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Golden Research Thoughts Impact Factor : 3.4052(UIF) ISSN 2231-5063 Volume - 5 | Issue - 3 | Sept - 2015
HUMAN RESOURCE OUTSOURCING : A COST
EFFECTIVE HIRING CONCEPT & ISSUES
Jyoti Santosh Ingle
PhD student, North Maharashtra University, Jalgaon.
ABSTRACT Purpose: Design/methodology: Findings: Originality/value: KEYWORDS INTRODUCTION :
The present paper focuses on different aspects of HR outsourcing and the factors which need to be considered before a company goes for outsourcing of HR Functions.
A review of available literature was done in order to understand how today’s HR firms offer a wide variety of services to companies that need to focus on their core business activities and still establish and maintain good HR policies and to explore the factors that affect the HR outsourcing decision with special emphasis on a proper cost benefit analysis of HR outsourcing.
The findings of the paper implicitly point out that the decision of HR outsourcing is contingent upon factors like flexibility, availability of adequate resources, affordability, and acceptability (openness to information-sharing) etc. The paper also suggests a systematic process and certain pre-requisites to successfully execute HR outsourcing.
Based on literature review, the paper makes specific recommendations with regard to the process of HR outsourcing and its pre-requisites; and is an attempt to highlight the fact that HR outsourcing is a double-edged sword; and should be viewed in totality keeping in mind the advantages and disadvantages it has.
:Human Resource Outsourcing , HR Functions , literature review.
Definition: The productive capacity of all business depends on three factors: the capital resource, the physical resource and the human resource” - (Peter. F. Ducker) This statement holds a lot of significance because of the fact that of all the three resources, only the human resources possess the productive capacity for which the upper limits are not defined. So in order to utilize the true worth of the employees to its fullest, one need to outsource the non-core activities of the organization
Concept of Human Resource Outsourcing: Outsourcing has been defined as work done for a company by people other than the company’s full-time employees. In the modern setting, outsourcing turns out to be highly complex and organizations use outsourcing vendors for a variety of
HUMAN RESOURCE OUTSOURCING : A COST EFFECTIVE HIRING CONCEPT & ISSUES
reasons. Outsourcing HR duties is a smart move for any business.
But simply assuming that outsourcing will pay off does not guarantee success. Before the organization takes the leap to begin or expand an outsourcing program, clear goals and metrics for tracking progress toward them should be outlined. Vendor candidates should be screened thoroughly, and management must commit to communicating clearly and frequently regarding agreed-upon objectives. Only then will an organization realize the tremendous opportunities that well-thought-out outsourcing can offer, improving the quality of workplace life for employees and senior management alike.
The HR department is the heart of any company. HR handle many of the day-to-day complexities of the company, such as employee recruitment and training, company growth, employee benefits, legal compliance and payroll. Most companies outsource human resource (HR) functions to save costs. HR outsourcing can also eliminate routine, non-strategic tasks. Outsourcing gives internal HR employees the chance to focus on higher-level, managerial duties. Common HR functions that companies outsource include payroll and benefits. Some large organizations have the capability to handle all their HR functions in-house. However, for many more organizations particularly small businesses, the broad nature of HR functions is too complex & comprehensive to maintain in this way. Such companies will find outsourcing HR functions to be beneficial therefore, and we look at why: HR outsourcing is not a fad, and it can enhance the HR value chain as well as support the development of HR as a business partner and strategic contributor to the organization's goals.
Depending on the organization’s business goals and corporate culture, outsourcing may not be the most viable alternative. While outsourcing HR functions provides a cost-efficient alternative to staffing an onsite department, there are some disadvantages.
As Oates (1998) suggests, the outsourcing decision is a strategic one and is generally taken at a senior level. Another survey, by IDC (www.idc.com), reports that worldwide HR business process outsourcing (BPO) will be the fastest-growing segment of the HR service spending market. Hall and Torrington (1998) found that training and management development, recruitment and selection, outplacement, health and safety, quality initiatives, job evaluation, and reward strategies and systems were the likely HR activities to be outsourced, either because they were considered noncore or because the organization lacked the expertise to handle them internally. A study on HR Department Benchmarks and Analysis 2007 available from The Bureau of National Affairs, (BNA), U.S.A. reports that 72% of surveyed employers outsource at least one HR activity. The five most commonly outsourced HR activities, according to this study are: (1) Employee assistance/counseling, (2) Pension/retirement plans (3) Training (4) Payroll (5) Other employee benefits (Health, Medical, Life insurance, cafeteria, etc).
