Current Trend in HR Outsourcing

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By Nadeem Kazim
Director (HR & Personnel)
Exide Industries Limited

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  • 23
  • CONSISTENTLY SUPERIOR VC = CAUSAL LINKAGES TO CONSISTENTLY SUPERIOR ECONOMIC EARNINGS DERIVED FROM INTEGRATED STRATEGY SELECTION & ANALYSES IN DEPTH LOOK AT A REAL LIFE EXAMPLE TO DEMONSTRATE FOCUS OF FIRST 4 SLIDES ON STRATEGY
  • Current Trend in HR Outsourcing

    1. 1. Current Trend in HR-Outsourcing of Human Resources Nadeem Kazim Director (HR & Personnel) Exide Industries Limited
    2. 2. What has changed in HR?
    3. 3. HR Renamed <ul><li>Labour Officer </li></ul><ul><li>Welfare Officer </li></ul><ul><li>Personnel Officer </li></ul><ul><li>HR Officer </li></ul><ul><li>People officer </li></ul><ul><li>Employee Relations officers </li></ul>
    4. 4. HR Aligned Welfare Asset Impersonal Personnel Liability Farewell HR Is HR aligned ?
    5. 5. Has HR Paced With Time : Indian Organisation are becoming global: HR struggling To catch up: Global Organisation :
    6. 6. Business process Outsourcing <ul><li>A Business Imperative </li></ul>
    7. 7. Good companies knows what TO DO And Great companies knows what NOT TO DO
    8. 8. Leading companies have benefited significantly from outsourcing and the overall BPO market is expected to grow rapidly in the future 206 544 $ Bn The BPO market is expected to grow to $544 Bn at a 21% CAGR HR – 28% F&A – 26% S&M – 24% Mftg Distbn HR Payment Services F&A S&M Admin Growth in BPO Market: 2005 - 2012 Source: Gartner Dataquest, December 2005, A.T. Kearney Research
    9. 9. Value Proposition for the company from BPO Top 10 reasons to outsource Share risks Cost Reduction & Control Accelerate Downsizing/ Restructuring benefits Cash Flow/ Capital Assets Focus on Core Mission and Capabilities Difficult to manage Resources not available internally Increased Flexibility Free internal resources World class capabilities 9 5 4 3 10 2 8 7 6 1 Improve company focus
    10. 10. The reasons for outsourcing have matured beyond just seeking cost advantages to focusing on core competencies to deliver shareholder value Source: Forrester Research study – BPO Drives Internal Improvement Traditional Drivers of Outsourcing <ul><li>Cost savings </li></ul><ul><li>Increased flexibility </li></ul><ul><li>Improved quality & efficiency </li></ul>Current drivers for Business Process Outsourcing
    11. 11. Globally companies started by non-core staff functions and have gradually progressed to line functions Energy/Utilities Information Technology Outbound Logistics Production Sales & Marketing Inbound Logistics Procurement Administration & Facilities Management Legal Human Resources Finance & Accounting Value Chain Illustrative Second Phase of Outsourcing: 1970s - 1980s First Phase of Outsourcing: Up to the 1970s Third Phase of Outsourcing: 1980s – 1990s
    12. 12. Not only has the scope increased with time but has also penetrated deeper into traditional segments BPO Trends in the last Two Decades Outsourced Salary & Benefits Training and Development Recruiting Records management Performance Management Compensation design Industrial Relations Career management In-house Billing services Financial Analysis Accounts Payable General Accounting Accounts Receivables Financial reporting Financial Management Tax compliance Example HR Planning Energy/Utilities Information Technology Administration & Facilities Management Legal Human Resources Finance & Accounting Production Outbound Logistics Sales & Marketing Inbound Logistics Procurement
    13. 13. Determine optimum model Strategic Objectives Organisational Objectives Financial Objectives Make Buy Control The outsourcing continuum Options In-source Co-source Out-source Service management In-house Operations Management Joint Venture 100 % Sell-off
    14. 14. Outsource processes that are non-core to the organization with adequate checks and balances to identify such non-core areas Notes 1) Ravi Venkatesan, “Strategic Sourcing- To make or not to make”, HBR Nov-Dec 1992 2) C.K..Prahalad & Gary Hamel, “The Core Competence of the Corporation”, HBR May-June 1990 Source: AT Kearney Analysis <ul><li>Does the process / activity provided a competitive advantage? </li></ul><ul><li>Are the internal capabilities and competence comparable to the “best in class” supplier? </li></ul><ul><li>Are investment in time and resources to close any gaps with the “best in class” justified? </li></ul>Core v/s Non-core Checks Questions Market Access Does the activity provide potential access to a variety of product/market segments Customer Benefits Does the activity make a significant contribution to the perceived customer benefits of the end product/service? Non-replicable Is the activity difficult for competitor to imitate? Management Attention Should management devote significant time and energy to this process? Talent Is the organization putting out best people, with the appropriate skill set, into these processes? Capital Can the capital used in this function be better applied elsewhere within the corporation? Track Record Does the activity have a track record for meeting or beating its commitment?
