Shrm Project 2003

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SHRM PROJECT

ON

FUTURE TRENDS IN HRM

A Study on Trends in HR Outsourcing in

Indian Context

Submitted to: By :

Dr Sujata Taru Taneja D-8

Disha Bhagat D-28

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Contents

1 Scope Of The Project

2 Introduction

3 Literature Review

4 Objectives Of The Project

5 Methodology

6 Data Collection

7 Analysis

8 Recommendation And Conclusion

9 Limitation

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Scope Of The Project

This project is aimed at analyzing the current state of the HR outsourcing market in India and the

trends that are prevalent in the same. Today, in this era of globalization there is high degree of

competition in all areas. One very important trend in the recent times has been the growth of

human resource outsourcing. Rapidly changing market dynamics and global competitive

pressures have caused organizations to spend more time focusing on their core business.

Organizations are fast realizing that they can't be all things to all people. So companies now, be it

a software company, a service provider or a manufacturing firm, decide what they are good at

and outsource everything else, i.e., focus on their core competency, and let someone else do the

rest in a more efficient and cost-effective manner.

As a result, human resources outsourcing is becoming increasingly prevalent. The number of

companies outsourcing HR activities continues to rise, and the scope of outsourced HR activities

continues to expand. HR outsourcing can happen in HR functions, like payroll administration

(producing checks, handling taxes, dealing with sick-time and vacations), employee benefits

(Health, Medical, Life insurance, Cafeteria, etc), human resource management (hiring and firing,

background interviews, exit interviews and wage reviews), risk management, etc. Outsourcing

has become a common response to manage people and technology resources strategically,

enhance services, and manage costs more effectively.

Outsourcing non-core activities allows HR professionals to move away from routine

administration to a more strategic role. The organization can focus on higher value added

activities while the outsourcing provider takes care of the day-to-day administration. Critical

internal resources, such as technology and talent, can be devoted to company's core business.

Outsourcing reduces the need for large capital expenditures in non-core functions. Thus,

outsourcing becomes a strategy for reducing the capital intensity of the business. This strategy

has gained popularity as companies aim to become more nimble and gain the speed and

flexibility necessary to compete in today's business environment. A growing number of

executives understand the benefits it can bring in terms of not only cost savings, but also

heightened strategic focus.

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Many recognize outsourcing relationships as long-term partnerships created to further the

strategic goals of the organization.Companies to whom organizations outsource their Human

Resources function posses the knowledge and resources to expertly perform part or all of a

clients' human resources function, allowing the client to streamline their internal processes and

concentrate on generating profit in their core business. But still in India, people are not very clear

about what exactly is manpower outsourcing all about, and issues like quality and trust needs to

be addressed properly. Experts say the basic reasons hampering the growth of HR outsourcing in

India are confidentiality and cost factors.Moreover, the fear of losing jobs, losing control over

confidential data, ethics and quality of outsourcing vendors, security breaches and overall

confidence in the vendors deters many organizations. The biggest problem - and this is why the

HR outsourcing industry in India is on the back foot - is the government and the industry's

failure to tackle issues like data security and data privacy. This is where Indian HR outsourcing

companies face a major handicap. However, the future seems to be very promising. Estimates

show that the latent size of HR outsourcing in India is about $ 2 billion with a current market of

$ 27 million and it is growing at an alarming rate of about 50 per cent. India has immense

potential as more than 80% of fortune 1,000 companies are discussing HR outsourcing as a way

to cut costs and increase productivity.

As part of our project, we gathered information from a number of companies about HR

outsourcing and the reasons for which they outsource or dont outsource. Also, we tried to

find out about the preferred models for outsourcing and perceived advantages and disadvantages.

Research Process adopted was as follows:

1. Defining the objective of the research and reviewing literature available on it

(Secondary Research)

2. Collecting data

3. Analyzing data

4. Preparation of report

5. Recommendations and conclusion

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Some of the companies included in the project were:

Aditya Birla Group

Birla Sunlife

Kotak Life Insurance

Aviva

Dalmia Cements

The research can be very useful to the HR professionals to understand the current trends in the

market with regards to outsourcing of HR services. It will give them a comparison of the firms

outsourcing HR services with those that have completely inhouse HR functions. They will get to

know about the perceived advantages and disadvantages of HR outsourcing and also the

important considerations to be kept in mind.Outsourcing Vendors can also find this research

useful in understanding the needs of their potential and existing clientele. The students can also

benefit from this research as they will become aware of the new trends in the field of HR and

will be better prepared for the challenges ahead of them when they join the industry as HR

professionals.

