A RESEACH REPORT

ON

''HR OUTSOURCING IN INDIA''

Submitted in partial fulfillment of the

requirement for the Degree of
POST GRUADATE MASTER OF BUISENES
ADMINISTRATIVE

SUBMITTED TO SUBMIITED BY
Dr V K KHANNA
Director MBA (132)
GNIT Gr.Noida SATISH CHANDRA
3 ROLL 1113270042

MBA(4th sem.)
2012-2013

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 DECLARATION

I SATISH CHANDRA , Roll no 1113270042 student of MBA 4th sem of GRETER

NOIDAINSTITUTE OF TECHNOLOGY Greater Noida hereby declare that the research
project report titled ‘‘Human Resource Outsourcing in India’’ is my original work &
the same has not been submitted for the award of other diploma or degree.

Place: Greater Noida SATISH CHANDRA

Date :

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3
Contentss

NAME OF THE TOPIC Page no

Title Page
Declaration

Chapter 1 – Introduction 1

Chapter 2 - Objectives and Rationale of the Study 7

Chapter 3 – Review of Literature 10

Chapter 4 – Research Methodology 46

Literature……………………………………………..
4.1 Hypothesis 47

4.2 Research Design 49

4.3 Sample Size 52

4.4 Research Tools 53

Chapter 5 – Research Findings 55

Chapter 6 – Summary &Conclusion 66

References 73

Annexure : Questionnaire 74
Annexure 74

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5
 INTRODUCTION

HR OUTSOURCING: AN INTODUCTION

“HR outsourcing is a process of outsourcing involving particular tasks like

recruitment, making payroll, training and development to a third party who have

expertise in these respective fields."

Today, every organization is aiming at achieving productivity by enhancing return on

investments and achieving the economies of scale. In this context, it makes sense to focus

only on the organization’s core competencies and outsource non-critical business

activities. Therefore, routine administrative work, although important, can be outsourced

to third party vendors.

HR outsourcing has the potential to benefit organizations that want to transform their

ability to manage human capital. Outsourcing can provide the right blend of cost, service

levels, experience and economies of scale that allow companies to move away from

administrative activities and focus on more strategic issues.

The Human Resource (HR) department is critical for employee satisfaction in any firm.

Some businesses don’t have the staff, the budgets or the inclination, to deal with the

nitty-gritty of HR management, so they opt for outsourcing. Deciding which functions to

offload and which firm to outsource is also a major decision.

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HR functions include Payroll administration (producing checks, handling taxes, dealing

with sick time and vacations), employee benefits (Health, Medical, Life insurance,

cafeteria, etc), human resource management (hiring and firing, background interviews,

exit interviews and wage reviews), risk management (workers’ compensation, dispute

resolution, safety inspection, office policies and handbooks) and others.

HR outsourcing can be segregated into two broad categories: Transaction and

administration outsourcing and HR consultancy. Transactional outsourcing is more of

day-to-day or month-to-month requirements, and constitutes services like payroll and

benefits. This kind of service is more prevalent in the Indian market. In the value chain, it

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falls at the lower-end compared to HR consultancy, although it happens to be an essential

function. It is a fact that companies continue to manage the strategic and policy functions

of their HR departments in-house.

HR outsourcing can happen in various areas such as payroll, employee benefits

administration, fixed assets administration, network management, receivables

management, logistics management, hardware maintenance, telemarketing, call centers

and database management. In India, the most common processes outsourced are related to

training, payroll processing, surveys, benchmark studies, and statutory compliance.

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HR outsourcing Services could fall into one of four categories:

o PEO - A Professional Employer Organization (PEO) takes legal responsibility for

employees. The PEO and business owner are partners, with the PEO handling HR

aspects and the business handling all other aspects.

o BPO - BPO refers to all fields, but specifically for HR, a BPO would ensure that a

company has access to latest technologies.

o ASP - Application Service Providers (ASPs) host HR software, on the web and rent it

to users.

o E-services - E-services are those HR services that are web-based.

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 HR OUTSOURCING ASSISTING CHANGE:

Cost of
Technology,
Desire for
Best Practice
Support
Desire/Push to move to
Strategic Planning Use of HR
Outsourcing
Need to remain
flexible, Risk
Management

Globalisation
M&A Technology
Talent Shortage
Org. Changes Advancement

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11
 OBJECTIVES AND RATIONALE OF THE STUDY

OBJECTIVES & RATIONALE OF THE STUDY

Today, every organization is aiming at achieving productivity by enhancing return on

investments and achieving economies of scale. In this context, it makes sense to focus

only on the organizations core competencies and outsource non-critical business

activities.

Corporate focus on the implicit and explicit costs of human resources has never been

greater and outsourcing employee benefits administration can create greater efficiency

while decreasing costs. The study aims at studying the HR outsourcing phenomena and

how companies in India are reacting to this phenomenon.

The study will throw light on the various aspects like the trends, challenges, benefits and

other issues like process and vendor selection criteria used related to HR outsourcing in

the context of the Indian industry. It will also talk about the role of outsourcing outfits

like India Life Hewitt, Ma Foi, Xansa, Wipro, Accenture etc in shaping the Indian HR

outsourcing industry.

Various objectives of conducting the study are: -

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o To study the various challenges faced by the Indian industry pertaining to HR

outsourcing.

o To study the various reasons deterring the Indian HR outsourcing industry to grow at

the pace of the global market.

o To study the trends of HR outsourcing prevailing in the Indian industry.

o To ascertain the future of the HR outsourcing industry in India and the factors

responsible for molding it.

o To find out the various benefits being derived out of HR outsourcing by the Indian

companies.

o To study the impact of HR outsourcing on the internal customers in the Indian

companies.

o To study the criterion used by the Indian companies in selecting the vendor for

outsourcing their HR processes.

o To study the criterion used by the Indian companies in selection of the HR process to

be outsourced.

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14
 REVIEW OF LITERATURE

LITERATURE SURVEY:

Outsourcing is a strategic decision to give a task or activity to an independent contractor

who determines how best to do the task or activity. The firm and the indpendent

contractor become partners and may establish a long-term relationship.