2.LITERATURE REVIEW
2
3.Top 10 Reasons for Human Resource Outsourcing
3(i) The most commonly outsourced streams of business include:
ª ª ª ª ª ª ª ª
3(ii) Why do organizations outsource their business process?
ª ª ª ª
3(iii) When to Outsource and When Not
The outsourcing of HR functions has several potential benefits:
ª ª ª IT outsourcing Legal outsourcing Content Development
Web Design and Maintenance Recruitment
Logistics Manufacturing
Technical/Customer Support
The key factors which have led to a growing trend of outsourcing are Lack of expert-labor in some portions of the business process
Availability of cheaper labor, whilst not comprising on the quality of output Ability and feasibility to concentrate on the other crucial business process
These factors have specifically contributed to most of the outsourced partners across different locations in the world. Expertise in communication capabilities, technical expertise and favorable financial packages are the most important advantages of outsourcing to India.
It frees the internal HR staff to focus on strategic activities that add more values than transactional, administrative tasks
It enables decentralized structures that support higher rates of innovation and flexibility It alleviates the bureaucratic burden of centralized HR administration
ª ª
4.Advantages & Disadvantages of HR Outsourcing
4(i) The Advantages of Outsourcing 1. Risk Management:
2. Efficiency:
3. Cost Savings:
4. Employee Development:
5. Business as Usual:
6. Avoiding Turnover Troubles:
It enables the HR department to play its part in overall corporate downsizing efforts It facilitates access to new ideas and approaches outside the organization.
But there are risks and hurdles like that of higher cost and low quality and fear of losing control. Other most common problems of HR outsourcing were poor services, costs higher than promised, contractors with insufficient knowledge about the client and unanticipated resources required to manage the relationship. These pros and cons play out differently for firms of various sizes with respect to different HR processes. In general, large corporations are the main customers for integrated HR services, whereas smaller firms tend to outsource only the payroll functions.
Outsourcing most commonly known as off shoring has pros and cons to it. Most of the time, the advantages of outsourcing overshadow the disadvantages of outsourcing.
HR outsourcing firms help businesses minimize risk. Employment & labor laws change regularly, and it can be difficult for employers to remain up-to-date on regulations that affect the workplace. HR staff helps businesses comply with these laws to avoid costly lawsuits brought on by employees. HR firms also maintain and audit company policies and practices to ensure the organization and its employee's best interests remain protected.
Maintaining an efficient & productive workplace is critical. Outsourcing HR functions create greater efficiency within human resources systems. Advanced HR technology utilized by outsourcing providers help streamline important HR functions, such as payroll, benefit administration & compliance management. Outsourcing helps employers & managers spend less time doing paperwork & more time dedicated to improving the efficiency & effectiveness of the workforce.
Outsourcing helps reduce the cost of maintaining nonrevenue-generating back-office expenses. A fully functional human resources department requires additional office space and highly trained and experienced HR staff. Many small businesses find it more cost-effective to outsource HR functions rather than expand to a larger location to meet the space needs of another department. Furthermore, outsourcing costs are variable and can be reduced when business needs warrant.
Outsourcing HR functions help businesses manage employee performance and development. Providers implement performance management plans to ensure employees comply with company policies and procedures and successfully meet business goals. Outsourcing firms periodically monitor employee performance and report findings to management. This reduces the workload of managers by minimizing the amount of administrative responsibilities they must focus on. One of the key reasons that HR outsourcing is used is to keep an HR department running smoothly. If your business suddenly faces an influx of information that needs to be processed, for example, you can use HR outsourcing to deal with these sudden needs and allow your HR workers to keep focusing on the efforts that have made your company what it is today. This ability to keep your company working as it always has is one key benefit of HR outsourcing that you can't afford to overlook, and is a benefit of HR outsourcing that can't be overstated.
HR outsourcing can reduce the risks you run involving turnover. Some functions of the HR department simply can't stop because of a recent turnover. Imagine the effects on your business if payroll suddenly halted for a week, or benefits administration. HR outsourcing is a great way to ensure that even if you lose an employee your company's core functions don't suffer. Instead of
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scrambling to replace an employee & trying to manage without them, HR outsourcing allows you to fill the position properly without worrying about other issues.
