HR OUTSOURCING

Dr. Ananda Das Gupta

 What to outsource in HR?
Three things that managers do (Henry
Mintzbergs Nature of Managers Job)
Interaction (outsource)
Information gathering/processing (outsource)
Decision-making and problem solving (do not
outsource)
 The decision to outsource
Transaction cost analysis
TCA combines economic theory with
management theory to determine the best type of
relationship a firm should develop in the market
place.
The properties of the transaction determine the
governance structure.
High asset specificity and uncertainty lead to
transactional difficulties, with transaction held internally
within the firm vertical integration
Medium asset specificity leads to bilateral relations
in the form of cooperative alliances between the
organisations
Low : transactions frequent and governed by market
 Why outsource HR
REDUCE COST OF HR AND CONTINUE TO PROVIDE VALUE

Tightening labour markets and competitive

product markets pressure to reduce head
count
Cut costs
Add value
Do more with less
Upgrade, but not upsize
Downsize, but not downgrade
HR itself is becoming the target of belt tightening
Shed routine administrative tasks and focus on
talent management
 Strategic outsourcing
Beyond cost control
Specialization and expertise that goes with it for
which there is no need on a regular full time
basis
Focus on quality, technology and service
delivery
Outsourcing to best of class, best of industry
Problems with technology address need for
customization (which presently means largely
adjusting to supply side than demand side)
Deciding Whether to outsource?
Create a project team
Analyse the current position
Pay attention to people issues
Benchmark
Come to a decision
What is core to the business and the future of
business?
What can bring competitive advantage?
 Deciding whether to outsource
Decide what to outsource
Tender the package
Choose a partner
Introduce your staff to the agency
Draw up the contract
Test the contract
 Pros and cons
Pros Cons
Cost and savings Need greater
Financial and operational coordination flow with
flexibility agencies
Need to focus on few Reduces organizational
things learning by depleting its
Access to quality, skill base
expertise and better Loss of control
management skills Adverse affects on
Staffing flexibility morale and motivation
Job insecurity
 Which functions/sub-systems
to outsource
Recruitment preliminary screening and short listing
Training Training. Needs identification, content
development, delivery, logistics, third party evaluation
Performance management - on line automation
Compensation pay roll and compensation surveys
Safety -- inspections
welfare transport, security, catering
Labour contract contract employees doing the job which
was earlier done by regular employees
Which function not to outsource
Decision making in each of the sub functions
Leading change and transforming the organization
 Implications Need for caution
What is formerly inside is going outside and what is
formerly outside is coming inside
Formerly strong relations are becoming weak and
formerly weak relations are becoming strong
Huge disparity in profile, pay and working conditions:
casual, contract, contingent employees are less
educated, less trained, over worked under usually less
safe conditions, underpaid and enjoy little or no social
security/protection
Pay attention to outsourced employees the same way as
you do with regular employees in terms of how they are
recruited, trained, paid and motivated
 Dominant trends
3 main HR outsourcing industry segments
Consultants
Administrative service providers
Technology enablers
Customizing imported software products
remains an issue: supply oriented rather than
demand based customization
 Typical Problems
Integration with over all strategy
Fragmented and piecemeal approach cleaning
part of the pool
Absence of formal outsourcing process
Limited cost analysis
Core business definition Everything is core?
Contract management how to ensure that we
achieve desired objectives
Work flow, supply chain and logistics
management critical to outsourcing process
 Risks of HR outsourcing
Trust
Confidentiality
Dependency
Spillover risks
Relative proficiency
Strategic capability
Commitment
Flexibility
 Managing people issues
What happens to people?
When to communicate?
Who to communicate with?
Those whose jobs are outsourced and those whose
jobs are not outsourced
How do you deal in the transition phase?
What about HR staff?
Who will survive who has to leave?
How will the HR department look like, post
outsourcing?