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Introduction

In a nutshell, outsourcing is an accepted management tool for restructuring and refocusing the

way an organization does business. It challenges management to build a more flexibleorganization centred on the core competencies of the business. In making the determination that

a business has more to gain by having certain "noncore"aspects of the business outsourced to a

third-party service provider, the organization transfers responsibility for one or more activities or

functions that would normally be performed in-house to a qualified vendor, for a specified period

of time and at a negotiated fee, in accordance with terms stipulated in a service level agreement

(SLA). In essence, the organization is making a decision to send certain parts of the business out

to a provider whose "core competency" is that part of the business.HR outsourcing (HRO) is the

application of different business models and techniques to new forms of activities or processes

and radically redesigning them to create outputs of value for end users such as customers or

employees. HRO can be traced back to the definitive work of Michael Hammer and Jim Champy

in Re-engineering the Corporation. This spawned the business process re-engineering (BPR)

industry in the 1990s. Business process outsourcing (BPO) is based on the principles of

reengineering,but also combines them with the ownership and management of processes

on behalf of management by an outside vendor.BPO has been applied to many transactional

processes that can be easily defined or 'scaled' and transferred to third party ownership with

deeper expertise than themselves. The management of IT systems has been the major element of

the outsourcing market. An ongoing debate concerns which business processes are 'core'

to organisations - in the sense of core competencies that drive competitive advantage.

Any non-core - or peripheral - activities are outsourced and gives results like-

Services are improved

Overheads are reduced

Many processes are automated - thus reducing people

The outsourcing of HR processes emerged in the late 1990s, pioneered by firms specialising

primarily in IT outsourcing - although not exclusively - in the US such as ACS, EDS and

Accenture. Many transactional HR processes are outsourced and are increasingly associated with

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electronic delivery - or 'e-HR'. Much day-to-day HR administration can now be transferred to

third party providers. Payroll and benefits is widely outsourced with organizations benefiting

from economies of scale and powerful Enterprise Resource Planning (ERP) solutions.

Competition among HRO providers has dramatically reduced prices. Other advantages for clients

include:

cost reductions

service improvements

upgrading technology

being better able to respond to business change.

The biggest problem - and this is why the HR outsourcing industry in India is on the back foot -

is the government and the industry's failure to tackle issues like data security and data privacy.This is where Indian HR outsourcing companies face a major handicap. The Indian government

is still grappling with drafting a data protection law designed to quell growing privacy concerns

from their offshore clients.However, the future seems to be very promising. It's set to become a $

51 billion market worldwide in 2005, representing 39 per cent of the total business process

outsourcing revenue. Estimates show that the latent size of HR outsourcing in India is about $ 2

billion with a current market of $ 27 million and it is growing at an alarming rate of about 50 per

cent. India has immense potential as more than 80% of fortune 1,000 companies are discussing

HR outsourcing as a way to cut costs and increase productivity.

Right now, India is barely skimming the surface of the HR outsourcing market potential. Indian

life Hewitt (ILH), FIDELITY, EXULT and MAFOI are some of the prominent HR outsourcing

services providers in India and the clients include giants of manufacturing, software and service

industries like GE Capital, Ford Motors, Hyundai Motors, Satyam Group, Infosys, Enron, Haldia

Petrochemicals and HSBC, to name a few, but many more needs to be added to that list. HR

outsourcing has a huge potential for employment also. Nasscom numbers are a million software

jobs by 2005; HRO would be about a 25 per cent of that. Experts believe that in present times

HR outsourcing is undergoing a transition phase, it would still be sometime before we see

increased levels of HR activities being outsourced to India as lack of domain knowledge and

quality are some of the critical issues.

