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  1. 1. MAJOR PROJECT REPORT ON HR AUDIT ON IT SECTOR Submitted in partial fulfillment of the requirement of Bachelors of Business Administration (BBA) Guru Gobind Singh Indraprastha University, Delhi Project Supervisor Submitted By: Dr. Gauri Dhingra Taranjeet Singh Professor Enrollment No. 02614201713 SESSION 2013 – 2016 JAGANNATH INTERNATIONAL MANAGEMENT SCHOOL VASANT KUNJ, NEW DELHI GURU GOBIND SINGH INDRAPRASTHA UNIVERSITY NEW DELHI – 110075
  2. 2. CERTIFICATE This is to certify that the project work titled “HR Audit on IT Sector” is a bonafide work carried out by Mr. Taranjeet Singh, Enrollment No. 02614201713, under my guidance and direction for the partial fulfillment of the requirement of Bachelors of Business Administration (BBA). Project Guide: Dr. Gauri Dhingra Signature (Professor)
  3. 3. UNDERTAKING I hereby declare that this Project Report titled “HR Audit on IT Sector” submitted by me to Jagannath International Management School, Vasant Kunj is a bonafide work undertaken by me and has not been submitted to any other University or Institution for the award of any degree diploma / certificate or published any time before. Taranjeet Singh
  4. 4. ACKNOWLEDGMENT This project is great source of learning, a good experience as it made me aware of professional culture and conducts that exist in the academic industry. Though at the onset of any ambitious project one always encounters certain difficulties in the beginning, however, overcoming these difficulties, completing the project as well as making it a success greatly depends on the encouragement, inspiration. For completion of this project various people have put lot of efforts. I would like to thank Dr. Gauri Dhingra (Professor) for giving me an opportunity to do Project Work on “HR Audit on IT Sector” and guiding me throughout the completion of the project report. I would like to express my gratitude towards the faculty of Jagannath International Management School, for participating in the research by giving their opinions in the survey carried out for this project report.
  5. 5. EXECUTIVE SUMMARY This research is based on HR audit process in Indian IT sector. Like any audit, the Human Resource Audit is also a systematic formal process in IT firms, which is designed to examine the strategies, policies, procedures, documentation, structure, systems and practices with respect to the organization’s human resource management. It systematically and scientifically assesses the strengths, limitations, and developmental needs of the existing human resources from the larger point of view of enhancing organisational performance. The human resource audit is based on the premise that human resource processes are dynamic and must continually be redirected and revitalized to remain responsive to the ever changing needs. Human Resource Audits are not routine practices aimed at problem solving. Instead of directly solving problems, HR audits, like financial audits, help in providing insights into possible causes for current and future problems. The findings of these audits aid decision making in the organisation and are usually internal documents that need not necessarily be shared with the public. Moreover, unlike Financial Audits that are routine, regulated and standardised, Human Resource Audits are non-routine and may be designed to cater to the unique needs of the organisation at a particular point in time. These are in fact, studies of an unusual nature. The manner in which the Audit is conducted could vary from self-directed surveys to interventions by outside consultants. Human resources are the people in an organization, so a human resources audit is a look at those people and the processes that put them in place to make sure the system is working efficiently. An HR audit also goes beyond looking at the hiring process into areas like employee retention, budgeting, training, employee compensation, management/employee relations and virtually any process or practice within the company that affects its people.
  6. 6. A periodic Human Resource audit can qualify its effectiveness within an organization. Human Resource audits may accomplish a variety of objectives, such as ensuring legal compliance; helping maintain or improve a competitive advantage; establishing efficient documentation and technology practices; and identifying strengths and weaknesses in training, communications and other employment practices.
  7. 7. CONTENTS S. No. Title Page No. 1. Introduction 1.1 Introduction the Research Topic 1.2 Background of the Study 1.3 Industry Profile 1-46 1 17 33 2. Literature Review 47-57 3. Research Objective 58 4. Research Methodology 59-60 5. Data Analysis 61-71 6. Findings 72-74 7. Conclusion 75-76 8. Bibliography 77-78 9. Questionnaire 79-80
  8. 8. CHAPTER 1: INTRODUCTION 1.1 Introduction to the research topic Human Resource Audit means the systematic verification of job analysis and design, recruitment and selection, orientation and placement, training and development, performance appraisal and job evaluation, employee and executive remuneration, motivation and morale, participative management, communication, welfare and social security, safety and health, industrial relations, trade unionism, and disputes and their resolution. HR audit is very much useful to achieve the organizational goal and also is a vital tool which helps to assess the effectiveness of HR functions of an IT organization. A complete Human Resources Checkup, including administration, employee files, compliance, handbook, orientation, training, performance management, and termination procedures. The intended outcomes include minimizing your liability exposure and introduction or enhancement of human resource best practices. The purpose of the HR Audit is to conduct a more in depth analysis of the HR function to identify areas of strength and weakness and where improvements may be needed. Conducting an audit involves a review of current practices, policies, and procedures, and may include benchmarking against organizations of similar size and/or industry. Legislation affecting all aspects of Human Resources is constantly evolving and the legal ramifications of noncompliance impact the HR department, the organization, and its employees. An HR Audit can help to ensure legal compliance while measuring the effectiveness of HR programs. There are many reasons why an HR Audit should be conducted, and the results can be used for multiple purposes. At a minimum, the results of an audit help you to determine what needs to be done, how these changes will impact the bottom line of your organization, and how to prioritize problem areas in terms of 1
  9. 9. significance. When it comes to physical health, prevention of problems is far better than waiting until a problem arises and trying to cure it. The same holds true for human resources auditing. Preventing problems is much easier than trying to fix them after the fact. Good Human Resource planning and auditing can help prevent those problems, and save companies money and difficulties. Human Resource Accounting benefits the company ascertain how much Investment it has made on its Employees and how much return it can expect from this Investment. Nowadays Human Resource has taken the drivers seat and is giving a lot of benefits to the organizations. In order to get the best out of the H.R. function, their should be a good alignment between strategies, structures, systems and styles with the business goals both short term and long term. H.R. Audit is an attempt to assess such an alignment. Thus H.R. Audit can be said as an evaluator of the current structures, strategies, systems style and skills in context of the long as well as the short term goals of the company. HR always keeps the business goals in focus. 1.1.1 Audit: An audit is a means by which an organization can measure where it currently stands and determine what it has to accomplish to improve its human resources function. It involves systematically reviewing all aspects of human resources, usually in a checklist fashion, ensuring that government regulations and company policies are followed. One should remember that an audit is a learning and a discovery tool, not a test therefore there is always a room for improvement in every organization. Audit is a tool in the hands of the employer to (i) comply with its legal obligations in managing its workforce and (ii) take any corrective actions that might be needed. It is easy to perform an audit but although it does require time and effort. 2
  10. 10. 1.1.2 HR Audit? An audit is a means by which an organization can measure where it currently stands and determine what it has to accomplish to improve its human resources function. It involves systematically reviewing all aspects of human resources, usually in a checklist fashion, ensuring that government regulations and company policies are being adhered to. The key to an audit is to remember it is a learning or discovery tool, not a test. There will always be room for improvement in every organization. The role of an HR Auditor can be compared to a doctor who does not prescribe the same medicine for all his patients, he first diagnoses the ailment an then suggest an appropriate cure in the same way an auditor has to first diagnose the opportunities and problems, identify deficiency in strategy, structure staff and systems in HRD development process in the organization and recommendations for improvement. The audit process id like an operation where the strength and weaknesses of the organization are brought. 1.1.3 Need for an HR Audit: • To insure the effective utilization of an organization’s human resources. • To review compliance with a myriad of administrative regulations. • To instill a sense of confidence in management and the human resources function that it is well managed and prepared to meet potential challenges. • To maintain or enhance the organization’s and the department’s reputation in the community. • To perform a "due diligence" review for shareholders or potential investors/owners. 3
  11. 11. An HR audit provides a quick way to take stock of a company’s human resources and practices with an eye toward improving them. While there are different ways to conduct an HR audit, depending on the company’s goals, audits usually involve interviewing senior and mid-level management, reviewing the company’s HR policies and forms, and sometimes even surveying employees. Once the audit is completed, the findings are presented to management. What happens after that depends on management. The company owns the findings and can choose whether, when, and to what degree to act on them. 1.1. 4 HR Audit answers the following questions: • How effective is your organization at maximizing the contribution of your human capital? • Why is one or more of your organization’s strategic initiatives languishing? • What steps can you take today, using existing internal resources, to improve your organizations performance and ROI? • Do you have an HR system that meets your company’s needs, both now and into the foreseeable future? • Are your employees satisfied with their compensation and benefits plan, training opportunities, and work environment? 1.1.5 HR Audit entail 1) Legal compliance 2) Compensation/Salary Administration 4
  12. 12. 3) Employment/Recruiting 4) Orientation 5) Terminations 6) Training and Development 7) Employee Relations 8) Communications 9) Files/Record Maintenance 10) Policies and procedures (including employee handbook) 11) Communications 1.1.6 Two main components of HR Audit are: • a thorough compliance review and • a strategic assessment of HR practices. Compliance Review: Has become a very hot issue for companies. State and Federal laws govern fair practices in the areas of compensation, employment, harassment, workplace safety, termination, corrective action, policies and procedures, benefits administration, records maintenance, and overtime for wage and hourly employees. While the complex employment laws are constantly changing and difficult to track, the penalties for non-compliance are stiff. Failure to comply with regulations 5
