HR OUTSOURCING IN INDIA
For the Partial Fulfillment of the Requirement
For The Award of Degree of
MASTER OF BUSINESS ADMINISTRATION
From UTTAR PRADESH TECHNICAL UNIVERSITY, LUCKNOW
Submitted to: - Submitted by:-
N.P. SINGH KESHAV RAJ
Faculty Guide (HR) M.B.A. 4th
MIMT, Greater Noida Roll No. 1215270032
I am grateful to, “Mangalmay Institute of Management & Technology (Gr.
Noida)” for providing me with this opportunity to work on this project. Without
his assistance and continuous guidance this project would not have been
completed. My experience from this project is indescribable and it has certainly
broadened my knowledge arena by introducing me to the practical problems of
the field while performing the market research survey.
I, would like to extend my heartfelt thanks to I am thankful to
N.P SINGH, Faculty Guide (HR), MIMT, Greater Noida, whose support I would
be able to make this project a success one.
I am indebted to my family and friends for providing such a support for my
The Dissertation is hard intends to reflect some of the basic issue covered under the “HR
OUTSOURCING IN INDIA”. The total aspects has been formulated and presented on the
basic of idea and information gathered by this investigator during a shorter span of
research i.e. an important portion of the MBA curriculum
Leading to an opportunity for the participant to have a practical exposure of the content
under the topic beyond what have already been studies during the classroom
This Dissertation has been written in response to a comprehensive study,
conducted on the “HR OUTSOURCING IN INDIA”. The Dissertation mentions and
evaluate the various aspect , after a thorough analysis of the various facts and figures,
a set of recommendations has been given at the end of the report.
We are confident that anyone who goes through the report will learn how much we
have learnt & benefited during this period
I, hereby state that this project entitled “HR OUTSOURCING IN INDIA” has been
submitted to the U P Technical University, Lucknow at “Mangalmay Institute of
Management & Technology (Gr. Noida)” in partial fulfillment of the requirements of
MBA program Class of 2012-14.
This Dissertation has been completed by me with a lot of hard work and with the help of
some reference books and under the guidance of Faculty Guide N.P. Singh, MIMT, and
The empirical findings of this report are based on the data collected by me. Any part of
this project has not been reported or copied from any Dissertation of the university.
TABLE OF CONTENTS
● Executive Summary……………………………………………………... ………………………..7-8
● Problem of the Study………………………………………………………….....................15-17
● Review of Literature………………………………………………………………………………….21-86
● Research Methodology………………………………………………………………………….....87-94
● Finding & Conclusion………………………………………………………………………………….106-113
Appendix & Questionnaire
Globalization of economies over the past years have reduced international trade
barriers and have resulted in an increasingly interlinked global economy and intense
global competition, putting pressure on business managers across the world to cut costs
of operations. At the same time a paradigm shift in the possibilities of communication
that the Internet and the telecommunications revolution has bought about has opened
up a plethora of opportunities in outsourcing business processes across continents.
Traditionally starting with just sub-contracting in manufacturing, now a holistic
definition of outsourcing involves transferring any value contributing activities,
processes and/or services to the premises of one’s own or an agent primarily to save
cost and/or to increasingly focus on its area of core competence.
Business Process Outsourcing (BPO) is a boon for developing countries but, of late, it has
become a political issue for the US with major economic implications. Our paper
analyses why outsourcing is here to stay, basing the argument on sound conceptual
reasoning, disregarding the political arguments involved. However, given the political
pressures under which many of the MNCs operate, the likelihood of more of the value
added but not very core activities outsourced while some of the real non-core not
outsourced cannot be ruled out.
HR OUTSOURCING: AN INTODUCTION
“HR outsourcing is a process of outsourcing involving particular tasks like recruitment,
making payroll, training and development to a third party who have expertise in these
Today, every organization 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 organization’s core competencies and outsource non-critical business
activities. Therefore, routine administrative work, although important, can be
outsourced to third party vendors.
HR outsourcing has the potential to benefit organizations that want to transform their
ability to manage human capital. Outsourcing can provide the right blend of cost,
service levels, experience and economies of scale that allow companies to move away
from administrative activities and focus on more strategic issues.
The Human Resource (HR) department is critical for employee satisfaction in any firm.
Some businesses don’t have the staff, the budgets or the inclination, to deal with the
nitty-gritty of HR management, so they opt for outsourcing. Deciding which functions to
offload and which firm to outsource is also a major decision.
HR functions include 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 (workers’ compensation, dispute
resolution, safety inspection, office policies and handbooks) and others.
HR outsourcing can be segregated into two broad categories: Transaction and
administration outsourcing and HR consultancy. Transactional outsourcing is more of
day-to-day or month-to-month requirements, and constitutes services like payroll and
benefits. This kind of service is more prevalent in the Indian market. In the value chain,
it falls at the lower-end compared to HR consultancy, although it happens to be an
essential function. It is a fact that companies continue to manage the strategic and
policy functions of their HR departments in-house.
HR outsourcing can happen in various areas such as payroll, employee benefits
administration, fixed assets administration, network management, receivables
management, logistics management, hardware maintenance, telemarketing, call centers
and database management. In India, the most common processes outsourced are
related to training, payroll processing, surveys, benchmark studies, and statutory
HR outsourcing Services could fall into one of four categories:
o PEO - A Professional Employer Organization (PEO) takes legal responsibility for
employees. The PEO and business owner are partners, with the PEO handling HR
aspects and the business handling all other aspects.
o BPO - BPO refers to all fields, but specifically for HR, a BPO would ensure that a
company has access to latest technologies.
o ASP - Application Service Providers (ASPs) host HR software, on the web and rent it
o E-services - E-services are those HR services that are web-based.
o KPO – A form of outsourcing where knowledge & information related work is carried
out by different company resources.
HR OUTSOURCING ASSISTING CHANGE:
Use of HR
Need to remain
Desire/Push to move to
PROBLEM OF THE STUDY
HR Outsourcing is increasing its foothold on Indian soil by every passing day. More and
more organizations are now outsourcing HR services from service providers like IBM,
Accenture, HAY Group etc. The study here is conducted to determine why organizations
are moving to outsourced services from their in-house expertise. For this an
organization needs to weigh down the pros and cons of in-house services as compared
to outsourced services and then take the plunge. Properly applied, including concerns,
outsourcing offers many benefits; otherwise, it offers even greater risks.
The core question now is centered on whether the deepening global recession is going
to impact this market growth. It also needs to be found out that how are organizations
coping up with the current economic slow-down as more and more organizations are
going for cost-cutting, restructuring etc. For some organizations, the current scenario
may appear as an opportunity to outsource HR functions whereas for some it could
appear to be an extremely risky venture.
For an organization to outsource HR functions, it is often required by to share the
private information of their employees with the service provider. Here, legal issues like
data privacy and data security emerge. These issues need to be handled carefully since it
may consist of some sensitive information about an employee like his/her health
information, family conditions etc. Organizations along with the service providers need
to develop a solution so that these issues can be handled appropriately.
Further, one needs to understand the internal scenario of the organization while an
outsourcing deal is being planned and implemented. It is important for an organization
to have full support of high level management as it affects the level of employee
OBJECTIVES & RATIONALE OF THE STUDY
Today, every organization is aiming at achieving productivity by enhancing return on
investments and achieving economies of scale. In this context, it makes sense to focus
only on the organizations core competencies and outsource non-critical business
Corporate focus on the implicit and explicit costs of human resources has never been
greater and outsourcing employee benefits administration can create greater efficiency
while decreasing costs. The study aims at studying the HR outsourcing phenomena and
how companies in India are reacting to this phenomenon.
The study will throw light on the various aspects like the trends, challenges, benefits and
other issues like process and vendor selection criteria used related to HR outsourcing in
the context of the Indian industry. It will also talk about the role of outsourcing outfits
like India Life Hewitt, Ma Foi, Xansa, Wipro, Accenture etc in shaping the Indian HR
Various objectives of conducting the study are: -
1. To study the various challenges faced by the Indian industry pertaining to HR
2. To study the various reasons deterring the Indian HR outsourcing industry to
grow at the pace of the global market.
3. To study the trends of HR outsourcing prevailing in the Indian industry.
4. To ascertain the future of the HR outsourcing industry in India and the factors
responsible for molding it.