    15. 15. Outsourcing Process:
    16. 16. The identified set of opportunities is screened to Decide opportunity for outsourcing using a six-step methodology ‘ Long list’ of outsourcing opportunities Is the supply market suitable for outsourcing What are the relative benefits & risks of outsourcing? 1 Filter I Vendor Availability Annual Spend Shortlist of outsourcing opportunities 2 Filter II Ease of Implementation Potential Benefits Shortlist of outsourcing opportunities for further analysis 3 Detailed Supply Market Attractiveness 4 Decide opportunity for outsourcing EVA Potential Detailed Risks & Challenges 5 6
    17. 17. ‘ Filter One’ evaluates significance of spend and vendor availability to arrive at the first shortlist Less Attractive Low High Annual Spend <ul><li>Annual rupee spend on each opportunity </li></ul><ul><li>Number of established vendors in India </li></ul>Annual Spend Vendor Availability Maintain Purchase Improve Exploit Highly Attractive Vendor Availability Collate ‘long list’ of opportunities 1 Yes Filter I Supply Mkt Size 2 Shortlist 10-12 prioritised opportunities Yes Ease of Implementation Benefits 3 Shortlist 5-6 opportunities Yes <ul><li>Ideal candidates: High spend and large number of vendors providing services </li></ul><ul><li>High benefit is generally associated with high risk therefore, </li></ul><ul><ul><li>Take mix of small and large opportunities </li></ul></ul><ul><ul><li>Focus on activities with large number of vendors to ensure progress and success </li></ul></ul>Selection Process
    18. 18. ‘ Filter Two’ maps Benefits of Outsourcing vs Ease of Implementation to arrive at the top opportunity set Outsource High High Low Low Benefits of Outsourcing Include in outsourcing package Administer in-house Conditional Outsourcing Ease of Implementation Final Selection <ul><li>Savings potential </li></ul><ul><li>Quality improvement potential </li></ul><ul><li>Time to realize savings </li></ul>Benefits Potential <ul><li>Risks </li></ul><ul><li>Transitional Challenges </li></ul>Ease of Implementation Yes Filter I Supply Mkt Size Collate ‘long list’ of opportunities 1 2 Shortlist 10-12 prioritised opportunities Yes Ease of Implementation Benefits 3 Shortlist 5-6 opportunities Yes
    19. 19. Validation of the supply market: Analysis Framework Size <ul><li>Indicates vendor's ability to ramp-up </li></ul><ul><li>Indicates long-term viability of the vendor </li></ul>Geographic Coverage <ul><li>Degree of national coverage </li></ul><ul><li>Ability to serve in location of organisation interest </li></ul>Maturity of BPO Service Coverage <ul><li>Ability to outsource the entire business process </li></ul>Process Expertise <ul><li>Business process improvement potential </li></ul><ul><li>IT adaptability </li></ul><ul><li>Proprietary technology / Other resources </li></ul>Customer References <ul><li>Top customers served </li></ul><ul><li>Presence of large corporates - confidence </li></ul><ul><li>Level of maturity of Business Process Outsourcing in the area </li></ul>Listing of top 4-5 vendors to be considered Detailed supply market assessment framework Detailed Supply Market Oone Opp EVA Potential Detailed Risks Outsourcing Opportunity Vendors 4 5 6
