Human Resource Outsourcing project

S.P. MANDALI’S R. A PODAR COLLEGE OF COMMERCE AND ECONOMICS MATUNGA, MUMBAI-400 019.

A PROJECT REPORT ON

HUMAN RESOURCE OUTSOURCING SUBMITTED BY ANISH NAGWEKAR

M.COM (SEM. I): HUMAN RESOURCE MANAGEMENT

SUBMITTED TO UNIVERSITY OF MUMBAI 2012-2013 PROJECT GUIDE Prof. _________________

S.P. MANDALI’S

R. A PODAR COLLEGE OF COMMERCE AND ECONOMICS MATUNGA, MUMBAI-400 019.

CERTIFICATE This is to certify that Mr/Ms. _ANISH NAGWEKAR_of

M.Com Business

Management Semester I (2012-2013) has successfully completed the project on

HUMAN

RESOURCE

OUTSOURCING

under

the

guidance

of

Prof.__________________

Course Co-ordinator Dr. (Mrs) Vinita Pimpale

Principal Dr.(Mrs) Shobana Vasudevan

Project Guide/Internal Examiner Prof. ____________________________ External Examiner Prof. ____________________________

Date

Seal of the College

ACKNOWLEDGEMENT

I acknowledge the valuable assistance provided by S. P Mandali’s

R. A.

Podar College of Commerce & Economics. I specially thank the Principal Dr.(Mrs) Shobana Vasudevan for allowing us to use the facilities such as Library, Computer Laboratory, internet etc. I sincerely thank the M.Com

Co-ordinator Dr. (Mrs) Vinita Pimpale

for

guiding us in the right direction to prepare the project. I thank my guide Prof. ___________ valuable time, knowledge and guidance successfully in time.

who has given his/her to complete the project

My family and peers were great source of inspiration throughout my project, their support is deeply acknowledged.

Signature of the student

DECLARATION

I, ANISH NAGWEKAR of R. A. PODAR COLLEGE OF COMMERCE & ECONOMICS of M.Com

SEMESTER I,

hereby declare that I

have completed the project ‘RESEARCH PROJECT ON HUMAN RESOURCE OUTSOURCING’ in the academic year 2012-2013. The information submitted is true and original to the best of my knowledge.

Signature of the student

RESEARCH PROJECT ON HUMAN RESOURCE OUTSOURCING

INDEX

1. Introduction 2. Objective of the research 3. Literature review 4. Scope/Utility of the research 5. Research Methodology 6. Limitations 7. Key Findings 8. Key Research Terms 9. A Look Ahead: A Future View of Human Resource Outsourcing 10. Executive summary 11. Conclusion 12. BIBLOGRAPHY

1. Introduction: What Is Outsourcing? In a nutshell, outsourcing is an accepted management tool for restructuring and refocusing the way an organization does business. It challenges management to build a more flexible organization centred on the core competencies of the business. In making the determination that a business has more to gain by having certa "noncore" aspects of the business outsourced to a third-party service provider, the organization transfers responsibility for one or more activities or functions that would normally be performed in-house to a qualified vendor, for a specified period of time and at a negotiated fee, in accordance with terms stipulated in a service level agreement (SLA). In essence, the organization is making a decision to send certain parts of the business out to a provider whose "core competency" is that part of the business.

HR outsourcing (HRO) is the application of different business models and techniques to new forms of activities - or processes – and radically redesigning them to create outputs of value for end users such as customers or employees. HRO can be traced back to the definitive work of Michael Hammer and Jim Champy in Re-engineering the Corporation. This spawned the business process re-engineering (BPR) industry in the 1990s. Business process outsourcing (BPO) is based on the principles of reengineering, but also combines them with the ownership and management of processes on behalf of management by an outside vendor. BPO has been applied to many transactional processes that can be easily defined or 'scaled' and transferred to third party ownership with deeper expertise than themselves. Until recently, the management of IT systems has been the major element of the outsourcing market. An ongoing debate concerns which business processes are 'core' to organisations - in the sense of core competencies that drive competitive advantage. Any non-core - or peripheral - activities are outsourced. Typically, • Services are improved • Overheads are reduced • Many processes are automated - thus reducing people

