking sick time and
vacation)
 Employee benefits (health and life insurance, retirement plans, etc.)
 HR management (recruiting, hiring, firing, exit interviews, annual reviews)
 Risk management (employee compensation, safety training, regulatory compliance,
conflict resolution, office policies)

While outsourcing any one of these services would save your business time and money,
it might be wise to keep people-centric jobs (think hiring, firing and performance
reviews) on the premises. In addition, allowing your employees to air their frustrations
and concerns about the outsourced services will help you assess what’s working and
what isn’t to find the best solution for your business.

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 CHAPTER 2:- RESEARCH METHODOLOGY

2.1 STATEMENT OF PROBLEM:

Many companies are outsourcing their HR functions to third-party service providers to

reduce costs, improve efficiency, and focus on their core business activities. However,
this strategy has its own set of challenges, including a loss of control over HR
operations, a lack of understanding of local laws and regulations, and a potential
negative impact on employee morale and engagement. Furthermore, outsourcing HR
functions can result in a lack of alignment between HR practices and overall business
strategy, leading to potential conflicts in terms of employee performance, retention, and
development. Therefore, companies need to carefully weigh the pros and cons of
outsourcing HR functions and implement effective strategies to address the challenges
associated with this approach.

2.2 NATURE OF THE STUDY

 The study done is exploratory in nature .

 Descriptive method of research was used while preparing the questionnaire.

2.3 OBJECTIVES OF THE STUDY

A) Identification of the problem

 To investigate the impact of outsourcing HR functions on organizational

performance, including factors such as cost savings, efficiency, and employee
satisfaction.
 To examine the factors that influence organizations' decisions to outsource HR
functions, including organizational size, industry, and strategic goals.
 To evaluate the effectiveness of outsourcing companies in delivering HR functions,
including the quality of service, responsiveness, and expertise.
 To identify best practices for selecting, implementing, and managing outsourcing
relationships in HR functions.

43
 To find and provide suggestions to the organizations that on which factors
outsourcing activities should be done.

B) Offer A Solution to the problem:

 To define clear expectations and objectives with the service provider.

 To provide suggestion on Selecting the right outsourcing vendor is critical to the
success of the partnership.
 Helps to identify areas of improvement and to adjust the outsourcing arrangement
to better meet changing needs.
 To retain internal expertise.

2.4 NEED OF THE STUDY

It has been felt very useful for many organizational outsourcing practices-

 To analyse key factors that influence the decision to outsource hr functions.

 To study the best practices for managing HR outsourcing relationships.
 To understand long term outcomes of outsourcing HR functions, in terms of
employee satisfaction, productivity, and retention.
 To identify the benefits and drawbacks of outsourcing hr functions.

By conducting a study on HR functions outsourcing, organizations can gain a better

understanding of the potential benefits and drawbacks of outsourcing HR functions,
and make more informed decisions about whether to outsource and which functions to
outsource. Additionally, the findings of such a study can help organizations to develop
best practices for managing HR outsourcing relationships and ensure that the
outsourcing process is as efficient and effective as possible.

2.4 SCOPE OF THE STUDY

 The present study is confined on company outsourcing HR functions could

provide insights into the benefits, challenges.

44
  It also includes emerging trends and new technologies that could shape the
practice, these best practices help companies make informed decisions about
whether and how to outsource their HR functions.
 The data and the information could be collected here has been taken from the
articles ,blogs , academic journals ,.industry reports .

2.5 SOURCES OF DATA:

The data and the information presented here have been collected mainly from two kinds
of sources :

(a)Primary Source:

1. For the purpose of this study, primary data is collected through survey method using
a well-structured questionnaire which adopts qualitative research methodology.
2. Open asked questions with some employees to get detailed data .

(b)Secondary Source:

Several secondary resources have been referred for collecting first-hand information
and literature on the subject that include:

1. several websites on outsourcing in HR functions

2. company websites and annual report on outsourcing trends.

3. new outlets and news articles provided a current snapshot of the outsourcing
landscape and the debates surrounding it .

4. References books by many authors on related study of outsourcing services and

practices.

(The details have been presented in bibliography .)

2.6 DATA COLLECTION METHOD

 Data collection method used for this particular research study was survey
methodology.
 A well-structured questionnaire prepared for surveying the respondents .
 Social media survey is conducted through google Forms .

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 2.7 SAMPLE SIZE

Sample size of this project was 50 respondents.

2.8 TOOLS AND TECHNOLOGIES USED

A) Statistical techniques :
 Tables
 Bar charts and
 Pie charts

B) Hardware and software technologies

 Home pc with Internet access
 MS word and Excel
 World Wide Web or Internet
 Google Forms

2.9 LIMITATIONS OF THE STUDY

Some of the limitations of the project that were encountered during the study are:

 In case of interaction with employees through online ways , it happens many a time
that the employees cannot disclose all the data because of certain reasons like
company privacy policy, etc. Thus, getting clear picture about the service provided
is not possible.
 Due to paucity of time ,only important factors have been analysed and discussed.
 To access such a large number of employees was difficult because of non-
cooperative attitude of respondent.
 The study on HR outsourcing often rely on self-reported data from participants.
which subject to bias, as individuals may not accurately report their experiences or
may have a vested interest in presenting a positive view of outsourcing.
 Measuring the outcomes of HR outsourcing can be challenging, as it may take time
for the benefits to materialize or be difficult to quantify.

46
 One of major limitations to be highlighted here is that physical interaction with
employees within the organization was not possible .
 Also, the survey conducted was online without face to face contact / interaction
with the respondents.