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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 caninclude:

1.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 include the annual open enrolment process,flexible spending

accounts or employee background checks.

2.Multi-process services

The complete outsourcing of one or more functional human resource processes would be an

example of multi-process outsourcing (also called blended services). As such, the outsourcing of

either health and welfare benefits administration or defined retirement plan and 401(k) plan

administration to a third party administrator would be an example of multi-process or blended

services outsourcing.

3.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.

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Literature Review

Global Scenario

SHRM Human Resource Outsourcing Survey Report

The 2004 survey report revealed that HR outsourcing was a practice used by almost six out of 10organizations. However, one-third of organizations did not outsource any HR functions, and only

a few planned to outsource HR functions in the next three years. HR functions were usually

partially outsourced or completely outsourced. The difference is that when functions are partially

outsourced, the organization co-manages the function with the vendor; when they are completely

outsourced, the vendor takes full responsibility. More than one-half of HR professionals

indicated that their organizations partially outsourced an HR function. Administration of health

care benefits, pension benefits and payroll were examples of functions most commonly cited as

partially outsourced. The top three functions that were outsourced completely were background

checks, employee assistance programs and administration of flexible spending accounts. Some of

the most frequently named drivers for outsourcing were reducing operating costs and controlling

legal risk by improving compliance.However, large-staff-sized operations, compared with small

organizations, were twice as likely to indicate that their reason for outsourcing was an attempt to

free up the time of their HR staff to focus more on organizational strategy. When asked about the

future of outsourcing, about two-thirds of HR professionals predicted that their level of

outsourcing would remain the same over the next five years, and nearly one-third expected their

organizations to increase their level of HR outsourcing. Outsourcing seemed to be favored to a

greater extent in large-staff-sized organizations: almost twice as many HR professionals from

these organizations, compared with medium organizations, indicated that HR outsourcing was

likely to increase in the next five years. When asked about the benefits of outsourcing, the

majority of HR professionals indicated that outsourcing allowed HR professionals the chance to

concentrate their efforts on core business functions, such as organizational strategy development

and execution. Correspondingly, nearly three-quarters of HR professionals agreed that the role of

HR professionals became more strategic with the outsourcing of certain,specifically

transactional, HR functions.

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Present Scenario In India

With more and more companies looking to rationalise employees on their payroll,manpower

outsourcing is slowly becoming the new buzz in India too.And the trend seems to have hit notjust big multinational companies but the public sector and government undertakings as well,

though on a very low key yet in the latter.Estimates show that the latent size of HR outsourcing

in India is about $2 billion with a current market of $27 million and it is growing at a rate of

about 50 per cent.Experts, however, say though foreign companies are outsourcing jobs to India,

putting the country in the middle of outsourcing boom, the Indian companies do not seem to

be enamoured by the opportunity till now and are not adopting HR outsourcing practices in a big

way. "HR outsourcing in India has not seen the required momentum and is limited to a trickle

effect, with companies outsourcing a few selected low-end HR processes," says Anil Mahajan,

executive director, Talent Hunt Pvt Ltd, a leading HR firm in New Delhi.A recent survey

'Outsourcing in the Asia-Pacific', conducted by Hewitt Associates, a global HR outsourcing and

consulting firm, confirms the situation. The survey showed that many companies in the region

are either unfamiliar with the process and procedures of HR outsourcing, or are unaware of the

players operating in the area."Even though across the globe companies are realising that

headcount is directly related to the revenue and are outsourcing most of their transaction and

administrationrelated work, the general opinion among the Indian companies is that it is still

economical to manage all their HR process internally," Mahajan says, adding: "Here people are

also not very clear about what exactly is manpower outsourcing all about.Explaining about the

concept of HR outsourcing, Kris Lakshmikanth, founder CEO & managing director of The Head

Hunter, a recruiting firm in Bangalore, says,"It is a process of outsourcing involving particular

tasks like recruitment, makingpayroll, training and development to a third party who have

expertise in these respective fields.""HR outsourcing can happen in areas such as payroll,

employee benefits administration, fixed assets administration, network, receivable and logistics

management, hardware maintenance, telemarketing, call centres and database management. In

India, the most common processes outsourced are related to training, payroll processing, surveys,

benchmark studies and statutory compliance," Mahajan adds.