The outsourcing of HR processes emerged in the late 1990s, pioneered by firms specialising primarily in IT outsourcing - although not exclusively - in the US such as ACS, EDS and Accenture. Many transactional HR processes are outsourced and are increasingly associated with electronic delivery - or 'e-HR'. Much day-to-day HR administration can now be transferred to third party providers. Payroll and benefits is widely outsourced with organisations benefiting from economies of scale and powerful Enterprise Resource Planning (ERP) solutions. Competition among HRO providers has dramatically reduced prices. Other advantages for clients include: • cost reductions • service improvements • upgrading technology • being better able to respond to business change.

Types of HR Outsourcing In the past, HR outsourcing was thought of as hiring a vendor to provide a service. With the new focus on outsourcing, there is more of an opportunity to partner with the vendor to provide the service on a longer term basis rather than just a one-time vendor contract. HR outsourcing can include: Discrete services: In this instance, one element of a business process or a single set of high-volume repetitive functions is outsourced to a third-party administrator. Examples of discrete services could include the annual open enrolment process, flexible spending accounts or employee background checks. Multi-process services: The complete outsourcing of one or more functional huma resource processes would be an example of multi-process outsourcing (also called blended services). As such, the outsourcing of either health and welfare benefits administration or defined retirement plan and 401(k) plan administration to a thirdparty administrator would be an example of multi-process or blended services outsourcing. Total HR outsourcing: Total HR outsourcing represents the transfer of the majority of HR services to a third party, to include recruitment, payroll, HRIS, benefits, compensation and communications, as well as the transition of HR management and staff. However, HR executive management would normally remain in place within the organization, along with strategic planning related to people management and other key HR functions at the discretion of management.

2. Objective of the research

The objective of this research is to formulate a picture of current trends in outsourcing in HR services prevalent in Indian firms. The research aims to discern common factors promoting or inhibiting the growth of HR outsourcing industry in India. Also, the data collected will help in finding parameters which are most common in terms of HR outsourcing. The research tries to determine patterns while comparing organizations involved in HR outsourcing against those which are not.

3. Literature review:

Global Scenario SHRM Human Resource Outsourcing Survey Report The 2004 survey report revealed that HR outsourcing was a practice used by almost six out of 10 organizations. However, one-third of organizations did not outsource any HR functions, and only a few planned to outsource HR functions in the next three years. HR functions were usually partially outsourced or completely outsourced. The difference is that when functions are partially outsourced, the organization co-manages the function with the vendor; when they are completely outsourced, the vendor takes full responsibility. More than one-half of HR professionals indicated that their organizations partially outsourced an HR function. Administration of health care benefits, pension benefits and payroll were examples of functions most commonly cited as partially outsourced. The top three functions that were outsourced completely were background checks, employee assistance programs and administration of flexible spending accounts. Some of the most frequently named drivers for outsourcing were reducing operating costs and controlling legal risk by improving compliance.

However, large-staff-sized operations, compared with small organizations, were twice as likely to indicate that their reason for outsourcing was an attempt to free up the time of their HR staff to focus more on organizational strategy. When asked about the future of outsourcing, about two-thirds of HR professionals predicted that their level of outsourcing would remain the same over the next five years, and nearly one-third expected their organizations to increase their level of HR outsourcing. Outsourcing seemed to be favored to a greater extent in large-staff-sized organizations: almost twice as many HR professionals from these organizations, compared with medium organizations, indicated that HR outsourcing was likely to increase in the next five years. When asked about the benefits of outsourcing, the majority of HR professionals indicated that outsourcing allowed HR professionals the chance to concentrate their efforts on core business functions, such as organizational strategy development and execution. Correspondingly, nearly three-quarters of HR professionals agreed that the role of HR professionals became more strategic with the outsourcing of certain, specifically transactional, HR functions.

Present scenario in India

With more and more companies looking to rationalise employees on their payroll, manpower outsourcing is slowly becoming the new buzz in India too. And the trend seems to have hit not just big multinational companies but the public sector and government undertakings as well, though on a very low key yet in the latter. Estimates show that the latent size of HR outsourcing in India is about $2 billion with a current market of $27 million and it is growing at a rate of about 50 per cent.