    20. 20. Detailed Supply Market Assessment - Security Size 3 <ul><li>Group 4 has over 41,000 people on its roles </li></ul><ul><li>TOPS has over 10,000 people on its roles </li></ul><ul><li>Other players are not significant in size </li></ul>Geographic Coverage 5 <ul><li>National coverage including remote locations </li></ul>Maturity of BPO 4 <ul><li>Large industries have moved to outsourced security services over the past five years, before which, the security BPO market remained small for a long time </li></ul>Service Coverage 4 <ul><li>End-to-end services will be provided by Group 4 </li></ul><ul><li>Other vendors may not have direct access and capabilities to provide the necessary technology solutions </li></ul>Process Expertise 4 <ul><li>Significant technology usage will reduce manpower requirements </li></ul>Customer References 5 <ul><li>Bombay House </li></ul><ul><li>TELCO </li></ul><ul><li>Tata Power </li></ul><ul><li>Jindal Strips </li></ul><ul><li>ABB </li></ul><ul><li>BPL Group </li></ul><ul><li>Citibank </li></ul>1 – 5 Low – High Source: A.T. Kearney analysis Sample Analysis Security <ul><li>Group 4 </li></ul><ul><li>TOPS </li></ul><ul><li>Sentinel </li></ul><ul><li>Colonel Security </li></ul><ul><li>Premier Security </li></ul>Vendors 3
    21. 21. Detailed Risks & Challenges - Security Security Loss of Control 3 <ul><li>Ethical issues related to the vendor and the vendor’s manpower </li></ul><ul><li>Supervision of the vendor’s manpower </li></ul>Process Specific Issues 3 <ul><li>Employee separation & potential transfer to outsourcers </li></ul><ul><li>Co-ordination between the core group of in-house officers and the outsourced officers </li></ul><ul><li>Need to define standard operating procedures </li></ul><ul><li>Need to retain control of critical installations </li></ul><ul><li>Need to co-ordinate with police/ local authorities </li></ul>Contractual/Legal issues 1 <ul><li>Potential legal roadblocks </li></ul><ul><li>Sub-contracting by the vendor </li></ul>Service Debasement 3 <ul><li>Plant & material security and business continuity risks can arise due to service debasement </li></ul><ul><li>Safety implications of oversight in critical installations </li></ul>Hidden Costs 1 <ul><li>Service tax </li></ul>1 – 5 Low – High Strategic/Organisational Challenges 4 Source: A.T. Kearney analysis Sample Analysis
    22. 22. Final Prioritisation is based on a long-term/strategic Risks and Challenges assessment vs. potential to create EVA Illustrative Strategic/Organisational Challenges Loss of Control <ul><li>Direct linkage with core processes </li></ul><ul><li>Outsource with a Human Face </li></ul><ul><li>Union issues </li></ul><ul><li>Legacy issues/ </li></ul><ul><li>commitments </li></ul><ul><li>Resistance to change </li></ul><ul><li>Ethical issues </li></ul>Process Specific Issues <ul><li>Interlinkages with other processes …. </li></ul>Service Debasement <ul><li>Inability to measure </li></ul><ul><li>Statutory liability </li></ul><ul><li>Opportunistic re-pricing … </li></ul>Contractual/Legal issues Oone Opp EVA Potential Detailed Risks Hidden Costs <ul><li>Transition cost </li></ul><ul><li>Service cost … </li></ul>Framework for assessing the ‘Ease of implementation’ Low Low High EVA Potential Ease of Implementation High Candidate for outsourcing Detailed Supply Market 4 5 6
    23. 23. HR Outsourcing
    24. 24. Major value driver for HR BPO is freeing HR professionals to strategically influence human capital A Broad HR Outsourcing Delivers Top and Bottom-line Value Current HR focus is on managing the ‘Day to day’ transactional activities rather than focus on enriching human capital % Time spent on activities Pre BPO Post BPO Reasons for Outsourcing Value from HR BPO Improving Processes <ul><li>Reduced costs (e.g., labor, overhead, distribution, systems, travel) </li></ul>HR Time Spent on More Important Strategic Areas <ul><li>Utility frees HR to focus on being a strategic partner and on core HR planning </li></ul><ul><li>HR strategic focus can improve employee productivity and market value </li></ul><ul><li>Utility’s statistical reporting provides insight to improve decision making (e.g., forecasting) </li></ul>Providing Better Customer Service <ul><li>Improved employee satisfaction (e.g., better access to information and response time for payroll, benefits, training, recruitment, HRIS inquiries) </li></ul>