  13. 13. can result in costly fines, retroactive penalties, and in the most extreme cases, imprisonment for employers. Therefore such kind of compliances is to be made. Strategic assessment: Determining how a company's HR practices can be strategically aligned with the goals of the organization. Hiring the right employees and motivating them and providing key training and development opportunities to them are of strategic importance. Through interviews with senior management and outstanding employees, along with an analysis of current HR practices, an audit will help companies identify how they can best leverage the value of their employees and position their company for growth. 1.1.7 Elements of HR AUDIT: Economic Includes wages and benefits, labour productivity, job creation, expenditure on outsourcing, expenditure on R&D, investments in training and other forms of human capital and other financial information. Environmental Includes impacts of products, processes and services on air, water, land and human health. Society Includes work place health and safety, employee retention, labour rights, human rights, and wages and working conditions. 6
  14. 14. 1.1.8 Why do most companies want HRD Audit To make HR function business driven: Audit is generally done to make HR systems and processes more relevant to business goals. Meeting the ever changing environmental demands and opportunities the HR function also need to change that is its goals, strategies, systems and processes. To improve HR for expanding, diversifying and entering into a fast growth phase: Many organizations in the past had recruited employees on low salaries rather than on their competence which now in the present was a constraint for the growth and diversification therefore now the companies wants to change their profile and also searching for new HR practices therefore felt the need for HR Audit. For promoting professionalism in employees and switching over to professional management: With the process of globalization the companies are now realizing the importance of skill development and professionalism among employees this led to use of HR audit. Multinationals wants to know the reason for lower labour productivity in India and wanted to improve that: Some MNC’s felt that in India the labour productivity is very poor as their is high designation consciousness, low level team work, lack of trust in the management, low energy levels and preference for paternalistic treatment thus these MNC’s felt the high need for HR Audit. 7
  15. 15. Dissatisfaction with particular subsystem: In some companies the top level felt that there is dissatisfaction because of the training programs, appraisal, and to improve communication they had to do a comprehensive examination of HR. this requires help of HR Audit. Change of leadership: Some companies also use HR Audit because their top management personnel are leaving so they want to reorient the entire HR department. 1.1.9 Role of HRD Audit in Business Improvement: Top management thinks in terms of strategic and long term business plans : HR Audit had made sharing of their plans across the organization possible which had led to increas3ed involvement and commitment of employees and has initiated new system of annual planning and sharing of business possible. Change in the styles of the top management: A successful HR company has a learning environment this can only be done by the changing style of top management like empowering attitude, participative style, ability to convert and use mistake take conflicts and problems as learning opportunities. Role clarity of HR department and line managers: HR Audit leads to better role clarity of HR department and other HR functions resulting in better understanding of roles by the line managers. 8
  16. 16. Improvements in HR systems: HR Audit has helped in measuring the effectiveness of their HR systems and in designing and redesigning HR systems like performance appraisal, inducti0on training, job rotation, career planning, promotion policies, mentoring communication etc. Increased focus on HR and human competencies: HR Audit focuses on acquiring of new knowledge, attitude and skills required by the employees and competencies like technical, managerial, human and conceptual. It also focuses on role clarity and accountability. Better recruitment policies & professional staff: HR audit gives direction for competency requirement of the employees at various levels thus providing the base for recruitment policies & procedures. More planning & cost effective training: HRD audit calculates the investment made in trainee & returns thereof which draws the attention of the top management towards cost benefit analysis. The process of identifying training needs & utilization of training inputs & learning for organizational growth & development are assessed. Strengthening accountability through appraisal system & other mechanisms: HRD audit gives inputs regarding the accountability of employees which can be assessed through performance appraisal, work culture & other cultural dimensions. 9
  17. 17. Streamlining of other management practices: HRD audit points out the strengths & weaknesses in the management systems existing in the organization & also indicates the absence of systems which enhance both human productivity & utilization of existing competency base. Some of the resultant activities are preparation of manual for delegation of powers, clarification of roles & responsibilities, developing or streamlining the manual of financial & accounting procedures & strengthening the information system. TQM interventions: Quality improvements & establishing TQM systems require a high degree of employee involvement. Due to improvement in training system, enhancement of the quality of groups work and strengthening of the appraisal system improves the TQM. Enhances ROI of HR function: HRD Audit aligns the HR functions and business activities with business goals and also enhances the value adding activities and processes and reduces non productive assets of HR department. 1.1.10 Metodology of HRD Audit:{Applied in Combination} • Individual interviews: The auditor interviews the top management and the senior managers individually and captures their thinking about the future plans and opportunities available for the company. Individual interviews are also important for getting sensitive information like work styles and culture. 10
  18. 18. • Group interviews: In a big company it’s not easy to collect information by meeting everybody individually therefore group discussions and group interviews are conducted of 4- 8 individuals of the same and similar levels. • Workshops: In some cases individual and group interviews are substituted by large scale interactive process workshops where large number of participants ranging from 30-300 gather in a room and are asked to do the HR Audit. These workers work in small groups around the various subsystems or round different dimensions of HR, do SWOT analysis and make a presentation. • Questionaire method: Questionnaires should be prepared which should be filled individually or in groups. These questionnaires should make an attempt to asses various dimensions including the competency base of HRD staff, styles of line managers, implementation of HRD systems etc. • Obeservation: The auditor should visit the plant, the machinery room canteens, training rooms, hostels, etc. This is done in order to study the living environment of the employees. The observation can be done through making a checklist of questions. • Analysis of reports, records, manuals and other published literature: Published literature of the company like manuals, marked handouts, training calendar, and various circulars should be analyzed this would in assessing strengths and weaknesses of HRD. 11
  19. 19. 1.1.11 Preparation of HR Audit: • Educate all those employees who are going to be involved in this about the HRD audit, for this a small note ma be circulated. • Decide for the right time of the audit. Generally an audit should be avoided at the time of the crisis in the company or when some other audit is going on like the ISO 9000 audit. • Request all the line managers to cooperate and get interviewed and provide time for filling the questionnaire. • Do not expect that HRD audit will solve any or all the problems as it is just an assessment and problems do not get solved by assessment rather then can only be solved by action done after direction is provided from assessment. • Provide auditor with the required information and the secondary data which he shall use. • Put two or three dedicated employees under the auditor to assist him in his work because these employees are more aware of their company then the auditor. • Mentally prepare all those employees who are to be interviewed to take out some time from their work to give answer to the auditor in the form of an interview or to fill the questionnaire. For this a small notice or a circular may be passed. 12
  20. 20. 1.1.12 How to use HR Audit: Following are some of the steps that any organization should undertake to use hr audit. • The auditor should give a written report because presentations remains in mind only for few days though he may give indications about the sensitive issues and need not write about them in detail. • The auditor should always involve the top management in this so as to get their attention to the HR issues and other HR functions this enables possibility of future actions. • Appoint a no. of task groups to follow up on the report and its recommendations. • The total no. of members in the task force should be given and line managers should be encouraged to be a part of it will give them an exposure and experience in HR areas vital for success at the top level. • Ask the HR department to study the report and prepare its own action plans, this will help to align the HR function with business concerns. • Communicate a summary of the report an intended follow up action sin the form of a circular to all the employees the employees who have given their input and whose suggestions have been entertained will feel good and will try to give more information in future • After six months plan a review mechanism and do a micro audit after an year or two. 13
  21. 21. 1.1.13 Ten step plan for auditing & improving your company's HR function: 1. Assess company's current and future HR needs and define the role of HR function within your overall business plan. 2. Create cost effective hiring system. 3. Develop new employees' orientation and training programs. 4. Develop and manage employee relations/communications. 5. Establish and implement key personnel policies. Develop and publish Employee Handbook 6. Educate and train your employees to follow your company's policies effectively. 7. Adopt legal and creative personnel forms. 8. Install and implement HRIS System. 9. Structure and negotiate cost effective benefit programs. Educate your employees on the value of your benefit program 10. Create and manage effective safety and security programs. 1.1.14 Advantages of HR Audit • A consensus is achieved: consensus is what you would expect to emerge from face-to-face interactions between disagreeing people trying to reach a workable solution that is acceptable to everyone. You don't reach a consensus with a simple numerical average of checkmarks. 14
  22. 22. • Ideal state defined by business objectives – The organization can compare its HR performance with an "ideal" determined by its own business objectives, rather than by a consultant or some other external viewpoint. • Small subgroups – Most surveying techniques require that groups or subgroups have at least 20 to 25 variables in them. 5 or 10 people may be studied. This permits the delineation of viewpoints in and between small, but important decision-making. • Large number of HR tasks and programs –. With no significant increase in respondent time or effort, 40 to 50 or more different tasks or programs can be studied • Complete control of manipulation – it protects the organization against errors in the results due to intentional manipulation, inconsistent judgments, misunderstood instructions or concepts • Providing feedback – on the contribution of the HR function to the organization’s strategic business objectives, assessing the quality of HR practices, policies and delivery. 1.1.15 Conclusion of HR Audit HR Audit is a very important intervention as it highlights critical issues such as competency requirements, motivational values, competency gaps in the HR staff, alignment of HR strategies with the business goals. Several factors are required for the success of the HRD audit the key ones being involvement of the top management, involvement of line managers, attitude of HR department and training of the employees. HR audit highlights the current status, strengths, weaknesses, cost effectiveness and other variables of HR structure and aligning them with the business goals. 15