5. To find out the various benefits being derived out of HR outsourcing by the
6. To study the impact of HR outsourcing on the internal customers in the Indian
7. To study the criterion used by the Indian companies in selecting the vendor for
outsourcing their HR processes.
8. To study the criterion used by the Indian companies in selection of the HR
process to be outsourced.
WHAT IS OUTSOURCING??
Outsourcing is the process by which an organization contracts with another
individual or company to get some of its work done.
Generally it is non-core aspects of the business that are outsourced.
Main reason for outsourcing is to cut costs while focusing on core business
Quality management and controlling might be a big risk
TYPES OF OUTSOURCING:
BUSINESS PROCESS OUTSOURCING:
Contracting of the operations and responsibilities of specific business functions
to a third-party service provider.
Categorized into back office outsourcing and front office outsourcing
BPO that is contracted outside a company's country is called offshore
outsourcing and that to a company's neighbouring (or nearby) country is
called near shore outsourcing.
FUNCTIONS UNDER BPO:
Professional - accounting, purchasing, information technology support and other
Manufacturing - optimizing their bottom line and positively impacting their top
Process-specific - specific to a unique process or internal procedure
Operational - Machine maintenance, equipment repair cleaning
KNOWLEDGE PROCESS OUTSOURCING
KPO or Knowledge Process Outsourcing calls for work that needs higher levels of
involvement from the worker.
The worker has to employ advanced levels of research, analytical and technical
KPO industry is less older and mature than the BPO sector.
INFORMATION TECHNOLOGY OUTSOURCING:
An organization uses IT outsourcing for functions ranging from infrastructure to
software development, maintenance and support.
A company may outsource all of its data storage needs because it does not want
to buy and maintain its own data storage devices. Most large organizations only
outsource a portion of any given IT function.
Outsourcing is a strategic decision to give a task or activity to an independent
contractor who determines how best to do the task or activity. The firm
and the independent contractor become partners and may establish a
BENEFITS OF HR OUTSOURCING:
As the Human Resources Outsourcing market rapidly evolves, an ever-
changing set of outsourcing solutions is now available to accelerate
enterprise effectiveness. HR Outsourcing is increasingly seen as a key
enabler of people and team transformation.
Properly defined goals that are supported by innovative outsourcing can
drive a company to the next level of enterprise effectiveness. As people
become more critical to the success of a company, the human resource
function will have to progress from administration to strategy if the
organization it supports is going to remain competitive.
The advantages are clear and compelling: improved business focus, more
productive use of time and resources, and guidance from experts from
across the business spectrum, saving money, focusing on strategy,
improving compliance, improving accuracy, lacking experience in-house,
taking advantage of technological advances, and offering services they
could not offer.
Outsourcing HR functions allows a company to focus on its core
competencies and provides administrative relief from many employer-
related responsibilities, so that the company can concentrate on
developing strategies that provide competitive advantage to it.
Traditionally, people have been viewed as liabilities or expenses, instead
of tangible, bottom-line assets. Successful business owners have learned,
however, that their employees have a direct impact on their profitability.
The company gets more out of its business when it gets more out of its
Statistical analysis by Watson Wyatt Worldwide, which developed the
Human Capital Index to provide a standard for measuring a company’s
people practices, shows a clear relationship between the effectiveness of
a company’s people practices and the creation of superior market value.
Once HR and other operations are outsourced, many companies
experience a strong return on investment, according to a recent survey of
American executives. The 2006 survey of executives at the IDC Midwest
Conference in Chicago showed nearly 85 percent of the respondents
saved as much as they spent on outsourcing, with 26.4 percent reporting
a savings of twice as much. And the savings, according to nearly 95
percent of the respondents, went toward operational performance and
innovation, which improved shareholder value.
Strong human resources practices have the potential to increase a
company’s productivity and profitability, but HR management has become
a colossal task, demanding considerable resources. Legal and regulatory
compliance has become an overwhelming task, and time spent on
administrative obligations is time spent away from growing business.
Outsourcing is the great equalizer for small to medium-sized firms.
Growth-oriented entrepreneurs can benefit tremendously. Not only do
employees frequently gain access to better benefits, the owner gains
freedom to focus.
Outsourcing “people strategies” can help a company gain a competitive
advantage, but it needs professionals who cut through the clutter of HR
practices to learn which have the most positive impact on its business.
Largest democracy: 1.1 billion population
1991: Wide-ranging reforms to open and deregulate the economy
GDP growth over 8% in 2005-6 – fastest growing economies in the
world, with compounded growth at 5.7%
Gross GDP - $3 trillion – fourth largest economy in the world –
after USA, Japan and China
Annual per capital income is $2,880 – one of the lowest in the
Indian’s remit about $18.3 b. back to India annually – one of the
highest in the world
In 2003: total of 9, 500 listed companies on the BSE and NSE (23
registered stock exchanges)
Total market capitalization is 22 –25 % of GDP
Top 100 BSE companies represent almost 86% of market cap
State-owned enterprises account for nearly 32 % of BSE market cap
• India’s economy is expected to grow over 6% - faster than any
other country in the world (Duetshe Bank Research)
• India is one of the fastest growing markets in the BPO space
• India is the world’s fourth largest economy- adjusted for
purchasing power parity (PPP) – next only to U.S, China, Japan
• There is a large potential in the SMB, and mid-market space, and
for solutions enabling the (offshore) services industry
DETTERANTS OF HR OUTSOURCING:
There exists a set of basic reasons hampering the growth of HR
outsourcing. Many companies outsource only a bit of their requirements.
Various reasons that deter many organizations are:
o Fear of loosing jobs
o Loss of sensitive information to public/ competition.
o Ethics and quality of outsourcing vendors.
o Possibility of security breaches.
o Cost- benefits equation not clear.
o Lack of psychological acceptance.
Goldman Sachs Report of 1 October, 2003 –
"Dreaming with BRICs: The path to 2050“
India’s GDP will reach $ 1 trillion by 2011,
$ 2 trillion by 2020, $ 3 trillion by 2025,
$ 6 trillion by 2032, $ 10 trillion by 2038, and
$ 27 trillion by 2050, becoming the 3rd largest economy after USA
In terms of GDP:
India will overtake Italy by the year 2016
France by 2019, UK by 2022, Germany by 2023, and Japan by 2032.
India Corporate Profile…
Market Cap No. of Companies
> $ 20 billion: 3
> $ 10 billion: 9
> $ 5 billion 18
> $ 1 billion 62
> $ 500 m 74
** Growing over 100 Global Indian mnc’s that will be above $1 billion –
** 50% of the over $1 billion companies are currently in public sector
No. of listed companies on BSE 10,000
No. of companies on NASDAQ
No. of companies on NYSE
DECISION FOR OUTSOURCING:
Driving Global Leadership
IT –led sectors
McKinsey and Nasscom:
India's revenues from IT industry will reach $87 billion by 2008
Profile of IT-led Sector:
• Tier 1 companies – i.e. Top 5 firms
Account for 32 % of total software export
• Tier 2 companies –ie. Revenues Rs. 1 billion - Rs. 10 million
Account for 24 % of the industry
• MNC – back-ends
Account for about 26 % of the industry
• Focused companies – domain/ service line/ products/
Account for about 3-4 % of revenues
• Small companies – ie. less than Rs. 1 billion revenues,
Account for 12-14 % of the market
New emerging areas
bio-informatics, bio-technology, genomics, clinical research and
trials – Ranbaxy, Cipla, Piramal, Reliance Life sciences, Biocon
Bharat Forge has the world's largest single-location forging facility;
its clients include Honda, Toyota and Volvo amongst others.
Hero Honda with 1.7m motorcycles a year is now the largest
motorcycle manufacturer in the world.
India is the 2nd largest tractor manufacturer in the world.
India is the 5th largest commercial vehicle manufacturer in the
Ford has just presented its Gold World Excellence Award to India's
Worldclass Manufacturing – ctd.
Hyundai India will become global small car hub for Korean giant --
supplying half a million cars to Hyundai Korea, HMI and Ford – by
Aston Martin latest luxury sports car, AM V8 Vantage, is being
prototyped by an Indian-based designer.
80 of the World’s 117 SEI CMM Level-5 companies are based in
5 Indian companies recently received the globally acclaimed
Deming (TQM) prize.
