HR Outsourcing : Issues &

Challenges for Indian

Companies

Prepared By:
TANUKA BHATTACHARYA
SHRI SHANKARACHARYA INSTITUTE OF
TECHNOLOGY & MANAGEMENT
Introduction
History of Outsourcing
• Barter system- First instance of outsourcing

• Idea was rooted in 1776 in “competitive

advantage theory” propagated by Adam Smith.

• Early examples of outsourcing-

-England Textile Industries in 1830
-Making of American wagon covers

: A job outsourced to Scotland.

More Recent examples:-

• Eastman Kodak
• Nike

Outsourcing is defined as :-
Delegation of task to an outside entity.
Functions outsourced to a third party under
contract.
Buying goods or services instead of producing
them in house.

• Outsourcing includes:-
- Offshoring
- Nearshoring
Changing Trends in HR Outsourcing
Traditional Outsourcing
• Different HR functions were outsourced to different
vendors.

Recruiting Payroll
company
Benefit
Training
Admin

Supplier Supplier
3 4
Supplier Supplier
1 2
Outsourcing the whole process to a
single vendor

Benefit Admin Com. Plan

& Strat.
Pay Roll
Education &
Training
Value Chain
Cont. Integrator
Workforce
Mgt. Org Dvpt.

Personnel
Admin Recruiting
Success rate of world wide spending on
outsourcing services

85% 45%

2001 -2005
2006
Outsourcing HR: Spending
18
16
14
12
In
Billion 10 Pay Roll
Dollars 8 Benefit Admin
6 Person. Admin
4
2
0
2002 2003 2004 2005 (Years)
Gartner Group, HR Outsourcing: Time to
Deliver Results-2001
Drivers for HR Outsourcing

• Downsizing
• Rapid growth
• Globalization
• Increased competition
• Restructuring
Rationale for HR outsourcing

• Stage of evolution of the HR function

• Need for expertise

• Time pressure

• Cost reduction
Cost reduction main rational to
outsource

Cost reduction
Top mgt
Line mgt
Service HR
improvement

Resource
availability

0 20 40 60 80

Percentage of Respondents
 Criteria for Outsourcing

1. Model for Virtual HR

Based on these theories:
• Transactional Cost theory

• Resource Based prospective

 Framework to decide which function
to Outsource

High Idiosyncratic
Core
HR Activities
HR Activities
Uniqueness

Peripheral Traditional
Low HR Activities HR Activities

Low High
Value
n Speaker’s Theory

Classification of HR Activities:-

• Type of Activity

• Strategic value of Activity

HR Functions Outsourced in Practice

• Frequently outsourced functions: Fully or

Partially

Pay Roll

HRIS
Fully
Recruiting Partial

Trng & Dvpt

Other Benefit Mgt

0 20 40 60
HR Executives views on HR
Outsourcing
HR Functions Views in %

YES NO
Employee Communication 13% 87%

Assessment 43% 57%

Recruiting 52% 48%

HRIS 35% 65%

Case Study-1
Bank Of America
• Leading financial service organization
• Approximately 1, 85, 000 employees.
• 4200 banking centers
HR- Department
• 1300 employees in HR
• Have outsourced many of their HR activities to
Exult like,
- International relocation
-administration , regional staffing,”life event
coordination”(Leave and Retirement) policy and
general benefits etc.
 Motives for outsourcing

• Reduce Costs
• Focus resources on core
activities and core
competencies
• Expand and improve
services.
• Benefits from Vendor’s
investments and
innovation
• Improve career
opportunities for staff.
• Increases Flexibility
Results from outsourcing

• Activities like Payroll,benefits, administration

were completed within 7 months.
• Cost reduction goal of 12 per-cent annually
was achieved.
• Could focus on more strategic tasks like
process design and development.
• Increase in Percentage of internal
recruitment from 16% to 35%.
 Case Study-2

Sunoco Inc
 Headquartered in Philadelphia

 Leading Manufacturer and Marketer of

Petroleum and Petrochemicals.
 Approximately 14000 Employees
 5 Different Business Units
 45 Employees in Central HR Department
HR Functions Outsourced at Sunoco
 Drug Screening

 Central advertising for new employees

 Posting of Employment Advertisement online
 Executive Search
 Salary Surveys and Statistics

Outsourcing Payroll Function

• Outsourcing Payroll to third party vendor
• Preparation for New Millennium
• People Soft HRMS
 Bane or Disadvantages
• Dependence on Vendors

• High Costs

• Loss of Control

• Low morale among permanent employees

• New Risks

• Sub-standard Service
Conclusion

1. Human Resource Outsourcing is still in

developmental stage.
2. Issue like Data security needs attention.
3. Its neither a Boon nor a Bane, and depends on
organization and situation.