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Elaborating about the benefits of manpower outsourcing, Lakshmikanth says,"Today, every

organisation is aiming at achieving productivity by enhancing return on investments and

achieving the economies of scale. In this context, it makes sense to focus only on the

organisation's core competencies and outsource non-critical business activities. Therefore,

routine administrative work, although important, can be outsourced to third party vendors."

Experts say the basic reasons hampering the growth of HR outsourcing in India are

confidentiality and cost factors. Besides the fear of losing jobs, losing control over confidential

data, ethics and quality of outsourcingvendors, security breaches and overall confidence in the

vendors deters many organisations. Quality at times forms another roadblock. According to

Mahajan, most companies are not sure about the end result, which they will receive from the

vendor. Also currently there are no standard benchmarks available so pricing varies a lot from

vendor to vendor for similar services. This gives the customer the feeling that they are not

getting best value for their money, he adds.But, as the Hewitt survey puts it with economic

slump showing signs of improvement, many HR outsourcing vendors are optimistic that things

will look up inthe near future.Experts also believe that in present times HR outsourcing is

undergoing a transitionphase. "There has also been a transition on its user acceptance, where it is

moving from a corporate domain to public sector undertakings and the government sector.

However, it would still be sometime before we see increased levels of HR activitiesbeing

outsourced," they say.

HR Outsourcing

Human resources are the most critical assets of any organization as the organization's success lies

in their hands. But in order to ensure that its employees remain satisfied, the company has to

have a specialized human resources department that most of times proves to be a costly affaire.

That is why most companies today; decide to outsource their human resources management

functions to offshore destinations.

What is HR Outsourcing?

HR outsourcing is a process in which a company uses the services of a third party to take care of

its HR functions. A company may outsource a few or all of its HR related activities to a single or

combination of service provides located in offshore destinations like India, China, Philippines,

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In this sense the HR outsourcing service providing firms or hr outsourcing company can be

divided into four categories depending on the services they offer as, PEOs (professional

employer organization), BPOs (business process organization), ASPs (application service

providers), or e-services. In these categories the PEOs are the ones that assume full responsibility

of a company's hr functions where as others such a BPOs, ASPs and e services provide web

based hr solutions like database maintenance, HR data warehousing, maintaining records,

developing and maintaining hr software's etc.

Advantages of HR Outsourcing

HR outsourcing including personal outsourcing case studies have indicated that managing human

resources involves specialized activities such as training, payroll administration, employee

database management, employee retention, employee benefits and a lot more that many

companies either don't have the proper resources or time to manage on their own. By outsourcing

their HR functions companies can save huge amounts of money and be free of complications that

are otherwise involved in maintaining an internal HR department. By doing so, companies can

concentrate on their core competencies saving their valuable time and resources.

To sum it up, human resources outsourcing that includes hr recruiting outsourcing helps cut

costs, helps concentrate on core business and most importantly helps in ensuring employee

satisfaction.

Whatever your company's human resources requirements, there's an HR outsourcing firm out

there to meet those needs. Some HR outsourcing firms are generalists, offering a wide variety of

services, while others are specialists, focusing on specific areas such as payroll or recruiting.

Depending on the size of your business and how much control you want to maintain over HR

functions, you can either outsource all your HR tasks or contract for services a la carte.

The basic services offered by HR outsourcing firms may include:

Overseeing organizational structure and staffing requirements

Recruiting, training, and development

Tracking department objectives, goals, and strategies

Employee and manager training

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Benefits administration

Employee orientation programs

Businesses that outsource HR are typically small-to-midsize firms with between 25 and 1,500

employees. These businesses view HR outsourcing as a strategic tool that relieves them of HR

responsibilities and enables them to focus on what they do best. In addition to allowing you to

concentrate on your core business activities, outsourcing provides some key benefits, including:

Providing you with skilled professionals who are focused specifically on HR

Helping you reduce and manage operating costs

Improving employee relations

If you need to hand off the entire HR function, consider a professional employer organization

(PEO). A PEO becomes the employer of record, handling employee relations, payroll, benefits,

workers' compensation, and all the other areas that fall under the HR umbrella, while you

manage the employee's everyday business responsibilities. For a step-by-step guide to using and

hiring a PEO, check out our Buyer's Guide on Outsource Your HR Using a PEO.