Retail Sector: Late Riser
Largest retail density worldwide: about 15 million retail outlets
Retail trade will be 10-11% of GDP
Growing at 158 % between 2003-5 – compared to 40 % in other
Valued at $19 billion currently compared to China’s $50 million
Global Outsourcing Trends:
IT-enabled Services – BPO’s & KPO’s
Key drivers for Global offshore/ outsourcing as a strategic alternative
Increasing global competitiveness
Access to global talent
Economies of scale
Process engineering and enhancements
Increased profit margins
Improvements in quality
India holds 55% of the global Offshore BPO Industry
More than ½ of Fortune 500 companies have outsourced to India
India BPO Services grew by about 49% in 2004
Indian BPO is growing at 7 times the domestic GDP
Indian outsourcing is moving up the value-chain
LOB’s developing: HR and Finance
Indian KPO (knowledge process outsourcing) to grow from $1.2
billion to $15.5 billion in 2010 (ie. 75% of the global KP market)
The real economics of off shoring
India’s Value Proposition for ITES-BPO Industry: PQRS –
Productivity, Quality, Rate, Scalability factor
Ability of Indian vendors to ramp-up operations rapidly
Widening breadth of services
Shift towards high-value services
Sustained cost advantage – nearly 40-50 % cost savings in India
Delivery process enhancement and improvement
Access to an abundant skill pool : India has the largest english
speaking IT talent pool in the world, over 120,000 trained IT
professionals and about 3 million other graduates added each year.
Global quality credentials –ISO,TQM, 6 SIGMA
U.S : 2/3rds of total market
Western Europe, mainly U.K. : 20 % approx.
Customer Care: 35 % of the sectors employee base at 122,000
employees, and 1/3 of revenues
Finance: 25% of revenues
Administration: 16 % of revenue
Content Development: 13 % of revenue
View from SAP Labs- Off shoring India Center
• Bangalore is one of the world’s top IT clusters
• System Integrators can be enabled to implement SAP NetWeaver
and the Business Process Platform for customers
• Independent Software Vendors (ISV) can provide platform-based
• India is the one of the most cost-efficient locations for many mnc’s
from Europe and U.S.
• and will be below 50% cost of Germany at least for the next 5 years
• “Context” can be outsourced to a large spectrum of service
Phobias of Outsourcing :
… view from IBM
What Executives are asking about India?
Will economic reforms continue…India’s noisy democracy perplexes
many MNC Executives
Are the multinationals really welcome?
Isn’t China the richer opportunity?
How do successful multinationals approach India?
Is off shoring in India worth the political risk?
Will infrastructure be a problem?
Will India protect intellectual property?
INDIA A FAVOURED DESTINATION
Availability of qualified manpower
Proven delivery capabilities
Contracting of the operations and responsibilities of specific
business functions to a third-party service provider.
Categorized into back office outsourcing and front office
BPO that is contracted outside a company's country is
called offshore outsourcing and that to a company's neighbouring
(or nearby) country is called near shore outsourcing.
FUNCTIONS UNDER BPO
Professional - accounting, purchasing, information technology
support and other specialized services.
Manufacturing - optimizing their bottom line and positively
impacting their top line.
Process-specific - specific to a unique process or internal
Operational - Machine maintenance, equipment repair cleaning
Baron & Kreps, 1999 gave this matrix which talks about how and when to
outsource activities. According to this matrix, strategic importance of the
activity and interdependence on other activities are the two factors on
which the decision of outsourcing should be based.
The activities that have high strategic importance and high interdependence
on other activities should be kept in-house and the activities that have low
strategic importance and low interdependence must be outsourced.
Why choose India for BPO Services
Outsourcing has become a strategic management approach for most companies around the
world. Outsourcing of back office and front office administration processes allow businesses
to achieve their business objectives and increase profitability. Business process outsourcing
helps you in achieving operational excellence at a relatively low cost and also enables you to
focus on core business issues.
India is an ideal destination for business outsourcing due to innumerable benefits that it
offers. Outsourcing work to India offers the benefit of cost reduction, in addition to
increased productivity and profitability. India has a rich pool of talented people who are not
only well versed with English language but are also technically literate.
It also gives companies access to experts at much lower rates. BPOs in India have also
offered great long term career opportunities to Indian graduates and undergraduates. BPO
sector is expanding at a rapid pace in India because of highly qualified professionals,
advanced technology and lower management cost.
Most of the leading organizations resort to Indian BPO services for handling their work
related to HR, finance, telemarketing, sales, technical support, etc. as it allows them to
transfer their responsibility and get quality solutions. Indian BPO sector is booming because
of its high-end infrastructure and expert manpower. Outsourcing in India guarantees full
value for money as high quality performance is available at competent prices because of the
growing rate of BPOs.
Indian brainpower has given a new dimension to the corporate world by providing quality
services. Most of the companies are turning to India because of the level of excellence it has
attained in the outsourcing sector. India is a rich pool of talented people who speak fluent
English and easily adapt to western accents.
Training provided by the Indian BPOs hone the soft skills of BPO professionals and makes
them experts to handle specialized tasks. The Indian BPO sector now plays a key role in the
global corporate world. Outsourcing optimizes business operations of global companies and
reduces their expenses through efficient and accurate process management solutions.
Outsourcing to India is also very reliable as the information security issues are taken care of
diligently. Outsourcing business processes to India is here to stay for long. Sutherland Global
services has Indian facilities in Chennai, Mumbai and Kochi.
It was founded in 1986 in Rochester, New York, Sutherland. The company has over 24,000
professionals who offer Right Sourced seamlessly blended services. Apart from India, it also
has its delivery centers in Bulgaria, Canada, Mexico, Nicaragua, Philippines, The United
Kingdom, and the United States.
WHY HR OUTSOURCING ?
* 85 % of the time on Administration and Management with no Added Value
* 15% of the time on HR strategies, communication, planning.
According to Hewitt’s HR outsourcing Trend and Insights 2009 survey, top reasons for
outsourcing HR services:
1. Opportunity for cost savings 78%
2. Access to outside expertise 78%
3. Improve service quality 74%
4. Realign resources/focus
On strategic HR properties 72%
5. Relief from regulatory/
Administrative burden 70%
ADVANTAGES VS DISADVANTAGES
1. Access to pool of talent, sustainable sources of skill
2. Efficiency, focus on core business, core resources
3. Cost saving, no investment for infrastructure, software…
4. Cost restructure: move fixed cost to variable cost and make variable cost more
5. Risk management: transfer risk of non tax and legal compliance to outsourced
6. Backup plan
1. More expenses if not choosing a good outsourced vendor
2. Sensitive information may leak to competitors
3. Less control of the processes
4. Weak connection with staff/end users
5. Dependency on outsourced vendor
CHALLENGES OF HR OUTSOURCING IN VN
1. HR outsourcing is new concept with Vietnamese Government and community
2. HR outsourcing industry is still immature market
3. Organization do not have too many options in selecting a professional HR
outsourcing vendor to meet their needs
4. Pool of skillful resources are limited
5. Outsourcing costs are high compared with labour cost and very high compared
with ones in developed countries
6. IT Infra-structure, data integrity, data security should be invested in large scale
7. Integrated solutions should be developed
IMPORTANT NOTES FOR SUCCESSFUL HR OUTSOURCING PROJECT
IMPORTANT NOTES FOR SUCCESSFUL HR OUTSOURCING
1. Service Level Agreement (SLA): clear, detail and there are some valuable points need
Timeline to deliver the services: an fixed schedule should be
discussed and agreed in advance between the organization and
What kind of reports/output to be delivered: a check list of reports,
outputs should be discussed and followed on
Responsibilities of organization and vendor: this should be
mentioned as detailed as possible as many unclear services
will be extra charged to your organization
Decisions to be made by organization, vendor: this is very important
in HR outsourcing as it much link with your staff ‘ feeling and your
2. Planning transition
Keep end users informed about the goals and progress of
Get end users involved: input in outsourcing plans, how the
changes affect them..
Buy-in end users and sign-off on outsourced activities
Educate end users about new method of the process
Take care with high sensitivity if it involves transition of employee
from organization to HR outsourcing vendor.
