HR OUTSOURCING

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HR OUTSOURCING

• Dr C S Venkata Ratnam
• Director, IMI

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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!

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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

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What to outsource in HR?

• Three things that managers do (Henry Mintzbergs
  Nature of Managers Job)
• Interaction (outsource)
• Information gathering/processing (outsource)
• Decision-making and problem solving (do not
  outsource)

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The decision to outsourceTransaction 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

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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.

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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

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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)

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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?

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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

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Pros and cons

• Pros
• Cost and savings
• Financial and operational flexibility
• Need to focus on few things
• Access to quality, expertise and better
  management skills
• Staffing flexibility

• Cons
• Need greater coordination flow with agencies
• Reduces organizational learning by depleting its
  skill base
• Loss of control
• Adverse affects on morale and motivation
• Job insecurity

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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

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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

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Dominant trends3 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

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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

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Risks of HR outsourcing

• Trust
• Confidentiality
• Dependency
• Spillover risks
• Relative proficiency
• Strategic capability
• Commitment
• Flexibility

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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?

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websites

• www.sharedxpertise.org
• Websites of all leading HR consulting firms