Out sourcing HR Functions Boon or Bane

Dept. of Personnel Management

Presented By:

IndSearch Group

Introduction

History of Outsourcing• Barter system- First instance of outsourcing

• Idea was rooted in 1776 in “competitive advantage theory” propagated by Adam Smith.

• Early examples of outsourcing- -England Textile Industries in 1830 -Making of American wagon covers

:A job outsourced to Scotland.

More Recent examples:-• Eastman Kodak• Nike

Outsourcing is defined as :- Delegation of task to an outside entity.Functions outsourced to a third party under contract.Buying goods or services instead of producing them

in house.

• Outsourcing includes:-- Offshoring - Nearshoring

Changing Trends in HR Outsourcing

Traditional Outsourcing • Different HR functions were outsourced to

different vendors.

company

Recruiting Payroll

BenefitAdmin

Training

Supplier3 Supplier

1Supplier

2

Supplier4

Outsourcing the whole process to a single vendor

Pay RollEducation &

Training

Com. Plan & Strat.

Benefit Admin

Org Dvpt.

RecruitingPersonnel

Admin

Cont. Workforce

Mgt.

Value Chain Integrator

Success rate of world wide spending on outsourcing services

45%85%

2006

2001 -2005

0

2

4

6

8

10

12

14

16

18

2002 2003 2004 2005

Pay RollBenefit AdminPerson. Admin

Outsourcing HR: Spending

Gartner Group, HR Outsourcing: Time to Deliver Results-2001

In Billion Dollars

(Years)

Drivers for HR Outsourcing

• Downsizing

• Rapid growth

• Globalization

• Increased competition

• Restructuring

Rationale for HR outsourcing

• Stage of evolution of the HR function

• Need for expertise

• Time pressure

• Cost reduction

Cost reduction main rational to outsource

0 20 40 60 80

Resourceavailability

Serviceimprovement

Cost reduction Top mgtLine mgt HR

Percentage of Respondents

Criteria for Outsourcing

Based on these theories:

• Transactional Cost theory

• Resource Based prospective

1. Model for Virtual HR

Framework to decide which function to Outsource

Idiosyncratic

HR Activities

Peripheral

HR Activities

Core

HR Activities

Traditional

HR Activities

Low High

High

Low

Value

Uniqueness

2. Alan Speaker’s Theory

Classification of HR Activities:-

• Type of Activity

• Strategic value of Activity

HR Functions Outsourced in Practice

• Frequently outsourced functions: Fully or Partially

0 20 40 60

Other Benefit Mgt

Trng & Dvpt

Recruiting

HRIS

Pay Roll

FullyPartial

HR Executives views on HR Outsourcing

Employee Communication

Assessment

Recruiting

HRIS

HR Functions Views in %

YES NO

13% 87%

43% 57%

52% 48%

35% 65%

Case Study-1Bank Of America• Leading financial service organization• Approximately 1, 85, 000 employees.• 4200 banking centers

HR- Department• 1300 employees in HR• Have outsourced many of their HR activities to Exult like, - International relocation -administration , regional staffing,”life event coordination”(Leave

and Retirement) policy and general benefits etc.

Motives for outsourcing

• Reduce Costs• Focus resources on core

activities and core competencies

• Expand and improve services.

• Benefits from Vendor’s investments and innovation

• Improve career opportunities for staff.

• Increases Flexibility

Results from outsourcing

• Activities like Payroll,benefits, administration were completed within 7 months.

• Cost reduction goal of 12 per-cent annually was achieved.

• Could focus on more strategic tasks like process design and development.

• Increase in Percentage of internal recruitment from 16% to 35%.

Case Study-2

Sunoco Inc Headquartered in Philadelphia

Leading Manufacturer and Marketer of Petroleum and Petrochemicals.

Approximately 14000 Employees

5 Different Business Units

45 Employees in Central HR Department

HR Functions Outsourced at Sunoco Drug Screening

Central advertising for new employees

Posting of Employment Advertisement online

Executive Search

Salary Surveys and Statistics

Outsourcing Payroll Function• Outsourcing Payroll to third party vendor• Preparation for New Millennium• People Soft HRMS

• Dependence on Vendors

• High Costs

• Loss of Control

• Low morale among permanent employees

• New Risks

• Sub-standard Service

Bane or Disadvantages

Conclusion

1. Human Resource Outsourcing is still in developmental stage.

2. Issue like Data security needs attention.

3. Its neither a Boon nor a Bane, and depends on organization and situation.