3. Management commitment and support :
• Management commitment and support are essential as outsourcing project
involves a great deal of changes, especially in cases of reorganization
4. Performance monitoring and support:
• Performance should be review frequently to make sure the service can meet the
• Mutual support, understanding and solving problems with a we’re- in-this-
HOW TO CHOOSE A GOOD HR VENDOR IN VIETNAM
Hewitt’s HR Outsourcing Trends and Insights 2009 Survey gives top factors to
consider in choosing outsourcing provider:
• Service quality
• Track record
• Strong HR Process expertise
• Brand trust
• Strength in customizing solutions
Strength in customizing solutions
• Very few organizations select their HR providers based on lowest cost
Major HR Function in Outsourced
1) Recruitment : The process of finding and hiring the best-qualified candidate
(from within or outside of an organization) for a job opening, in a timely and cost
effective manner. The recruitment process includes analyzing the requirements
of a job, attracting employees to that job, screening and selecting applicants,
hiring, and integrating the new employee to the organization.
2) Pay Roll : Government agencies at various levels require employers to
withhold income taxes from employees' wages. In the United States, "payroll
taxes" are separate from income taxes, although they are levied on employers in
proportion to salary; the programs they fund include Social Security, and
Medicare. U.S. income and payroll taxes collected through deductions are
considered to be trust fund taxes, because the employer holds the deducted
money in trust for later remittance.
3) Training : Training is the acquisition of knowledge, skills, and competencies as
a result of the teaching of vocational or practical skills and knowledge that relate
to specific useful competencies. Training has specific goals of improving one's
capability, capacity, productivity and performance. It forms the core of
apprenticeships and provides the backbone of content at institutes of
technology (also known as technical colleges or polytechnics). In addition to the
basic training required for a trade, occupation or profession, observers of the
recognize as of 2008 the need to continue training beyond
initial qualifications: to maintain, upgrade and update skills throughout working
life. People within many professions and occupations may refer to this sort
of training as professional development.
4) Security : A financial instrument that represents: an ownership position in a
publicly-traded corporation (stock), a creditor relationship with governmental
body or a corporation (bond), or rights to ownership as represented by an
option. A security is a fungible, negotiable financial instrument that represents
some type of financial value. The company or entity that issues the security is
known as the issuer.
For example, the issuer of a bond issue may be a municipal government raising
funds for a particular project. Investors of securities may be retail investors -
those who buy and sell securities on their own behalf and not for an organization
- and wholesale investors - financial institutions acting on behalf of clients or
acting on their own account. Institutional investors include investment banks,
pension funds, managed funds and insurance companies.
Outsourcing solutions are economical and promise full worth for the cash spent. When
choosing an outsourcing solutions supplier, it is vital to make sure about security in
dealings. Payroll outsourcing services is described as a service that gives to try and do
the payroll on behalf of a business's work schedule on a weekly or monthly basis. Payroll
outsourcing solutions are provided on-line. In such cases, encryption technology and
password protection are vital. The rationale why this may be thought-about is just that
an organization dedicated to giving an outsourcing service is one which will typically
supply the service at a greatly reduced price to small business owner along with
ensuring safe transactions.
Changing roles of HR :
Most projects as part of the two Strategic Business Units (SBUs) we undertake involve:
Manpower & Talent Acquisition
Executive Search and Hiring
Turnkey Recruitment Solution
Temporary and Permanent Staffing
Allied HR Services
Marketing Process Outsourcing
Internet & Digital Marketing
Branding, PR, Market Research
CSR Activities and Sports Promotion
Print Production and Management
Events and Promotions
Human Resource Services :
Our HR Strategic Business Unit (SBU) is a professional staffing entity providing flexible
and permanent staffing
solutions for hiring organizations and career management for job seekers in the
following specialty skill areas:
Engineering & Manufacturing
Oil & Gas, Power, Infrastructure
IT, ITES & BPO
Telecom & Retail
Financial Services, Banking, Insurance
At Sparkle Minds, we believe that Great People = Great Results. By understanding what
drives our specialty
industries, becoming involved in our communities on a professional and personal basis,
following a disciplined process
of identifying quality candidates, partnering with employers to understand their core
business and their employment
requirements and delivering exceptional service, we achieve great results for all
Sparkle Minds staffing specialists operate to bring the value of our 10 years of
experience to your staffing and career
development needs. Contact us for more information on temporary, temp-to-perm or
permanent placement, for
Sparkle Minds is incorporated with an aim to provide complete solutions encompassing
the wide world of MANPOWER
SOLUTIONS. Growing our foothold providing excellent customer services, we at Sparkle
Minds believe in providing
manpower solutions and services in domains such as Financial Services and Banking, IT,
BPO & ITES, Oil & Gas, Power,
Infrastructure, Project & Engineering. Adding to greater value in customer satisfaction,
we have developed relation in
tie-up with major Organizations in the industry.
Level 1 / Level 2 / Level 3
We would offer temporary, temporary to hire and permanent placement solutions and
help reduce administrative
burdens with these time - and money-saving options:
Sparkle Minds follows a strict recruitment process in order to cater the best services to
the satisfaction of our clients
and to make sure that the right person fills up the position.
Other Allied HR Assignments we intend to undertake are :
Payroll Management – Compensation & Benefits, Leave Records
Statutory Compliances filling
Statutory Compliances - Professional Tax, PF, Insurance, ESIC
Insurance and Risk Assessment
Training and Development
Liaisons and Coordination
Various considerations to be taken into account while outsourcing were given by Baron
& Kreps, 1999 :
o Does learning from this activity spill over to an important “core” activity?
o Can the outsourcing relationship be reversed and the work brought back inside
when conditions change?
o Can the outsource supplier adjust more quickly to changing labor or market
demands than we can?
o Do we have a strong clan-like culture that would be weakened with employees who
have different values or interest?
Outsourcing may not be appropriate when:
1. The task is a core activity critical to strategy or technology.
2. Task is highly interdependent with core activity due to technology or work design.
3. Task requires great deal of firm specific human capital or access to proprietary
4. Tasks where the employees work in close proximity to regular, core employees and
are similar socially to them.
METHODOLOGY FOR HR OUTSOURCING:
The methodology of HR outsourcing involves the following steps: -
o Situation analysis – It includes business environment analysis, analysis of the work
process which is to be outsourced and risk analysis.
o Solution design
o Design of performance measures & contract – It includes preparation of the HR
outsourcing contract. The expected service levels are defined and accountability &
performance measures for both the vendor and the company are set.
o Solution delivery
- Work process
- Risk analysis
- Work Process
- Service levels
- Work Process
- Performance GAP
o Solution performance management – It includes the management of the vendor-
HR OUTSOURCING DELIVERY PROCESS:
Project Dedicated Expertise
• Project Management
• Performance Management
PRESENT SCENARIO OF HR OUTSOURCING IN INDIA:
The general opinion among Indian companies is that it is economical to manage all their
HR processes internally. Consequently, there is not much emphasis on
outsourcing. Typically, very small companies (which do not have the
competency to staff a full-fledged HR department) and very large
companies (who wish to outsource all routine HR processes so that they
can concentrate on core issues), are the ones that use HR outsourcing in
a significant way. Besides, many multinational companies are fast
adopting these practices.
Sateesh R Kurugod, head of marketing and alliances, Cross domain
Solutions says that now CXO’s realize that HR teams typically spends over
80 percent of its time in managing tactical and transaction oriented HR
operations. “If these tactical processes are outsourced, the company
could re-deploy their trained HR resources to core processes,” he adds.
Pramode Sadarjoshi, the director and head of Human Resources of
Cognizant Technologies says, “Today, every organization is aiming at
achieving productivity by enhancing return on investments and achieving
the economies of scale. In this context, it makes business sense to focus
Delivery Process Support
only on the organization’s core competencies and outsource non-critical
business activities. Therefore, routine administrative tasks, although
important, can be outsourced to third party vendors.”
Experts believe that in present times HR outsourcing is undergoing a
transition phase. "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. All this reflects on the growth
of this sector.
HR outsourcing comes third in the list of potentially high paybacks, after
IT and the telecomm industry. However, many companies wrap up their
HR functionalities as something that happens in the back office, and do
not give enough attention to the infrastructure that essentially props up
its employees. Over the years, this has bred neglect, leading to
antiquated HR management systems.