HR outsourcing can help you avoid high overhead costs as well. Adding more equipment, renovations, and more can send your overhead rocketing upwards. HR outsourcing lets you avoid these sudden costs by sending tasks that require added expenses to the HR outsourcing firm for less.
If you're adding new functions to your company, HR outsourcing can help as well. By placing trained pros in your workplace, HR outsourcing companies can help you adjust to new functions by training your current employees while handling basic tasks until they come up to speed. In this way HR outsourcing can help your entire business evolve.
Many companies outsource to limit costs; however, decreased costs often result in decreased quality of performance by the outsourced provider. The HR department is responsible for the day-to-day operation of the company and any poor performance from the outsourced provider causes an overall negative impact on the company as a whole.
Outsourcing HR functions to an offsite location often leads to a sense of distance between the employees and the company. When the HR department is not instantly accessible, employees experience delays in communication, leading the employees to feel frustrated & unimportant to the company. This often results in reduced morale among employees.
In some cases, outsourced employees lacks the understanding of the company culture that a regular employee has. The outsourced provider may also recruit employees who do not fit with the overall culture of the company. The success of a business heavily relies on the performance of its employees, if the employees are not the right fit; the success of the company suffers.
Outsourcing HR functions may lead to the release of sensitive co. information. Often, for an outsourced co. to provide adequate service, some sensitive information about the co’s organizational structure, product information or other inner workings is necessary for the vendor to perform unhindered. Whether deliberate or not, when providing an outside co. with sensitive information, there is always a possibility for an information leak.
After outsourcing to a provider, executives may give up too much control over the company’s HR functions or the company may become too dependent on the outsourced provider. Dependency & loss of control create the risk of the business not being able to operate successfully if outsourcing is no longer an option for the company or if the provider changes the terms of the contract.
When an organization outsources HR, Payroll & Recruitment services, it involves a risk of exposing confidential co. information to a third-party.
In case you do not choose a right partner for outsourcing, some of the common problem areas include stretched delivery time frames, sub-standard quality output and inappropriate categorization of responsibilities. At times it is easier to regulate these factors inside an organization rather than with an outsourced partner
Although outsourcing most of the times is cost-effective at times the hidden costs involved in signing a contract while signing a contract across international boundaries may pose a serious threat
An outsourced vendor may be catering to the expertise-needs of multiple organizations at a time. In such situations vendors may lack complete focus on your organization’s tasks.
7. Overhead:
8. New Skills:
4(ii) The Disadvantages of HR Outsourcing 1. Poor Performance:
2. Distance:
3. Recruitment Problems:
4. Information Leaks:
5. Dependency and Loss of Control:
6. Risk of exposing confidential data: 7. Synchronizing the deliverables:
8. Hidden costs:
9. Lack of customer focus:
5. Problems with HR Outsourcing
Do’s for HR Outsourcing
ª ª ª
Don’ts for HR Outsourcing
ª ª ª
6.Process of HRO
7.Seven steps to achieve success in HR Outsourcing: 1) Planning Initiatives:
2) Exploring Strategic Implications:
3) Analyzing Costs and Performance:
4) Selecting Providers:
One of the most serious is maintaining the continuity of skill supply and the retention of in-house knowledge and expertise. In many cases, firms seek outsourcing to save training costs, assuming that someone else will carry out the training to ensure the delivery of key skills. Skill loss can have damaging effects on competitiveness. Another major concern with outsourcing, particularly for those firms that operate in the upper end of the product market, is the loss of quality. Employees often judge service quality by comparing their expectation of the resulting service under the proposed change with their view of what the services should be or with the services that they used to have.
Have a clear vision of what outsourcing should achieve Understand the scope of the services to be outsourced
Outsource the performance of a function, not the responsibility for it.
Don’t outsource strategic, customer, or financial management Don’t let the goal of cost savings dominate everything else Don’t think that outsourcing is the answer to every problem
The decision for outsourcing the HR function requires an overall analysis. To implement HRO successfully thoughtful preparation and monitoring by the decision makers is vital. The advantages against the risks should be carefully investigated as it affects the overall change in the company’s strategy. Moreover it is imperative to focus on the process of outsourcing and timing of the change.
