HR OUTSOURCING

1. HR OUTSOURCING Dr C S Venkata Ratnam Director, IMI

2. 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!

3. 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

4. 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)

5. 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

6. 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.

7. Why outsource HRREDUCE 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

8. 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)

9. 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?

10. 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

11. 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 Pros and cons

12. 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

13. 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

14. 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

15. 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

16. Risks of HR outsourcing • Trust • Confidentiality • Dependency • Spillover risks • Relative proficiency • Strategic capability • Commitment • Flexibility

17. 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?

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