  23. 23. The effectiveness of the audit highly depends upon the competency of the auditor who is doing the audit the other things required of him are he should have an expertise in HR systems, survey research, OD skills, social science research skills, benchmarking skills, general management concepts and ethical soundness. It is also a good idea train internal people. The data thus collected and generated after the audit should be first communicated across the organization in the form of circulars and then forming a task force and later on implementing it. 1.1.16 Limitations of HR Audit Though the audit is rarely a failure but if there is no support of the top department then it can be a failure because in such a case some employees would be supporting it while others would be against it and this political game wont allow the auditor to find the real truth. Therefore commitment from the top management is a must. Sometimes the after the audit the CEO’s come to know that their company is above the average in such a case they become reassured and forget about the audit and don’t do anything for further improvement here again the audit proves to be of no good. HRD audit focuses on groups, systems or units rather then on individuals though the auditor may give informal feedback if any to the person concerned. Sometimes an HRD audit may be used to get rid of some staff in the HRD department, but such a decision has an adverse effect on the overall HRD of the company unless it is made carefully and after adequate time and scope. 1.2 Background of the Study 16
  24. 24. Today IT companies are going through a process characterized by profound change, sometimes dramatically, fact which determines economic organizations to focus on the change, flexibility, customer-focused strategies and constant innovation in order to ensure market competitiveness. What is happening in the world of organizations is a true paradigm shift due to important changes in attitude to work, values and behavior of individuals and groups that make up the organization. Today successful organizations that have achieved high performance, emphasize the human resource development through the development and implementation of strategies, policies and practices of recruitment, selection, motivation and involvement in work, and packages of training and development programs for their employees. As a long term strategy, best practices and ways to improve the human resource management helps employees seen as internal customers, to acquire knowledge, skills, resources, encourages creativity to become more efficient, to improve performance and to be enthusiastic. An effective manager must develop skills in human resources and focus on employees (subordinates) seen as internal customers and on external customers. A good manager knows how to collect and retain the best talent, given that its success depends on the success of the team. Both challenges, present and those of the future, causes organizations to seek ways to increase current levels of performance and productivity. Organizations, especially in the economic environment are facing the need for extensive changes at the level of individuals (members) and the organization. To meet these challenges, they need to ensure competitiveness in an increasingly dynamic market. Learning must include the whole range of behaviours that rely on professional and personal skills, the behavioural aspects including: values, attitudes, motivation, thoughts, beliefs, etc. Human resource management is now an important support, even critical, to the success of organizational change and learning initiatives 17
  25. 25. 1.2.1 Approaches to Human Resources Audit The following approaches are adopted for purpose of evaluation: 1. Comparative approach 2. Outside authority approach 3. Statistical approach 4. Compliance approach 5. Management by objectives (MBO) approach Comparative approach In this, the auditors identify Competitor Company as the model. The results of their organization are compared with that Company/ industry. Outside authority approach In this, the auditors use standards set by an outside consultant as benchmark for comparison of own results. Statistical approach In this, Statistical measures are performance is developed considering the company’s existing information. Compliance approach 18
  26. 26. In this, auditors review past actions to calculate whether those activities comply with legal requirements and industry policies and procedures. Management by objectives (MBO) approach This approach creates specific goals, against which performance can be measured, to arrive at final decision about organization’s actual performance with the set objectives. 1.2.2 Purpose of HR Auditing The purpose of the HR Audit is to conduct a more in depth analysis of the HR function to identify areas of strength and weakness and where improvements may be needed. Conducting an audit involves a review of current practices, policies, and procedures, and may include benchmarking against organizations of similar size and/or industry. Areas that should be audited include, but are not limited to: • Legal compliance (EEO, AA, ADA, FMLA, IRCA, etc.) • Record-keeping (personnel files, I-9s, applications, etc.) • Compensation/pay equity • Employee relations • Performance appraisal systems • Policies and procedures/employee handbook • Terminations 19
  27. 27. • Health, safety and security (OSHA compliance, Drug-Free Workplace, • AIDS in the workplace, etc.) Legislation affecting all aspects of Human Resources is constantly evolving and the legal ramifications of noncompliance impact the HR department, the organization, and its employees. An HR Audit can help to ensure legal compliance while measuring the effectiveness of HR programs. There are many reasons why an HR Audit should be conducted, and the results can be used for multiple purposes. At a minimum, the results of an audit help you to determine what needs to be done, how these changes will impact the bottom line of your organization, and how to prioritize problem areas in terms of significance. 1.2.3 The Auditing Process Auditing involves the regular and systematic examination of organizational practices and accomplishments vis-a-vis organizational objectives, company policies, legal requirements, and/or professional standards. Effective audits pinpoint the gaps between “what is” and “what should be” or “what could be.” By removing or reducing the size of the gaps, an organization can increase legal compliance, ensure conformance to established professional standards, and/or contribute to the quality improvement process. In finance and accounting, auditing is routine. Financial audits are regularly performed and their findings submitted to senior management and the board of directors. The audit typically involves a review of an organization's financial policies and practices against established accounting standards and recommended practices. The annual reports of public organizations include a statement from an independent certified public accounting firm verifying that the financial statements are truthful and comply with normally 20
  28. 28. accepted practices and standards. Stakeholders rely on the independent financial audit to oversee the fiduciary role of management and the board of directors. Larger organizations rely on internal auditors to review, on a continuous basis, the operational and financial performance of the operating departments, divisions, and subsidiaries. In human resources, auditing is not routine. There are no laws or regulations requiring employers to engage an independent auditor to audit company policies and practices. However, because of the complexity of state and federal labor laws and regulations, it is common for employers to rely on their attorneys to review their human resources policies and practices. Larger and more established organizations, moreover, have developed internal guidelines for self-appraisal or independent review. 1.2.4 A Question of `Ownership' The very idea of an audit generates fear. In the typical scenario, an auditor, internal or external, comes in at senior management's request to examine and look for discrepancies between management practices and applicable policy or legal requirements. A formal written report to senior management usually follows. If some major discrepancy is found, remedial action, including the possible removal of the offending manager, is recommended. Here, auditors appear to act as “agents” for senior management-the client-and, as a result, are responsible primarily for performing “due diligence.” Their role is to satisfy their client's predefined needs, no more and no less. The role of the target audience-functional or operating management-tends to be somewhat passive. Fear of reprisal, real or imagined, that uncovered gaps will result in career derailment or termination becomes a strong motivator for doing things to pass the audit, and to impress upper management. The due diligence or compliance audit, then, is not used as an organizational learning initiative; hence, its value as a tool for organization renewal is limited. For an audit to lead to organizational learning and improvement, the target audience must be 21
  29. 29. heavily involved in the auditing activities, and concur with-in fact, own-the audit's goals and objectives. Achievement of tangible operating benefits, moreover, must be made a concurrent purpose. The foregoing suggests that there are two distinct, separate and overlapping auditing requirements: (1) to meet management's fiduciary responsibilities, and (2) to stimulate and facilitate continuous improvement. The former, externally sanctioned, addresses problem prevention; the latter, internally sanctioned, focuses on continuous improvement 1.2.5 Success Criteria Often, when launching an audit, the reasons for the audit are not well understood and its “success criteria,” which help identify the factors that will be used to evaluate the audit's relative merits, that is, its usefulness in improving individual and group performance, are not fully articulated. Since an audit can have multiple goals, the purposes and associated success criteria must be clearly defined and communicated up-front. Examples of specific purposes for an audit are: • To examine an organization's compliance with established regulations and/or company policies. • To explore how to better serve the needs or satisfaction of the relevant users or constituencies-management, employees, or the community. • To streamline the work processes used to carry out functional work, such as recruiting, compensation, training, benefits, etc. • To establish an “early warning system” to spot problems or identify issues before they become crises. 22
  30. 30. • To measure continuous improvement by asking whether things have gotten better or worse as a result of a functional initiative. Essential elements to success are: - Clear objectives, established up-front. - Appropriate resources, that is, staff skills, budget, an tools and materials required to plan and execute the audit. 1.2.6 Defining the Audit in IT sector As can be seen from the purposes above, an audit can have a compliance bend or a continuous improvement bend. Depending on the objective, the process and methodology for executing the audit will be different. Compliance auditing involves the systematic comparison of human resources practices against policy and/or legal requirements. The output of the audit is a list of gaps between what is required and what is being done HR Auditing: Matrix Illustrating Relationship of Substantive or Procedural Issue to Strategic or Operational Focus 23
