Outsourcing of Human Resource Management in India Essay Example
Outsourcing of Human Resource Management in India Essay Example

Outsourcing of Human Resource Management in India Essay Example

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  • Pages: 15 (4070 words)
  • Published: August 30, 2017
  • Type: Research Paper
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Introduction

Human Resource management is vital for the success and operations of any organization. HR aims to fulfill the requirements of employees and includes policies, practices, and systems that affect their behavior, attitudes, and performance (Noe et al., 2003). The roles and responsibilities of HR have changed over time.

The paper aims to analyze the evolution of HR management in response to the emergence of outsourcing. In the past, HR primarily focused on administrative tasks such as workforce planning and record-keeping. Nevertheless, HR management's significance has substantially increased over time.

The service provided by HR now extends not only to employees of the organization, but also to clients and the community. Currently, HR functions and duties focus on managing and protecting the company's human capital, which refers to the employees and their skills, experience, judgment, intelligence, relation

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ships, and insight (Noe, Hollenbeck, Gerhert, & Wright, 2003). HR carries out various tasks such as analyzing work design, recruiting and selecting employees, monitoring performance, adhering to work laws and regulations, supporting change management strategies, developing compensation and benefits plans, and providing personnel policies and employee relations.

Although the overall duties of HR direction remain the same, they can vary depending on the features and industry of the company. The changing functions of HR can be attributed to factors such as globalization, which has had a significant impact on how business is conducted. Many companies now have international offices or outsource for expert support. In such cases, HR direction must be knowledgeable and comply with all employee laws and regulations in the respective country. This ensures that the company avoids any legal and compliance issues. HR Outsourcing (HRO) has becom

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increasingly common for most companies.

Many companies are now outsourcing various services to improve their overall performance, reduce financial risks, and address strategic challenges. The key to successful outsourcing in HR is to outsource transactional and basic advisory services while restructuring the roles of remaining HR teams to focus on complex organizational challenges and strategic needs (Hunter, 2007). While there has been a longstanding debate on why organizations should outsource, it is now widely accepted that outsourcing is essential. Tompkins (2005) suggests that rather than questioning whether to outsource, organizations should instead determine what and which functions to outsource. Ultimately, all organizational functions need to contribute to a new and improved competitive form of outsourcing.

LITERATURE REVIEW

A comprehensive literature review involves summarizing and assessing existing materials related to knowledge in the given topic (Anon, 1).

This section will analyze the literature on outsourcing in the subject countries mentioned, particularly focusing on material published within the last 10 years. It is worth noting that outsourcing has been a prominent concept since the early 1980s. To comprehend the research objectives pertaining to this subject, we have constructed the following inquiries to delve into relevant literature.

What are the current obstacles encountered by Human Resource Management?

As stated by Antonia Gramasci, "The old has died and the new is struggling to be born" during the transition from personnel management to human resource management. This article summarizes viewpoints from 48 HR leaders who advocate for changes and deliberations regarding HR's future role. Some argue that HR should act as strategic advisors, while others suggest outsourcing HR functions.

In a study by Ulrich, line directors were asked to discuss HR functions in order to form a

fair judgement on the issue. The results showed that some believed HR should swap transactional tasks with line directors in order for HR to become more tactical, although this would create additional work. However, there were a few who believed HR should continue to execute their current tasks and not deviate from tradition. Boninelli and Meyer (2004) have predicted that the future of HR will involve changes to most of their functions.

Presents

According to the literature, it is recommended that HR professionals should carry out their basic functional duties before being selected for a strategic role. Expertise may not be required for implementing an alternate service delivery mechanism, but a significant skillset is necessary for solving issues comprehensively. Academics, writers, and professionals advocate for HR to have a more strategic function and play a major role in the organization's competitive position. However, it is important that multinational functions are carried out efficiently and effectively.

Exchanging the duties to line directors in small portions excessively is not a sustainable solution as the directors need to focus on their core competencies just as HR practitioners need to. HR practitioners believe that they should be free from administrative and communicational tasks in order to provide value-added service to the organization (Bininelli and Meyer, 2004). Therefore, it is worth considering whether HR outsourcing can enable HR to become strategic partners in an efficient and effective manner, allowing them to focus on their core duties.
What are the motivating factors in sourcing decision and how are these factors determined?
The question of what to keep in-house and what to outsource has been a concern since the

early days of manufacturing (Probert, 1996). It has been noted that subcontracting was already present among shipwrights and in the textile industry even in the late 19th century.

