HR Outsourcing
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Transcript of HR Outsourcing
HR Outsourcing
What is Outsourcing?
The performance by outside parties, on a recurring basis, of tasks that would otherwise be performed in-house.
Other Definitions
In-sourcing Off-shoring Co-sourcing Outplacement
In sourcing – This refers to when companies look at their pool of employees to find those who may be tapped to do certain needed jobs. They may offer these employees extra training or they may merely find the employees that already possess the skills to take on specialty work.
Off shoring - Off shoring simply means having the outsourced business functions done in another country. Frequently, work is off shored in order to reduce labor expenses. Other times, the reasons for off shoring are strategic -- to enter new markets, to tap talent currently unavailable domestically or to overcome regulations that prevent specific activities domestically.
Co sourcing – Co sourcing is where a business function is performed by both internal staff and external resources, such as consultants or outsourcing vendors, with specialized knowledge of the business function.
Out placement - Outplacement is a term used to describe the efforts made by a downsizing company to help its redundant employees through the redundancy transition and help them re-orientate to the job market . A consultancy firm usually provides the outplacement services.
Types of Outsourcing Business Process Outsourcing Information Technology - 28% Human Resources – 16% Sales & Marketing – 15% Finance – 11% Administrative – 9% All Others – 22%
How Common is HRO?
58% of companies outsource some HR function 91% of companies with $1 billion+ annual
revenues are now considering HRO HRO grew 28% from second half of 2004 to first
half of 2005
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companies thatoutsource some HR
function
companies with $1billion + annual
revenues consideringHRO
HRO growth fromsecond half of 2004 to
first half of 2005
companies that outsource some HRfunction
companies with $1 billion + annualrevenues considering HRO
HRO growth from second half of 2004to first half of 2005
The HRO Market
In next 5 years, global spending on HRO will double – from $40 billion to $80 billion
From 2002 to 2004, 14% increase in large firms that would consider HRO
Areas where HRO will work
Relocation Recruiting/
Staffing Competence
Development Salary
Administration Consulting and
Training
HR Information Systems
Disciplinary Issues HR Surveys HR Research Staff Loans and
Perks Manpower and
Career Planning
Least Commonly Outsourced Functions
Performance Management 3% Strategic Business Planning – 4% Policy Development/Implementation – 4% Employee Communication Plans – 10%
Why are organizations outsourcing?
Preference for HRO
Outsourcing of BOP (Bottom of Pyramid functions) instead of BPO
Saves key people’s time Concentration on core competency Enhancing profitability Mid-sized cos - >87% of funds towards
routine processing transactions Best systems, most experienced minds
Advantages of HRO Reducing or eliminating fines and penalties by keeping
pace with changing government regulations. Achieving measurable, bottom-line results by
increasing efficiency and leveraging outsourcee’s economies of scale.
Lowering infrastructure and facility costs by having the HR function administered off-site.
Sharpening your business focus by eliminating interruptions caused by employer obligations, risks and liability.
Improving employee retention and morale by providing timely answers to payroll and benefits questions.
Advantages (contd..)
Expanding scope and level of service. Your HR department can’t be subject experts in all areas – our staff of more than 65 HR professionals can.
Implementing organizational initiatives that link to your overall business plan: HR becomes strategic, not tactical.
Overall, companies tend to outsource to alleviate administrative burdens and focus on strategic areas
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
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
Factors hampering HRO Cost factor & Confidentiality The fear of losing jobs Loss of sensitive information to
public/competition Ethics and quality of outsourcing vendors Possibility of security breaches Cost-benefit equation not clear Lack of psychological acceptance
Outsource activities that
Have high volumes Are repetitive and
routine Reflect consistent
customer needs Have opportunities to
leverage Are service and
efficiency driven Are easily measurable in
terms of performance
Support key business processes
Get influenced by external forces
Require high content expertise
Are ad-hoc, periodic future oriented projects
Are difficult to measure Have high impact on
organization as a result of non performance, failure or mistake
Retain activities that
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
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?
Current outsourcing trends worldwide Outsourcing in traditional areas like customer care, financial
services, manufacturing, IT, ITES is growing. Large multinational companies are investing in captive BPO units
in supplier countries in multiple locations, to reduce risk and control quality.
Outsourcing is becoming more sophisticated. Customers are looking for business process excellence, speed to market, improvement in quality, benchmarking to world-class standards. CEOs are involved to ensure the long-term success of strategic offshoring decisions. On their part, suppliers understand that they must compete globally and that outsourcing will play a more transformational and strategic role for the client.
There is increasing global competition and pressure on margins from emerging lower-cost outsourcing destinations.
