HR OUTSOURCING : HR OUTSOURCING Dr C S Venkata Ratnam
Director, IMI What is HR doing? : What is HR doing? Too much of HR into administration and too less into people orientation: Disproportionate time spent on routine administration
Power centre, not service centre
Cost centre, not value adding profit centre
Poor alignment of HR programs with business needs
Need for strategic fit between business strategy and HR strategy: the business of business is business: Therefore the business of HR also should be business! What is happening to HR? : What is happening to HR? 1/3 is going back to Line (employee champion roles)
1/3 is getting automated (routine and repetitive information processing tasks)
1/3 can be outsourced (repetitive non value adding services)
What is left of HR in HR?
Specialist consultancy roles?
Change agent role What to outsource in HR? : What to outsource in HR? Three things that managers do (Henry Mintzberg’s Nature of Manager’s Job)
Information gathering/processing (outsource)
Decision-making and problem solving (do not outsource) The decision to outsourceTransaction cost analysis : The decision to outsourceTransaction 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 Core and peripheral in banking : Core and peripheral in banking In the core banking activity the decision to outsource takes place within the regulatory framework dictated by the RBI
No formal processes/supply chain issues
Limited cost analysis
Core business definition
Consider the problems with DSAs in credit card business – internal checks and balances: in one bank approval rate is high in the other low. Why outsource HR REDUCE COST OF HR AND CONTINUE TO PROVIDE VALUE : Why outsource HR REDUCE COST OF HR AND CONTINUE TO PROVIDE VALUE Tightening labour markets and competitive product markets – pressure to reduce head count
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 : 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? : Deciding Whether to outsource? Create a project team
Analyse the current position
Pay attention to people issues
Come to a decision
What is core to the business and the future of business?
What can bring competitive advantage? Deciding whether to outsource : 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 and cons Pros
Cost and savings
Financial and operational flexibility
Need to focus on few things
Access to quality, expertise and better management skills
Staffing flexibility Cons
Need greater coordination flow with agencies
Reduces organizational learning by depleting its skill base
Loss of control
Adverse affects on morale and motivation
Job insecurity Which functions/sub-systems to outsource : Which functions/sub-systems to outsource Recruitment – preliminary screening and short listing
Training – Trg. 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 : 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 trends3 main HR outsourcing industry segments : Dominant trends3 main HR outsourcing industry segments Consultants
Administrative – service providers
Customizing imported software products remains an issue: supply oriented rather than demand based customization Typical Problems : 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 : Risks of HR outsourcing Trust
Flexibility Managing people issues : 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? websites : websites www.sharedxpertise.org
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