Experts, however, say though foreign companies are outsourcing jobs to India, putting the country in the middle of outsourcing boom, the Indian companies do not seem to be enamoured by the opportunity till now and are not adopting HR outsourcing practices in a big way. "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," says Anil Mahajan, executive director, Talent Hunt Pvt Ltd, a leading HR firm in New Delhi. A recent survey 'Outsourcing in the Asia-Pacific', conducted by Hewitt Associates, a global HR outsourcing and consulting firm, confirms the situation. The survey showed that many companies in the region are either unfamiliar with the process and procedures of HR outsourcing, or are unaware of the players operating in the area. "Even though across the globe companies are realising 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," Mahajan says, adding: "Here people are also not very clear about what exactly is manpower outsourcing all about.‖Explaining about the concept of HR outsourcing, Kris Lakshmikanth, founder CEO & managing director of The Head Hunter, a recruiting firm in Bangalore, says, "It 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.‖ "HR outsourcing can happen in areas such as payroll, employee benefits administration, fixed assets administration, network, receivable and logistics management, hardware maintenance, telemarketing, call centres and database management. In India, the most common processes outsourced are related to training, payroll processing, surveys, benchmark studies and statutory compliance," Mahajan adds. Elaborating about the benefits of manpower outsourcing, Lakshmikanth says,"Today, every organisation 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 organisation's core competencies and outsource non-critical business activities. Therefore, routine administrative work, although important, can be outsourced to third party vendors." Experts say the basic reasons hampering the growth of HR outsourcing in India are confidentiality and cost factors. Besides the fearof losing jobs, losing control over confidential data, ethics and quality of outsourcing vendors, security breaches and overall confidence in the vendors deters many organisations. Quality at times forms another roadblock. According to Mahajan, ―most companies are not sure about the end result, which they will receive from the vendor. Also currently there are no standard benchmarks available so pricing varies a lot from vendor to vendor for similar services. This gives the customer the feeling that they are not getting best value for their money,‖ he adds. But, as the Hewitt survey puts it ‗with economic slump showing signs of improvement, many HR outsourcing vendors are optimistic that things will look up in the near future.‘

Experts also 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 corporate domain to public sector undertakings and the government sector. However, it would still be sometime before we see increased levels of HR activities being outsourced," they say.

Key Points we noted: 

HRO market is still in transition



Vast difference exists between the state of HRO market in India and the global

scenario 

People not yet clear about HRO in India



Public Sector hasn‘t yet taken to outsourcing



Cost/benefits and confidentiality are most important considerations in HRO



More freelancers exist in the market than organized players



Size of companies is also an important factor in HRO



HRO is expected to gain momentum in the coming years

4. Scope/Utility of the research: The research can be very useful to the HR professionals to understand the current trends in the market with regards to outsourcing of HR services. It will give them a comparison of the firms outsourcing HR services with those that have completely inhouse HR functions. They will get to know about the perceived advantages and disadvantages of HR outsourcing and also the important considerations to be kept in mind. Outsourcing Vendors can also find this research useful in understanding the needs of their potential and existing clientele. The students can also benefit from this research as they will become aware of the new trends in the field of HR and will be better prepared for the challenges ahead of them when they join the industry as HR professionals.

5. Research Methodology

Two methodologies were adopted while undertaking the research:

Secondary data collection: large amount of secondary data is available in the forms of articles, journals, and previously conducted researches on the similar topics. This data was collected and studied to determine some of the broad trends prevalent in HR outsourcing across the world and the presence of HR outsourcing industry in India. Also, the data thus gathered helped in identifying key parameters to examine through further exploration and thus helped in defining the hypotheses for further study as well as designing the questionnaire.

Primary data collection: Primary data was collected through the means of a sample survey. For this purpose, a questionnaire was mailed to some of the HR managers and executives in various organizations and their response was solicited. The data collected through this survey was then analyzed to determine patterns and for testing the validity of the hypotheses formulated.