BENEFITS OF HR OUTSOURCING:

As the Human Resources Outsourcing market rapidly evolves, an ever-changing set of

outsourcing solutions is now available to accelerate enterprise effectiveness. HR

Outsourcing is increasingly seen as a key enabler of people and team transformation.

Properly defined goals that are supported by innovative outsourcing can drive a company

to the next level of enterprise effectiveness. As people become more critical to the

success of a company, the human resource function will have to progress from

administration to strategy if the organization it supports is going to remain competitive.

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The advantages are clear and compelling: improved business focus, more productive use

of time and resources, and guidance from experts from across the business spectrum,

saving money, focusing on strategy, improving compliance, improving accuracy, lacking

experience in-house, taking advantage of technological advances, and offering services

they could not offer.

Outsourcing HR functions allows a company to focus on its core competencies and

provides administrative relief from many employer-related responsibilities, so that the

company can concentrate on developing strategies that provide competitive advantage to

it.

Traditionally, people have been viewed as liabilities or expenses, instead of tangible,

bottom-line assets. Successful business owners have learned, however, that their

employees have a direct impact on their profitability. The company gets more out of its

business when it gets more out of its people.

Statistical analysis by Watson Wyatt Worldwide, which developed the Human Capital

Index to provide a standard for measuring a company’s people practices, shows a clear

relationship between the effectiveness of a company’s people practices and the creation

of superior market value.

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Once HR and other operations are outsourced, many companies experience a strong

return on investment, according to a recent survey of American executives. The 2006

survey of executives at the IDC Midwest Conference in Chicago showed nearly 85

percent of the respondents saved as much as they spent on outsourcing, with 26.4 percent

reporting a savings of twice as much. And the savings, according to nearly 95 percent of

the respondents, went toward operational performance and innovation, which improved

shareholder value.

Strong human resources practices have the potential to increase a company’s productivity

and profitability, but HR management has become a colossal task, demanding

considerable resources. Legal and regulatory compliance has become an overwhelming

task, and time spent on administrative obligations is time spent away from growing

business.

Outsourcing is the great equalizer for small to medium-sized firms. Growth-oriented

entrepreneurs can benefit tremendously. Not only do employees frequently gain access to

better benefits, the owner gains freedom to focus.

Outsourcing ―people strategies‖ can help a company gain a competitive advantage, but it

needs professionals who cut through the clutter of HR practices to learn which have the

most positive impact on its business.

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DETTERANTS OF HR OUTSOURCING:

There exists a set of basic reasons hampering the growth of HR outsourcing. Many

companies outsource only a bit of their requirements. Various reasons that deter many

organizations are:

o Fear of loosing jobs

o Loss of sensitive information to public/ competition.

o Ethics and quality of outsourcing vendors.

o Possibility of security breaches.

o Cost- benefit equation not clear.

o Lack of psychological acceptance.

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 DECISION FOR OUTSOURCING:

Baron & Kreps, 1999 gave this matrix which talks about how and when to outsource

activities. According to this matrix, strategic importance of the activity and interdependence

on other activities are the two factors on which the decision of outsourcing should be based.

The activities that have high strategic importance and high interdependence on other

activities should be kept in-house and the activities that have low strategic importance and

low interdependence must be outsourced.

High

Str ??? Insource

ate
gic
Im
por
tan
ce Contingent
Outsource
Employees

Low

Low High
Various considerations to be taken into account while outsourcing were given by Baron

& Kreps, 1999 : Interdependence

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o Does learning from this activity spill over to an important ―core‖ activity?

o Can the outsourcing relationship be reversed and the work brought back inside when

conditions change?

o Can the outsource supplier adjust more quickly to changing labor or market demands

than we can?

o Do we have a strong clan-like culture that would be weakened with employees who

have different values or interest?

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Outsourcing may not be appropriate when:

 The task is a core activity critical to strategy or technology.

 Task is highly interdependent with core activity due to technology or work

design.

 Task requires great deal of firm specific human capital or access to proprietary

information.

 Tasks where the employees work in close proximity to regular, core employees

and are similar socially to them.

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 METHODOLOGY FOR HR OUTSOURCING:

Design of Solution
Situation Solution Performance Solution
Analysis Design Measures Delivery Performance
& Contract Management

- Business
environment - Strategic - Service levels - Resourcing - Vendor-Company
analysis - Project - Accountability - Work Process relationship
management management
- Work process - Transactional & performance
analysis measures for - Solution -Performance
- Risk analysis both Vendor management Analysis &
- Work Process Reporting
design & Company
- Performance GAP
Resolution process

The methodology of HR outsourcing involves the following steps: -

o Situation analysis – It includes business environment analysis, analysis of the work

process which is to be outsourced and risk analysis.

o Solution design

o Design of performance measures & contract – It includes preparation of the HR

outsourcing contract. The expected service levels are defined and accountability &

performance measures for both the vendor and the company are set.

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o Solution delivery

o Solution performance management – It includes the management of the vendor-

company relationship.

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 HR OUTSOURCING DELIVERY PROCESS:

BSC
HR Performance KPI
Soluti Deliver Measurement
O ons ables SLI
& Management
Process

• Process
• Procedures
Work Process
• Rules
• Project Management
• Performance Management
Resources
Consultant
s

Doers People

Admin
Hr tools

Project Dedicated Expertise

Delivery Process Support

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PRESENT SCENARIO OF HR OUTSOURCING IN INDIA:

The general opinion among Indian companies is that it is economical to manage all their

HR processes internally. Consequently, there is not much emphasis on outsourcing.

Typically, very small companies (which do not have the competency to staff a full-

fledged HR department) and very large companies (who wish to outsource all routine HR

processes so that they can concentrate on core issues), are the ones that use HR

outsourcing in a significant way. Besides, many multinational companies are fast

adopting these practices.