    25. 25. Focus of the HR outsourcing has been on the transactional activities . <ul><li>Organization mgt. </li></ul><ul><li>Budgeting </li></ul><ul><li>Diversity mgt </li></ul><ul><li>Salary/ Grade mgt </li></ul><ul><li>Gov’t Relations </li></ul><ul><li>Temp labor mgt. </li></ul><ul><li>Job profile development </li></ul><ul><li>Succession planning </li></ul><ul><li>Interviewer coordination </li></ul><ul><li>Screening/ testing </li></ul><ul><li>Applicant Management and communication </li></ul><ul><li>Analysis and reporting </li></ul><ul><li>Offer/ Negotiations </li></ul><ul><li>.Final Selection </li></ul><ul><li>Payroll system mgt. (reconciliation, journalize, distribute) </li></ul><ul><li>Calculate payments/ deductions </li></ul><ul><li>Government reporting </li></ul><ul><li>Tax administration </li></ul><ul><li>Time and attendance tracking </li></ul><ul><li>Statistical analysis and reporting </li></ul><ul><li>Employee data capture incl: </li></ul><ul><li>- resumes </li></ul><ul><li>- skills </li></ul><ul><li>- training </li></ul><ul><li>- development </li></ul><ul><li>profiles </li></ul><ul><li> - performance </li></ul><ul><li>evaluation. </li></ul><ul><li>Database mgmt incl. changes </li></ul><ul><li>Statistical reporting </li></ul><ul><li>Notifications </li></ul><ul><li>Link to payroll, benefits, training </li></ul><ul><li>Employee file mgt. </li></ul><ul><li>Comp System Mgt </li></ul><ul><li>3rd Party Admin. </li></ul><ul><li>Benefits designation </li></ul><ul><li>Benefits delivery (claims processing) </li></ul><ul><li>Benefits tracking </li></ul><ul><li>Benefits communication </li></ul><ul><li>Pension Admin. </li></ul><ul><li>Outplacement </li></ul><ul><li>Alumni mgt. </li></ul><ul><li>Retirement Plan Mgt </li></ul>Note: (1) Processes chosen are transaction-oriented (rather than strategic), and represent a significant portion of HR spend Shading indicates processes for HR Outsourcing <ul><li>Course listings </li></ul><ul><li>Registration </li></ul><ul><li>Delivery </li></ul><ul><li>Pre and post testing </li></ul><ul><li>Tracking </li></ul><ul><li>Customized training </li></ul><ul><li>Career mgt. </li></ul><ul><li>Perf. Review </li></ul><ul><li>Perf. improvement </li></ul><ul><li>Labor relations </li></ul><ul><li>Wellness mgt. </li></ul><ul><li>Training (non-web enabled) </li></ul><ul><li>Internal Staffing </li></ul>Retirement & Outplacement Executive Management & Planning Recruiting & Hiring Payroll Services Benefits Administration HRIS Management Training (web delivery) Employee Management Organisation Restructuring <ul><li>Organisational development </li></ul><ul><li>Support Business process improvement </li></ul><ul><li>HR Planning </li></ul><ul><li>Change management </li></ul>
    26. 26. Benefits administration and payroll services constitute more than half of the total spending on human resources BPO Note: (1) Listed processes are part of the utility’s service offering. The dollar value for recruiting and staffing processes has been adjusted to reflect the capabilities of the utility Source: Dataquest: Demand Analysis of Integrated, Multiprocess HR Outsourcing Human Resources Outsourcing Spending by Process (1) — 2005–2009 ($ Millions) Benefits Administration Payroll Services Education and Training Recruiting and Staffing Hiring Administration Records Management Other 2009 2008 2007 2006 2005 12,000 10,000 8,000 6,000 4,000 2,000 0