47
 CHAPTER 3:- LITERATURE REVIEW

A review of literature helps the researcher to gain knowledge about the research
work done by others. Reviews of earlier studies enable to get an in-depth knowledge of
the topic and to conduct the study in a different approach from that of the existing
studies in the relevant field. This enables to carry out the study from a new angle. Here,
an attempt is made to review some of the studies already carried on in this subject.

The literature suggests that HR outsourcing can provide significant benefits to

organizations, but it is important for companies to carefully consider the potential risks
and challenges before making the decision to outsource HR functions. By carefully
evaluating their needs and objectives, and selecting a reputable and reliable service
provider, organizations can successfully outsource HR functions and reap the benefits
of increased efficiency, improved compliance, and reduced costs.

 Finn (1999) suggests that a basic distinction can be made between HR "core" and
"noncore" activities. The former include top-level strategy, HR policies, and line
management responsibilities (e.g., appraisal and discipline), while the latter include
specialist activities (e.g. recruitment and outplacement), routine personnel
administration (e.g., payroll and pension), and professional HR advice (e.g., legal
advice related to employment regulations).As with the outsourcing of other
organizational functions, one major issue in outsourcing HR is to decide what types
of HR activities should be outsourced. In making this decision, organizations need
to consider the likely impact of outsourcing these activities on the organization's
performance. To do so, they may need to distinguish between "core" and "noncore"
activities.

 As Oates (1998) suggests, the outsourcing decision is a strategic one and is

generally taken at a senior level. Typical reasons include seeking specialist services
and expertise, cost reduction, and enabling HR specialists to take on a more strategic
role. In general, most commentators are convinced that outsourcing is seen not only
as a cost-cutting exercise but also as a strategic tool.

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 As Greer, Youngblood, and Gray (1999) observe, HR outsourcing decisions are
frequently a response to an overwhelming demand for reduced costs for HR
services.

 In a similar vein, Greer et al (1999) argue that HR outsourcing is consistent with

the business partner role that the inhouse HR department is attempting to assume.
These roles arguably are where HR can add the greatest value to the organization,
but they are difficult to measure quantitatively. Outsourcing HR is also seen as an
effective way to bypass organizational politics and improve efficiency. For
example, according to the sales and training manager of United Kitchen, a company
that has outsourced all personnel and training the company's aim was to buy an
expert who could maintain an objective view, would not get embroiled in office
politics, and yet couch! call on the support of a wide range of other experts in their
own organization.

 Ulrich's (1998) influential thesis of the four roles of HR, in which he proposed that
HR should be a strategic partner, an administrative expert, an employee champion,
and a change agent.

 Klaas, McClendon, & Gainey, (2001) States as it is equally unclear as to whether

and how the effectiveness of these outsourcing activities is evaluated and how
outsourcing provider and client firms coordinate their in-house and outsourced HR
activities to create a coherent HR function. One way to understand these
relationships are to examine the recent trends in HR outsourcing. A number of firms
outsource routine administrative HR activities to release their in- house HR team
for a more strategic role. However, a minority of others have opted to outsource the
entire package, including the design of HR systems that are likely to have a
fundamental impact on organizational culture and performance.

 Woodall, Gourlay, & Short, (2000) says that, this emerging trend raises a number
of questions. For example, what HR activities should be outsourced? How does HR
outsourcing affect the role of the in-house HR function and the rest of the

49
 workforce? What are the pitfalls for the HR function? Evidence from professional
and practitioner publications indicates that HR outsourcing has increased
substantially over the last decade.

 Brain S. Klaas, (2005) who has written a long theoretical study on the impact of
HR outsourcing, found that organizations should be well aware of the prospective
risks before selecting an HR vendor. He explained that the small and medium
enterprises in particular, are rapidly going for HR Outsourcing. He further examined
that there are the variables that can be affected by organizations and will vary from
organizations to organizations, which are administration fees, staff time costs, HR
outcomes and compensation costs. He suggested that if an organization is planning
to outsource its HR functions, should fully research these variables to see which
benefits can be obtained in contrast lowering the costs.

 Gilley, Greer and Rasheed (2004) studied HRO and organizational performance
in manufacturing firms. Their study included results from 94 firms and sought
measures of financial and innovation performance. The findings provided modest
evidence that outsourcing training and payroll was associated with measures of
organizational performance. When firm size, measured by the number of
employees, was added to their model as a moderator the association disappeared.

 Two studies (Mahoney and Brewster, 2002; Eleanna and Papalexandris, 2005)
reported that the HR services most commonly outsourced fall into one of the
following categories: recruitment and selection, training and development, pay and
benefits, mergers and outplacement, performance appraisal systems, HR planning,
and organizational climate and culture. Through the end of 2008, Human Resource
Management Journal had only had two articles with outsourcing in their titles or
abstracts but neither of them dealt with HRO.

 Business Week (Schwartz, 2008) issued a report on HRO innovation which noted
that while early customers were moderately satisfied, they did not fully realize the
anticipated benefits. Most are still waiting for improved business results and

50
 innovative process improvement along with the transformation of HR into a
strategic function. The report concludes that the disappointment is related to an
immature business model the complexities of global HRO and unrealistic
expectations. This report used telephone interviews with CFOs and HR executives
in late 2007.