Sateesh R Kurugod, head of marketing and alliances, Crossdomain Solutions says that

now CXO’s realise that HR teams typically spends over 80 percent of its time in

managing tactical and transaction oriented HR operations. ―If these tactical processes are

outsourced, the company could re-deploy their trained HR resources to core processes,‖

he adds. Pramode Sadarjoshi, the director and head of Human Resources of Cognizant

Technologies says, ―Today, every organization is aiming at achieving productivity by

enhancing return on investments and achieving the economies of scale. In this context, it

makes business sense to focus only on the organization’s core competencies and

outsource non-critical business activities. Therefore, routine administrative tasks,

although important, can be outsourced to third party vendors.‖

Experts believe that in present times HR outsourcing is undergoing a transition phase.

"There has also been a transition on its user acceptance, where it is moving from a

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corporate domain to public sector undertakings and the government sector. All this

reflects on the growth of this sector.

HR outsourcing comes third in the list of potentially high paybacks, after IT and the

telecomm industry. However, many companies wrap up their HR functionalities as

something that happens in the back office, and do not give enough attention to the

infrastructure that essentially props up its employees. Over the years, this has bred

neglect, leading to antiquated HR management systems.

Now, it is time for this mindset to change, because companies are suddenly waking up to

the fact that their HR policies are not in step with the times, and a major overhaul is

called for to keep pace with company acquisitions and mergers. A few companies have

tried mending their HR management system on their own, but they soon discovered that

it is like opening Pandora's Box; more you inquire into the state of HR policies, you keep

unearthing more anomalies.

That's where outsourcing can step in. If you have a problem managing your HR and

bringing the existing system up to scratch, why not let a third party worry about it? What

comes with HR outsourcing is better management at a lower cost

Implications of HR outsourcing for India need to be looked at in two parts — economic

impact and HR impact.

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The economic impact is positive, given that India is the beneficiary of the global

outsourcing wave, at least for now. It is creating more jobs and increasing earnings for

the country.

The second part of the India impact is from the HR point of view. What is quite obvious

is the fact that cost arbitrage will not be the driver for this trend within India, if ever, even

if a large organization were to outsource to a small operator.

India must be the country hiring the most in the world. In fact, HR in India would rank as

the most dynamic and turbulent in the whole world today. There are so many new jobs,

so many to hire, so many to train, and so many to retain. After many years of fighting for

identity, HR in India has come of age. HR and organization building issues are center of

the plate in any Indian CEOs agenda today. CEOs are willing to spend as much as it takes

to manage their people and people processes well. It may never get any better for HR.

With more and more companies looking to rationalize employees on their payroll,

Human Resource outsourcing is slowly becoming the buzz in India. Companies to whom

organizations outsource their human resource function possess the knowledge and

resources to expertly perform part or all of a client’s human resources function, allowing

the client to streamline their internal processes and concentrate on generating profits in

their core business.

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Estimates show that the latent size of HR outsourcing in India is about $ 2 billion with a

current market $ 27 million and it is growing at the rate of about 50 per cent. HR

outsourcing in India has not seen the required momentum and is limited to a trickle

effect, with companies outsourcing a few selected low-end HR processes. Companies

which haven’t joined the HR outsourcing bandwagon are either unfamiliar with the

process and procedures of HR outsourcing, or are unaware of the players operating in the

area or are unaware of the probable value obtained from doing so.

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Projections show that in the Asia Pacific region, HR outsourcing will go up to 2560

million dollars (Garter 2004). The projections for HR outsourcing processes are

mentioned below: -

Pay roll services 761

Benefits administration 536
Education & training 556
Recruitment & staffing 348
Personnel administration 167
Other HR functions 192
Total 2560

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Some key findings of the Outsourcing Asia-Pacific online survey that was conducted by

Hewitt in June 2002 with regards to the Indian market: -

o Outsourcing of the complete HR function was prevalent among foreign

companies that have established operations in India.

o Outsourced expertise where staff expertise is provided as an outsourced service

rather than processing services was observed particularly among small and

medium sized companies that find difficulty retaining skilled, senior HR staff.

o The outsourcing of HR processing, including payroll and benefits processing.

Even though across the globe companies are realizing that headcount is directly related to

the revenue and are outsourcing most of their transaction and administration related

work, the general opinion among the Indian companies is that it is still economical to

manage all their HR process internally. Here people are also not very clear about what

exactly is manpower outsourcing all about.

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GROWING IMPORTANCE:

After customer care services and medical transcription, outsourcing of human resource

services or HR BPO is emerging as the next big opportunity for Indian BPOs with the

global market in this segment estimated at $40-60 billion per annum according to experts.

HR BPO comes to about 33% of the outsourcing pie. India has immense potential as

more than 80% of fortune 1,000 companies will discuss offshore BPO as a way to cut

costs and increase productivity. Sensing the potential, global BPO players including

Fidelity, Exult and Hewitt have begun setting up operations in India. However, most HR

BPO players had not leveraged the offshore advantage as yet.

The revenues in the HR outsourcing space are projected to increase to $3.5 billion by

2008 according to a Nasscom-McKinsey survey. Even if 10 per cent of HR outsourcing is

off shored in the next 5 years, offshore opportunity can be anywhere around $1.4 billion.

Research firm Gartner has forecast HR BPO to reach $51 billion and represent 39% of all

BPO revenue by 2004-end. In HR BPO, revenues depend on the number of employees

the clients have. This is in sharp contrast to a typical customer care center, where bills are

charged on the workers servicing a client in the BPOs. Despite huge potential, not many

companies have leveraged the offshore strategy. The main reasons for not leveraging the

offshore benefit have fabeen companies being undercapitalized or not knowing enough

about the offshore business.

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Research proves that the market for HR outsourcing in the APAC region could grow

from $1.14 billion in 1999 to $2.56 billion in 2004. Although it is not a very huge

growth, it has still shown an upward trend.

Some of the key companies, which have gone ahead for manpower hiring outsourcing

practices, are Cisco, GE, Honeywell, Sun, i2, LG Soft India, Escosoft and Legato

Systems. While LG Soft India has outsourced its PF management, Escosoft has

outsourced payroll processing, execution of training programmes and survey conduction.

