HR OUTSOURCING

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

• Consider the problems with DSAs in credit card

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