Blumberg (1998) discusses the historical practice of outsourcing during ancient empires, where neighboring states were hired to protect their borders. In the modern era, many organizations followed Henry Ford's model of vertical integration for a long time until the early 1960s, when companies and countries began exchanging raw materials or finished goods (Dubois, 1998). In the past 30 years, the demand for a competitive strategy has become essential due to advancements in technology, management practices, and globalization. As a result, outsourcing has emerged as a method to gain a competitive edge by balancing internal and external resources (Kevcic & Tavcar, 1998). One of the assumed benefits of outsourcing when it was first implemented in 1990 was its potential to reduce costs and improve efficiency (Blumberg, 1998).

At a basic level, especially in the manufacturing sector, cost reduction through outsourcing is possible if the supplier's price is low enough to cover overhead, profit, and transaction costs (Kermic et al., 2006). The greatest level of efficiency can be achieved through technological specialization or economies of scale. However, this may not be the case for many large multinational organizations, as their economies of scale within the organization can be much greater than those of their service providers (Alexander and Young, 1996).

The main reason for outsourcing, even after ten years of its popularity, is the desire to lower costs while achieving high revenue and quality service in a cost-effective manner (Fill and Visser). However, the failure to accurately predict costs has proven to

be a drawback of outsourcing (Jennings, 2000). In terms of strategy, organizations should analyze their costs as well as other important factors. The decision to transition from vertical integration to outsourcing processes is important and should be made by top-level management. In the service industry, it is recommended to conduct a comprehensive strategic evaluation before making the outsourcing decision. This evaluation must consider the following points:

  • The significance of this service
  • The market perception of the service's quality
  • The actual quality of the service compared to competitors (Blumberg, 1998)

The main focus of any strategy is the impact of the quality of the outcome.

The reputation and profitability of a company are established by its quality. It is important for management to recognize that outsourcing should not compromise the quality and perceived quality remains intact (Kermic, Tukel and Ram, 2006). When choosing a sourcing strategy, management should first assess other operations within the chain to determine whether internal or external provisions should be sought. Approach: The company's sourcing decision is indirectly influenced by the macro environmental factors it operates in. When analyzing the benefits of sourcing, management should consider not only quantifiable elements, but also unquantifiable drivers that may vary in different situations.

According to Fill and Visser (2009), there are multiple contextual factors to consider when outsourcing. The unique nature of the concern can make it difficult to find a suitable service provider. Additionally, there may be disagreements among management levels regarding the decision to outsource.

In line with this, Kermic et al. (2006) argue that if an organization is already successful in its current operating environment, why is there a need for a change? They suggest that if competitors are

outsourcing to improve, it would be wise for the organization to follow suit and strive to be the best.

The newer trend in outsourcing involves multi-sourcing. In this case, the business must weigh the advantages and disadvantages of choosing multi-sourcing or single sourcing.

Public sector outsourcing originated in the early 1980s with the introduction of competitive tendering. Government organizations are often perceived as large, bureaucratic, and inefficient. The main motivation for outsourcing in the public sector is to save money and meet public demand. (Kremic et al, 2006).
What caused the significant growth of HR outsourcing?
HR outsourcing refers to the delegation of various HR functions to a third-party provider. (Turnbull, 2002, p.11). The global trend of continuous growth in HR outsourcing is now evident.

The increasing demand for outsourcing services from organizations and the desire of international HR outsourcing providers to expand their services in various business areas and locations are driving this growth. Major multinational corporations (MNCs) are the main users of HR outsourcing, while the providers are predominantly large MNCs offering a growing range of advanced HR services. Many organizations utilize outsourcing as a prominent strategy to improve processes and gain a competitive advantage by reducing costs.

HR outsourcing has become common in organizations due to reasons such as cost reduction and the incompetence of the HR department. However, it is now an integral part of every business strategy for several reasons:

  • Larger private sector companies widely use outsourcing.
  • Public sector organizations have significantly increased procurement of external services.
  • Outsourcing is perceived as a crucial decision in an organization's business strategy.
  • Organizations are willing to replace in-house tasks with external options, often resulting in large-scale redundancies (Stephen Taylor, 2009).