 Cooke, Shen and McBride (2005) reviewed the literature on outsourcing HR as a

competitive strategy. This review states that the empirical evidence on the reasons
for outsourcing HR and results of HRO are "both fragmented and inconclusive"
(Cooke, Shen and McBride, 2005, p. 414). Their review also contrasts the dearth of
empirical work with the large amount of prescriptive literature on the financial and
strategic reasons for outsourcing. Their article argues for applying the resource-
based view of the firm (Barney, 1991) and institutional theory in the outsourcing
decision making process

 Lieven and De Corte (2008) published the first study on the commitment of HR
managers to the initial decision to continue an existing outsourcing relationship.
They created a model of HR manager commitment in outsourcing relationships
testing affective commitment and continuance commitment. They surveyed a
stratified random sample of 478 firms in the Flemish part of Belgium and received
usable responses from 186 HR professionals. This study found that affective
commitment (desire for the relationship to continue) was related to the depth and
frequency of HR outsourcing. Affective commitment was also related to a
perception by HR managers that the HR vendors shared similar values with respect
to managing people. Continuance commitment (keeping the relationship intact) was
not related to the continuity of HR outsourcing.

 Hall and Torrington (1998) found that training and management development,
recruitment and selection, outplacement, health and safety. quality initiatives, job
evaluation, and reward strategies and systems were the likely HR activities to be
outsourced, either because they were considered noncore or because the
organization lacked the expertise to handle them internally. Hall and Torrington's

51
 findings are supported by Shaw and Fairhurst (1997), who found that training and
development along with facilities management were the most likely areas to be
outsourced, while industrial relations expertise was the least likely area. A large-
scale survey

 (Vernon, Philips, Brewster, & Ommeren, 2000), provides further evidence to

support the earlier findings. The survey was carried out in 1999 on 3,964
organizations, each with more than 200 employees in European countries. It focused
on four different areas of HR outsourcing: training and development, recruitment
and selection, pay and benefits, and workplace outplacement/reduction The survey
found that some 97% of the organizations in the survey used external providers in
HR to cover at least one of the main service areas.

 Sarode,Sheetal Gade (2012) high light the factors which need to be considered
before a company goes for outsourcing of human Resource. The findings of the
research indirectly point out that human resources functions outsourcing is
contingent upon factors like flexibility, availability of adequate resources,
affordability, and acceptability. The research also suggests a systematic process,
requisites and proper planning which successfully execute human resources
outsourcing in the organizations.

 Kernohan, Paul2(2008), technology outsourcing brings benefits and efficiencies

to human resources. Human resources functions gains are assured once the steps are
planned systematically and good service providers are selected.

 Ganesh, ShivGanesh (2007), study that a large number of U.S. companies have
outsourced IT work to countries such as India, it was found that IT outsourcing
raises class issues and ethnic tensions, It gives the relation between outsourcing
and globalization.

 Yu, Tai-Yi(2014), on information systems (IS) outsourcing indicate that public

sector decides to outsource information technology (IT) services because private
vendors offer more cost advantages. This research explores government sectors of

52
 outsourcing and focus on the role of relationship for IS-service provider in
information sharing and providing which are contributing factors to successful
outsourcing in long-term partnerships and is affected by the level of trust that each
has in the outsourcing relation.

 Vaniessa Robinson (2009), reports on research by Leeds university business school

for the Chartered Institute of Personnel and Development (CIPD) on outsourcing
opportunities for human resources (HR). 315 organizations were surveyed, 29%
were outsourcing HR, with 7% opinion was human resources functions outsourcing
is a success.

 Chandrakant Ghabak (2012) revealed with this study that globalization to the
Indian industry is both a threat and oppurtunity. unique human resources practices
has great influence the growth of the IT and ITES sector, Retaining talented work
force is the need of the hour. A model of 3C, viz, cost effective training, conducive
working environment and continuous skill improvement was proposed. The Indian
IT success story has made India's attractiveness as an investment destination.

 Sheigren, Diane (2004) human resources outsourcing is the world’s fastest growing
field.The research proved that there is high level of satisfaction in the executives ,
whose organizations have outsourced their HR Functions.

 KVS Jawahar Babu;G Githanjali Jain (2012) opined human resource

management is a process of bringing people and organizations together so that their
mutual goals are met To combat competition, Human Resource (HR) department
should evolve itself with the transformation . The companies human resources
activities should ensure in overcoming this type of crisis. To tackle this situation
new human resources issues and initiatives should be practiced in the organization.
human resources outsourcing is one such activity.

 Weatherly, LeslieA (2005), Companies and the industries are outsourcing their
human resources business processes numbers to effect improvements in efficiency,

53
 service and cost. vendors are promising quality service, reduced costs to the
organizations. With this mutual state of things human resources outsourcing has
become very successful globally.

 Herbertson, IainManager(2000) discusses the advantages of outsourcing the

human resources (HR) function of a business by the effectiveness of the human
resources department of the Millennium Dome in Greenwich. Process involved in
the selective outsourcing of human resources recruitment program implemented by
manpower, success of the outsourcing is dependent on the competence of the staff.

 Bendorf, MichaelBarge, Bruce N.de Mesa Graziano, Cheryl11(2005), deals on

the issues of the outsourcing of human resource services. U.S. companies are
building value laden relations in building ties between the finance and human
resource functions. This change is to the realization that human capital is the most
valuable asset and greatest cost to many organizations that examined the opinions
of human resource (HR) and finance personnel on the outsourcing of human
resources activities in order to increase value. The findings reveal that both
departments agreed that drivers of outsourcing were primarily to provide access to
improved information, technology and service levels in addition to cost reductions.

 Rison, Richard P.Tower, Jennifer (2005), study focuses on reducing the cost of
human resource (HR) and continue to provide value: Human resources has the
responsibility on which aspects costs should be based on .Many companies will
make changes in the budget cuts to respond to expectations from senior
management to lower costs. This strategy only serves short-term results, but does
not help a company achieve its longterm goals.

 Jie Shen (2005), reviews the selected literature in human resources outsourcing.
The origin of human resources outsourcing can traced back to 19990’s.It’s growth
rate was modest in the beginning, was rapid in the next stage and is future
anticipated growth. The effective management of human resources outsourcing

54
 greatly lies in selecting the right human resources vendors, ensuring service quality,
building strategic relations and managing the enterprise.