According to Shubho Kundu-senior general manager HR of LG Soft India, the company

has been able to save a lot in terms of reducing paperwork and interaction with

government agencies. Besides, there are other companies like Xansa India, which is

planning to take a plunge in HR outsourcing business and offer services to its parent

organisation. Binnoo Wadhwa, the head of HR for Xansa India, says that the move

showcases the robustness of the HR department to handle such critical applications.

There are many others who do not believe that HR outsourcing is necessary. Take the

case of Aptech, which has not considered HR outsourcing as the company feels that HRD

is strategically linked to its business. According to this company any job or function,

which is of strategic importance to the organization should not be left for outsiders or the

so-called outsourcing partners.

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DRIVERS OF SUCCESSFUL HR OUTSOURCING:

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SELECTION OF HR OUTSOURCING VENDOR:

Selection of the right vendor is a very important factor in making it a successful venture.

For some businesses, cost is the deciding factor in vendor selection. Other companies

look for a cultural fit or a commitment to quality. Some things a company should

consider when evaluating a firm include:

o The range of outsourcing services it offers;

o The expertise it has in the particular industry;

o Its general HR experience;

Its understanding of the company’s priorities;

o Its available resources;

o The flexibility of its contracts.

It must be kept in mind that an HR firm is an extension of a company culture, so the

company must try to find one that fits its image.

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KEY QUESTIONS ASSOCIATED WITH HUMAN RESOURCE

OUTSOURCING:

Six important questions companies must focus on as they decide whether to outsource

some or all of their HR processes:

 What are the external forces that are driving the company to examine the

opportunity for outsourcing HR activities?

Globalization, restructuring, increased administration complexity and cost pressures are

all driving companies to consider the use of HR BTO. As companies begin to operate in

more countries, they are finding it increasingly difficult and costly to keep track of, and

manage, the variety of benefits and regulatory requirements in each area.

For example, a multinational organization that has been built over time from a series of

acquisitions and buyouts can find itself with a bewildering mix of compensation

packages, pension plans, human resource management (HRM) systems, hiring guidelines

and HR contact centers. Further, as compliance directives and legal regulations change in

each of the countries in which the company operates, the company’s ability to stay

current becomes more difficult and costly as extensive resources are required to maintain

and apply this knowledge. Allowing an outside party that has already built existing

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capabilities in these areas to manage the process becomes an increasingly attractive

proposition.

Finally, overall cost pressures are forcing companies to identify new methods for cutting

administrative expenses. A number of recent studies suggest that reducing costs is the

primary benefit that companies seek when outsourcing HR processes. As new

competitors enter the market, particularly those with lower labor costs, many companies’

profit margins are put at risk, prompting them to examine closely all activities where cost

reduction is possible. Outsourcing provides an opportunity for companies to leverage the

cost base and experience of an outside provider, which can potentially lower the cost of

delivering HR services, while maintaining or improving service levels.

 What are the initial drivers that make HR outsourcing an attractive

proposition?

A number of internal drivers are also pushing firms to investigate HR Outsourcing. For

example, some companies see it as a means of controlling the cost and effort associated

with operating their HRM systems. After evaluating the total cost associated with

upgrading and maintaining these systems, companies are increasingly turning to outside

providers to manage their HRM systems and take responsibility for upgrades and system

availability.

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Companies are also recognizing that they are unable or unwilling to bear the cost of

developing employee or managerial self-service tools; they would prefer to ―rent‖ these

applications from outsourcing providers who have already invested in development, have

the ability to keep up with the latest technology solutions and can provide best-in-class

tool sets.

Also, the level of complexity involved in administering complicated programs and

processes in multiple regulatory environments and managing data across borders often

requires sophisticated expertise, which many companies may not have in-house. Sourcing

this capability from a vendor could offer lower costs and a higher likelihood of staying

current on recent developments.

Third, companies want to reduce the risks associated with business volatility. Having

gone through numerous hiring/layoff cycles, they are looking to increase process capacity

without commensurate increases in full-time headcount. For example, companies need to

increase their ability to recruit without having to bring on a number of full-time recruiters

(because, typically, recruiters are the first people exposed to layoffs during a business

slowdown).

Fourth, as organizations try to shift resources from administrative to more strategic

activities, outsourcing offers one way to build a new sense of focus within HR

organizations. Many HR organizations believe being able to reengineer their internal

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processes and deliver strategic HR services is simply too much for one organization to

undertake at the same time. However, by allowing a vendor to manage many of the

administrative processes that take time and energy away from HR organizations, the

internal HR organization can focus its limited resources on delivering the services that

truly provide strategic benefits to the entire company.

Lastly, for many organizations, outsourcing serves as a catalyst for change. Implementing

and maintaining a client service orientation and metrics-driven approach are difficult for

most HR functions to achieve on their own. In an outsourced environment, these skills

are critical in determining the success or failure of the arrangement. Therefore,

outsourcing efforts can be used as motivation to move HR service delivery toward a more

accountable, results-oriented focus.

 How should the company identify potential processes to be outsourced?

Determining the scope of the outsourcing effort is among the most important and difficult

decisions companies make. Recently, several studies have indicated that the processes

most likely to be outsourced are retirement program administration (including defined

benefit, defined contribution and retiree services) and health and welfare administration.

Further, these studies found that HR processes closely associated with employee

evaluation and communications are the least likely to be outsourced. To make the right

decisions on which processes to outsource at a particular company, it is helpful to

establish a formal set of evaluation criteria. Paul Adler, a management professor at the

39
University of Southern California, suggests six dimensions an organization can use to

evaluate HR processes when identifying their potential for outsourcing: -

a) Dependency – are there specific assets that require dedicated facilities, equipment,

capacity, training or investments?

b) Spillover – is there confidential information or sources of advantage that could be

leaked to competitors?

c) Trust – is there a positive relationship between the two organizations that could reduce

transaction costs associated with contracting and monitoring?

d) Competence – can greater vendor capability in process execution lead to improved

results?

e) Core capability – is this process viewed as a differentiator for the organization in the

marketplace?