    27. 27. On average, companies have saved $49–98/employee per year in HR costs through HR outsourcing Notes: (1) Transactional functions are functions that require processing of information. Example: employee address change, payroll processes (2) Strategic functions are activities that directly influence corporate goals, planning, and employee productivity. Example: performance reviews, employee compensation planning Transactional (1) Strategic (2) Average Total HR Spend = $1,639/Employee (3) Current Spend on HR Transactional Functions Average = $492/Employee (4) F500 Total = $5.8–11.6 Billion Outsourced HR Spend (5) Average: $393–442/Employee F500 Total = $4.6–9.3 Billion Savings Due to Outsourcing Adjusted Savings Due to Outsourcing (7) <ul><li>Savings Range = $49–98/Employee (6) </li></ul><ul><li>F500 Total Savings= $1.2–2.3 Billion </li></ul><ul><li>F500 Total Savings = $0.93–1.8 Billion </li></ul>
    28. 28. Changing roles of HR Outsourced
    29. 29. Administration outsourcing: Outsourcing Opportunities Processes Cafeteria Plant and office canteens, Tea/Coffee Facilities Maintenance Electrical, Carpentry, Plumbing, Pest Control , Ga rdening, Maintenance of Lifts & AC s Medical Asset Ownership & Management/ Facility management, Food, Pharmacy, Diagnostic labs, IT, Ambulance, Security, Nursing Fleet Management Procurement, Leasing, Maintenance & Service, Insurance other related services Guest House Management Complete management/House keeping, Laundry, Building maintenance, Food, Security Housekeeping Cleaning office and plant area, Garbage disposal Security Security guards and security systems Town Management Township Planning (cleaning, roads, street lights, gardens and parks, markets)
    30. 30. HR outsourcing (cont’d) Outsourcing Opportunities Processes Payroll & Benefits Administration Time Office, Payroll and Benefits Admin, PF admin, T&E reimbursements Recruitment Short listing candidates, verification check, Recruitment T&D Training & Development Development centre Assessment center, development plan HR Due Diligence HR due Diligence
    31. 31. HR service provider for outsourced service: HR Service Providers Source: Company websites, A.T. Kearney research
    32. 32. Conclude: <ul><li>Strategic outsourcing has come to stay in Human Resources: </li></ul><ul><li>Low end and non core process in HR will get outsourced </li></ul><ul><li>HR expertise area will be outsourced for some more time till org. build capability </li></ul><ul><li>Employee relation and strategic HR will remain in-house </li></ul><ul><li>Challenge will be of matured long term business partner for outsourcing </li></ul>
    33. 33. Thank You
    34. 34. WHY OUTSOURCE Business Process Outsourcing <ul><li>Outsource to: </li></ul><ul><li>Focus on core competencies </li></ul><ul><li>Increase efficiencies </li></ul><ul><li>Increase productivity </li></ul><ul><li>Bring in the best practice </li></ul><ul><li>Introduce business transformation </li></ul><ul><li>Reduce costs and, </li></ul><ul><li>Improve shareholder value </li></ul>
    35. 35. At an activity level Payroll, IT Support and A/P are most frequently outsourced Source: A.T. Kearney, International Data Corporation Shared Services Study Most Frequently Outsourced Processes (in percentage of companies surveyed)

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