 David W. Conklin (2005), have expressed varied of opinions about the risks and
rewards of outsourcing companies' human resource activities, including the entire
business process. This research paper takes into account very preliminary cases of
human resources outsourcing. Human resources departments can always be the
strategic influencer of change management in the organizations. The managers can
always take into account the earlier lessons when outsourcing human resources
functions.

 Jean M. Hiltrop Per V. Jenster, Herna Martens (2001),in the twentieth century
organizations grew rapidly which gave ample scope for career opportunities Advent
of globalization made many organizations to go for cost cutting and outsourcing
non core activities to the specialist vendors. Speed and flexibility dominate the
organizational functioning. Organisations are reducing number of full time
employees. As the markets are becoming supply driven, organizations are finding
hard times in employing permanent and full time staff, they are more depending on
contractual or the part time staff.

 Peter Brown (2010) reveals how a business can create high performance workforce
who become a competitive advantage and who can’t be replaced. Research reveals
that human resources is not too simple nor too complicated to outsource. Human
resource functions has to aligned with business strategy, to support the achievement
of goals with the available infrastructure. and costs have to be reduced. Outsourcing
can play a strategic role to help the organization to achieve their goals.

 Dr. Bharat Vagadia1 (2012) found out that outsourcing industry is relatively new,
which made an impact on the world scene two decades ago, it has gone through a
dramatic evolutionary changes..Organizations have drifted from transactional
outsourcing to strategic outsourcing to the stage of transformational outsourcing.
and to the stage of innovative outsourcing. The research focuses on the
revolutionary journey from one stage to another in the outsourcing scenario. It deals

55
 in various types of outsourcing like of travel and logistics outsourcing, Finance and
accounts. .

 Willcocks and Lacity, 1995), thorough scientific studies of the impact and
importance of outsourcing are still rare. Researchers and scholars are most often
focusing on a rather narrow perspective, usually costs and other particularly
financial benefits, but do not provide sufficiently comprehensive answers regarding
the advantages and disadvantages of outsourcing strategy. Experts in this area claim
that the phenomenon of outsourcing gained so much importance due to global social
change and transformation as well as the booming public sectors worldwide.

 Lonsdale and Cox, 1997; Wasner, 1999; Jacobides, 2005) Outsourcing has been
studied by researchers all over the world from different perspectives. Several
research studies on outsourcing over the last two decades has largely explored the
financial implications of outsourcing and mainly presents parent organizations
dissatisfaction with the ongoing projects which are often terminated before
expected .

 Bolumole, Frankel, and Nasland (2007) & many other researchers have focused
on developing a theoretical framework for outsourcing ,For instance developed a
framework which was based on the transaction cost-based perspective which
considers outsourcing as a way by which organizations use external parties in order
to reduce internal transaction and production costs.

 Kumar and Eickhoff (2006) have suggested that major drivers to outsourcing
activities such as reduced labor cost are often overstated relative to others risks and
issues such as intellectual property protection, quality, and supplier capabilities.
When looking to outsource, an organization should be careful not to farm out work
related to the core competencies of the firm,evaluated transaction cost-based
empirical research on organizational boundary (make, buy, or ally) decisions. They
found strong support for the theory for both make versus buy and ally versus buy
decisions.

56
 Moses and Ahlstrom (2008) clarified how make or buy decision processes develop
overtime and how they cannot be seen as a one-time implementation but rather as a
process that needs both structure and flexibility.

 (Lau & Hurley, 1997; Corbett, 1999; Crane, 1999; Jasper, 2003; Bartlett, 2004;
Farrell, 2004; Drezner, 2004) researchers have focused on successful
implementation of outsourcing strategy which has been credited with helping to cut
cost, increase capacity, 180 Journal of Business Strategies improve quality, increase
profitability, productivity, and improve financial performance and growth.

 Narasimhan and Jayaram (1998) focus on the notion that an integrated Supply
Chain involves aligning sourcing decision in order to achieve manufacturing goals
of responding favorably to needs of the customers. Outsourcing is often used by
firms to pursue quality, costs, flexibility, and dependability objectives.

 (Charara, 2004; Crolius, 2006) the outsourcing trend seemed to have affected
employees through the loss of fixed-employment opportunities and results in an
increasing number of part-time and contract workers typically earning less pay than
permanent workers and without health, life, short- and long-term disability, and
retirement benefits. It also implies a gradual structural change whereby a significant
part of the workforce will be made up of part- time, temporary, freelance, or
independent contractors ,Outsourcing usually has an impact on the organized labor
by intimidating the labor force, as employees are threatened by the prospect of jobs
moving overseas and are not enthusiastic about unionizing .

 Kennedy, et al. (2002) viewed outsourcing in general, as a negative change, which

therefore would create higher levels of dissatisfaction and increased likelihood of
leaving their positions & examined the effect of an outsourcing strategy on those
who become employed as a result of that strategy. They found that the outsourcing
contract created minimal job security for the new employees because the
organization was not committed to these employees beyond the three-year contract.

57
 (Gubbins, Garavan, Hogan & Woodlock, 2006; Tanure & Duarte, 2007; Wirtz,
Heracleous & Pangarkar, 2008) has shown that organisations increasingly
acknowledge the strategic importance of the human resource function. As human
resource management perspectives change from operational and administrative, to
strategic, HR becomes more aligned with organisational goals and strategy. This
change has increased the focus of outsourcing the HR function, and it is steadily
building momentum in many organisations

 The study by Gilley, Greer and Rasheed (2004) has shown that outsourcing the
HR function had an impact on organisational performance. Specifically, the
research showed that outsourcing both training and payroll led to a higher
propensity for organisational innovation. Moreover, outsourcing the training
activity led to high stakeholder performance and an increased ability to add value
to the stakeholder. Furthermore, outsourcing the training activity also led to
improved supplier - customer relations, because employees were well trained by
expert professionals. Thus several research studies have supported that outsourcing
HR activities could encourage the HR function to become more strategic by
spending less time on meeting cost objectives .