The overall trend of

outsourcing has seen substantial development over the past two decades (Collings, 2005). However, the growth of HR outsourcing has not been as rapid as predicted by some observers. Additionally, the extent of outsourcing has not been as extreme as assumed by some. For example, only 3 percent of organizations surveyed by SBPOA in 2005 reported fully outsourcing their HR function (Pickard, 2006). The diverse nature of the HR map makes it challenging for organizations to completely outsource it to a single service provider and achieve economies of scale.

Organizations often outsource specific procedures to different service providers in order to leverage their unique strengths. This growth in HR outsourcing has been primarily driven by the public sector due to government demand for competitive tendering. Private companies have also followed suit, outsourcing their HRM departments after witnessing the success achieved by public companies. The areas commonly outsourced in HR services include training and development, executive search and selection, recruitment of temporary staff, and outplacement and redundancy counseling. Research has shown that recruitment, development, and selection are the most extensively outsourced activities in HR outsourcing. While these areas are commonly outsourced, strategic planning and assessment typically remain as in-house objectives. It has also been observed that some of these outsourced activities are more generic in nature with lower associated risks. Organizations state that trust in outsourcing depends on factors such as size, complexity, merchandise market uncertainty, and the importance of HR scheme to the organization. Interestingly, organizations with unique approaches to HRM are less likely to outsource their generic and human capital activities possibly due to contractors providing lower levels of performance compared to internal staff members (Adler

2003).Adler also mentions that the choice to outsource can differ among organizations depending on the level of risk involved in their partnership and how much trust between parties can help resolve issues.

There are three common forces that lead employers to implement new signifiers of service bringing:

  • Salvaging Costss and Switching Hazard
  • Deriving External Expertise, Not Available In-House
  • Independence from Internal Pressure

When the scheme of outsourcing comes into any organisations head, the chief ground is to extinguish cost and bettering service. ( Cook et al, 2005 ) place a broad scope of benefits from outsourcing:

  • Leting the house to concentrate on their nucleus concern
  • Deriving from the specializer provider 's economic systems of graduated table and larning fro them
  • Switching the load of hazard
  • Enabling greater numerical flexibleness

Outsourcing the whole of HR is quiet complex from outsourcing their differentiated activities. Some organisations make the error of outsourcing an already effectual undertaking and therefore stoping up in a loss. ( Main 2006 ) suggests that the deficiency of some outsourcing experience is due to the fact that outsourcing is seen as a manner to acquire rid of problems such as cost and unequal expertise and management supervision is nothing once it has been outsourced.

The decline of terminals, which was prompted by outsourcing, has led companies to engage in shared services and outsource specific HR functions such as recruitment, termination, and payroll to different agencies. Many

organizations, particularly those based in the US, have benefited from outsourcing. However, some companies around the world are resistant to outsourcing. For example, British Airways had limited success when it outsourced to Infosys and ended the contract during the recession in 2009. This experience led BA to conclude that outsourcing is a different proposition for large companies compared to smaller organizations (Hammond 2002).

Directors and directions were skeptical about outsourcing import HR functions because they believed it could result in a loss of control, a lack of personal touch, and uncertainty about the quality and commitment of the external staff. Large multinationals like Royal Dutch/Shell believed that only high levels of internal staffing could lead to and maintain high levels of HR practices (Peoples Management 2002). However, Gratton (2003) argues that there is a disconnect between these service providers and the deteriorating HR functions. The distance between the employees and the HR department greatly impacts their working efforts, leading them to feel that outsourcing the entire integrated functions would provide greater added value than dispersing them.

Many organizations have embraced this idea when it comes to outsourcing. Gratton has identified four mechanisms that can help improve this situation:
- Operational Integration: using standard procedures to increase employee productivity.
- Intellectual Integration: utilizing a shared knowledge base from both parties.
- Social Integration: establishing common goals and developing a unified end scheme.
- Emotional Integration: fostering bonds of friendship and reciprocity, creating a sense of shared identity and purpose.