Now, it is time for this mindset to change, because companies are
suddenly waking up to the fact that their HR policies are not in step with
the times, and a major overhaul is called for to keep pace with company
acquisitions and mergers. A few companies have tried mending their HR
management system on their own, but they soon discovered that it is like
opening Pandora's Box; more you inquire into the state of HR policies,
you keep unearthing more anomalies.
That's where outsourcing can step in. If you have a problem managing
your HR and bringing the existing system up to scratch, why not let a
third party worry about it? What comes with HR outsourcing is better
management at a lower cost
Implications of HR outsourcing for India need to be looked at in two parts
— economic impact and HR impact.
The economic impact is positive, given that India is the beneficiary of the
global outsourcing wave, at least for now. It is creating more jobs and
increasing earnings for the country.
The second part of the India impact is from the HR point of view. What is
quite obvious is the fact that cost arbitrage will not be the driver for this
trend within India, if ever, even if a large organization were to outsource
to a small operator.
India must be the country hiring the most in the world. In fact, HR in
India would rank as the most dynamic and turbulent in the whole world
today. There are so many new jobs, so many to hire, so many to train,
and so many to retain. After many years of fighting for identity, HR in
India has come of age. HR and organization building issues are center of
the plate in any Indian CEOs agenda today. CEOs are willing to spend as
much as it takes to manage their people and people processes well. It
may never get any better for HR.
With more and more companies looking to rationalize employees on their
payroll, Human Resource outsourcing is slowly becoming the buzz in
India. Companies to whom organizations outsource their human resource
function possess the knowledge and resources to expertly perform part
or all of a client’s human resources function, allowing the client to
streamline their internal processes and concentrate on generating profits
in their core business.
Estimates show that the latent size of HR outsourcing in India is about $
2 billion with a current market $ 27 million and it is growing at the rate
of about 50 per cent. 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. Companies which haven’t joined the
HR outsourcing bandwagon are either unfamiliar with the process and procedures of HR
outsourcing, or are unaware of the players operating in the area or are unaware of the
probable value obtained from doing so.
Projections show that in the Asia Pacific region, HR outsourcing will go up to 2560
million dollars (Garter 2004). The projections for HR outsourcing processes are
mentioned below: -
Pay roll services 761
Benefits administration 536
Education & training 556
Recruitment & staffing 348
Personnel administration 167
Other HR functions 192
Some key findings of the Outsourcing Asia-Pacific online survey that was conducted by
Hewitt in June 2002 with regards to the Indian market: -
o Outsourcing of the complete HR function was prevalent among foreign
companies that have established operations in India.
o Outsourced expertise where staff expertise is provided as an outsourced service
rather than processing services was observed particularly among small and
medium sized companies that find difficulty retaining skilled, senior HR staff.
o The outsourcing of HR processing, including payroll and benefits processing.
Even though across the globe companies are realizing that headcount is directly related
to the revenue and are outsourcing most of their transaction and administration related
work, the general opinion among the Indian companies is that it is still economical to
manage all their HR process internally. Here people are also not very clear about what
exactly is manpower outsourcing all about.
After customer care services and medical transcription, outsourcing of human resource
services or HR BPO is emerging as the next big opportunity for Indian BPOs with the
global market in this segment estimated at $40-60 billion per annum according to
HR BPO comes to about 33% of the outsourcing pie. India has immense potential as
more than 80% of fortune 1,000 companies will discuss offshore BPO as a way to cut
costs and increase productivity. Sensing the potential, global BPO players including
Fidelity, Exult and Hewitt have begun setting up operations in India. However, most HR
BPO players had not leveraged the offshore advantage as yet.
The revenues in the HR outsourcing space are projected to increase to $3.5 billion by
2008 according to a Nasscom-McKinsey survey. Even if 10 per cent of HR outsourcing is
off shored in the next 5 years, offshore opportunity can be anywhere around $1.4
Research firm Gartner has forecast HR BPO to reach $51 billion and represent 39% of all
BPO revenue by 2004-end. In HR BPO, revenues depend on the number of employees
the clients have. This is in sharp contrast to a typical customer care center, where bills
are charged on the workers servicing a client in the BPOs. Despite huge potential, not
many companies have leveraged the offshore strategy. The main reasons for not
leveraging the offshore benefit have fabeen companies being undercapitalized or not
knowing enough about the offshore business.
Research proves that the market for HR outsourcing in the APAC region could grow from
$1.14 billion in 1999 to $2.56 billion in 2004. Although it is not a very huge growth, it has
still shown an upward trend.
Some of the key companies, which have gone ahead for manpower hiring outsourcing
practices, are Cisco, GE, Honeywell, Sun, i2, LG Soft India, Escosoft and Legato Systems.
While LG Soft India has outsourced its PF management, Escosoft has outsourced payroll
processing, execution of training programmes and survey conduction. According to
Shubho Kundu-senior general manager HR of LG Soft India, the company has been able
to save a lot in terms of reducing paperwork and interaction with government agencies.
Besides, there are other companies like Xansa India, which is planning to take a plunge
in HR outsourcing business and offer services to its parent organisation. Binnoo
Wadhwa, the head of HR for Xansa India, says that the move showcases the robustness
of the HR department to handle such critical applications.
There are many others who do not believe that HR outsourcing is necessary. Take the
case of Aptech, which has not considered HR outsourcing as the company feels that HRD
is strategically linked to its business. According to this company any job or function,
which is of strategic importance to the organization should not be left for outsiders or
the so-called outsourcing partners.
SELECTION OF HR OUTSOURCING VENDOR:
Selection of the right vendor is a very important factor in making it a
successful venture. For some businesses, cost is the deciding factor in
vendor selection. Other companies look for a cultural fit or a
commitment to quality. Some things a company should consider when
evaluating a firm include:
o The range of outsourcing services it offers;
o The expertise it has in the particular industry;
o Its general HR experience;
Its understanding of the company’s priorities;
o Its available resources;
o The flexibility of its contracts.
It must be kept in mind that an HR firm is an extension of a company
culture, so the company must try to find one that fits its image.
KEY QUESTIONS ASSOCIATED WITH HUMAN RESOURCE
Six important questions companies must focus on as they decide whether
to outsource some or all of their HR processes:
What are the external forces that are driving the company to
examine the opportunity for outsourcing HR activities?
Globalization, restructuring, increased administration complexity and
cost pressures are all driving companies to consider the use of HR BTO.
As companies begin to operate in more countries, they are finding it
increasingly difficult and costly to keep track of, and manage, the variety
of benefits and regulatory requirements in each area.
For example, a multinational organization that has been built over time
from a series of acquisitions and buyouts can find itself with a
bewildering mix of compensation packages, pension plans, human
resource management (HRM) systems, hiring guidelines and HR contact
centers. Further, as compliance directives and legal regulations change in
each of the countries in which the company operates, the company’s
ability to stay current becomes more difficult and costly as extensive
resources are required to maintain and apply this knowledge. Allowing an
outside party that has already built existing capabilities in these areas to
manage the process becomes an increasingly attractive proposition.
Finally, overall cost pressures are forcing companies to identify new
methods for cutting administrative expenses. A number of recent studies
suggest that reducing costs is the primary benefit that companies seek
when outsourcing HR processes. As new competitors enter the market,
particularly those with lower labor costs, many companies’ profit margins
are put at risk, prompting them to examine closely all activities where
cost reduction is possible. Outsourcing provides an opportunity for
companies to leverage the cost base and experience of an outside
provider, which can potentially lower the cost of delivering HR services,
while maintaining or improving service levels.
What are the initial drivers that make HR outsourcing an attractive
A number of internal drivers are also pushing firms to investigate HR
Outsourcing. For example, some companies see it as a means of
controlling the cost and effort associated with operating their HRM
systems. After evaluating the total cost associated with upgrading and
maintaining these systems, companies are increasingly turning to outside
providers to manage their HRM systems and take responsibility for
upgrades and system availability.
Companies are also recognizing that they are unable or unwilling to bear
the cost of developing employee or managerial self-service tools; they
would prefer to “rent” these applications from outsourcing providers who
have already invested in development, have the ability to keep up with
the latest technology solutions and can provide best-in-class tool sets.
Also, the level of complexity involved in administering complicated
programs and processes in multiple regulatory environments and
managing data across borders often requires sophisticated expertise,
which many companies may not have in-house. Sourcing this capability
from a vendor could offer lower costs and a higher likelihood of staying
current on recent developments.
