Human Resource Outsourcing in India

This article attempts to discuss HRO in Indian context and the possible future of HRO in the Indian business scenario. Certain preparatory actions are also prescribed to effectively used HRO as a strategic business tool. HRO – HRM Architecture: Today, as we have moved into service – economy, dealing with knowledge and knowledge workers is very important as human capital has become a critical success factor for organizations. HRM is seen as a distinct identity, separate from Administration and Facilities section of the establishment. This can be clearly seen from the importance being given to HRM Architecture.

In addition to the traditional roles for HR, over the years, in the IT and ITes sectors, distinct roles have emerged such as corporate HR, business HR, generalist HR, techno – functional HR, etc. The job holders in these roles are expected to give different “deliverables” as related to their functional aspects. It is pertinent to note that a 1998 survey by center for effective organization at university of southern California’s Marshal School of business shown that 79% of HRM managers describe themselves as “business partners” and 53% of line managers agreed that HR managers are now performing the roles of business partners.

Thus, today HRM is getting well embodied into business functions such as marketing, finance or operations. This can be, in a way, considered as a starting point of HRO, because, from this, emerges the need for HR function to work smart for business results – whether by doing functions and activities all on their own, or by getting some of them done through outsourcing. Additionally, it also puts pressure on HR function to find “partners” who can “take over” specific transactions and processes at a lower cost. In this way, HR will get focused on “tangible” results (which was one of the complains against HR in the past).

Thus, to some extent, it will help free up time for core-HR activities that result in improvements which positively influence the bottom line. A word of caution though that it may not “free up” time, and should not free up too much time. After all, HR is essentially a personal touch button of the organization and too much outsourcing might result in lack of personal touch and decreased human interaction which may frustrate the employees. HRO Evolution: HRO is always an evolutionary exercise for the organization. Initially, companies are reluctant to outsource, they prefer to do every act in the own backyard.

As the organization grows in terms of its life cycle, slowly, “experimentation” phase will begin when they start outsourcing certain simple transactions or processes. Sometimes, they may even take a parallel run with the vendor. When the experience is positive and as they make progress, companies may make decisions to penetrate further into the HRO space. According to Everest Research institute’s annual HRO study, the most commonly outsourced HR functions include: •Pay roll •Benefits •Employee data management •Info systems •Contact centers.

As the companies find that there are substantial benefits from outsourcing, they feel attracted to go in for deeper penetration. Thus, it is possible to categorize companies adopting different levels of HRO in their organization. (See Table 1) Table 1 LevelActivities OutsourcedType of HROBenefits 1Admin services, pay – roll, pension, PF mgt. , etc, temporary staffingTransactionCost efficiency 2L1 + training, new employee induction and executive searchProcess•Standardization •Cost •Replication of good practices 3L1 + L2 + campus hiring, online assessments, HR audits, employee surveys etc.

Function•Quality •Cost, benchmarking etc. HRO in Indian Business The debate on HRO in India still hovers around the following questions: ‘Has HRO really arrived in India? ’ ‘Are we missing the HR outsourcing bus? ’ ‘Should companies outsource their HR functions? ’ We also seem to be aware that “The New Mantra is HR Outsourcing” In this maze of debates and arguments, some facts need to be cleared. “HR outsourcing in India has not seen the required momentum and is limited to trickle effect, with companies outsourcing a few selected, low end HR processes” – Says Anil Mahajan in an interview for an article on HRM.

In India, most common outsource processes are related to training, pay – roll processing, benchmarks studies and legal compliance. Some HR consultants feel that in Indian HRO scene, quality is an issue. It is reported that some MNC’s wanted to outsource end to end HR solutions, but could find a suitable vendor and hence decided to set up its own outsourcing centre. While many experts in the field believe that there is a good scope for HRO in India, it is a fact that our present share in the global market of US $ 80 bn. is only a minuscule.

Estimates show that size of HR outsourcing in India is about US $ 2. 5 – 3. 5 bn. But another study shows flat markets in HRO world wide between 2005 – 2007 but 2008 promises to be different! In the flat world of today, as India becomes more and more global in business and economy it will be a compelling need for companies to resort to outsourcing in the interest of survival and growth. Thus, even though, as of now, HRO in India has not caught up sufficiently time is right for making rapid strides to catch up and make best use of the opportunities presented by the wave of HR outsourcing.