If you don't need the comprehensive services of a PEO, you can contract specific projects

through an HR outsourcing firm to help you:

Implement a human resource information system (HRIS)

Create or update employee handbooks and policy manuals

Develop and implement a compensation program

Create or review a performance appraisal system

Write and update affirmative action plans

Provide sexual harassment training

Referrals, the Yellow Pages, and the Web are the best resources for finding an HR outsourcing

provider. You have the option of working with an international, national, or regional provider.

Any one of those may be able to meet your HR needs.

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Many organisations are considering Human Resources Outsourcing as a method of:

Enhancing effectiveness by focusing on what you do best

Increasing flexibility to meet changing business conditions, demand for products and

services and technologies

Transforming the organization

Increasing product and service value, customer satisfaction, and share-holder value

However, the exercise itself can be extremely complex and testing. Like other forms of

outsourcing it must be meticulously managed from concept to implementation. To assist in this

respect it is now common to employ a series of templates and management guides.

Four Trends That are Changing Human Resources Outsourcing

Renewals are the big news in human resources outsourcing. Mohammed Haque, Vice President

& Head of Enterprise Solutions Service practice at Genpact, estimates about $40 billion in

contracts will come up for renewal from 2010-2012. How buyers go about renewals is about to

change.

Buyers are becoming much more aggressive in going out and getting a look at whats going on

in the landscape, says Rohail Khan, Executive Managing Director for ACS Total Benefits

Outsourcing. He predicts the automatic sole-source renewal without a market check is going the

way of the dodo bird because organizations want more visibility to the bottom line. They want to

know the value of the suppliers contribution.

In the past, he says renewals were typically sole source. Buyers are also hiring more third-party

advisors to help them out with their renewals, he adds. Buyers are no longer willing to assume

their suppliers are providing value.

The current economy accelerated this trend, he reports. Buyers want to know if they are getting

the right value for their money, he explains. Then the question becomes: Are we with a

partner thats investing and innovative? Because today its not just about cost effectiveness.

Buyers, he says, want to be sure their suppliers will be able to serve them as they move

forward.

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Shifting adoption patterns: taking a more focused approach

With buyers more critically evaluating the benefits they stand to achieve from HR outsourcing,

more are considering phased approaches that focus on one defined area at a time, according to

Katrina Menzigian, Vice President, BPO Research, Everest Group. These areas may be alongindividual process areas such as multi-country payroll, benefits, or recruitment or along

categories of HR processes, transactional versus talent management, states Menzigian.

Several factors are driving this tighter focus, including the desire to match up-front investment

with pay-back benefits, the need to feel confident in supplier capabilities, and the realities of a

shifting supplier landscape. In the near future, its conceivable that some clients will have to

balance a mix of suppliers until more suppliers are able to demonstrate a broader set of

compelling capabilities, she says.

The importance of global capabilities

Don Schulman, General Manager, Finance and Administration for IBM, adds that buyers facing

renewal are also now asking whether they want their work split across multiple outsourcers or

instead want to consolidate it all together within a partnership that enables standardization

across multiple locations, processes, and clients one that has a flexible model thats global in

nature.

Abid Ali, Head of BPO at Tata Consultancy Services, agrees global capabilities will become

even more important in supplier selection. While India has a significant advantage in delivering

BPO services, customers are working with providers that have a global delivery footprint. He

says they are looking for existing suppliers that can deliver in new markets for them rather than

looking for new suppliers in those areas.

Sue Marks, CEO of Pinstripe, says buyers with operations in 50 countries, for example, will

want to select a supplier with proven capabilities in all those regions. It is extremely important

to understand the local nuances, she explains.

Khan points out multinational companies are now asking for global benefits administration

solutions. He says ACS is developing technology so that these companies can tackle the big

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unknown chunk of spending theyre not aware of. We can help them understand their overall

global spend.