Third, companies want to reduce the risks associated with business
volatility. Having gone through numerous hiring/layoff cycles, they are
looking to increase process capacity without commensurate increases in
full-time headcount. For example, companies need to increase their
ability to recruit without having to bring on a number of full-time
recruiters (because, typically, recruiters are the first people exposed to
layoffs during a business slowdown).
Fourth, as organizations try to shift resources from administrative to
more strategic activities, outsourcing offers one way to build a new sense
of focus within HR organizations. Many HR organizations believe being
able to reengineer their internal processes and deliver strategic HR
services is simply too much for one organization to undertake at the
same time. However, by allowing a vendor to manage many of the
administrative processes that take time and energy away from HR
organizations, the internal HR organization can focus its limited
resources on delivering the services that truly provide strategic benefits
to the entire company.
Lastly, for many organizations, outsourcing serves as a catalyst for
change. Implementing and maintaining a client service orientation and
metrics-driven approach are difficult for most HR functions to achieve on
their own. In an outsourced environment, these skills are critical in
determining the success or failure of the arrangement. Therefore,
outsourcing efforts can be used as motivation to move HR service
delivery toward a more accountable, results-oriented focus.
How should the company identify potential processes to be
Determining the scope of the outsourcing effort is among the most
important and difficult decisions companies make. Recently, several
studies have indicated that the processes most likely to be outsourced
are retirement program administration (including defined benefit,
defined contribution and retiree services) and health and welfare
Further, these studies found that HR processes closely associated with
employee evaluation and communications are the least likely to be
outsourced. To make the right decisions on which processes to outsource
at a particular company, it is helpful to establish a formal set of
evaluation criteria. Paul Adler, a management professor at the University
of Southern California, suggests six dimensions an organization can use
to evaluate HR processes when identifying their potential for
a) Dependency – are there specific assets that require dedicated
facilities, equipment, capacity, training or investments?
b) Spillover – is there confidential information or sources of advantage
that could be leaked to competitors?
c) Trust – is there a positive relationship between the two organizations
that could reduce transaction costs associated with contracting and
d) Competence – can greater vendor capability in process execution lead
to improved results?
e) Core capability – is this process viewed as a differentiator for the
organization in the marketplace?
f) Commitment/flexibility – is the process stable enough so that changes
in capacity/technology are not required on a frequent basis?
Who should be involved in making the decision to outsource HR
Within the HR organization, the CHRO (or equivalent title in the
organization) usually plays an active role in making the outsourcing
decision. Ultimately, it is the CHRO’s responsibility to determine whether
the outsourcing arrangement will enable the HR organization to provide
cost-effective, quality service to its internal clients, while, at the same
time, support the organization’s larger strategic objectives. In addition to
the CHRO, the HR Operations Leader is often involved in developing the
specifications of the outsourcing arrangement. While the HR function
clearly has primary responsibility in this area, two other individuals play
important roles in the outsourcing decision.
The Chief Financial Officer often participates in the decision-making
process, as entering into a long-term contract with an outsourcing vendor
can have potentially significant financial ramifications for the
corporation. In addition, the Procurement Manager assumes a prominent
role during the vendor selection, negotiation and contracting process,
leveraging experience in developing terms and conditions that are
favorable to the organization.
Two groups of individuals were seen as influencing, if not directly
participating in, the HR BTO decision. Given the importance of integrating
HRM systems with various vendor-driven applications, the Information
Technology (IT) organization should have input in the HR Outsourcing
decision process. IT must determine how the outsourcing arrangement
will impact current and future technology investments and plans.
Also, the leaders of the various business units supported by HR usually
provide input into the decision, as their employees are the ones most
likely to be impacted by changes in processes and service levels.
Typically, the CEO and the Board of Directors are responsible for final
approval of the decision to outsource HR processes. This is particularly
true if a significant number of processes are involved, if the outsourcing
arrangement will impact a large number of jobs throughout the
organization or if the arrangement will require communication with
important external stakeholders such as industry analysts and financial
markets. A significant outsourcing deal can signal changes not only in
overall strategy and approach to managing human capital, but also
efforts to cut costs, focus on core competencies and mitigate risks.
Further, a decision to outsource components of the human resources
organization may be perceived by the others in the organization as the
first step toward outsourcing other non-core processes. Given the impact
of these types of arrangements, the CEO and Board of Directors need to
understand and articulate the rationale for the decision.
How should the company evaluate potential vendors?
Once the right individuals have been identified to make the outsourcing
decision, the next major step in the process involves selecting an
appropriate vendor. A number of recent studies have highlighted three
primary criteria that companies use to evaluate vendors.
These include: the vendor’s track record for delivering service, the costs
associated with the outsourcing service and the willingness of the vendor
to guarantee service levels. Other criteria highlighted by these studies
included: the vendor’s technological capability and competence, process
expertise, flexible contracting, recommendations from other companies,
relevant industry experience etc.
To evaluate vendor capabilities in these areas companies undertake a
host of activities including:
Distributing experience questionnaires. As part of this activity, a
company develops a standard experience questionnaire that it sends
to multiple vendors early in the evaluation process to obtain initial
insights and compare vendors’ capabilities. Information that is usually
collected as part of this process includes understanding the vendors’
areas of expertise, client experience, and approach to contract
development, service level creation and how they address changes in
project scope. There are a number of third-party consultants who,
having participated in many vendor selection efforts, have developed
and refined these types of questionnaires to quickly ascertain a
vendor’s particular level of experience.
Conducting a financial and credit review of the vendor. Companies
undertake this activity to determine whether the vendor has the
financial resources to maintain appropriate service levels throughout
the lifespan of the contract. During this review, the potential client
examines the vendor’s history of fiscal responsibility and regulatory
compliance, its credit rating and analysts’ predictions of ongoing
viability. Companies are also looking for signs that the vendor is a
potential takeover candidate, as an acquisition can often redirect
senior management attention and increase the complexity of the
Conducting a security and compliance review. Given the sensitivity of
the employee data associated with an HR BTO relationship, and the
governmental/industry regulations and standards associated with the
privacy of employee data, companies should conduct a review of the
vendor’s security and compliance policies and procedures. As part of
this assessment, companies should investigate whether a vendor has a
demonstrated knowledge of, and is in compliance with, the regulatory
requirements of each of the countries in which it operates. They also
should determine if the vendor has been fined as a result of
noncompliance and if the vendor has access to regulatory and legal
specialists on staff or on retainer.
Conducting reference checks/site visits to other clients. Organizations
considering outsourcing often speak with or visit current clients of
vendors under consideration. This allows them the opportunity to
validate other clients’ experiences and identify potential issues in
working with the vendor. During these meetings, evaluators can get a
sense from their counterparts at those other firms as to the vendor’s
flexibility, willingness to support new client programs, ease of
partnership and whether the vendor has met the client’s overall
Visiting processing/contact centers. Many companies find it quite
useful to visit the actual locations where the vendor is answering
employee calls and processing documents. This gives the prospective
client a sense for how the vendor is organized and what technology is
being used. This first-hand view can be coupled with assessments of
the attrition rates at the center and how service center staff are
trained, evaluated and given feedback to continually improve their
performance. These visits also provide potential clients a glimpse at
the level of professionalism and service that their internal clients will
likely receive and the level of investment the vendor is putting into its
own staff and operations.
Meeting potential delivery team leaders. Given the importance of
personal relationships between client and vendor, potential clients
should meet the individuals who will be responsible for both service
delivery and the overall account relationship. These face-to-face
meetings can help potential clients understand the managerial style of
their counterparts and the extent to which specific individuals have
authority to act on behalf of the vendor in addressing client concerns.
Further, should the potential client decide to engage the vendor,
these initial face-to-face meetings can begin to lay the groundwork for
the type of trust building that is critical during the transition phase
and subsequent ongoing operations.
How should the company begin to prepare itself for HR outsourcing?
As executives get closer to making the decision to outsource HR
processes, they need to pay special attention to preparing the
organization for the eventual transfer of people, processes and/or
technologies to the vendor.