 Research conducted by Elmuti (2003) revealed the most common outsourcing HR

activities are recruitment, payroll, training and development, benefit administration
and legal compliance, and the administration or transaction process of HR. that the
top HR activities that their respondents outsourced or decided to outsource were
payroll, administration of retirement plans, and benefit administration. However,
HR outsourcing is no longer strictly about recruitment, payroll, training and
development, and legal compliance, Organisations increasingly report that they
outsource many more HR activities. This implies that, organisations and HRO
providers will become business partners. It seems that in the future, HR providers
will take full responsibility for their client's HR function.

 Logan, Faught and Ganster (2004) examined the impact of the outsourcing
process on employee attitudes and behaviour. The respondents involved with this
58
 research were truck drivers and supervisors who were working for an outsourcing
provider. The result from this survey revealed that to achieve a successful
outsourcing process, organisations should consider three main issues which can
affect employee attitudes. Firstly, the organisation should create a positive first
impression by focusing on the quality and reputation of the provider. Secondly, the
organization should pay attention to employee involvement and satisfaction about
the decision. Results from the study showed that failure to meet employee demands
impact on employee self-esteem, and increased the risk of employee turnover.

 Sriwongwanna (2009) studied the examined the impact of outsourcing HR

functions on attitude and behavior of employees. The finding pointed out that there
were many factors that affect the decision to outsourcing the HR function. The
finding suggested that these factors must produce a higher competitive advantage,
and employee perspectives should be watched closely by organisations when they
are deciding to outsource the HR function and the organisations need effective
communication in the workplace. Failure to effective communication at all of these
and thereby affect productivity ,levels leads to low morale, distrust, and lack of
commitment, which can breed negative attitudes.

 Gilley et al. (2002) have examined the relationship between outsourcing of HR

activities, namely training and payroll and organizational performance. The result
of this study indicated that both training and payroll outsourcing have implication
for organizational performance. The review of literature available on outsourcing
as well as HR outsourcing have revealed that impact of outsourcing of HR activities
on organizational performance have not been widely researched and whatever the
literature is available that is limited to training and payroll outsourcing to a great
extent. No substantial research work was found relating to the impact of fulscale
HR outsourcing on organizational performance.

59
 CHAPTER 4:- DATA ANALYSIS, INTERPRETATION &
PRESENTATION

a) Survey Analysis: - A Sample survey was conducted for the research on" A
DETAILED STUDY ON THE COMPANY OPTING FOR OUTSOURCING IN HR
FUNCTIONS WITH RESPECT TO PUNE REGION”. The sample size of the survey
is 50. The survey was done online through Google forms.

b) Analysis of the project:- Analysis (Online- Google forms) An online survey was
conducted by circulating the questionnaire to a random selection of employee who’s
company has outsourced some or all of the Hr function in their organisation.

Q.1 Gender

Table 4.1

Sr. No. Gender No. of Respondents

1 Male 27
2 Female 23
3 Other’s 0
Total 50

INTERPRETATION:

From the above table, it was found that 54 percent of the respondents are male and
remaining 46 percent of the respondents belongs to female.
60
Q.2 Age Group

Table 4.2

Sr. No. Age Group No. of Respondents

1 18-25 18
2 25-40 29
3 40-55 3
4 55 & above 0
Total 50

INTERPRETATION:

From the above table , it was found that 58 percent of the respondents are in the age
group of 25 to 40 years , 36 percent of the respondents are in the age group of 18 to 25
years and only 6 percent of the respondents are in the age group of 40-55 years .

61
Q.3 Do you know about outsourcing?

Table No. 4.3

Sr. No. Aware with outsourcing No. of Respondents

1 Yes 50
2 No 0
Total 50

INTERPRETATION:

From the above table, it was found that 100 percent of respondents are aware with
outsourcing , no one are unaware of services provided through outsourcing .

62
Q.4 does your organization implemented outsourcing services?

Table No.4.4
Sr. No. Implementation No. of Respondents
1 Yes 50
2 No 0
Total 50

INTERPRETATION :

From the above table , it was found that 100 percent of respondents are belongs from
the organizations in the pune region, which have implemented outsourcing services.

63
Q.5 To what extend your company has outsourced HR function ?

Table No. 4.5

Sr. No. Extension No. of Respondents

1 All HR function are outsourced 2

2 Some HR function are outsourced No 45
HR function are outsourced
3 No HR function are outsourced 0
4 Planning for outsource HR function in 0
future
5 Specify currently using HR function 3
Total 50

INTERPRETATION :

From the above table, it was found that 90 percent of respondents are working in such
organizations , where some of HR function outsourced , 6 percent of respondents are
belongs to such companies in which HR functions have started to outsourced & only 4
percent of respondents belongs to such companies , where all HR function are
outsourced.

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Q.6 Which HR function has your organization completely outsourced?