  31. 31. Continuous improvement auditing in IT sector is the systematic process of identifying gaps in functional or organizational performance between what is and what could be or what should be. The output of the audit is a list of opportunities for increased effectiveness and efficiency. Service quality auditing is a specific example of continuous improvement auditing. In this type of audit, the focus is on the alignment of the human resources unit's response to internal customer (management or employee) demands. Alignment is defined in terms of customer satisfaction vis-a-vis the perceived importance the customer attaches to the target service. 24
  32. 32. The matrix that follows illustrates the relationship of a substantive or procedural issue to a strategic or operational focus of a human resources audit. 1.2.7 Design Considerations in IT sector Compliance and service quality audits are relatively easy to design and implement because they are comparative. Continuous improvement audits are more difficult to design and implement because they attempt to measure organization performance. Designing a continuous improvement audit, therefore, requires that certain precautions be taken: The focus of the analysis should not be arbitrary. Rather, it should follow an underlying frame of reference that is, in itself, appropriate to and derived from management practice and research. 1.2.8 Identifying the Client Compliance audits typically are sanctioned by executive management as an extension of its fiduciary role. Continuous improvement audits typically are initiated at the request of senior human resources executives as a part of their productivity improvement goal. Compliance audits usually are carried out by persons from outside the functional area. Continuous improvement audits usually are performed by a combination of resources internal and external to the function. These relationships are depicted in the following matrix. 25
  33. 33. HR Auditing: Matrix Illustrating Possible Relationship of Audit Purpose to Client Need 1.2.9 The Auditing Process After audit goals and success criteria have been defined, it is helpful to develop a checklist that can be used to determine the presence or absence of certain practices, and to compare and contrast practices with policy or legal requirements. For example: • What policies should be audited? The selected policy should be stated, followed by an indication of how one would verify that the policy is being carried out, and, ultimately, by measurement of the degree to which compliance or lack thereof is taking place. 26
  34. 34. • What practices should be audited? The selected practice should be stated, followed by what the policy or law requires, and, ultimately, by measurement of the degree to which compliance or lack thereof is taking place. • What records should be reviewed? The selected record should be stated, followed by what the record should contain, and, ultimately, by measurement of the degree to which compliance or lack thereof is taking place. • What trends should be tracked? The selected trend should be stated, followed by an “X-and- Y”chart defining the measurement points, and ultimately, by analysis of the implications of the historical data plotted on the chart (for example, cost per hire, cost per placement, pay rates, headcount, benefit costs, tardiness and absenteeism, turnover, training expenditures, etc.). • What analysis will be done? Audits lead to tremendous insights in and understanding of how an organization functions. However, reducing information obtained from an audit to meaningful components can be overwhelming. Experience has shown that by following the sequence suggested below, the auditor can navigate more quickly through the data and compress the analytical process. As the auditor moves through the data reduction process, analysis should become more complex and intuitive. Description: Questions to be asked during the audit should be framed to solicit a written or oral description; for example: What are the key objectives? What is the mission? Transcribing the answers makes it possible to later engage in systematic verification through comparison with 27
  35. 35. existing written records and reports. Inconsistencies usually are the result of unequal access to information. Clarity: Once descriptive information has been collected, the next step is to probe for common understanding. Often, discrepancies among individuals as to what something means is the result of poor communication. Agreement: Individuals may be consistent and accurate in providing requested information, but may not agree with it. Although not every one must agree with every one else on every issue, in fundamental areas such as goals, performance expectations, roles, direction, and strategy, the key principals must agree if the organization is to be successful. Lack of clarity and inadequate information may be reasons for disagreement, but such disagreement is easily resolved. It is far more difficult to try to resolve differences in philosophy, policy, and style. Fit: Individuals may be clear and agree on a course of action, but clarity and agreement are not an indication that a particular action is the right one to take. The organization may not have the resources to implement the action; managers may not know how to carry it out; and, most important, the action may be undesirable from the user's or customer's perspective. Planning Questions The word “audit” comes from the Latin verb audire-to listen. Listening is used here in a broader sense than just listening with our ears. It includes using our eyes, as well, when we search for answers to important organizational or functional issues. Developing a systematic set of questions to take the place of eyes and ears can be tedious. Avoiding significant omissions and preventing duplication are key. The answers to the auditor's questions must lend themselves, to the extent possible, to quantitative analysis. For example, the auditor may start with an open- 28
  36. 36. ended question and immediately follow with some specific and quantifiable follow-up questions. The respondent's answers, when plotted, should illustrate both strong and weak performance points. In order to measure the net contribution of any one factor to output, it is useful to determine what might or would happen to output if all other inputs remained the same. Collecting Data Collecting information can be laborious and time-consuming. Depending on the size of the target audience, the available time, and the type of data to be collected, it may be necessary to use and blend the strengths of a number of different data collection methods. Such methods include interviews, questionnaires, a review of relevant records, observation, or a combination of these methods. Sources from which HR data can be obtained for auditing purposes include: human resources policies, the HR mission statement, employee handbooks, affirmative action plans, employee surveys, absenteeism and turnover studies, cost per hire studies, employee lawsuits, bulletin board notices, organization charts, published salary surveys, EEO compliance reports, classification studies, operating budgets, and workers' compensation claims. Sources of data for a more specific auditing purpose, say, staff performance, might include manager assessments, self- assessments, and surveys and interviews. Analyzing Audit Data After data are collected, it is important to examine the information with an eye toward assessing readiness for change and identifying possible reasons for resistance to change. Resistance, whether based on real or perceived fears, will be a formidable block to action consideration and action-taking, which result from analysis and application of audit results. The more information 29
  37. 37. available as to what may trigger resistance, the better will be the quality of the recommendations suggested to overcome it. Readiness for change can be measured using “force field analysis”-what organization development practitioners call the “unfreezing-refreezing” method. A force field analysis makes HR incumbents examine the restraining forces (-) on one side and the positive forces (+) on the other for any given status quo situation. Restraining forces are for maintaining the status quo; examples are: inertia, threat to social status, job security, lack of motivation, lack of resources, etc. Positive forces are for changing the equilibrium. Improved job satisfaction is one example of a positive force; others are: “Management is asking for it.” “People want to do it.” “The law requires it.” “Employees are asking for it.” Unless the balance of forces is altered, no change is likely to occur. Not all the forces, restraining or positive, are of equal strength; some require significant effort (that is, reduce, eliminate, or add), while others are relatively easy to change (that is, add or increase). The balance of forces can be changed either by adding new positive forces or eliminating one or more negative forces. Taking the latter action is recommended, because it does not add tension to the status quo situation; its effect is to turn a negative into a positive. Adding positive forces does add tension, and the minute management takes its eye off the ball, the situation reverts back to the status quo 1.2.10 Audit Process Evaluation by audit results is usually superficial because the interpretation of such indicators is generally limited. High absence rates, for example, may result from a variety of causes. Turnover may be low because unemployment is high. The audit probe should be much deeper –apprising 30
  38. 38. programmes, policies, philosophy and theory. Policy on the depth of the audit must determine which of the following level is desired. a) Results including both accomplishment and problem regarded as effect of current management. b) Programmes including the detailed practices and procedure of which they are composed. c) Policies both explicit and implicit. d) Philosophy of management, its priorities in value, goals and objectives. e) Theory or the assured relationship and plausible explanation they clarify and relate philosophies, policies and continuing problems. The audit process thus consist of identifying indexes, indicators, statistical ratio and gross number in some cases ,and examining the variation in time frame in comparison with a similar previous corresponding period. A summary statement is then prepared and sent to top management for information and action. Subsequent research and practice have revealed that conventional audit have a limited focus, are isolated from the totality of the organization and its human resource, and look upon procedure only, or emphasize apparent results. Substantive issue such as organization pattern, style of management, appropriate structure and manpower implication or the centralized Vs decentralized system are not dealt with in depth. To what extent do the above factors help develop the human resource potential, or assess the impact of environment change, political and social, on the industrial relation system and consequently, how effective is the current industrial relation strategy and practice. Finally, what modifications are 31
  39. 39. envisaged to cope with emerging pattern? These are the some of the wider issues which must be dealt with as they will have an impact on effective management of human resources. One possible approach to start the thinking process in relation to the HR function is to ask the following question:- a) What is the philosophy underlying the function? b) What principles of management are being followed in carrying it out? c) What policies have been established for this function? d) What procedures have been established? Are they in line with the company philosophy, policies and principle? e) Are the procedure, policies management principle and philosophy of each function consistent with those of other related functions? Such an investigative process calls for imagination in piecing to gather data from company record and discussion with employees, using questionnaires to conduct surveys, obtaining comparative data from other organisations and finally, correlating on variable with another to understand the interrelatedness and thus arriving at a broader and deeper understanding. If the personnel manager is doing the audit he should adopt a fact finding, probing and problem- solving approach–the role normally played by an external consultant to diagnose the state of an organization’s health. 32