Assembling the team that will lead the outsourcing effort. Once the
decision to outsource as been agreed upon, the organization needs to
identify and select individuals to lead the transition and ongoing
management of the outsourcing arrangement. Initially, the
organization needs to identify the roles and skills that will be required
to transfer the outsourced activities to the vendor and oversee the
vendor relationship. Finding these individuals can be a time-
consuming effort, as they often have other significant responsibilities
and need to be made available to work on the outsourcing effort.
Therefore, it is beneficial for the organization to obtain the time and
commitment of these individuals and their managers early in the
process, rather than waiting for the final contract to be signed.
Communicating the effort throughout the HR organization and the
lines of business. Many organizations fall into the trap of developing
their communication strategy after the outsourcing agreement is put
into action. However, effective companies start executing a tailored
communication plan far earlier in the process, as they recognize that
rumors will likely surface long before any formal discussions are in
process. Organizations need to develop formal mechanisms for
communicating to HR leaders and staff during the early stages of an
outsourcing effort since these individuals may be called upon to
provide data or reallocate their time to work on outsourcing related
tasks. Further, organizations need to listen closely to informal
influencers within the HR organization and business units, as they may
have insight into potential areas of resistance and concern that can
have a negative impact on the outsourcing effort.
Gathering data on the current state of the HR organization . To
develop a compelling business case for HR BTO, organizations often
need to obtain a clearer understanding of their current spending for
HR activities and measure levels of operational effectiveness. Also,
many organizations do not have a strong sense for the industry and
competitive benchmarks that are useful in comparing HR cost and
performance across companies. Collecting this data can be a time and
labor-intensive process that often must be accomplished in a
relatively short amount of time.
While outside resources can be used to facilitate this collection, both
internal HR process experts and individuals with experience in
obtaining information from HRM systems need to be involved.
Dedicating these scarce resources is well worth the effort, as it can
help ensure that the organization is entering into a financially
“HR outsourcing: benefits, trends and challenges ” is a study aimed to get
familiar with the current scenario of HR outsourcing in Indian companies
and the potential future for the industry vis a vis the global scenario.
HR outsourcing is the next big thing to happen and is rapidly gaining
momentum especially in the US. With respect to the Indian scenario it is
still at a nascent stage but is expected to grow rapidly. India currently is
facing an economic boom and almost every industry is at its best state.
Hence there is a need for the companies operating in a highly
competitive and dynamic environment to focus on their strategic aspect
and core competencies. The companies can do this by outsourcing the
unimportant and non-strategic tasks.
Due to the presence of some factors in the Indian market, the HR
outsourcing industry is very small but it is expected to grow in the future.
This is evident from the fact that various big players like Hewitt
associates, Xansa, Convergys, Accenture, Wipro are entering this arena of
HR outsourcing in India.
The study is based on the following assumptions and hence the
hypothesis for the study is: -
o Indian companies are outsourcing most of their HR processes.
o HR outsourcing is expected to grow at a rapid pace in the Indian
o Indian companies derive lot of benefits out of HR outsourcing.
o Internal customers of the company are satisfied with the decision of
the company to outsource their HR processes.
o Cost is the main criteria for vendor selection for HR outsourcing by
Exploratory research is often conducted because a problem has not been
clearly defined as yet, or its real scope is as yet unclear. It allows the
researcher to familiarize him/herself with the problem or concept to be
studied, and perhaps generate hypotheses (definition of hypothesis) to
It is the initial research, before more conclusive research is undertaken.
Exploratory research helps determine the best research design; data
collection method and selection of subjects and sometimes it even
conclude that the problem does not exist.
Exploratory research can be quite informal, relying on secondary research
such as reviewing available literature and/or data, or qualitative
approaches such as informal discussions with consumers, employees,
management or competitors, and more formal approaches through in-
depth interviews, focus groups, projective methods, case studies or pilot
The results of exploratory research can provide significant insight into a
given situation. Although the results of qualitative research can give
some indication as to the "why", "how" and "when" something occurs, it
cannot tell us "how often" or "how many".
Descriptive research or statistical research provides data about the
population or universe being studied. But it can only describe the "who,
what, when, where and how" of a situation, not what caused it.
Therefore, descriptive research is used when the objective is to provide a
systematic description that is as factual and accurate as possible. It
provides the number of times something occurs, or frequency, lends itself
to statistical calculations such as determining the average number of
occurrences or central tendencies.
The two most commonly types of descriptive research designs are
The study would include exploratory and descriptive research.
Exploratory research would be done by reviewing all the
relevant literature on HR outsourcing. Descriptive research
would be conducted through a questionnaire. The study hence
o Secondary data analysis – Secondary data is collected from various
research papers, journals and Internet. This data aided in
understanding the subject better and building the base for collection
of primary data and drawing conclusions.
o Questionnaire – The questionnaire is a mix of objective and open-
ended questions. It is aimed at the employees of the HR department
of various organizations in the Delhi and NCR region.
o The primary data is collected from twenty-five HR personnel of various
o The respondents belong to the middle or top-level management in the
o The data collection includes in its scope both government and private
o The data is collected from companies belonging to various industries
(Power, IT, Liquor, financial etc) in order to have an idea of the
complete Indian industry as a whole.
o Data would be collected from companies operating in the Delhi and
o HR personnel from the following companies would be the respondents
for the study:
o HCL Technologies
o Radico Khaitan etc
The study includes exploratory and descriptive research. Exploratory
research would be done by reviewing the literature related to HR
outsourcing and descriptive research would be done by a survey of the
HR personnel of various organizations through a questionnaire.
Questionnaire is used as the tool for collecting primary data from
employees working in HR department of different companies. The
questionnaire consists of both open ended and objective questions on HR
The questions cover all the aspects related to HR outsourcing: -
o Process that has been outsourced.
o Benefits derived by them from outsourcing of HR processes.
o Criterion for selection of the process to be outsourced.
o Criterion for selection of vendor for outsourcing.
o Reasons for not outsourcing in case the company has not outsourced
any of their HR process.
o Person/s involved or responsible for taking the decision for HR
o Outsourcing by the competitors and business partners if any.
o Impact of HR outsourcing by the company on its employees.
REASONS FOR NOT OUTSOURCING
LACK OF RELIABILITY
MARKET NOT MATURE
LACK OF QUALITY
The respondents gave the above reasons for not outsourcing their HR processes. 12 out
of 14 respondents gave cost as a reason for not outsourcing, security breaches were
given as a reason by 9, lack of reliability by 7, data privacy and lack of quality by 5, lack
of understanding by 4 and maturity of market by 1. Hence cost, security breaches and
lack of reliability were identified as the major reasons for not outsourcing by companies
in the Indian market.
HR PROCESSES OUTSOURCED BY COMPANIES
Recruitment was found to be the mostly outsourced process followed by training
delivery, payroll processing, compensation surveys and statutory compliance. 6
respondents replied that their company has outsourced the recruitment process, 4
replied that they have outsourced their training process, 2 replied they have outsourced
compensation surveys and payroll processing and 1 respondent said the they have
outsourced statutory compliance.
PEOPLE RESPONSIBLE FOR HR OUTSOURCING
18% TOP MANAGEMENT
8 out of 11 respondents replied that the top management was responsible in taking
decision related to HR outsourcing, 2 out of 11 said that the middle management was
involved in the whole process of HR outsourcing and 1 respondent said that both the
middle and top management were involved. Hence the study throws light on the fact
that HR outsourcing is an important decision for the company and mostly involves top
CRITERION FOR PROCESS SELECTION
Series1 2 9 5 1 3
9 out of 11 respondents stated checking core capability as a criterion for selection of the
HR process to be outsourced i.e. checking whether the process is a core capability or not
before outsourcing. 5 respondents responded that the processes which if outsourced
pose a risk of data exposure were not outsourced. 3 respondents stated that the
processes that are standard across industries are outsourced and 2 said that process
which are less interdependent on other processes are outsourced. I respondent said
that those processes that require physical presence of the HR personnel are not
outsourced. Hence core capability and risk of data exposure were identified as a
criterion for selection of process to be outsourced by maximum respondents.
CRITERION FOR VENDOR SELECTION
According to 10 out of 11 respondents, competence is considered as a criterion for
selection of vendor for HR outsourcing. 9 respondents stated experience as a criterion, 8
stated cost, and 7 stated past records and 2 recommendations from other companies.