Table No. 4.6

Sr. No. HR functions No. of Respondents

1 Compensation Administration 8
2 Employee background check 2
3 Employee Training 3
4 HRM in Information system 18
Development
5 Healthcare benefits administration 4
6 Recruitment of employees 4
7 Strategic business planning in HRM 10
8 Performance management 1
Total 50

INTERPRETATION:

From the above table, it was found that 36 percent of respondents are working in such
organizations , where HRM Information Systems Development (software) outsourced,
20 percent of respondents are belongs to such companies in which practices like
strategic business planning, etc are outsourced , 16 percent of respondents belongs to

65
such companies , where payroll /compensation administration is outsourced, whereas
8 percent of respondents belongs to such firms wherein both recruitment process &
other benefits (i.e. healthcare facilities ) are to be outsourced, As 6 percent of
respondents, answered that employee training programs and development use to be
outsourced & remaining 4 percent of respondents responded as function of employees
background checking is outsourced as well as 2 percent of responses belongs to
outsourcing of performance management functions.

Q.7 What is the approximate percentage of outsourcing services provided to your

firm?

Table No. 4.7

Sr. No. Approximate percentage No. of Respondents

1 10-20 8
2 20-30 17
3 30-40 18
4 40-50 3
5 50 & Above 4
Total 50

INTERPRETATION :

66
From the above table, it was found that 36 percent of respondents, answered that 30-40
% outsourcing services were provided to their companies , 34 percent of respondents ,
answered that 20-30 % facilities were provide to their firms , 16 percent of respondents
, answered that 10-20 % of services are facilitated to their firms, 8 percent of
respondents , responded as more than 50 % of services provided to their firms &
remaining only 6 percent of respondents , answered as between 40-50 % of services
get availed .

Q.8 what are your company’s reasons for outsourcing HR function?

Table No. 4.8

Sr. No. Reasons No. of Respondents

1 To allow HRM staff to focus more on 20
core competencies
2 To reduce operating cost 26
3 To improve compliance with standards 1
4 To make up for reduction in HRM staff 0
5 To deliver HR services effectively 3
Total 50

INTERPRETATION :

From the above table, it was found that 52 percent of respondents, answered that
outsourcing helps to reduce operating costs , 42 percent of respondents , answered
that outsourcing helps to allow HRM staff to focus more on core competencies , 6
67
percent of respondents , answered that it helps to deliver HR services effectively &only
2 percent of respondents , responded as it improve compliance with the standards.

Q.9 What benefits has your company gained from HR outsourcing ?

Table No. 4.9

Sr. No. Benefits No. of Respondents

1 It helps in reduction in HR cost 9
2 It helps in improvement in HR services 4
3 It allows the increase in HR efficiency 8
4 To focus more on core competencies 25
5 It allows HR to spend more time on 2
strategy development & execution
6 It helps HR to be perceived as strategic 1
business partner
7 It improves the measurement of HR 1
function
Total 50

INTERPRETATION :

From the above table, it was found that 50 percent of respondents, answered that
outsourcing is benefited which helps to allow HR to focus more on core business

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functions ,18 percent of the respondents , answered that outsourcing helps in reduction
in HR operating costs, 16 percent of respondents , answered that it allows the increase
in HR efficiency , 8 percent of respondents , answered that helps it improves HR
services , 4 percent of respondent ,answered as it allows HR to spend more times on
strategy development and execution & remaining 1-1 percent respondents , respondents
as it helps HR to be perceived as strategic business partner and also improves the
measurement of HR functions.

Q.10 what has your organization achieved as a direct result of outsourcing its HR
functions?

Table 4.9
Sr. No. Results No. of Respondents
1 Achieved cost savings 42
2 Incurred cost increases 3
3 Cost remained about the same 2
4 Reduced employees turnover 3
Total 50

INTERPRETATION :

From the above table, it was found that 84 percent of respondents , answered as their
organization achieved cost savings with the help of outsourcing services , 6 percent of
respondents , responded as it helps incurred cost increases , 6 percent of respondents ,
answered as it helps to reduce employees turnover & only 4 percent of respondents ,
answered as due to outsourcing the costs remains constant .
69
Q.11 What were the obstacles that your organization faced when it decided to
outsource it’s HR function?

Table No. 4.11

Sr. No. Obstacles No. of Respondents

1 Fears about loss of HR staff 4
2 Fears that outsourcing might impact on 12
company culture
3 Fears that customer service to your 29
employees might be affected
4 Lack of prior outsourcing experience in 5
general
5 Resistance from employees in general 0
Total 50

INTERPRETATION :

From the above table, it was found that 58 percent of respondents, answered as in their
organization they fears that customer service to employees might be affected, 24
percent of respondents, answered as they fears that outsourcing might impact on
company culture, 10 percent of respondents, answered as there is lack of prior

70
outsourcing experience in general & only 8 percent of respondents, answered as there
are fears about loss oh HR jobs / staff.

Q.12 what have been negative outcomes of outsourcing your organization HR

functions?

Table No. 4.12

Sr. No. Outcomes No. of Respondents
1 A decrease in employees morals 12
2 A loss of inhouse talent 30
3 Lack of face to face contact with 7
employees
4 Negative impact on company culture 1
5 Unable to achieve cost savings 12
Total 50

INTERPRETATION :

From the above table, it was found that 60 percent of respondents ,answered as due to
outsourcing it negatively leads to loss of inhouse talent / expertise, 24 percent of
respondents, answered as it decrease in employees morale ,14 percent of respondents ,
answered as there were lack of face-to-face contact with employees & only 2 percent
of respondents ,answered as it impact negatively on company culture.

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Q.13 In terms of its impact on the HR profession ,do you believe that human
resource outsourcing has made the following impacts ?

Table No. 4.13

Sr. No. Impacts No. of Respondents

1 Increases HR job opportunities 8
2 Decreased HR job opportunities 7
3 Employment lost 1
4 Employment gain 34
Total 50

INTERPRETATION :

From the above table, it was found that, 68 percent of respondents , answered as hr
outsourcing impacted positively which helps in employment gains , 16 percent of
respondents believes that it helps to increase HR job opportunity, 14 percent of
respondent , responded as there is decreased in HR job opportunities & only 2 percent
of respondents , answered as there is lost of employment.