  40. 40. 1.3 Industry Profile The Indian Information Technology sector can be classified into the following broad categories - IT Services, Engineering Services, ITES-BPO Services and E Business. IT Services can further be categorized into Information Services (IS) outsourcing, packaged software support and installation, systems integration, processing services, hardware support and installation and IT training and education. Engineering Services include Industrial Design, Mechanical Design, Electronic System Design (including Chip/Board and Embedded Software Design), Design Validation Testing, Industrialization and Prototyping. IT Enabled Services are services that use telecom networks or the Internet. For example, Remote Maintenance, Back Office Operations, Data Processing, Call Centers, Business Process Outsourcing, etc. IT sector is attracting considerable interest not only as a vast market but also as potential production base by international companies. Therefore India is considered as a pioneer in software development and a favorite destination for IT-enabled services. Th e rapid growth in the sector is a consequence of access to trained English - speaking professionals, cost competitiveness and quality tel e- communications infrastructure. Companies operating from India are able to leverage the advantage of the Indian time zone to offer 24 x 7 services to their global customers. Several world leaders including General Electric, British Airways, American Express, and Citibank, have outsourced call centre operations to India. E Business (electronic business) is carrying out business on the Internet; it includes buying and selling, serving customers and collaborating with business partners. The following are some of the strengths of the Indian IT sector: • Highly skilled human resource; • Low wage structure; 33
  41. 41. • Quality of work; • Initiatives taken by the Government (setting up Hi-Tech Parks and implementation of e -governance projects); • Many global players have set -up operations in India like Microsoft, Oracle, Adobe, etc.; • Following Quality Standards such as ISO 9000, SEI CMM etc.; • English -speaking professionals; • Cost competitiveness; • Quality telecommunications infrastructure. The following are some of the weaknesses of the sector: • Absence of practical knowledge; • Dearth of suitable candidates; • Less Research and Development; • Contribution of IT sector to India’s GDP is still rather small; • IT development concentrated in a few cities only. 1.3.1 Regulatory Regime and Laws relating to the IT sector: Department of Information Technology (DIT): This department which is under the Ministry of Communications and Information Technology is responsible for the formulation, implementation and review of national policies in the field of Information Technology including hardware and software, standardization of procedures, 34
  42. 42. internet, e -commerce and information technology education and development of electronics. Initiatives for development of Hardware/Software industry including knowledge- based enterprises; measures for promoting IT exports and competitiveness of the industry are looked after by the Electronics Export and Computer Software Promotion Council (ESC) and National Informatics Centre (NIC) along with DIT. The Department of Information Technology undertakes the following functions: • Policy matters relating to Information Technology; Electronics; and Internet (all matters other than licensing of Internet Service Provider). • Promotion of Internet, IT and IT enabled services. • Assistance to other departments in the promotion of E -Governance, E - Commerce, E- Medicine, E -Infrastructure, etc. • Promotion of Information Technology education and Information Technology -based education. • Matters relating to Cyber Laws, administration of the Information Technology Act. 2000 (21 of 2000) and other IT related laws. • Matters relating to promotion and manufacturing of Semiconductor Devices in the country; The Semiconductor Integrated Circuits Layout Design Act, 2000 (37 of 2000). • Interaction in IT related matters with International agencies and bodies e.g. Internet for Business Limited (IFB), Institute for Education in Information Society (IBI) and International Code Council - on line (ICC). 35
  43. 43. • Initiative on bridging the Digital Divide: Matters relating to Media Lab Asia. • Promotion of Standardization, Testing and Quality in IT and standardization of procedure for IT application and Tasks. • Initiatives for development of Hardware / Software industry including knowledge-based enterprises, measures for promoting IT exports and competitiveness of the industry. 1.3.2 The information technology sector can broadly classify into: 1. IT- Software – These companies help in developing and implementation of different software for their clients worldwide. These software could be for documentation, security services, banking softwares etc. 2. ITeS Business process outsourcings (BPO) – Major Corporations across the world outsource their back-office operations to some companies. E.g. Employee payroll for a US company’s 36
  44. 44. global workforce is maintained by an Indian BPO. Slowly the definition is expanding to Human resources, accounting, logistics, legal processes etc. 3. IT- Hardware and peripherals - The stuff you can actually see and touch, and would likely break if you threw it out a fifth-story window, is hardware. This would include laptops, desktops, Storage devices, Networking devices, LCD, printers etc. 4. IT- Education This segment provides training for employment in the other segments. This would include companies providing various certification courses, like Java, Oracle etc. These companies also provide training for employees in corporate sector. Recently, some companies have also expanded this service to cater to schools and colleges. This sector has made significant contributions to India’s economic growth in terms of GDP increase, foreign exchange earnings as well as employment generation. Its contribution to GDP has increased tenfold in last decade, from 0.6% to 6% till 2009-10. The sector has helped India transform from a rural and agriculture-based economy to a knowledge-based economy. Besides this, the lives of people have been positively influenced by direct or indirect contribution of IT sector to various parameters such as employment, standard of living, per-capita income etc. 37
  45. 45. 1.3.3 National Association of Software and Services Company (NASSCOM): NASSCOM acts as an advisor, consultant and coordinating body for the IT-BPO industry in India, and has played a key role in enabling the government in India to develop industry friendly policies. NASSCOM was set up in 1988 to facilitate business and trade in software and services and to encourage advancement of research in software technology. It is a not -for-profit organization, registered under the Indian Societies Act, 1860. NASSCOM has been proactive in pushing this cause for ensuring that the Indian Information Security environment benchmarks with the best across the globe. As a part of its Trusted Sourcing initiative, NASSCOM is in the process of setting up the Data Security Council of India (DSCI) as a Self Regulatory Organization (SRO) to establish, popularize, monitor and enforce privacy and data protection standards for India ’ s ITeS-BPO industry. DSCI shall function as an enabler to the IT and ITeS industry to grow at a rapid pace by facilitating the adoption and enforcement of the prescribed security standards and best practices. 38
  46. 46. 1.3.4 Information Technology Act: The legal enactment which governs the process and dissemination of information digitally in India is the Information Technology Act, 2000. The Act along with its Rules legalizes the acceptance of electronic records and digital signatures providing a legal backbone to e -commerce. The Indian Information Technology Act addresses the following issues: • Legal Recognition of Electronic Documents; • Legal Recognition of Digital Signatures; • Offenses and Contraventions; • Justice Dispensation System for Cyber-crimes. 1.3.5 Government Initiatives: The Foreign Trade Policy permits import of all kinds of computers (except second hand computers) in India without any licenses. In order to promote domestic investment, foreign direct investment, transfer of technology / process know -how, technical collaboration, joint venture etc in India and export IT software products and services from India to the global market, both Government of India and State Governments in India have been offering a series of policy packages including tax breaks, import duty concessions etc under various schemes which include: • Export Oriented Units (EOUs) Scheme: The purpose of the scheme was basically to boost exports by creating additional production capacity. 39
  47. 47. • Electronics Hardware Technology Parks (EHTPs): Electronics Hardware Technology Park (EHTP) complexes can be set up by the Central Government, State Government, Public or Private Sector Undertakings or any combination thereof, duly approved by the Inter- Ministerial Standing Committee (IMSC) in the Ministry of Communication and Information Technology (Department of Information Technology). • Software Technology Parks (STPs): The Software Technology Parks of India (STPI ) have been set up by the Ministry of Information Technology, Government of India and the International Technology Park in a joint project by the State Government. • Special Economic Zone (SEZ) Scheme: SEZs are being set up to enable hassle free manufacturing and trading for export purposes. Sales from Domestic Tariff Area (DTA) to SEZs are being treated as physical export. This entitles domestic suppliers to Drawback/ DEPB benefits, CST exemption and Service Tax exemption. Certain exemptions like Income Tax exemption on export profits is available to SEZ Units for 5 years, 50% for next 2 years and 50% of ploughed back profits for 3 years thereafter are available for units in these designated areas/zones. • Export Promotion Capital Goods (EPCG) Scheme: The EPCG Scheme allows import of capital goods for pre-production, production and post- production (including CKD/SKD thereof) at 5% customs duty subject to export obligations. Units undertaking to export their entire production of goods and services may be set up under the Export Oriented Unit (EOU) Scheme, Electronic Hardware Technology Park (EHTP) Scheme or Software Technology Park (STP) Scheme. The Export Promotion Industrial Park, built near 40
  48. 48. International Technology Park, gives an exclusive 288 acres of area for export oriented business. GE has its India Technology Center located at this park and employs hundreds of multi disciplinary technology development activities. An industrial park, known as Electronic City was set up in 1991 taking more than hund red electronic industries including Motorola, Infosys, Siemens, ITI, and Wipro, in an area of around 330 acres. The IT Corridor project, conceptualized by Singapore ’ s Jurong Town Corporation Private Ltd, was initiated by the Department of IT and the Bangalore Development Authority in order to develop state of the art facilities for the development of knowledge based industries. 1.3.6 Government initiatives for the ITes Sector: The government of India has already set up a single-window facility for attracting foreign direct investments in this sector. Recognizing the potential of this sector, the government has provided many incentives including a tax holiday up to 2015 and competitive duty structures. In addition to the central government incentives, respective state governments have also developed attractive incentive packages to target investors. The government is also actively trying to reduce international communication cost. The telecommunications ministry has already started phased liberalization program. In order to support IT-related services, the government is providing some special incentives and is also providing infrastructure support through organizations such as the Software Technology Parks (STP). Financial institutions and venture capitalists in the country are willing to provide funds at competitive rates for expansion in ITes businesses. All these factors collectively create a number of opportunities in the IT sector. 1.3.7 Tax Incentives / Budget: 41