Hence competence and technological capability, relevant industry experience and cost
of services were identified as a criterion for evaluation and selection of potential vendor
by the company for HR outsourcing.
BENEFITS OF HR OUTSOURCING
TIME SAVING COST SAVING EXPERTISE LESS
All the 11 respondents responded that HR outsourcing makes them focus more on their
core activities, 7 said that it saves their time, 6 said that HR outsourcing provides
expertise to the company, 3 said that it saves cost and 2 said that it requires less
manpower to be employed in the company. Hence focus on the core processes and
saving of time were identified as major benefits of HR outsourcing.
HR OUTSOURCING BY COMPETITORS
7 respondents replied that their competitors also outsource their HR processes. 2
replied that their competitors don’t outsource any HR process and 2 replied that they
FEEDBACK FROM EMPLOYEES ON HR
8 respondents replied that they have not taken feedback from the employees of the
company on the HR outsourcing done by them. 3 respondents replied that feedback has
been taken in their organizations from the employees on the HR outsourcing done.
IMPACT OF HR OUTSOURCING ON
7 respondents said that they have not taken any feedback from the company’s
employees on the HR outsourcing done. 4 said that the employees of the company were
satisfied with the HR outsourcing done by the company and no respondent replied that
their employees were dissatisfied with it.
HR outsourcing in India is gaining momentum but still the number of
companies outsourcing their HR processes in India are few as
compared to the global scenario. 25 respondents were surveyed, out
of which only 44% replied that their companies have outsourced their
HR processes. Hence it proved that despite of the rapid growth of HR
outsourcing worldwide, not many companies in India outsource their
Recruitment was found to be outsourced by maximum number of
companies surveyed. Other HR processes that are outsourced by
Indian companies are training delivery, payroll processing, statutory
compliance and compensation surveys.
73% of the respondents responded that top management was
responsible for taking decisions related to HR outsourcing which
further proves that HR outsourcing is an important decision for the
company. 18% of the respondents said that the middle management
was involved and responsible and 9% said that both the top and
middle level management were involved.
Cost and security breaches were identified as the major reasons for
not outsourcing HR processes by Indian companies. Lack of quality,
data privacy issues, inability of the vendor to understand company
culture, immaturity of the HR outsourcing market were other reasons
for not outsourcing.
Core capability was identified as the major criterion for selecting the
process to be outsourced i.e. the process which is a core capability is
not outsourced. Other criterion used for selecting processes to be
outsourced are standard processes, little interdependency with other
processes and need for physical processes.
Competence technical capability and relevant industry experience
were identified as major criteria for selection of vendors for
outsourcing HR processes. Other criterion used by Indian companies
for evaluating potential vendors for outsourcing were past track
records of the vendor, cost and recommendations from other
More focus on core activities and time saving were identified as main
benefits of HR outsourcing to Indian companies. Other benefits that
were identified were cost saving, availability of vendor expertise and
need for lesser manpower in the organization.
64% of the respondents replied that HR outsourcing is done by their
competitors, 18% said that their competitors don’t outsource their
HR processes and 18% said that they don’t know whether their
competitors outsource their HR processes or not.
Most of the companies surveyed do not take feedback from their
internal customers on the HR outsourcing done by them. 7
respondents said that their companies do not take feedback on HR
outsourcing from their employees and 4 respondents said that their
companies take feedback from their employees.
The employees of the companies which outsource their HR processes
are usually satisfied by the outsourcing done. All the 4 respondents
whose company takes feedback on HR outsourcing from their
employees said that their employees were satisfied from the HR
Certain assumptions were made before the study. The hypotheses were
tested through a survey of HR professionals from various industries and
the following results were found. The study gave the following
HR outsourcing is at a nascent stage in India.
The study proved that HR outsourcing is still as a nascent stage in India.
Only 44% of the respondents replied that their company has outsourced
some of their HR processes. Hence the first hypothesis i.e. Indian
companies are outsourcing most of their HR processes has proved
incorrect. HR outsourcing is not widely followed by Indian companies due
to various reasons like lack of quality, security breaches, cost, lack of
data privacy, lack of reliability, lack of understanding of the company
culture by the vendor and immature HR outsourcing market etc.
HR outsourcing is expected to grow at a rapid pace in the Indian
India has immense potential as more than 80% of fortune 1,000
companies are discussing off shoring as a way to cut costs and increase
productivity. Sensing the potential, global BPO players including Fidelity,
Exult and Hewitt have begun setting up operations in India. Various
factors that make India a potential option are its education system,
English advantage, government policies, infrastructure improvements etc.
India would be a destination for HR outsourcing by foreign companies.
But growth in HR outsourcing by Indian companies would be slow vis a vis
the global scenario. Hence the second hypothesis is proved true.
Indian companies derive lot of benefits out of HR outsourcing.
Various benefits are derived by Indian companies from HR outsourcing
like more focus on core activities, time saving, cost saving, expertise and
removal of unnecessary manpower. Focus on core activities, time saving
and expertise of the vendor were the major benefits found out the survey
as maximum respondents listed these benefits. Hence the third
hypothesis is proved true.
Internal customers of the company are satisfied with the decision of
the company to outsource their HR processes.
8 respondents out of 11 that outsource their HR processes replied that
they have not taken feedback from the employees of the company on the
HR outsourcing done by them. Also the ones that had taken feedback
were satisfied with the outsourcing done. Hence the fourth hypothesis is
partly true as most of the companies included in the study did not take
any feedback from the employees.
Cost is the not the main criteria for vendor selection for HR
outsourcing by Indian companies.
Competence and experience of the vendor were identified as the
criterion used by maximum companies for vendor selection. 10
respondents replied competence as criterion, 9 replied experience and 8
replied cost as a criterion. So cost is a criterion for selecting vendors for
HR outsourcing by Indian companies but it is considered after
competence and experience. Hence the fifth hypothesis that cost is the
main criteria for vendor selection for HR outsourcing by Indian
companies is proved incorrect.
There are general recommendations for each of the major stakeholders in the HRO
For Organizations outsourcing HR functions
1. Articulate how the HR function can change through HRO to enable the business -
not just the function - to achieve its business goals.
2. Show how HR can become financially and commercially fluent in order to drive
through required culture change, improved performance and evaluation by
outsourcing HR functions.
3. Do not depend on the outsourced services entirely. If the risk is high, use the
services as a benchmark and modify them according to the organizations
4. Don’t outsource what you don’t understand. The outsource provider will only
have to subsequently solve the problem (at a cost) and the provider’s solution
might not be most suitable from your organisation’s perspective.
1. Clarify your HR capability and seek to engage with the HR function and its
2. Work with the capability already available in-house.
3. Be transparent and accountable over the value you bring to your client's HR
function and the wider business.
o HR outsourcing in India: organized unorganized sector
Author: Mary Mathew, Welingkar Institute of Management, Mumbai
o Preparing for human resources business transformation outsourcing
IBM Business Consulting Services
o Successful HR outsourcing means quality service
By Vasanthi Srinivasan, Associate professor, IIM-Bangalore
o HR gains as outsourcing grows
By Ganesh Chella, CEO, Totus Consulting
Q1. Has your company outsourced any of the HR processes?
Q2. If no, what are the reasons for not outsourcing?
1. Cost of outsourcing activities
2. Lack of data privacy
3. Lack of reliability
4. Lack of understanding of company culture
5. Market not mature
6. Security breaches
7. Lack of quality
Q3. If yes, which HR process of the company has been outsourced?
Q4. Who was responsible or involved in making the decision to outsource
Q5. What was the criteria in selecting the HR process to be outsourced?
1. Little interdependency with other processes
2. Is the process a core capability
3. Potential risk of exposure of secret data
4. Need for physical presence
Q6. What were the criteria in evaluating the potential vendor for the HR
1. Vendor’s past track records
2. Costs associated with the service
3. Recommendations from other companies
4. Vendor’s technological capability and competence
5. Relevant industry experience
6. Other. __________________________________
Q7. What are the various benefits derived by the company from HR
1. More focus on core activities
2. Time saving
3. Cost saving
5. Less number of manpower needed
Q8. Are your competitors and business partners outsourcing any of their
3. Don’t know
Q9. Has the company taken the feedback of the internal customers on the
HR outsourcing done?
Q10. How does your internal customers feel about the HR outsourcing
done by the company?
3. Never asked