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f) Commitment/flexibility – is the process stable enough so that changes in

capacity/technology are not required on a frequent basis?

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 Who should be involved in making the decision to outsource HR processes?

 Decision-makers

Within the HR organization, the CHRO (or equivalent title in the organization) usually

plays an active role in making the outsourcing decision. Ultimately, it is the CHRO’s

responsibility to determine whether the outsourcing arrangement will enable the HR

organization to provide cost-effective, quality service to its internal clients, while, at the

same time, support the organization’s larger strategic objectives. In addition to the

CHRO, the HR Operations Leader is often involved in developing the specifications of

the outsourcing arrangement. While the HR function clearly has primary responsibility in

this area, two other individuals play important roles in the outsourcing decision.

The Chief Financial Officer often participates in the decision-making process, as entering

into a long-term contract with an outsourcing vendor can have potentially significant

financial ramifications for the corporation. In addition, the Procurement Manager

assumes a prominent role during the vendor selection, negotiation and contracting

process, leveraging experience in developing terms and conditions that are favorable to

the organization.

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 Influencers.

Two groups of individuals were seen as influencing, if not directly participating in, the

HR BTO decision. Given the importance of integrating HRM systems with various

vendor-driven applications, the Information Technology (IT) organization should have

input in the HR Outsourcing decision process. IT must determine how the outsourcing

arrangement will impact current and future technology investments and plans.

Also, the leaders of the various business units supported by HR usually provide input

into the decision, as their employees are the ones most likely to be impacted by changes

in processes and service levels.

 Approvers.

Typically, the CEO and the Board of Directors are responsible for final approval of the

decision to outsource HR processes. This is particularly true if a significant number of

processes are involved, if the outsourcing arrangement will impact a large number of jobs

throughout the organization or if the arrangement will require communication with

important external stakeholders such as industry analysts and financial markets. A

significant outsourcing deal can signal changes not only in overall strategy and approach

to managing human capital, but also efforts to cut costs, focus on core competencies and

mitigate risks.

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Further, a decision to outsource components of the human resources organization may be

perceived by the others in the organization as the first step toward outsourcing other non-

core processes. Given the impact of these types of arrangements, the CEO and Board of

Directors need to understand and articulate the rationale for the decision.

 How should the company evaluate potential vendors?

Once the right individuals have been identified to make the outsourcing decision, the next

major step in the process involves selecting an appropriate vendor. A number of recent

studies have highlighted three primary criteria that companies use to evaluate vendors.

These include: the vendor’s track record for delivering service, the costs associated with

the outsourcing service and the willingness of the vendor to guarantee service levels.

Other criteria highlighted by these studies included: the vendor’s technological capability

and competence, process expertise, flexible contracting, recommendations from other

companies, relevant industry experience etc.

To evaluate vendor capabilities in these areas companies undertake a host of activities

including:

 Distributing experience questionnaires. As part of this activity, a company develops a

standard experience questionnaire that it sends to multiple vendors early in the

evaluation process to obtain initial insights and compare vendors’ capabilities.

Information that is usually collected as part of this process includes understanding the

44
 vendors’ areas of expertise, client experience, and approach to contract development,

service level creation and how they address changes in project scope. There are a

number of third-party consultants who, having participated in many vendor selection

efforts, have developed and refined these types of questionnaires to quickly ascertain

a vendor’s particular level of experience.

 Conducting a financial and credit review of the vendor. Companies undertake this

activity to determine whether the vendor has the financial resources to maintain

appropriate service levels throughout the lifespan of the contract. During this review,

the potential client examines the vendor’s history of fiscal responsibility and

regulatory compliance, its credit rating and analysts’ predictions of ongoing viability.

Companies are also looking for signs that the vendor is a potential takeover candidate,

as an acquisition can often redirect senior management attention and increase the

complexity of the ongoing relationship.

 Conducting a security and compliance review. Given the sensitivity of the employee

data associated with an HR BTO relationship, and the governmental/industry

regulations and standards associated with the privacy of employee data, companies

should conduct a review of the vendor’s security and compliance policies and

procedures. As part of this assessment, companies should investigate whether a

vendor has a demonstrated knowledge of, and is in compliance with, the regulatory

45
 requirements of each of the countries in which it operates. They also should

determine if the vendor has been fined as a result of noncompliance and if the vendor

has access to regulatory and legal specialists on staff or on retainer.

 Conducting reference checks/site visits to other clients. Organizations considering

outsourcing often speak with or visit current clients of vendors under consideration.

This allows them the opportunity to validate other clients’ experiences and identify

potential issues in working with the vendor. During these meetings, evaluators can get

a sense from their counterparts at those other firms as to the vendor’s flexibility,

willingness to support new client programs, ease of partnership and whether the

vendor has met the client’s overall expectations.

 Visiting processing/contact centers. Many companies find it quite useful to visit the

actual locations where the vendor is answering employee calls and processing

documents. This gives the prospective client a sense for how the vendor is organized

and what technology is being used. This first-hand view can be coupled with

assessments of the attrition rates at the center and how service center staff are trained,

evaluated and given feedback to continually improve their performance. These visits

also provide potential clients a glimpse at the level of professionalism and service that

their internal clients will likely receive and the level of investment the vendor is

putting into its own staff and operations.

46
 Meeting potential delivery team leaders. Given the importance of personal

relationships between client and vendor, potential clients should meet the individuals

who will be responsible for both service delivery and the overall account relationship.

These face-to-face meetings can help potential clients understand the managerial style

of their counterparts and the extent to which specific individuals have authority to act

on behalf of the vendor in addressing client concerns. Further, should the potential

client decide to engage the vendor, these initial face-to-face meetings can begin to lay

the groundwork for the type of trust building that is critical during the transition phase

and subsequent ongoing operations.