5.1 Sampling technique: The sampling technique used for the survey was non-probabilistic in nature. Convenient sampling technique was used owing to limited number of resources for carrying out the research. Also, the respondents chosen were from varying sectors and thus provided a good estimate of the overall picture prevalent. Target group for carrying out the survey was the HR departments of various organizations. The study objective itself omitted the need to study small scale organizations as they generally don’t have a separate HR division as such and hence were not considered for carrying out the survey.

5.2 Data Collection: A questionnaire was developed and administered via email to the respondents. The questionnaire was accompanied by an introductory letter stating the purpose of the research and promising confidentiality. Responses were then collected and analyzed to arrive at certain conclusions.

5.3 HUMAN RESOURCE OUTSOURCING BASICS While deciding whether HR outsourcing is right for the company three questions should be answered. • Is the company comfortable letting someone else handle its HR functions? • Do the company have dedicated HR representatives or adequate resources to manage its HR needs? • Can the business afford an HR outsourcing firm? If the company is not comfortable with an outsider handling their HR functions, outsourcing probably isn‘t the best option.

5.4 PROCESS Whether your organization is anticipating its first outsourcing, or if you already have outsourcing arrangements that your organization would like to improve, preparation is a key – as with all HR initiatives. ―You should choose functions that are definable, with measurable goals, because you will need accountability once you‘ve chosen a vendor,‖ Dubiski said. His recommendations are as follows: Examine all functions being considered for outsourcing Ensure they are being done in-house as efficiently as possible. ―You can‘t collect enough data about how you now handle payroll, benefits, etc.‖ Dubiski noted. This will also give you a baseline for comparing previous results to those from outsourcing.

Create a business case for outsourcing Do this just as you would for any other initiative. If the employer wants cost savings, explore ways to obtain those results in-house. Seek a vendor that will work very closely with your company ―It‘s time-consuming to change vendors if you make a mistake and choose the wrong one,‖ Dubiski warned.

Make sure your contract with the vendor includes penalty clauses and incentives to increase accountability Ask the important questions up front: Does the vendor have a help desk? How late in the day is it available? How fast will help desk staff answer questions for employees and resolve problems? Also include a clause specifying that if the outsource vendor makes more than a certain number of mistakes, the employer is entitled to a partial refund, Dubiski said. Consider at the outset how you will measure vendor performance ―If there are mismatched expectations about service levels, the outsourcer may not be as accountable as the buyer of the services would like,‖ Doyle said. Regular reports from the vendor can help to avoid problems or catch them early, Dubisky suggested. Learn about security protections the vendor provides You need a vendor who has ―lots and lots of control over who has access to employee data,‖ Doyle said. ―As concerns about privacy and identity theft increase, we see more and more of our clients ‗kicking the tires‘ on the confidentiality services we can provide when managing their employees‘ data.‖

Based on the recommendations of Dubisky, the following seven steps have been identified in order to achieve success in HR Outsourcing: 1) Planning Initiatives: The first step is to announce initiative after the assessment of risks. Project team is to be formed, and advisers are to be engaged to train the team. Other resources are to be acquired and issues like resource management, information management and project management need to be addressed. Accordingly, objectives then be set. 2) Exploring Strategic Implications: The second step is to understand the organization‘s vision, core competencies, structure, transformation tools, value chain and strategies. Thereafter decision rights, contract length and termination date need to be determined. Aligning initiative should follow. 3) Analyzing Costs and Performance: The next step in the process is to measure activity and project failure costs. Existing and future performance is then to be measured along with the estimation of the cost of poor performance. It is also very

important to benchmark costs and performance. Specific risks, asset values, make total costs, pricing models and final targets need to be determined. 4) Selecting Providers: The next crucial step is to select providers. For this purpose, the organizations need to first set qualifications and evaluation criteria. Providers are then identified and screened. An RFP is drafted. Proposals are then evaluated based on the qualifications and costs and the provider is finalized.