The main challenges in outsourcing involve bringing together the outsourced entities and their segmented elements. When organizations fail to address these issues, they may either lose money or bring their operations back in-house. According

to Brockett (2006), organizations are compelled to respond to experts who specialize in buying instead of HR, leading to cost being the primary motivation. This process hinders the exchange of data, information, concepts, and strategies, ultimately hindering the main objective of outsourcing. Consequently, this situation results in adverse effects such as loss of skills, knowledge, and capacity, which are the primary reasons why organizations outsource (Cook et al., 2005). Therefore, it is understood that outsourcing is not only a threat to a specific function or business but also to the individuals involved in the process.

Despite the drawbacks, the outsourcing of HR processes and functions continues to grow significantly in countries like India, also known as offshoring. Single-process outsourcing is considered to be the primary area of growth. However, multi-business-process outsourcing has also been increasing in recent years due to the maturing HR outsourcing providers. The usage of HR outsourcing varies across different regions of the world due to factors such as company size, level of HR function sophistication, market development, cultural norms, employment regulations, and labor market characteristics in specific countries and regions.

In general, HR outsourcing is not as widely used in Asiatic countries compared to Europe and the US. One major reason for this lower usage is the perception of poor service quality and competence level of advisors in the market, as well as limited options. Concerns about data security and loss of management control are also important factors that deter outsourcing. Most outsourcing users in Asia are Western multinational companies. The main reasons for outsourcing the HR function are cost reduction and a desire to focus on core competencies. The primary HR activities

to be outsourced include social security benefits, payroll processing, legal compliance, recruitment, and training and development.

Recruitment is the primary HR procedure that multinational corporations (MNCs) in the Asia Pacific region often choose to outsource. This is because recruitment is an area in which they usually lack expertise. By outsourcing to established HR outsourcing provider firms, such as recruitment agencies, MNCs can benefit from specialized services. Outsourcing transactional activities like payroll and specialist HR activities such as legal compliance allows client firms to achieve cost efficiency and gain access to specialized knowledge, with minimal negative impact on the overall corporate.

Outsourcing human capital activities, like recruitment, training, and development, can present additional challenges in terms of maintaining corporate culture and values for multinational corporations (MNCs). Employees from HR outsourcing service providers may have their own cultural values and ethical norms that may not align with Western ethical standards and stakeholder values. These cultural values and ethical norms may be consciously or subconsciously imposed while providing HR services.

The outsourcing of HR activities, known as a transactional procedure, removes the opportunity for interaction between line/HR directors and employees, which is considered a bonding procedure. When employees have to handle private and confidential matters with an external supplier, they may feel less valued. The reduced bonding between employees and directors can potentially decrease employee engagement with the company. This is especially true in India, where talent retention is a greater challenge compared to China. Building a good relationship with employees and their families is crucial for effective workforce management. By outsourcing certain aspects of their HR function to offshore locations where they operate, multinational corporations (MNCs) can leverage local expertise

and focus on their core competencies. This practice allows companies to quickly acquire the necessary expertise resources without going through the traditional life cycle phases associated with internationalizing companies.

However, the corporate HR structure needed to obtain HR competency quickly is different from the one developed in-house. The emergence of HR outsourcing and shared services centers has caused significant changes in the corporate HR structure for many companies that use these services. Outsourcing the HR function to off-shore locations adds even more complexity to managing HR in multinational corporations (MNCs) and the outsourcing relationship.

What are the sourcing models for HR outsourcing?

A successful outsourcing strategy relies on an organization's ability to identify, implement, and establish proven methodologies (Bonifazi and Desouza, 2004). Large corporations believe that outsourcing is a core competence and a major driver of their competitive strength. From examining the literature, it can be concluded that generic processes such as recruitment, training, and development are commonly outsourced, while core processes like payroll should remain in-house.

Every concern must understand and separate their core competent processes, which are imbued with tactical cognition, the ability to outperform their rivals, and the ability to provide unique value. These processes are crucial for the company's future growth (Goddard, 1997). According to Melvor (2009), non-core operations should be outsourced and strategies should be built around the core competent processes. Kakabadse and Kakabadse (2000) also agree with this approach. For instance, Goldman Sachs has outsourced their back-end operations to Bangalore, India.