47
 How should the company begin to prepare itself for HR outsourcing?

As executives get closer to making the decision to outsource HR processes, they need to

pay special attention to preparing the organization for the eventual transfer of people,

processes and/or technologies to the vendor.

 Assembling the team that will lead the outsourcing effort. Once the decision to

outsource as been agreed upon, the organization needs to identify and select

individuals to lead the transition and ongoing management of the outsourcing

arrangement. Initially, the organization needs to identify the roles and skills that will

be required to transfer the outsourced activities to the vendor and oversee the vendor

relationship. Finding these individuals can be a time-consuming effort, as they often

have other significant responsibilities and need to be made available to work on the

outsourcing effort. Therefore, it is beneficial for the organization to obtain the time

and commitment of these individuals and their managers early in the process, rather

than waiting for the final contract to be signed.

 Communicating the effort throughout the HR organization and the lines of

business. Many organizations fall into the trap of developing their communication

strategy after the outsourcing agreement is put into action. However, effective

companies start executing a tailored communication plan far earlier in the process, as

they recognize that rumors will likely surface long before any formal discussions are

48
 in process. Organizations need to develop formal mechanisms for communicating to

HR leaders and staff during the early stages of an outsourcing effort since these

individuals may be called upon to provide data or reallocate their time to work on

outsourcing related tasks. Further, organizations need to listen closely to informal

influencers within the HR organization and business units, as they may have insight

into potential areas of resistance and concern that can have a negative impact on the

outsourcing effort.

 Gathering data on the current state of the HR organization. To develop a

compelling business case for HR BTO, organizations often need to obtain a clearer

understanding of their current spending for HR activities and measure levels of

operational effectiveness. Also, many organizations do not have a strong sense for the

industry and competitive benchmarks that are useful in comparing HR cost and

performance across companies. Collecting this data can be a time and labor-intensive

process that often must be accomplished in a relatively short amount of time.

While outside resources can be used to facilitate this collection, both internal HR

process experts and individuals with experience in obtaining information from HRM

systems need to be involved. Dedicating these scarce resources is well worth the

effort, as it can help ensure that the organization is entering into a financially

beneficial arrangement.

49
RESEARCH METHODOLOGY

50
HYPOTHESIS:

“HR outsourcing: benefits, trends and challenges‖ is a study aimed to get familiar with

the current scenario of HR outsourcing in Indian companies and the potential future for

the industry vis a vis the global scenario.

HR outsourcing is the next big thing to happen and is rapidly gaining momentum

especially in the US. With respect to the Indian scenario it is still at a nascent stage but is

expected to grow rapidly. India currently is facing an economic boom and almost every

industry is at its best state. Hence there is a need for the companies operating in a highly

competitive and dynamic environment to focus on their strategic aspect and core

competencies. The companies can do this by outsourcing the unimportant and non-

strategic tasks.

Due to the presence of some factors in the Indian market, the HR outsourcing industry is

very small but it is expected to grow in the future. This is evident from the fact that

various big players like Hewitt associates, Xansa, Convergys, Accenture, Wipro are

entering this arena of HR outsourcing in India.

51
The study is based on the following assumptions and hence the hypothesis for the study

is: -

o Indian companies are outsourcing most of their HR processes.

o HR outsourcing is expected to grow at a rapid pace in the Indian industry.

o Indian companies derive lot of benefits out of HR outsourcing.

o Internal customers of the company are satisfied with the decision of the company to

outsource their HR processes.

o Cost is the main criteria for vendor selection for HR outsourcing by Indian

companies.

52
RESEARCH DESIGN:

Exploratory research

Exploratory research is often conducted because a problem has not been clearly defined

as yet, or its real scope is as yet unclear. It allows the researcher to familiarize him/herself

with the problem or concept to be studied, and perhaps generate hypotheses (definition of

hypothesis) to be tested.

It is the initial research, before more conclusive research is undertaken. Exploratory

research helps determine the best research design; data collection method and selection of

subjects and sometimes it even conclude that the problem does not exist.

Exploratory research can be quite informal, relying on secondary research such as

reviewing available literature and/or data, or qualitative approaches such as informal

discussions with consumers, employees, management or competitors, and more formal

approaches through in-depth interviews, focus groups, projective methods, case studies or

pilot studies.

The results of exploratory research can provide significant insight into a given situation.

Although the results of qualitative research can give some indication as to the "why",

"how" and "when" something occurs, it cannot tell us "how often" or "how many".

53
Descriptive research

Descriptive research or statistical research provides data about the population or universe

being studied. But it can only describe the "who, what, when, where and how" of a

situation, not what caused it. Therefore, descriptive research is used when the objective is

to provide a systematic description that is as factual and accurate as possible. It provides

the number of times something occurs, or frequency, lends itself to statistical calculations

such as determining the average number of occurrences or central tendencies.

The two most commonly types of descriptive research designs are

1. Observation

2. Surveys

The study would include exploratory and descriptive research. Exploratory

research would be done by reviewing all the relevant literature on HR outsourcing.

Descriptive research would be conducted through a questionnaire. The study hence

comprises of:

54
o Secondary data analysis – Secondary data is collected from various research papers,

journals and Internet. This data aided in understanding the subject better and building

the base for collection of primary data and drawing conclusions.

o Questionnaire – The questionnaire is a mix of objective and open-ended questions. It

is aimed at the employees of the HR department of various organizations in the Delhi

and NCR region.

55
SAMPLE SIZE:

o The primary data is collected from twenty-five HR personnel of various companies.

o The respondents belong to the middle or top-level management in the HR department.

o The data collection includes in its scope both government and private companies.

o The data is collected from companies belonging to various industries (Power, IT,

Liquor, financial etc) in order to have an idea of the complete Indian industry as a

whole.

o Data would be collected from companies operating in the Delhi and NCR region.

o HR personnel from the following companies would be the respondents for the study:

o NTPC

o Xansa

o HCL Technologies

o Radico Khaitan etc

56
RESEARCH TOOLS:

The study includes exploratory and descriptive research. Exploratory research would be

done by reviewing the literature related to HR outsourcing and descriptive research

would be done by a survey of the HR personnel of various organizations through a

questionnaire.