After an overall analysis of the functions to be outsourced is done, a careful selection of vendor is the key requirement to a successful HRO. It is important to ensure the service provider’s quality of work & financial stability. This should be followed by signing contracts by a careful investigation on terms and conditions by both the parties. HRO would be effective only if the companies manage the relationship and contract with the provider on a consistent basis.
The following seven steps have been identified in order to achieve success in HR Outsourcing:
The first step is to announce initiative after the assessment of risks. Project team is to be formed, and advisers are to be engaged to train the team. Other resources are to be acquired and issues like resource management, information management and project management need to be addressed. Accordingly, objectives then are set.
The second step is to understand the organization’s vision, core competencies, structure, transformation tools, value chain and strategies. Thereafter decision rights, contract length and termination date need to be determined. Aligning initiative should follow.
The next step in the process is to measure activity and project failure costs. Existing and future performance is then to be measured along with the estimation of the cost of poor performance. It is also very important to benchmark costs and performance. Specific risks, asset values, make total costs, pricing models and final targets need to be determined.
The next crucial step is to select providers. For this purpose, the organizations need to first set qualifications and evaluation criteria. Providers are then identified and screened. An
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RFP is drafted. Proposals are then evaluated based on the qualifications and costs and the provider is finalized.
Negotiations are then to be planned after addressing high level issues and deal breakers. Accordingly, term sheets are to be prepared. The contract then need to be negotiated based on the scope, performance standards, pricing schedules, and terms and conditions; and the relationship be announced.
The next important step is to adjust team roles and to compare/merge transition plans. The transition issues like communication, human resources, and other production factors are to be addressed. The employees need to be taken into confidence. The organization and the provider are to meet them, make offers/termination, and provide counseling.
The last but the most vital step is to adjust management styles, set up oversight council, and communicate. Meeting agendas, meeting schedule and performance reports need to be defined and designed. Poor performance is to be confronted and problems, if any, are to be solved. The ultimate effort is to build the relationship.
Improved service levels and cost reductions would be the likely outcome while outsourcing any function to qualified suppliers. It shall lead to a competitive edge for companies, but it should be used in a judicious manner in order to get the maximum benefits as short term cost objectives would limit the benefits outsourcing can bring to the organization. Also it is becoming an acceptable management practice and an opportunity that should be embraced, not ignored in this globalized competitive environment. However a careful analysis should be done before opting for it as there exists some potential risks during deal negotiation, vendor selection, relationship and contract management etc. which are critical to the organization.
Yet, the role of HR professionals will continue to alter as the profession advances into new territory. While most of the discussion about HR outsourcing tends to center on the cost savings, the advantages and the disadvantages, the real focus may need to be on preparing for the inevitable impact on the profession itself.
Outsourcing for HR function must be viewed as a business imperative, not a luxury. The approaches and applications must be tailored to fit perfectly. The partnership must be nurtured and closely monitored. Also there is a critical HR issue of potential loss of expertise in certain areas, which may be difficult to recover-a danger of hollowing out of organization. Outsourcing is not a complete bed of roses. The stakes are high but so are the payoffs. But then you win some, you lose some.
1. Human Resource Outsourcing Survey 2004 conducted by SHRM
2.Oates, D. (1998). Outsourcing and the virtual organization: The incredible shrinking company. London: Century Business, London: Financial Times-Pitman Publishing.
3.Hall, L., & Torrington, D. (1998). The human resource function: The dynamics of change and development.
4. Story of HR Outsourcing, Personnel Today; 1/8/2008, p23-23, 1p
5. www.allbusiness.com/human-resources/workforce-management-hiring-consulting 6. www.fiveoclockclub.com/article/2005/2005-5-outsourcing.pdf 7. www.boston-enet.org/newsletter/spring99-4.htm 8. www.reason.or/apr2004/outsourcing.pdf 5) Negotiating Terms: 6) Transitioning Resources: 7) Managing Relationships: 8.CONCLUSION REFERENCES
9. www.accenture.com 10. www.outsource2india.com 11. www.outsourcing-centre.com • 12. www.idc.com 13.www.outsourcing-hr.com/consolidation.html
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Ingle Jyoti Santosh
PhD Student , North Maharashtra University , Jalgaon, Maharashtra. HUMAN RESOURCE OUTSOURCING : A COST EFFECTIVE HIRING CONCEPT & ISSUES
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