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Q.14 Do you think that outsourcing of HR functions has positive impact on cost
saving?

Table No. 4.14

Sr. No. Cost saving No. of Respondents

1 Yes 49
2 No 1
Total 50

INTERPRETATION:

From the above table, it was found that, 98 percent of respondents , answered as
outsourcing of HR function in an organizations impact positively, and Only 2 percent
of respondents , answered as it impact negatively .

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Q.15 what unique benefits you observe with outsourcing HR functions in your
organization?

Table No. 4.15

Sr. No. Observations No. of Respondents

1 Cost effective services 16
2 Easy risk management 18
3 Increases efficiency 10
4 Management employee 2
performance
5 flexibility 4
Total 50

INTERPRETATION:

From the above table, it was found that , 36 percent of respondents , answered as the
organization gain more & unique benefits through outsourcing which is easy risk
management , 32 percent of respondents , answered as it is cost effective service , 20
percent of respondents , responded as it helps to increase efficiency , 8 percent of
respondents , believes that it is flexible & only 4 percent of respondents , responded as
the management of employees performance executed properly.

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Q. 16 Do you think that outsourcing of HR functions has improved organizational
productivity?

Table No.4.16

Sr. No. HR functions No. of Respondents Total

1 Compensation administration Strongly agree=38 50

Agree =12
2 Employee training Strongly agree=26 50
Agree =23
Disagree =1
3 Recruitment(executive) Strongly agree=19 50
Agree =31
4 Recruitment (non – executive ) Strongly agree=12 50
Agree =36
Disagree =2

INTERPRETATION:

 From the above table, it was found that 76% responded strongly agree that Hr
outsourcing improves organisations productivity in areas of payroll/compensation
administration while the other agree.
75
 From the above chart it was stated that 52% respondent strongly agree that
outsourcing Hr functions improves employee training, where 46% and 2% do agree
with the statement.
 From the above data 38% strongly agree that outsourcing Hr functions improves
recruitment of executives while the rest agreed.
 From the data responders have stated that outsourcing hr functions improves
recruitment of non-executive members 24% strongly agree , while 72% agreed and
4% disagreed

Q.17 what level of Return on Investment (ROI) does your organization achieved
by outsourcing of HR functions?

Table No. 4.17

Sr. No. Return on investment No. of Respondents No.

of Respondents
1 50-60 27
2 60-70 20
3 70-80 3
4 80-90 0
5 90-100 0
Total 50

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INTERPRETATION :

From the above table, it was found that, 54 percent of respondents , answered as their
organization ROI through outsourcing services is range between 50-60 % , 40 percent
of respondents , answered as the range of ROI is between 60-70 %& remaining 8
percent of respondents , answered as ROI ranges between 70-80 %.

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 CHAPTER 5:- FINDINGS, CONCLUSION AND SUGGESTION

5.1 FINDINGS

The present chapter presents the findings of the study and lists down the various
aspects of hr function outsourcing with respect to pune region.

 Analysing the survey response, almost all the organization has availed the
outsourcing services in Hr function.
 Most of the organization in Hr function has outsourced strategic business planning
in HRM & HRM information system development
 Most of the organizations have outsourced 30 - 40 % of Hr services.
 Through the survey we found that most of the Hr functions are outsourced to reduce
operating cost & focus on core competencies.
 Most of the personnel and staff believe that Hr outsourcing has positive impact
because it generates Hr job opportunities
 Due to outsourcing services the performance and organizational development take
place effectively.
 HR outsourcing providers can help ensure compliance with local, state, and federal
employment laws and regulations.
 Outsourcing HR functions can lead to improved efficiency and productivity by
streamlining processes and providing better technology and tools.
 HR outsourcing providers often have access to the latest technology and tools that
can help organizations manage HR functions more effectively.

 HR outsourcing providers can scale their services to meet an organization's needs

as it grows or experiences fluctuations in demand.

 Commonly outsourced HR functions: The most commonly outsourced HR

functions include payroll, benefits administration, recruitment and staffing,
employee relations, performance management, and training and development.

78
 Types of HR outsourcing: There are three main types of HR outsourcing: business
process outsourcing (BPO), human resources outsourcing (HRO), and recruitment
process outsourcing (RPO).

 Organizations may decide to outsource HR functions due to cost considerations,

lack of in-house expertise, the need for specialized services, and the desire to focus
on core business activities.

 The HR outsourcing industry is experiencing several trends, including a shift

towards cloud-based solutions, increased use of artificial intelligence and
automation, and the emergence of new niche HR outsourcing providers specializing
in specific functions or industries.

 HR outsourcing can be particularly beneficial for small and medium-sized

businesses that may not have the resources to maintain an in-house HR team,
allowing them to access specialized HR expertise and technology at a lower cost.

However, there are also potential drawbacks to outsourcing HR functions, such

as:

 Outsourcing HR functions means relinquishing some control over HR processes

and policies to a third-party provider.

 Communication can be more difficult when working with an external provider,

which can lead to misunderstandings or miscommunications.

 Outsourcing HR functions can raise concerns about the security and confidentiality
of sensitive employee data.

 HR outsourcing providers may not be compatible with an organization's existing

HR systems and processes, leading to integration challenges.

79
 HR outsourcing providers may have limited flexibility to customize their services
to an organization's unique needs and requirements.

 Through findings it also results , there are potential risks associated with HR
outsourcing, including loss of control, communication issues, and data security
concerns. It is important for organizations to carefully evaluate potential providers
and establish clear communication and performance metrics to ensure the success
of an outsourcing arrangement.