Questionnaire is used as the tool for collecting primary data from employees working in

HR department of different companies. The questionnaire consists of both open ended

and objective questions on HR outsourcing.

The questions cover all the aspects related to HR outsourcing: -

o Process that has been outsourced.

o Benefits derived by them from outsourcing of HR processes.

o Criterion for selection of the process to be outsourced.

o Criterion for selection of vendor for outsourcing.

57
o Reasons for not outsourcing in case the company has not outsourced any of their HR

process.

o Person/s involved or responsible for taking the decision for HR outsourcing.

o Outsourcing by the competitors and business partners if any.

o Impact of HR outsourcing by the company on its employees.

58
RESEARCH FINDINGS

59
Q1.

HR OUTSOURCING

YES
44% YES
NO NO
56%

The respondents were asked whether they outsource their HR processes. 11 out of 25 i.e.
44% of the respondent’s companies have outsourced their HR processes.

Q2.

60
 REASONS FOR NOT OUTSOURCING

LACK OF QUALITY 5
SECURITY BREACHES 9

MARKET NOT MATURE 1

COMPANY CULTURE 4 Series1

LACK OF RELIABILITY 7
DATA PRIVACY 5

COST 12

The respondents gave the above reasons for not outsourcing their HR processes. 12 out of
14 respondents gave cost as a reason for not outsourcing, security breaches were given as
a reason by 9, lack of reliability by 7, data privacy and lack of quality by 5, lack of
understanding by 4 and maturity of market by 1. Hence cost, security breaches and lack
of reliability were identified as the major reasons for not outsourcing by companies in the
Indian market.

61
Q3.

HR PROCESSES OUTSOURCED BY COMPANIES

7
6 6
5
4 4
3
2 2 2
1 1
0
RECRUITMENT

DELIVERY
PROCESSING

COMPENSATION

STATUOTARY
COMPLIANCE
TRAINING
PAYROLL

SURVEYS Series2

Recruitment was found to be the mostly outsourced process followed by training

delivery, payroll processing, compensation surveys and statutory compliance. 6

respondents replied that their company has outsourced the recruitment process, 4 replied

that they have outsourced their training process, 2 replied they have outsourced

compensation surveys and payroll processing and 1 respondent said the they have

outsourced statutory compliance.

62
Q4.

PEOPLE RESPONSIBLE FOR HR OUTSOURCING DECISIONS

BOTH
9%

MIDDLE
MANAGEMENT
18% TOP MANAGEMENT
MIDDLE MANAGEMENT
BOTH
TOP
MANAGEMENT
73%

8 out of 11 respondents replied that the top management was responsible in taking

decision related to HR outsourcing, 2 out of 11 said that the middle management was

involved in the whole process of HR outsourcing and 1 respondent said that both the

middle and top management were involved. Hence the study throws light on the fact that

HR outsourcing is an important decision for the company and mostly involves top

management.

63
Q5.

CRITERION FOR PROCESS SELECTION

9
8
7
6
5
4
3
2
1
0
LITTLE CORE RISK OF NEED FOR STANDARD
INTERDEPEN CAPABILITY DATA PHYSICAL PROCESSES
DENCY EXPOSURE PRESENCE
Series1 2 9 5 1 3

9 out of 11 respondents stated checking core capability as a criterion for selection of the

HR process to be outsourced i.e. checking whether the process is a core capability or not

before outsourcing. 5 respondents responded that the processes which if outsourced pose

a risk of data exposure were not outsourced. 3 respondents stated that the processes that

are standard across industries are outsourced and 2 said that process which are less

interdependent on other processes are outsourced. I respondent said that those processes

that require physical presence of the HR personnel are not outsourced. Hence core

capability and risk of data exposure were identified as a criterion for selection of process

to be outsourced by maximum respondents.

Q6.

64
 CRITERION FOR VENDOR SELECTION

12
10
8
6
4
2
0
COST

COMPETENCE
PAST RECORDS

RECOMMENDATION
EXPERIENCE

S
Series1

According to 10 out of 11 respondents, competence is considered as a criterion for

selection of vendor for HR outsourcing. 9 respondents stated experience as a criterion, 8

stated cost, and 7 stated past records and 2 recommendations from other companies.

Hence competence and technological capability, relevant industry experience and cost of

services were identified as a criterion for evaluation and selection of potential vendor by

the company for HR outsourcing.

65
Q7.

BENEFITS OF HR OUTSOURCING
12 11

10

8 7
6
6 Series2

4 3
2
2

0
FOCUS ON TIME SAVING COST SAVING EXPERTISE LESS
CORE MANPOWER
ACTIVITIES NEEDED

All the 11 respondents responded that HR outsourcing makes them focus more on their

core activities, 7 said that it saves their time, 6 said that HR outsourcing provides

expertise to the company, 3 said that it saves cost and 2 said that it requires less

manpower to be employed in the company. Hence focus on the core processes and saving

of time were identified as major benefits of HR outsourcing.

66
Q8.

HR OUTSOURCING BY COMPETITORS

DON’T KNOW
18%

NO
18% YES
64%

7 respondents replied that their competitors also outsource their HR processes. 2 replied

that their competitors don’t outsource any HR process and 2 replied that they don’t know.

67
Q9.

FEEDBACK FROM EMPLOYEES ON HR

OUTSOURCING

Seri
8
es1
3

YES NO

8 respondents replied that they have not taken feedback from the employees of the

company on the HR outsourcing done by them. 3 respondents replied that feedback has

been taken in their organizations from the employees on the HR outsourcing done.

Q10.

68
 IMPACT OF HR OUTSOURCING ON
EMPLOYEES

8 7

6
4
4 Series1

2
0
0
SATISFIEDDISSATISFIED
NEVER ASKED

7 respondents said that they have not taken any feedback from the company’s employees

on the HR outsourcing done. 4 said that the employees of the company were satisfied

with the HR outsourcing done by the company and no respondent replied that their

employees were dissatisfied with it.