HRO as Double – edged Weapon: In India, we are fortunate to have the double advantage of HRO as we all know, HRO operates in an environment where there are abundant takers and abundant givers. HRO activities have two edges – one as the service provider and another as a client who is outsourcing the process / transaction. At present many Indian companies are acting as service providers as a natural step, India with its vast millions of English speaking, trainable youth who are willing to learn and serve clients as and idle platform to take on the HRO wave.

Thus, India may finally become the outsourcing centre for HR services. The growth in the HRO itself may trigger further developments. Any HRO companies may, in turn, begin to outsource some of their process to another service provider. Thus, a virtuous HRO business cycle may get activated. After all, “We Are All in Services Now” (Prof. James Teboul). According to him, the process, people and credibility are 3 key elements in the making of value proposition. People interaction may place a sort of limitation on HRO spreading without a human face!

The basic tenet of HR philosophy should be that HRO must be implemented with utmost regard to “Human face” of activities being outsourced. This is because of the uniqueness of the HR issues. There cannot be a straightjacket solution for all human issues hence human interaction element needs to be always kept in mind and given a priority. We need to get over certain drawbacks as a community of employers in order to benefit from the HRO wave. If we have to shape up, good future we need to know aht we should to and what we should not so that our progress is never stalled.

Hence, it is necessary to appreciate the barriers identified for the spread of HRO in our country. The following are some of the barriers identified in literature on the subject: •Cultural shift and top management thinking •Confidentiality and cost factors •Lack of awareness on cost-to-benefit equation of HRO •Quality of end results. A word or two about each of these barriers will clear the aspect. Cultural shift requires us to trust and be trusted. The two parties’ involved, namely service provider and client, need to trust each other not only about confidentiality but also about the capability to delay it.

Many employers and top management feel that it is better to have own HR persons dealing with all the issues instead of outsourcing. Reasons may be many for such outlook, but there is a need to change in order to think professionally and ethically. If we can trust an advocate or a doctor or the tax consultant, why not HR service provider? Confidentiality and cost factors relate to the ability of HR service provider to handle information professionally and confidentially. Ethics both personal and corporate – play a great role.

If we think proper work ethics can be created through good leadership, we need to develop and nurture such leaders appropriately. Lack of awareness among persons about cost / benefit equation needs to be overcome by education right from the top level to look at HRO as a hard core business option and to quantify the benefits correctly. Lastly, quality issues need to be addressed again through building a quality culture by following the total quality management (TQM) practices.

Internal and external customer orientation among all and education and training for all on TQ practices and bring about improvement in quality. The Indian experience of TQM is quite satisfactory in this regard and there is a bright chance of success for improving the quality aspects of HRO. Preparatory Activities: While is it necessary to be clear about changes that we need to make on an individual or a company basis, it is equally important to focus on the preparations needed by us a community of service economy.

For any service economy to grow, especially in the network era of today, there is a need for adequate preparation so that ultimately, the environment of business responds favorably to the needs of the market. In this regard, certain preparatory activities have to be undertaken immediately. The various activities for this purpose can be broadly classified as: •Infrastructural •Educational •Business/ operational •Social Under each of these, there are various elements that have to be taken under consideration. The following matrix will show these points clearly.

As most of these items are self explanatory in nature, a detailed description of individual items is not done in this article. However, it has to be emphasized that these sub elements are very important contributions to the climate of HRO in a microeconomic sense. The elements given in the matrix are only illustrative and are not exhaustive. Preparatory activities needed for HRO Infrastructural / Technical •Telecommunications and network accessibility •Roads •TransportEducational – Training Related •Curriculum in colleges •HRO training centers •E – Learning transactions / process Counseling centers Business Related •Performance parameters •Quality measures •Feedback •Relationships / Cultural sensitivitySocial •Quality of the work – Life balance •Stress management •Time management •Security at workplace Conclusion: In conclusion, it may be said that HRO is going to slowly but steadily become a part of business strategy. HR professionals will drive the initiatives of HRO, of course with support from top management. The time is now ripe for HRO to succeed in view of HRM being seen and treated as an important element of business resources in the service economy of today.

Certain new roles have emerged which confirm this position. Though the Indian share of the revenue pie today is very small, there is a very good possibility of our riding high on the HRO wave that is round the corner. As a community, it is necessary to identify barriers and identify the changes or adjustments we need to make as individuals and companies. As HRO operates as a subset of BPO and overall business environment, certain preparatory steps need to be taken as a community in general. With all this, it is possible to ride high on HRO wave in the next few years.