Process convergence

Process convergence is another trend. In the past, HR organizations viewed employee retirement

and health/welfare selection decisions as separate transactions. There werent a lot of connect

points, Khan points out. Today he says progressive HR managers are asking how they can make

health and welfare decisions converge. He says both buyers and suppliers are trying to figure out

how this will impact HR decisions going forward.

Changes in benefits administration

A fourth trend is the integration of what Khan calls the natural adjacencies of benefitsadministration. They are things like wellness, voluntary benefits, absence management, and on-

and off-boarding. All have advantages for HR buyers. For example, a more efficient off-boarding

process can ensure an organization doesnt pay people longer than it should. And enterprises can

minimize their healthcare costs with a wellness program to change behavior.

Buyers want to extend the definition of HR outsourcing to include these things, he says. In this

economy, employers will not be able to give employees as many benefits as they historically

have offered. Finding ways to help employees derive benefits will absolutely be part of the

HRO requirement, Khan continues.

In addition, the current economic situation is forcing CEOs to have laser vision on their costs.

HR spend is part of the selling, general, and administrative (SG&A) expenses. Organizations

are understanding the value of a wellness program. They can understand where absenteeism,

which is a direct hit to their bottom line, is showing up. They will be forced to focus on solving

these kinds of problems, the ACS executive continues.

Khan posits these types of buyer challenges will force providers to focus on innovation and

investment to expand the notion of benefits administration to the natural adjacencies.

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The new preference for platforms

Marks points out early HRO buyers outsourced bits and pieces of the process. Now, buyers

are looking for the complete end-to-end solution where the supplier can provide the process

services as well as the platform. Adds Khan, Its not going to be good enough just to be anadministrator and a manager of transactions.

Haque says buyers want to outsource the complete HRO services package, which includes talent

management, recruitment, learning, and development as long as the supplier has developed the

core HR services like payroll, time and attendance, and workflow administration. In the past,

people outsourced the process or the platform. Now they want to outsource them together and

have the supplier charge them on a per-employee per-year basis.

Khan predicts this convergence will force providers to be clearer and more explicit about their

investment strategies and how they translate innovation into real capabilities that help buyers

solve problems. One thing is sure: Providers can no longer milk their 15-year-old platforms.

Instead, they will have to constantly reinvent their offer because thats what buyers will

demand. He says this is both a dramatic change and challenge; suppliers not willing to invest

will lose market share because there are too many suppliers that will invest.

Marks believes the only way to adjust is to leverage technology to improve your efficiency and

make your workload manageable. She says the demand is greater than ever before and the

technology has evolved, so there are no more excuses.

In her opinion, HR leaders need to step up and support their teams with technology that

addresses their need to manage the swelling pipeline of passive and active candidates and deliver

the best possible candidates to those companies who are relying on them now, more than ever,

for their survival. Cloud-based services and SaaS applications can evolve the way suppliers

design traditional HR services. They can accelerate change in shared services initiatives and notjust transform but revolutionize the organization when combined with HRO and RPO, she says.

In sum, Marks says the economic turbulence is a tremendous opportunity for HR leaders to

come back in a new, more focused, and more impactful way. She says, going forward, HR

leaders will have to help their buyer organizations garner the capability to drive the right

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business outcomes. Economic modeling, corporate governance, strategic marketing all will

become part of the new HR professionals tool kit. HR will become less about administration

and compliance and more about executing on strategy and capability, believes the Pinstripe

CEO.

Hopefully these changes will help corporations become more profitable and employees become

healthier, wealthier, and more productive.

HR Outsourcing: Not Just for Small Companies

Small businesses have long been singing the praises ofHR outsourcing and for good reason.

By allowing companies to rely on external experts to manage HR functions such

aspayroll and benefits, HR outsourcing can cut in-house staffing costs, improve services and

grant growing companies access to enterprise-class benefits packages.