  49. 49. • Excise duty being increased on packaged software from 8 per cent to 12 per cent, bringing it at par with customized software attracting a service tax of 12 per cent. • Customized software has been brought under the service tax net to bring it on par with the packaged software and other IT services. • Specified parts of set top boxes and specified raw materials for use in the IT/electronic hardware industry to be exempted from customs duty. • Allocation to the Department of Information Technology enhanced to Rs.1, 680 crore in 2015-16 from Rs.1, 500 crore in 2014-15; Two Schemes for establishing 100,000 broadband internet -enabled Common Service Centres in rural areas and State Wide Area Networks (SWAN) with Central assistance under implementation; new scheme for State Data Centres also approved; Rs.75 crore provided for the common service centres; Rs.450 crore provided for SWAN and Rs.275 crore for the State Data Centres. 1.3.8 Market Trends: Information Technology: The Information Technology (IT) sector in India is amongst the fastest growing in the country and the world. It is expected that by the year 2014, IT software and services industry will account for 7 per cent of India ’ s GDP an d 35 per cent of total exports. The Indian domestic IT market grew by 29% in the financial year 2012-13 to report revenues of Rs 288, 810 crore. The revenue of the information technology sector has grown from 1.2 per cent of the gross domestic product (GDP) in FY 1998 to an estimated 5.5 per cent in FY 2014. The net value added by this sector, to the economy, is estimated to be 3.3 to 3.9 per cent for FY 2014. The Indian IT-BPO 42
  50. 50. sector grew by 33 per cent in FY 2014 to reach US$ 64 billion in aggregate revenue (including hardware). Of this, the software and services segment accounted for US$ 52 billion, growing by 28 per cent over FY 2014. Software and services exports (including exports of IT services, BPO, engineering services and R&D and software products) reached US$ 40.4 billion, contributing nearly 63 per cent to the overall IT-BPO revenue aggregate. IT-BPO exports (including hardware exports) grew by 28 per cent from US$ 31.8 billion in FY 2013 to US$ 40.9 billion in FY 2015. Domestic IT market (including hardware) reached US$ 23.1 billion in FY 2015 as against US$ 16.2 billion in FY 2013, a growth of 43 per cent. Hardware remained the largest segment of the domestic market with a growth rate of 44 per cent in FY 2015. Software and services spending grew by over 41 per cent during the year. The Indian IT services market is estimated to remain the fastest growing in the Asia-Pacific region with a CAGR of 18.6 per cent. IT enabled Services (ITeS): The IT / ITeS industry's contribution to the country's gross domestic product (GDP) has grown from 1.2 per cent in FY 1998 to an estimated 5.5 per cent in FY 2014. The net value-added by this sector, to the economy, is estimated at 3.3-3.9 per cent for FY 2015. The Indian IT-ITeS sector (including hardware) grew by 33 per cent in FY 2014 to reach US$ 64 billion in aggregate revenue. Of this, the ITeS/BPO sector contributed US$ 12.5 billion as against US$ 9.5 billion in FY 2013, an increase of 31 per cent. The Indian ITeS-BPO exports grew significantly from US$ 8.4 billion in FY 2013 to US$ 10.9 billion in FY 2014 while the revenues of domestic BPO grew to US$ 1.6 billion in FY 2015 from US$ 1.1 billion in FY 2014. The sector provided direct employment to 700,000 in FY 2015 up from 553,000 in FY 2014. Foreign Direct Investment (FDI) Policy: 43
  51. 51. 100% FDI is permitted in the Electronic hardware sector and the Software development sector under the automatic approval route. Industrial Licensing has been virtually abolished in the Electronics and Information Technology sector except for manufacturing electronic aerospace and defence equipment. Global IT players in India: There are a large number of multi-national IT enterprises operating in India in sectors such as: Integrated Chip Design, System Software, Communication Software, R&D Centres, Technology Support Sector, Captive Support Sector, BPO Sector etc reaping the cost and quality advantages. These multinationals include Siemens, Philips, Intel, Texas Instruments etc. (Chip Design); Siemens, Motorola, Lucent Technologies, Sony, Nortel etc. (Communication Software); Microsoft, Oracle, Sun Microsystems, HP, Compaq etc. (Systems Software); Google, Yahoo etc. (R&D Centres); Axa Business Services, Swiss Shared Services, Siemens Shared Services etc. (BPO Sector); Accenture, DELL, HSBC, GE Capital, Fidelity etc. (Captive Support Sector). Localization of the IT industry: The Indian state of Karnataka dominates other Indian states in terms of attractiveness as an IT destination with the city of Bangalore being at the topmost. Bangalore offers good infrastructure, with large floor space and great telecom facilities and is therefore the most preferred destinations of all the big banners like HSBC, Dell, Microsoft, GE, Hewlett Packard, and several Indian multi national firms like Infosys Technologies, Wipro, and Microland who have set up their offices in the city. The state of Andhra Pradesh, backed by the emergence of the city of Hyderabad as a major IT hub, ranks as the second IT hub of India. This is followed by the state of Tamil Nadu and Maharashtra. The city of Chennai in Tamil Nadu is emerging as a global capital for business 44
  52. 52. process outsourcing (BPO) and is propelling Tamil Nadu to the number one position in IT exports. The state is a pioneer in IT and software services, and has a 100 percent digital exchange network thus having the potential to garner a major chunk of ITeS business. Maharashtra is the second largest exporter of software with annual exports of Rs 18 000cr (20% of India's software ex ports). The state has set up software parks in Pune, Mumbai, Navi Mumbai, Aurangabad, Nagpur and Nasik. Globally branded firms have their presence in the state of Gujarat. Nasscom (National Association of Software and Services Companies) has ranked the city of Ahmedabad in Gujarat to be among the top five Indian destinations for business process and knowledge process outsourcing. The state of West Bengal is beginning to be recognize d as the fastest growing IT destination in the country with more than double the national average growth rate. A number of IT majors are doing significant business in the city of Kolkata. West Bengal aims to become one of the top three IT states by 2018, contributing 15-20 per cent of the country's total IT revenue. Growth of the Indian IT Sector: The Indian information technology sector is one of the sunshine sectors of the Indian economy showing rapid growth and promise. The Indian IT-BPO sector is estimated to reach a target of US$ 60 billion in exports and US$ 73-75 billion in overall software and services revenues by 2018. India's information and communication technology market is estimated to grow 20.3 per cent annually to reach US$ 24.3 billion b y 2018. The Indian IT and ITeS market is estimated to grow at the rate of over 16 per cent to become a US$ 132 billion industry, significantly, the domestic market alone is expected to become over US$ 50 billion, with a CAGR of about 18.4 per cent. Simultaneously, the IT and ITeS exports are estimated to more than doubl e to US$ 78.62 billion by 2017. Leading international companies have identified custom application 45
  53. 53. development and maintenance as priority areas due to high offshoreable component. The d emand for domestic BPOs has been largely driven by faster GDP growth and by sectors such as telecom, banking, insurance, retail, healthcare, tourism and automobiles. ITES now offers services such as Knowledge Process Outsourcing (KPO), Legal Process Outsourcing (LPO), Games Process Outsourcing (GPO) etc. More and more sophisticated products are being developed in India. The domestic BPO segment is growing annually at a rate of nearly 35 - 40 %.The revenues generated by the BPO's are almost $1.18 million and the domestic market is expected to reach $10 billion by the end of the financial year 2013. If it continues to grow by the current rate then by the end of the financial year 2013 then IT and IT enabled services will reach nearly US$330 million. The electronics hardware is growing at over 30% and is expected to grow rapidly in the coming years and is estimated to be US$62 billion by 2015. According to a recent World Bank study, India is the preferred location for software vendors for its quality and cost. India has strong UNIX base which provides opportunity for the development of products for internet based applications. Further, India has global connectivity with international dialing facility from over 13220 locations, Leased/switched high-speed data links from major centers through STPs and VSNL for point -to -point communication are also available. Abundant investment opportunities exist in the following thrust areas in India: • Communication Infrastructure • Optic Fiber Cable • Gateways • Satellite based Communication Wireless 46
  54. 54. • Software Development • IT-enables Services • IT-enabled education • Data Centers & Server Farms Hence IT sector is attracting considerable interest not only as a vast market but also as potential production base by international companies. And it is one of the fastest growing segments of the Indian industry both in terms of production and exports. 47
  55. 55. CHAPTER 2: LITERATURE REVIEW Ilieş, Liviu (2014), this study attempts to identify ways to develop a model of analysis and internal audit of human resources in order to identify best practices and measures to improve human resource management, aiming their implementation in the Romanian textiles industry companies. The study aimed at highlighting the most appropriate ways in which the company management can improve the effectiveness and efficiency of using human resources, taking into account the characteristics and peculiarities of planning, organization and operational human resources activities and processes. In this respect, we characterize the Romanian textile industry, thus the present study took into consideration the analysis of the following variables: "strategic human resource management", "quality management", "human resource planning and "human resources motivation". For this purpose, the study is based on a representative sample of 22 companies from IT industry in which has been distributed 200 questionnaires. In the second part of the study we realized an experimental research based on a model of human resource internal audit which aims to identify good practice and complex issues faced by the IT companies. Today companies are going through a process characterized by profound change, sometimes dramatically, fact which determines economic organizations to focus on the change, flexibility, customer-focused strategies and constant innovation in order to ensure market competitiveness. What is happening in the world of organizations is a true paradigm shift due to important changes in attitude to work, values and behavior of individuals and groups that make up the organization. Today successful organizations that have achieved high performance, emphasize the human resource development through the development and implementation of strategies, policies and practices of recruitment, selection, motivation and involvement in work, and 48