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5.2 CONCLUSION

In conclusion, outsourcing companies in HR functions can offer many potential benefits

for organizations, but it is important to carefully consider the challenges and risks
involved. Effective vendor management, the use of technology, and attention to
employee satisfaction can all contribute to the success of outsourcing relationships.
Ultimately, the decision to outsource HR functions should be based on a thorough
analysis of the costs and benefits and the specific needs and goals of the organization.

Outsourcing of jobs is a natural trends found that HRO practices have evolved
into second-generation outsourcing, with considerable potential to grow further in the
future. Firm size and sector had little or no effect on the degree of HRO. Both cost
benefits and resourced-based benefits were key drivers of HRO decisions, with a
majority of the firms reporting having achieved these benefits equally and positively.
Most of the functions outsourced were traditional-transactional HR functions. Slightly
more than half of the HRO decisions were made by top management without the
involvement of HR managers. More than half of the firms surveyed intended to do more
outsourcing in the near future (i.e. within the next two to five years), including firms
that had previously experienced HRO failure. More importantly, it is a source for
increasing competition and productivity. It sharpens the edge of economic actors, and
is the stimulus for creating new jobs and business opportunities. This paper concludes
that outsourcing of a company's human resource activities may greatly reduce the
related costs of managing those activities internally. This move may give the company
and its employees the benefit of the much improved human resource services. This
conclusion serves as the basis for future study on the effectiveness of this strategy in
light of achieving and sustaining a company's competitive advantage over its business
competitors. From the literature survey and findings, it is highly recommended that
companies review the capability of internal HR resources against the needs of the
business plan. They should study the experiences of other organizations, especially the
problems they encountered and cost benefit analysis.

Deciding whether to reinforce existing staff or outsource one or more activities, based
upon the scope for expanding expertise and its use, cost of obtaining internal facilities

81
as compared to acquiring an external service. Companies should also determine
whether outsourcing is appropriate for one-off project or long-term contract. In this
regard, obtaining Board of Directors' approval on the issue and subsequently providing
of access for the provider to the directors are necessary steps to be carried out. It is
advisable to consult management about any reservation they have and address concerns
to them. Likewise, get feedback from employee representatives and cast out fears of
job redundancy. Be sensitive to the feelings of employees whose job will be highly
affected by the outsourcing move. Allow enough time for them to accept the new
processes and the vendors.

Prior to signing of agreement, companies should check relevant legislation, terms and
conditions of employment of those affected to ensure no violation of employees' rights.
Draw up a specification for the provider by giving detail of the functions to be served,
desired performance level, monitoring process, duration of agreement, and exit
mechanisms should the arrangement turns sour. Ultimately. companies should select
the vendor on the ground of proven track record, knowledge of the industry, relevant
skills, compatibility, and more importantly cost. After the selection process is done,
companies should foster communication procedures with the selected vendors so as to
iron out any problem that might arise in the unforeseeable future

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5.2 SUGGESTIONS:

The following are the suggestions offered by the research based on the above
findings .

 Organizations should carefully consider the benefits and challenges of outsourcing

HR functions before making a decision.
 Employee satisfaction is an important consideration when outsourcing HR
functions.
 Organizations should consider the potential benefits and challenges of this approach
before making a decision.
 Outsourcing HR functions can be a complex process that requires careful planning
and execution. Organizations should seek out expert advice and guidance to ensure
they are making informed decisions and implementing best practices.
 Start by defining your HR needs and determining which functions you want to
outsource. This could include tasks such as payroll processing, benefits
administration, employee record keeping, or recruitment.
 Research potential outsourcing partners and evaluate their experience, expertise,
and track record. Look for vendors that specialize in HR outsourcing and have a
proven track record of success.
 Develop a clear and comprehensive contract that outlines the scope of work, service
level agreements, pricing, and other key terms and conditions. Make sure the
contract includes provisions for data privacy and security.
 Establish clear lines of communication with the outsourcing partner to ensure that
expectations are aligned and issues are addressed promptly. Regular communication
can also help build a strong working relationship.
 Monitor the outsourcing partner's performance regularly to ensure that they are
meeting service level agreements and delivering high-quality work. Conduct
periodic reviews to identify opportunities for improvement.
 Train internal staff to work effectively with the outsourcing partner and to manage
any internal processes that may be affected by the outsourcing arrangement.
 Continuously evaluate the outsourcing arrangement to ensure that it is delivering
the expected benefits and identify opportunities for improvement or changes in the
arrangement.

83
 Manage the transition to outsourcing carefully to ensure that it is as smooth and
seamless as possible
 When evaluating potential outsourcing partners, consider their cultural fit with your
organization. Look for vendors that share your values and have a similar
organizational culture to help ensure a good working relationship.
 Choose an outsourcing solution that can scale with your organization's needs. This
will help ensure that the outsourcing arrangement can grow and evolve over time
as your business needs change.
 Ensure that the outsourcing partner is compliant with all relevant laws and
regulations, particularly those related to data privacy and security. Conduct regular
audits and reviews to ensure ongoing compliance.
 Evaluate the cost-benefit of outsourcing HR functions carefully. While outsourcing
can save money in the short-term, it may not always be the most cost-effective
solution in the long-term. Consider factors such as the cost of the outsourcing
partner, internal staff time, and potential impact on employee morale and
productivity.
 Ensure transparency in all aspects of the outsourcing arrangement, including
pricing, service delivery, and performance metrics. This will help build trust and
maintain a strong working relationship with the outsourcing partner.
 Stay informed about developments in the HR outsourcing industry, including new
technologies and emerging trends. This will help you stay ahead of the curve and
make informed decisions about outsourcing HR functions.

84
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