But small startups arent the only ones benefiting from HR outsourcing arrangements. Large

enterprises also have something to gain from turning to providers such as ExcellerateHRO

Corp., Accenture,Hewitt Associates LLC and Ceridian Corp. HR outsourcing makes complete

sense for a large organization, said Jennifer Perrier-Knox, a senior research analyst at Info-Tech

Research Group. Here are some reasons why:

Shift Focus

Keeping tabs on a large enterprises HR functions, from recruiting fresh talent to overseeing

payroll, is a burdensome and time-consuming activity. However, by handing over these activities

to a third-party provider, a companys in-house HR team can shift its focus from mundane

administrative tasks to competitive differentiators, according to Perrier-Knox. Policy

enforcement, strategic planning, human capital management, increased productivity and

organizational restructuring are business-critical undertakings far more likely to improve a

companys bottom line and increase employee satisfaction.

Cut Costs

While small companies often lack the in-house expertise needed to manage HR functions

effectively, thats simply not the case for large enterprises. Rather, HRoutsourcings main

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attraction for large corporations is its ability to cut costs. Said Perrier-Knox, Where large

companies can really benefit from HR outsourcing is in the area of cost reduction.

According to a recent Watson Wyatt Worldwide report, the average operating expense for HR

functions for each full-time HR employee is $284,982. Granted, an HR outsourcing arrangementcan cost anywhere from $200,000 to millions of dollars. But when you factor in costs associated

with the ongoing training and recruitment of in-house HR personnel, many corporations are

better off financially going with an HR outsourcing provider.

Achieve Compliance

These days, one of the most heavily outsourced areas of HR is regulatory compliance. In fact, a

study released by Everest Research Institute reveals that more than half of all HR outsourcing

transactions involve regulatory and compliance services. Thats no surprise given the enormous

pressure on HR professionals to stay abreast of the latest legislative changes pertaining to

benefits regulations, corporate governance and claims management. Whats worse, failure to

meet these regulatory requirements can result in devalued stock prices, angry shareholders,

disgruntled employees and a tarnished reputation. As a result, Perrier-Knox said, large

corporations would be wise to turn to an HRO (HR outsourcer) for deeper knowledge and

expertise [of the most recent regulatory compliance issues].

Simplify Your IT Environment

As a company grows and changes, so too must its in-house HR systems. However, making

modifications and adding new modules to an enterprise-wide HR management system can be a

costly and complex endeavor. Fortunately, from a cost-reduction perspective, said Perrier-

Knox, HR outsourcing can reduce operating costs and eliminate the need to buy new in-house

IT systems.

Seamlessly Relocate Employees

So much for sitting tight. Given the economy the way it is, there is going to be a lot of

organizational restructuring that may require the movement of employees from location to

location, warned Perrier-Knox. An HR outsourcing provider can help transferred employees

find the right home, day and senior care; recreational opportunities; and spousal employment.

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Whats more, vendors such as ExcellerateHRO offer services that address any cross-cultural and

cost-of-living issues that may arise in each transferred employees new location.

Negotiate Discounts

For small businesses, an HR outsourcing arrangement grants immediate access to enterprise-

class benefits packages. Thats not to suggest, however, that HR outsourcing fails to provide

large corporations with any benefits-related perks. Rather, sizable companies have the luxury of

being able to negotiate factors such as volume-type discounts on group benefits packages.

While its obvious you dont have to be a mom-and-pop shop to benefit from an HR outsourcing

arrangement, there are limitations to consider. Warned Perrier-Knox, One thing you cannot

outsource at all is your basic HR leadership. Big companies should always retain somebody in-

house, from a strategic perspective, in order to oversee corporate policy, decision-making and to

manage the relationship with an HRoutsourcer . In a small company, that point person may be

the CEO. However, Perrier-Knox said that large corporations need to appoint a dedicated HR

professional to ensure that benefits such as reduced costs and regulatory compliance are

managed.

Key Points we noted:

HRO market is still in transition

Vast difference exists between the state of HRO market in India and the global scenario

People not yet clear about HRO in India

Public Sector hasnt yet taken to outsourcing

Cost/benefits and confidentiality are most important considerations in HRO

More freelancers exist in the market than organized players

Size of companies is also an important factor in HRO

HRO is expected to gain momentum in the coming years

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Objectives

1) The objective of this project is to formulate a picture of current trends in outsourcing in HR

services prevalent in Indian firms.

2) The project aims to discern common factors promoting or inhibiting the growth of HR

outsourcing industry in India.