  56. 56. packages of training and development programs for their employees. As a long term strategy, best practices and ways to improve the human resource management helps employees seen as internal customers, to acquire knowledge, skills, resources, encourages creativity to become more efficient, to improve performance and to be enthusiastic. Gross, Barrie (2015), Most IT employers have gone to tremendous expense and effort to create scores of human resources policies, practices, and procedures that comply with the law and are consistent with their organization’s corporate culture. This can include, for example, employee handbooks, administrative guides for managers, performance management systems and guidebooks, succession planning systems, severance plans, and “behind the scenes” processes for onboarding new hires, disciplining or terminating employees, promotion guidelines, and making bonus determinations. Not all human resources policies, practices, and procedures are committed to writing. But they are used nonetheless. Whether they are written or not, it is vitally important that companies also have a process to ensure that everything stays up-to-date with legal and compliance requirements, and actually works as intended. Conducting human resources audits is one way to do that. A human resources audit usually involves review of all HR policies, practices, and procedures, whether or not they are formal. It includes reviewing documents, interviewing human resources professionals from different areas of the organization, interviewing some managers at different levels of the organization, and possibly interviewing in-house employment counsel. The audit can be performed in-house. But it is worth considering whether to use an outside consultant who has no personal stake in what is working and whether everything complies with the law. An outside employment attorney can conduct the audit. And, if set up properly, the audit 49
  57. 57. can be subject to the attorney/client privilege so that its results will not be discoverable in a lawsuit. Or outside counsel can retain the consultant on the company’s behalf. An effective HR audit will culminate in a well-organized report. The report includes not only the specific results of the audit, but also a list of recommended actions. And a truly effective list of recommendations is ranked by risk. That way, an organization can see at first glance where its largest or most expensive exposure is and can design reasonable response times to address the issues raised. HR audits of the proper scope can be expensive. And it is important that business units are solicited for their support before embarking because when the audit is done, there may be changes that will directly impact the units. But most importantly, a company (through its executive management) should be committed to acting on the results of the audit, whether that means retaining outside counsel to perform a detailed legal review of policies, putting together project teams to create or update policies and procedures, designing training courses targeted to minimize risk, or writing a series of employee communications to address some of the issues discovered. Yadav, Rajesh K., (2013), Prompt advancement in product / service and process technology, many operations in the manufacturing and service industries in recent years require competitive HR practices. So this research study stresses on HR planning and audit practices. HR planning is all about good management; good strategic management; good business management and particularly good people management. It is important that you put thought and careful planning into your human resource practices. And the purpose of the HR Audit is to conduct a more in- depth analysis of the HR function to identify areas of strength and weakness and where 50
  58. 58. improvements may be needed. Conducting an audit involves a review of current practices, policies, and procedures, and may include benchmarking against organizations of similar size and/or industry. This research aims to figure out the practices, employee perception and measures adopted by HCL for Human resource planning and audit. Chi square test is applied at (.05 or 5 %) significance level in this paper to check the authenticity of data given by the respondents. Findings suggests that it is difficult to assess accurate HR planning and adopting accurate audit practices because practices itself does not produce right or wrong answers, but it produces a series of alternatives from which the right course of action can be chosen. The success of a business is directly linked to the performance of those who work for that business. Underachievement can be a result of workplace failures. Because hiring the wrong people or failing to anticipate fluctuations in hiring needs can be costly, it is important that you put effort into human resource planning. Planning for HR needs will help to ensure your employees have the skills and competencies your business needs to succeed. It will better prepare you for staff turnover, recruitment, and strategic hiring – and improve stress when you have emergency/last- minute hiring needs. With effective human resource planning, HR audit implies critical examination and evaluation of policies, programs and procedures in human resource management. In essence, workforce or HR planning is about predicting future labor market needs. It requires an understanding of the make-up of the current workforce, an investigation into future service needs and an analysis of the type and size of workforce required to meet them. It is becoming increasingly important for agencies as they adopt new ways of operating in order to adapt to changes. The challenge will be to ensure that agencies can minimize the costs and grab the opportunities that such changes brings - quicker career progression, effective recruitment, and more flexible job design and workforce deployment. By identifying workforce capabilities 51
  59. 59. and by considering what will be needed in the future and planning systematically, managers can limit the risks associated with unanticipated events Jothilakshmi M, (2015), The people in an organization are the prime sources have to be effectively allocated and engaged in various affairs of business. Many Indian companies are handling innovative practices to motivate and retain their talented pool. It has to be assured by a systematic procedure which is called HR audit that is deliberate and detailed analysis of HR standards. This paper mainly emphasizes the HR practices of public and private companies and their styles of handling their employees and their set of norms, rules of regulations towards people. Organizations belong to private and public industries are differed based on their capabilities and their freedom to operate. This study aims to audit the HR practices of one public and private company. Instead of criticism auditing the HR practices of those is the main motive of the study. BSNL a government owned company and Reliance communication have taken for this study. Both companies are represented public and private respectively. Through this study, we could easily and visibly understand the framework made by both sectors towards their people. The difficulties and problems are common to them but in different extent. This paper is not one to compare each, reveal and audit the public and private company’s strengths and weaknesses towards their employees. In the current competitive business climate, the companies in various industries are tries to enhance their competence level to survive in the market. To achieve their goals they have to comply with the dynamic pressures such as technology changes increased competition etc. The performance of an organization can be improved only through improved employee performance. Recruitment, training, compensation, conflict management and motivation all these are common functions of Human resource management. All these 52
  60. 60. functions/activities have to be reviewed and evaluated in order to ensure the efficient HR policies and management system “Annual/quarter/need basis evaluation of HR functions of on organization is referred as HR Audit”. The scope of an HR audit can range from a simple review of workplace policies to an extensive examination of practices, policies, procedures and measurements to determine how close the alignment is between the organization’s strategic goals, direction and HR functions that support the company’s strategy. HR audit May either evaluate the company’s operational HR policies, practices and processes or review of current HR indicators Laurdan Associates, (2015), Evolution is a process of change. Over the last 25 years we have seen significant change in the HR auditing process, the value derived from HR auditing, and the HR audit tools used. HR audits have evolved from a simple checklist of dos and don’ts or periodic affirmative action plans to a comprehensive, sustainable process that: 1) is an integral part of the organization’s internal controls, due diligence, and risk management; 2) is a fundamental activity of strategic management; and 3) uses sophisticated auditing products and consulting services. Increasingly HR audits are conducted of HR rather than by HR. This white paper reviews the changes in HR audits, discusses the external and internal forces affecting the process and use of HR audits, and provides information about the leading HR auditing process. Numerous external forces and factors have had an impact on the demand for and scope of HR audits. First, in the global economy, human capital is becoming the single most important determinant of competitiveness, productivity, sustainability, and profitability. Increasingly, the organization’s human capital is being recognized as the source of innovation and a driver of business success. Thus to be effective in the global economy, HR audits must be diagnostic, predictive, and action oriented. Second, a confluence of economic, political, and social factors, 53
  61. 61. including corporate scandals, the failure of the financial industry to adequately assess risks, and increasing stockholder initiatives, have resulted in increased statutory and regulatory requirements, a call for greater transparency, and increased internal and external audit activity. HR audit reports are increasingly being used to report audit findings to wider audience. The distribution of the report on auditing findings is no longer limited to senior management. As noted above, an increasing number of third parties are expressing interest in the organization’s human resources management. This list of external stakeholders includes not only investors, major stockholders, and venture capitalists, but also governmental agencies, NGO’s, civil rights groups, and plaintiff attorneys. Since HR audits findings include proprietary and confidential information and in many cases produce discoverable information, the implications of non- management stakeholders reviewing HR audit finding are significant and create a potentially serious problem for organizations. As a result, organizations are spending more time considering the format, content, and the impressions created by their HR audit reports. Randy See, (2013), The Audit Committee and the Superintendent approved an audit of OSFI’s Human Resources – Performance Management for inclusion in Audit and Consulting Services audit plan. The HR division, who is the key guardian of the Performance Management (PM) process, is responsible to provide guidance/support to OSFI management in managing and overseeing the process to ensure its quality, fairness, transparency, and consistency. As stated in the PM Guide, the Performance Management (PM) process is a continuous cycle that helps managers and employees work together to establish work and performance goals as well as monitor their progress towards achieving them, recognizing the need to identify corrective action, where necessary. It is an opportunity for an employee to receive and provide feedback regarding his/her actual performance and contributions relative to OSFI’s performance 54