5) Negotiating Terms: Negotiations are then to be planned after addressing high level issues and deal breakers. Accordingly, term sheets are to be prepared. The contract then need to be negotiated based on the scope, performance standards, pricing schedules, and terms and conditions; and the relationship be announced. 5) Transitioning Resources: The next important step is to adjust team roles and to compare/merge transition plans. The transition issues like communication, human resources, and other production factors are to be addressed. The employees need to be taken into confidence. The organization and the provider are to meet them, make offers/termination, and provide counseling. 6) zManaging Relationships: The last but the most vital step is to adjust management styles, set up oversight council, and communicate. Meeting agendas, meeting schedule and performance reports need to be defined and designed. Poor performance is to be confronted and problems, if any, are to be solved. The ultimate effort is to build the relationship.

6. Limitations The limitations of our research are: 

The sample which we took does not represent the whole population as the

numbers of respondents were very less 

We used convenience sampling technique owing to limited resources which is

not ideal for this kind of research 

Our limited experience was another constraint on the quality of the research



We could not include the HRO vendors in our research to gain their

perspective 

Our respondents were from specific areas and did not cover the whole of India



We missed out on some sectors in our research

7.Key Findings HR outsourcing, in the form of moving one or more HR functions from in-house to an outside provider, is a practice used by almost six out of 10 organizations. One-third of organizations do not currently outsource any HR functions, and only a few plan to outsource in the next three years. HR functions are usually either partially outsourced or completely outsourced. The difference is that when functions are partially outsourced, the organization co-manages the function with the vendor; when it is completely outsourced, the vendor takes full responsibility.

More than one-half of HR professionals indicated that their organizations partially outsourced an HR function and fewer outsourced completely. Administration of health care benefits, pension benefits and payroll were functions most commonly cited as partially outsourced. The top three functions that were outsourced completely were background checks, employee assistance programs (EAPs) and administration of flexible spending accounts (FSAs).

Some of the most frequently named drivers for outsourcing were reducing operating costs and controlling for legal risk by improving compliance. However, large-staff-sized organizations, compared with small organizations, were twice as likely to indicate that their reason for outsourcing was an attempt to free up the time of their HR staff to focus more on organizational strategy.

When asked about future outsourcing, about twothirds of HR professionals predicted that their level of outsourcing would remain the same within the next five years and nearly onethird expected outsourcing at their organizations to increase. Outsourcing seems to be favored to a greater extent in large-staff-sized organizations. Almost twice as many HR professionals from these organizations, compared with medium organizations, indicated that HR outsourcing is likely to increase in the next five years. Only 2% of HR professionals predicted that their organizations would outsource their entire HR department within five years.

About one-half of HR professionals believed that outsourcing has decreased job opportunities for HR professionals, while about one-quarter perceived an increase in job opportunities. HR

professionals from large-staff-sized organizations, however, appear to be more concerned than those from small and medium organizations that outsourcing leads to reductions in HR staff. When asked about the benefits of outsourcing, the majority of HR professionals indicated that outsourcing allows HR professionals the chance to concentrate their efforts on core business functions such as organizational strategy development and execution. Correspondingly, nearly three-quarters of HR professionals agreed that the role of HR professionals becomes more strategic with the outsourcing of certain, specifically transactional, HR functions.

8.Key Research Terms Correlation— The degree of connectedness or association between two variables. Is there a relationship between x and y? Correlation does not necessarily indicate causality.

Average— The mathematical average of all of the data points or observations in a set, calculated by adding the data and dividing the resulting sum by the number of data points. A mean may be affected by extreme data values.

Random sample— A representative sample of a population where each member of the population has an equal chance to be chosen for the research. A random sample can be generated in a variety of ways. If the population is very small, names could be drawn from a hat. Typically, however, random samples are generated by statistical software.

Sample (represented by n)— A subset of a population that represents the population to be studied. For example, consider that a researcher wants to study the U.S. population. It would be impractical to study every U.S. resident, so the researcher chooses a part of it (a sample) representing the entire population. The sample must have the same characteristics as the entire population. Similarly, it is not prudent to study all SHRM members in a single study; therefore, usually a smaller, representative sample is drawn.

Standard deviation (SD)— The dispersion of values around the mean. A small standard deviation indicates low variability and relatively high consensus among responses. A large standard deviation indicates high variability and a relative lack of consensus among responses.

Statistical significance— A condition occurring when the researcher can show (through specific tests for significance) that the likelihood is small that the results occurred by chance. For example, if a researcher claims that the results are statistically significant at p