The HR section at Goldman Sachs has outsourced their caput running procedure to MaFoi consultancy (Part of Randstad group of companies) and Team-lease. However, the enlisting procedure is solely handled by the HR

procedure at Goldman Sachs. This allows Goldman Sachs to have their own unique enlisting system, which sets them apart from KPMG or JP Morgan and ensures that the right people are in the right positions. The decision to outsource should be made by senior level management, taking into consideration the long-term strategic goals and the potential benefits derived from the process (Melvor, 2006). Evaluating strategic position is of utmost importance and requires careful analysis (Prober, 1996).

The text suggests that when it comes to implementing a sourcing scheme, the direction should utilize various success indexes to understand and predict the outcome. This can be achieved by using techniques like SWOT and Porter's five forces analysis (Porter, 1979). Although there is a large amount of information available on outsourcing, there are only a few that discuss the decision-making process prior to implementing HR outsourcing. Multiple theories exist regarding models for outsourcing, but most companies tend to follow two common strategies while implementing HR schemes. While Kremic and Tukel's model focuses more on the macro factors, the cost aspect is more specifically measured in Fill and Visser's model.

Both entire cost and transactional cost theories are useful for analyzing a company's cost. However, comparing these costs with those of competitors is difficult due to sensitive and inaccessible information sharing. Therefore, decision making should not be based solely on cost, but also on quality. By successfully analyzing the model, the management can determine whether to outsource or not. If the decision is positive, the next step for management is to find a suitable service provider. With the advancement and improvement of outsourcing strategies, the operational relationship between the supplier and

purchaser has decreased, giving rise to a new form of partnership called the strategic alliance.

According to Zineldin and Brendnlow (2003), if the leadership is capable of establishing and nurturing a trusting relationship, it can give the organization a potential competitive advantage. Once the appropriate service provider has been chosen, the next step is to define the terms of the contract. A successful outsourcing arrangement relies heavily on a well-crafted contract (Zhu, Hsu, and Lillie, 2001). The contract should have a clear, realistic, and definitive structure that guides the project towards a smooth transition. Ensuring uninterrupted service for clients and aiding employees involved in the process to quickly and efficiently adapt to their new roles is crucial during implementation (Kakouris and G, Binioris, 2006). The management must also be cautious about the timeline for transferring the process, as longer transfer times result in increased potential for delays.

However, there is a risk of being careless and missing details when quickly establishing change.

What are the risks of outsourcing and how can they be mitigated?

The risk of an organization not reaping the benefits of outsourcing is significant. According to a study (Melvor, 2000), only five percent of companies have benefited from short-term outsourcing. Risk control is integral to outsourcing (Jiang and Qureshi, 2006). Understanding the value of outsourcing and maintaining control over the contract without deviating from its objective is key to managing the risk. Organizations that are highly conscious take contingency measures before implementing the process, considering what would happen if the alliance ends. All circumstances and implications regarding potential issues must be addressed so that risk reduction strategies can be implemented from the start, thus helping to

minimize the aftermath of problems.

It cannot be denied that certain risks can impede business success in the long term and these risks may eventually become the company's success story (Jiang and Quershi, 2006). Additionally, there is a risk that employees and middle-level management may not support the project for their own safety and reasons. It is crucial for the organization to communicate the reasons behind the decision to initiate the project and its benefits to employees. Failure to do so can lead to rumors, fear, and anxiety, resulting in decreased morale and commitment to their job (Blumberg, 1998).

Adulthood of HR Outsourcing

International Data Corporation projects that global outsourcing will experience an annual growth of 18% from 2008 to 2012, with revenues expected to exceed $30 billion in 2011. The HR outsourcing market is thriving, and clients are increasingly demanding these services (Mortorelli, 2006). Kevin Cambell, MD Accenture Global, states, "The overall outsourcing market is growing rapidly, and our company remains very optimistic."

  • There are two main reasons why HR outsourcing is experiencing unprecedented growth.
  • Clients in the HR industry want more HR functions and processes to be outsourced, including core activities.
  • Organizations are seeking ways to standardize their global HR processes (Martorelli, 2006).

One way to comprehend the growth of outsourcing is to examine the availability of service providers and understand the established group of suppliers. Generally, outsourcing involves a relatively stable set of service providers, such as 24*7, Accenture HR outsourcing, and WNS.

Henceforth, there are no significant ou

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