  62. 62. expectations as set out in the employee’s Goal Commitment Document (GCD). At the same time, it should offer the employee and his/her manager an opportunity to discuss and plan for the employee’s career development. The PM process is a very significant contributor to OSFI’s mandate due to the importance, complexity, and difficulty to acquire, develop, and maintain the skills, experience, and knowledge required to conduct OSFI’s activities, resulting in people risk being rated high on an inherent basis in many areas of OSFI. It supports OSFI’s mandate by requiring management and staff to work in partnership to deliver solutions related to performance and career development. The main document governing Performance Management (PM) at OSFI is the Performance Management Guide (‘Guide’). We noted that there is lack of clarity with regard to the force of this document (i.e. is it mandatory or not) and with regard to its true nature (i.e. is it a policy or just a guide). The degree of complexity in the process and ambiguity in this Guide, outdated related documentation, as well as a lack of awareness of the Guide’s content, all have led to variation in staff interpretation and inconsistencies in its application. Consequently, employee morale and the staff retention could be significantly impacted if PM-specific risks are not effectively managed. The recent employee survey indicated that while performance management scored the second lowest on percent favourable (out of 6 survey categories), the overall survey results were positive with 92% of respondents agreeing they would “recommend OSFI to others as a good place to work. The PM process is a significant contributor to OSFI’s mandate due to the importance, complexity, and difficulty to acquire, develop, and maintain the skills, experience, and knowledge required to conduct OSFI’s activities. Ukil, Minhajul Islam, (2015), The human resource is the most important asset of an organization, which helps in achieving competitive advantage. In order to response to the changing work 55
  63. 63. environment, human resource personnel must determine ways to justify their performance and operational workload. Human resource audit supports an organization to review and critically analyze the effective performance of employees and human resource functions. A human resource audit is a methodical process that aims to investigate the underlying policies, strategies, systems, techniques, documents, functions, and practices of an organization with respect to its human resource management. The purpose of this study is to review the concept and essentials of Human Resource Audit. The current study is a desk-research in type and constructed on the basis of secondary data, attempts to review the existing literatures of human resource audit from different viewpoint. The human resource audit has distinct application in a diverse area of an organization such as human resource functions, managerial compliance, employee satisfaction, corporate strategy and human resource climate. Organizations should conduct human resource audit regularly setting and following a set of principles, where the auditors would enjoy full freedom in entire audit process. The thorough and objective evaluation of a human resource audit can generate information necessary to the successful improvement of the entire human resources of an organization. Auditing of financial records and transactions is a pretty usual practice in business. Organizations care much about the financial performance and give preference to the financial programs that relate in generating money; and audit of those accounting or financial concerns are well established in business. Limited companies are bound by law to conduct formal financial audit. Although human resource is another vital resource input and, is evenly or in some settings, more important than financial resources, and the effective management of human resources support an organization to attain sustainable competitive advantage, the programs concerning people are hardly given the same measure. The resources of an organization consist of all assets and organizational practices, competencies and company 56
  64. 64. attributes, knowledge, information etc., through which the organization implements strategies and improves its effectiveness and efficiency. The effectiveness of human resources of an organization basically depends on HR audit that provides necessary input into the potential future strategies, and appraises the existing policies, techniques and customs of human resource with an aim to recommend means in which they can be better developed. Human resource audit is a vital tool in attaining an understanding about the human resources of an organization. It provides a justification of the skills, capabilities and performance of all the workers of an organization Martin, Chrys A., (2013), Lawsuits can result in rusty HR practices that are sometimes unknown to even the most sophisticated HR leaders. Thus, HR must ensure its own house is in order to be a useful business partner to others in the C-Suite. Whether you are new to a company or have been the head of HR for years – you always need to ensure that your HR practices are top notch, compliant with the rapidly changing laws, and with HR “best practices” as those evolve. In addition, HR needs to assess its effectiveness as a business partner. How is HR’s customer service performance? Is the recruiting process resulting in top talent? These critical areas are all ripe for auditing Audits are an important tool to help HR stay on the cutting edge. There are generally three forms of audits that can be performed by the HR department: First, legal compliance, second, HR “best practices,” and third, customer service and performance. No department likes having an outside auditor evaluate their practices as mandated by another department or the CEO. Thus, HR can and should, perform self-audits to critically evaluate its performance in the three audit areas. HR should embrace the audit process striving for continuous improvement in its compliance with the law, “best practices” and customer service. HR professionals must have a willingness to evaluate 57
  65. 65. themselves, acknowledge deficiencies, and most importantly, to make or influence the necessary organizational changes to maintain their position as valued strategic business partners. Thus, an audit without the prerequisite commitment to continuous improvement is useless. HR must be ready to acknowledge and remedy any deficiencies discovered and embrace change. There are many factors to evaluate in deciding the type and scope of an HR audit. Is the timing right or are there other corporate or HR initiatives that take precedence? What is the extent of the resources that will be required? Is there an organizational commitment for those resources at this time? Consideration needs to be given to availability of HR staff and vendors, other departments’ staff, the cost, and availability of documents. HR must evaluate these factors in conjunction with other corporate leaders and obtain the required buy-in before launching an audit. This is especially true for an outward focused performance audit. Few audits can be performed entirely within the HR department. For example, even an audit of wage and hour practices involves delving into proper classification issues which requires the assistance of the departments where those jobs are located. A decision also must be made as to whether outside vendors’ practices will be included in this audit. This could include providers of payroll, HRIS, benefits, EAP, insurance and other HR consultants. If it is impractical to complete a full scope audit, select key functions to audit one at a time. Establishing a clear scope of the audit is necessary before determining who will perform the work. 58
  66. 66. CHAPTER 3: RESEARCH OBJECTIVES • To identify the HR audit process in Indian IT sector • To measure the need and importance of HR audit in Indian IT sector • To analyze the effectiveness of HR audit process in Indian IT sector • To recommend the ways to improve the HR audit process in Indian IT sector 59
  67. 67. CHAPTER 4: RESEARCH METHODOLOGY This research work will deeply analyze the HR audit process in Indian IT sector. For doing this the researcher would collect both primary and secondary data. Research Design: Descriptive study Data source: Primary data and secondary data is used to accomplish all the objectives Research Instruments: Questionnaire survey among employees of IT Sector Sample Size: 60 Research Area: Delhi/NCR Sampling Method: Random Sampling Method of Data Collection a) Primary Data: Primary data are those, which are collected afresh and for the first time and this happen to be original in character. b) Secondary Data: Secondary data are those data which have already been collected by someone else and which have already been used as per required. I propose to get the secondary data from: a. Previous in house studies done on customer preference for soft drinks b. News papers, journals and online references related to customer preference for soft drinks 60
  68. 68. Limitations The main three limitations of this research are time, finance and access. The research is time crucial due to the deadline placed on the submission of the final research findings. Therefore starting from sampling till data collection everything needs to be done as quickly as possible thus leaves researcher with limited amount of time. Access to Companies data may be an issue because the researcher will not be able to reach customers due to limited time. 61
  69. 69. CHAPTER 5: DATA ANALYSIS Q1. From how many years you have been working in IT sector? 40% respondents replied that they have been working in their organization from 2 to less than 4 years but 30% respondents replied that they have been working in their organization from less than 2 years. 62
  70. 70. Q2. Age 14% respondents were from 20-25 years age group however 25% respondents were from 31-35 years age group 63
  71. 71. Q3. Gender 89% respondents were male and rest were female 64
  72. 72. Q4. Job Level 25% respondents were from junior level however 24% respondents were from senior level 65
  73. 73. Q5. Auditing process in your company involves the regular and systematic examination 32% respondents were strongly agreed with the above statement however 12% respondents were disagreed with the above statement 66
  74. 74. Q6. Auditing process in your company meets all the legal requirements 30% respondents were strongly agreed with the above statement however 14% respondents were disagreed with the above statement 67
  75. 75. Q7. Auditing process of the company is able to reduce the gaps to ensure conformance 29% respondents were strongly agreed with the above statement however 11% respondents were disagreed with the above statement 68
  76. 76. Q8. Your company always communicate the purposes and associated success criteria before starting auditing 25% respondents were strongly agreed with the above statement however 16% respondents were disagreed with the above statement 69
  77. 77. Q9. The company always use the standardized checklist when during HR audit process 26% respondents were strongly agreed with the above statement however 17% respondents were disagreed with the above statement 70
  78. 78. Q10. The company has set the valid parameters to identify the degree to which compliance or lack thereof is taking place 28% respondents were strongly agreed with the above statement however 19% respondents were disagreed with the above statement 71
  79. 79. Q11. Auditing process implemented by the company has a high level of clarity 31% respondents were strongly agreed with the above statement however 15% respondents were disagreed with the above statement 72
  80. 80. CHAPTER 6: FINDINGS In summary, the purpose of analysis is to sort through the areas of strength and opportunities for improvement in order to take positive action steps to improve the effectiveness of the HR function. The ideal time to complete an audit is just prior to the annual planning process. With audit information in hand, you can be poised to take advantage of your insights into setting next year's goals. There are two aspects of setting goals: maintenance of current good practices and development of improved practices. Knowing the capacity and capability of the HR department and system is critical in developing a realistic plan. Good practices need to become a part of the HR system and 'baked in', so that they occur in a reliable, predictable fashion. Once a process or program has reached that level, then future development can occur more effectively. With little discretionary time available, it is prudent to review the analysis of step three and decide which one or two areas will provide the greatest overall improvement for the HR function, its customers and the organization. These need to be the areas that goals are established for the next year. This is the point in the audit process, where definitions are reviewed and modified to create a new and improved vision of the HR system as you wish it to be. Doing this on an annual basis allows practices to be improved and benefits share 73