69
SUMMARY AND CONCLUSION

70
 SUMMARY:

 HR outsourcing in India is gaining momentum but still the number of companies

outsourcing their HR processes in India are few as compared to the global

scenario. 25 respondents were surveyed, out of which only 44% replied that their

companies have outsourced their HR processes. Hence it proved that despite of the

rapid growth of HR outsourcing worldwide, not many companies in India outsource

their HR processes.

 Recruitment was found to be outsourced by maximum number of companies

surveyed. Other HR processes that are outsourced by Indian companies are training

delivery, payroll processing, statutory compliance and compensation surveys.

 73% of the respondents responded that top management was responsible for

taking decisions related to HR outsourcing which further proves that HR

outsourcing is an important decision for the company. 18% of the respondents

said that the middle management was involved and responsible and 9% said that both

the top and middle level management were involved.

71
 Cost and security breaches were identified as the major reasons for not

outsourcing HR processes by Indian companies. Lack of quality, data privacy

issues, inability of the vendor to understand company culture, immaturity of the HR

outsourcing market were other reasons for not outsourcing.

 Core capability was identified as the major criterion for selecting the process to

be outsourced i.e. the process which is a core capability is not outsourced. Other

criterion used for selecting processes to be outsourced are standard processes, little

interdependency with other processes and need for physical processes.

 Competence & technical capability and relevant industry experience were

identified as major criteria for selection of vendors for outsourcing HR

processes. Other criterion used by Indian companies for evaluating potential vendors

for outsourcing were past track records of the vendor, cost and recommendations

from other companies.

 More focus on core activities and time saving were identified as main benefits of

HR outsourcing to Indian companies. Other benefits that were identified were cost

saving, availability of vendor expertise and need for lesser manpower in the

organization.

72
 64% of the respondents replied that HR outsourcing is done by their

competitors, 18% said that their competitors don’t outsource their HR processes

and 18% said that they don’t know whether their competitors outsource their

HR processes or not.

 Most of the companies surveyed do not take feedback from their internal

customers on the HR outsourcing done by them. 7 respondents said that their

companies do not take feedback on HR outsourcing from their employees and 4

respondents said that their companies take feedback from their employees.

 The employees of the companies which outsource their HR processes are usually

satisfied by the outsourcing done. All the 4 respondents whose company takes

feedback on HR outsourcing from their employees said that their employees were

satisfied from the HR outsourcing.

73
CONCLUSION:

Certain assumptions were made before the study. The hypotheses were tested through

a survey of HR professionals from various industries and the following results were

found. The study gave the following conclusions: -

 HR outsourcing is at a nascent stage in India.

The study proved that HR outsourcing is still as a nascent stage in India. Only 44% of the

respondents replied that their company has outsourced some of their HR processes.

Hence the first hypothesis i.e. Indian companies are outsourcing most of their HR

processes has proved incorrect. HR outsourcing is not widely followed by Indian

companies due to various reasons like lack of quality, security breaches, cost, lack of data

privacy, lack of reliability, lack of understanding of the company culture by the vendor

and immature HR outsourcing market etc.

 HR outsourcing is expected to grow at a rapid pace in the Indian industry.

India has immense potential as more than 80% of fortune 1,000 companies are discussing

off shoring as a way to cut costs and increase productivity. Sensing the potential, global

BPO players including Fidelity, Exult and Hewitt have begun setting up operations in

74
India. Various factors that make India a potential option are its education system, English

advantage, government policies, infrastructure improvements etc. India would be a

destination for HR outsourcing by foreign companies. But growth in HR outsourcing by

Indian companies would be slow vis a vis the global scenario. Hence the second

hypothesis is proved true.

 Indian companies derive lot of benefits out of HR outsourcing.

Various benefits are derived by Indian companies from HR outsourcing like more focus

on core activities, time saving, cost saving, expertise and removal of unnecessary

manpower. Focus on core activities, time saving and expertise of the vendor were the

major benefits found out the survey as maximum respondents listed these benefits. Hence

the third hypothesis is proved true.

 Internal customers of the company are satisfied with the decision of the company

to outsource their HR processes.

8 respondents out of 11 that outsource their HR processes replied that they have not taken

feedback from the employees of the company on the HR outsourcing done by them. Also

the ones that had taken feedback were satisfied with the outsourcing done. Hence the

75
fourth hypothesis is partly true as most of the companies included in the study did not

take any feedback from the employees.

 Cost is the not the main criteria for vendor selection for HR outsourcing by

Indian companies.

Competence and experience of the vendor were identified as the criterion used by

maximum companies for vendor selection. 10 respondents replied competence as

criterion, 9 replied experience and 8 replied cost as a criterion. So cost is a criterion for

selecting vendors for HR outsourcing by Indian companies but it is considered after

competence and experience. Hence the fifth hypothesis that cost is the main criteria

for vendor selection for HR outsourcing by Indian companies is proved incorrect.

76
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 Aswathapa K, Human Resource & Personnel Management, New Delhi,Tata

McGraw Hill 3rd Edition

 Kothari C.R Quantitative Techniques, New Delhi,Vikas Publishing House Pvt

Ltd,1978

 Dessler Gary HRM,New Delhi,Prentice Hall Of India Pvt Ltd ,7th Edition

 Chabra T.N HRM , Delhi, Dhanpat Rai & Co.(P)Ltd 4TH Edition

 French L Wendell, HRM,Chennai, All India Publisher & Distributors Regd.3RD

 Bernardin H.J HRM ,New Delhi, Tata McGraw Hill Publishing Company 3rd
Edition

 www.google.co.in

 www.peoplemanagement.com

 www.ibnbusiness.com

 Journal of International Business Studies,26:23-46

 Mathew Mary, HR outsourcing in India: organized & unorganized sector,

Welingkar Institute of Management, Mumbai

 Srinivasan Vasanthi ,Successful HR outsourcing means quality service, IIM-

Bangalore

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