Current outsourcing trends worldwide Risk factors for outsourcing like terrorism and
war, disaster and disease make contingency plans a necessity.
The IT industry will see roughly 10 to 15% of its jobs move overseas during the next ten years, inviting more political debate.
For the past two decades, China has been growing at an astounding 9.5% a year and India by 6%. They are impacting the global economy and leading the outsourcing revolution.
Future outsourcing trends worldwide Outsourcing expenditure will continue to rise. More countries will find outsourcing attractive,
creating a multi-polar world. Following the lead of the US and UK, the European Union markets will expand their offshoring programs, while Japan will increasingly look to China for its needs.
Customers will take greater control in driving and designing deals.
The interlinking of the supply chains brought about because of outsourcing will create stability as companies will put pressure on governments to avoid wars.
Future outsourcing trends worldwide Risk factors and unexpected occurrences like war,
terrorism, disease, natural disasters and economic upheavals can throw a wrench in the works.
The rising price of oil will put increasing pressure on companies to both utilize technology and outsource to remain profitable.
The rising price of oil will cause oil consuming countries like the USA to be less competitive resulting in more outsourcing to India and China.
India will show excellence in Services that require advanced English like Research and Analysis Outsourcing, Content and Medicine.
Future outsourcing trends worldwide Political backlash over outsourcing is likely to
lessen over time as economies strengthen and companies continue to reap the benefits of offshoring.
Technological power will shift from the West to the East as India and China emerge as big players in the global outsourcing market. The two countries have the size and weight to transform the 21st global economy.
By 2015 China will be No. 1, India No: 2 in the global top five outsourcing destinations.
Vendor focus will shift from basic skills, costs and processes to domain knowledge, transition challenges, change management, HR issues and governance.
Future outsourcing trends worldwide Regional outsourcing hubs will develop as
companies will take strategic near-shoring initiatives to minimize risk and leveragecultural and linguistic compatibility. The supplier countries are in the same time zone as their customers.
The large diverse Indian companies will face stiff competition from new focused smaller companies. Because these companies are able to focus and become excellent in one are they will be able to provide a higher level of service.
Opportunities Areas for India Research and Development
Product Innovation - Companies are going beyond basic
research to invest in innovation and new product
development. Companies that have invested in R&D in India
are Cisco Systems, Motorola, Hewlett-Packard, Google
General Motors Corp. and Boeing Co among others.
Co-development- In pharmaceuticals, India has the
opportunity of co-development and ownership of new
patented drugs through drug research, clinical trials and
manufacturing. Indian pharma major Ranbaxy has an
agreement with MNC GlaxoSmithKline to commercialize
compounds they develop together.
Opportunities Areas for India Legal Outsourcing
India ’s large pool of qualified English-speaking lawyers with experience in the British legal system can offer paralegal support, legal support and patent services. A few Indian companies affiliated with American law firms are now able capture a tiny piece of the American market. They are now doing legal research at very high rates by Indian standards but yet 50% below typical American rates.
Engineering OutsourcingIndia can provide high-quality engineering services in the fields of:
Mechanical & Electronic engineering - analysis and design , embedded software
Plant Design, Process Engineering Plant Automation Services Enterprise Asset Management and OEM solutions
Opportunities Areas for India Remote Infrastructure Management Services
India can offer management services for IT infrastructure, applications operations, IT security and maintenance. This sector presents great potential through large-value multi-year contracts
Accounting ServicesWe are in the initial stage where payroll processing services and some accounting is being done for large American companies. This trend will continue and soon a full range of accounting and tax services will be provided by Indian companies.
Opportunities Areas for India Outsourcing opportunities for India exist
in other fields like Financial Research, content development, medical writing: animation, film, publishing, web services; Human Resource outsourcing: recruitment, training, Education, Nanotechnology and many others.
Challenges for India Rising competition In the next ten years, China will replace India in its
number 1 position in the global ITES-BPO industry. Rising costs and low efficiency in many cities like
Bangalore will make software outsourcing less attractive in future. The giants may show a drop in earnings.
India ’s terrible Infrastructure will continue to be a drag on the potential of India giving other countries the competitive advantage.
Other competing countries providing low-cost outsourcing options will exert a downward push on costs – East Europe, Latin America, South Africa
Challenges for India Infrastructure India ’s ability to develop infrastructure is far outpaced by
neighboring China Metro cities are getting saturated and costs are rising --
Tier II towns need to develop infrastructure but India’s track record does not bode well for fast development.
Human resources and training The demand-supply gap in India for knowledge workers
is being felt now in Bangalore but may peak India wide in 2008-2009
The education system needs transformation to produce people with skill sets that match industry needs.