3) The data collected will help in finding parameters which are most common in terms of HR

outsourcing.

4) The research tries to determine patterns while comparing organizations involved in HR

outsourcing against those which are not.

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Methodology

Two methodologies were adopted while undertaking the research:

1.Secondary data collection large amount of secondary data is available in the forms of articles, journals, and previously

conducted researches on the similar topics. This data was collected and studied to determine

some of the broad trends prevalent in HR outsourcing across the world and the presence of HR

outsourcing industry in India.

2.Primary data collection

Primary data was collected through the means of a interview and corporate literature. For this

purpose, executives in various organizations were contacted through telephone and e- mails and

their responses were recorded The data collected was then analyzed.

Following questions were asked to the employees/ respondents

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Analysis

1)Do you outsource any of your HR services?

Aditya Birla Group yes

Birla Sunlife yes

Kotak Life Insurance yes

Aviva yes

Dalmia Cements yes

All the 5 companies outsource their HR services

2).Which of these HRM services are outsourced by your organization?

Providing Temporary staff 0

Recruitment & selection 2

Training & development 2

Managing Payroll syatems 1

Managing benefits 0

Conducting Employee surveys 0

Complete HR function 0

2 out of 5 companies outsource recruitment and selection

2 out of 5 outsource training and development

1 out of 5 outsource payroll systems

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3.)Which of these factors are major reasons for outsourcing HR services?

3 out of 5 companies think that cost saving are the major reasons for outsourcing HR

services

1 out of 5 companies think that access to better systems and technology is the major reason

for outsourcing

1 out of 5 companies think tht lack of internal staff is the major reason of outsourcing

4)Which of these are major risks associated with outsourcing HR services?

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Cost savings 3

Increased capacity 0

Lack of internal staff / capabilities 1

Access to better systems and technology 1

Other factors 0

Mismatch of cultures 0

Security of Database 1

Financial stability of chosen vendor 2Justification of cost-benefit calculations 2

Other factors 0


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2 out of 5 companies think that major risks associated with outsourcing HR services is

Financial stability of chosen vendor

2 out of 5 companies think that major risks associated with outsourcing HR services is

Justification of cost-benefit calculations

1 out of 5 companies thinkthat major risks associated with outsourcing HR services

is Security of Database

5).While outsourcing more than one HR services, which of the following approach do you

utilize?

Consolidating all HR services under one vendor 3

Employing different vendors for different HR services 2

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3 out of 5 companies While outsourcing more than one HR services approach utilized is

Consolidating all HR services under one vendor

2 out of 5 companies While outsourcing more than one HR services approach utilized

is Employing different vendors for different HR services

6)While outsourcing HR services, which of these parameters are most important

parameters for vendor selection.

Cost 3

Brand Name of Service Provider 1

Range of Services being offered 1

Flexible Contract Options 0

Other factors 0

3 0ut of 5 companies think that while outsourcing cost is the most important parameters

for vendor selection.

2 0ut of 5 companies think that while outsourcing Brand Name of Service Provider

is the most important parameters for vendor selection.

2 0ut of 5 companies think that while outsourcing that range of services being

offered is the most important parameters for vendor selection

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7)Do you think that outsourcing HR services has achieved its purpose for your

organization?

4 out of 5 companies think that outsourcing outsourcing HR services has achieved its

purpose for your organization

8)Which metric do you use for measuring the effectiveness of outsourcing HR services?

Cost saved due to outsourcing 2

Service level improvement 1

Increase in employee satisfaction 2

Other factors 0

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2 out of 5 companies use cost saved due to outsourcing as a metric for measuring

effectiveness of outsourcing HR services

2 out of 5 companies use Service level improvement as a metric for measuring

effectiveness of outsourcing HR services

2 out of 5 companies use Increase in employee satisfaction as a metric for

measuring effectiveness of outsourcing HR services

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Recommendations

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Conclusion

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Limitations

1)We could not include the HRO vendors in our research to gain their perspective

2)Our respondents were from specific areas and did not cover the whole of India

3)We missed out on some sectors in our research

Shrm Project 2003

Documents

Transcript of Shrm Project 2003